As filed with the Securities and Exchange Commission on October 9, 2001 Registration No. 333- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ----------------- Centene Corporation (Exact name of registrant as specified in its charter) Delaware 6324 04-1406317 (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer of incorporation or organization) Classification Code Number) Identification No.) 7711 Carondelet Avenue, Suite 800 Saint Louis, Missouri 63105 (314) 725-4477 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ----------------- Michael F. Neidorff Centene Corporation 7711 Carondelet Avenue, Suite 800 Saint Louis, Missouri 63105 (314) 725-4477 (Name, address, including zip code, and telephone number, including area code, of agent for service) ----------------- Copies to: John L. Gillis, Jr., Esq. Mark L. Johnson, Esq. Armstrong Teasdale LLP Hale and Dorr LLP One Metropolitan Square, Suite 2600 60 State Street Saint Louis, Missouri 63102-2740 Boston, Massachusetts 02109 Telephone: (314) 621-5070 Telephone: (617) 526-6000 Fax: (314) 612-2248 Fax: (617) 526-5000 ----------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] 333- If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] 333- If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] 333- If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. [_] ----------------- CALCULATION OF REGISTRATION FEE -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Proposed Maximum Amount of Title of Each Class of Securities to be Registered Aggregate Offering Price(1) Registration Fee ------------------------------------------------------------------------------------------------ Common stock, par value $.001........... $57,500,000 $14,375 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- (1) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933. Includes the offering price attributable to shares available for purchase by the underwriters to cover over-allotments. ----------------- The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. -------------------------------------------------------------------------------- --------------------------------------------------------------------------------

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and we are not soliciting offers to buy these securities, in any state where the offer or sale is not permitted. SUBJECT TO COMPLETION, DATED OCTOBER 9, 2001 PROSPECTUS Shares [LOGO] Centene Logo Common Stock This is an initial public offering of shares of common stock of Centene Corporation. We expect that the initial public offering price will be between $ and $ per share. We have applied for approval for trading and quotation of our common stock on the Nasdaq National Market under the symbol "CNTE." Our business involves significant risks. These risks are described under the caption "Risk Factors" beginning on page 8. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. ------------------ Per Share Total Public offering price................. $ $ Underwriting discounts and commissions $ $ Proceeds, before expenses, to Centene. $ $ The underwriters may also purchase from the selling stockholders named on page 55 up to an additional shares of common stock at the public offering price, less the underwriting discounts and commissions, to cover over-allotments. We will not receive any of the proceeds of the sale of shares by the selling stockholders. ------------------ SG COWEN THOMAS WEISEL PARTNERS LLC CIBC WORLD MARKETS , 2001

[Graphic depicting maps of Wisconsin, Indiana and Texas. Appearing near each state are (a) the logo of our plan in that state and (b) membership, counties served and provider information for the plan in that state.]

TABLE OF CONTENTS Page Prospectus Summary..................... 4 Risk Factors........................... 8 Forward-Looking Statements............. 18 Use of Proceeds........................ 19 Dividend Policy........................ 19 Capitalization......................... 20 Dilution............................... 21 Selected Consolidated Financial Data... 22 Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 23 Page Business.................................. 30 Management................................ 43 Related Party Transactions................ 52 Principal and Selling Stockholders........ 54 Description of Capital Stock.............. 56 Shares Eligible for Future Sale........... 58 Underwriting.............................. 61 Legal Matters............................. 63 Experts................................... 63 Where You Can Find Additional Information. 63 Index to Consolidated Financial Statements F-1 ----------------- You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information that is different. We are offering to sell and seeking offers to buy shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock. Until , which is 25 days after the date of this prospectus, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. ----------------- "CENTENE" and "NURSEWISE" are our registered service marks, the Centene logo is our service mark and "CONNECTIONS" is our trademark. We have also filed an application with the U.S. Patent and Trademark Office to register "START SMART FOR YOUR BABY" as our trademark. This prospectus also contains trademarks, service marks and trade names of other companies. 3

PROSPECTUS SUMMARY The following summary highlights information contained elsewhere in this prospectus. You should read the entire prospectus carefully, including the risk factors and the consolidated financial statements and related notes included in this prospectus, before you decide to invest in our common stock. Centene Corporation We provide managed care programs and related services to individuals receiving benefits under Medicaid, including Supplemental Security Income, and the State Children's Health Insurance Program. We have health plans in Wisconsin, Indiana and Texas. In each of our service areas we have more Medicaid members than any other managed care entity. We believe our local approach to managing our health plans, including provider and member services, enables us to provide accessible, high quality, culturally-sensitive healthcare services to our members. Our disease management, educational and other initiatives are designed to help members best utilize the healthcare system to ensure they receive appropriate, medically necessary services and effective management of routine health problems, as well as more severe acute and chronic conditions. We combine our decentralized local approach with centralized finance, information systems, claims processing and medical management support functions. In order to focus on Medicaid and the State Children's Health Insurance Program, we do not offer Medicare or commercial products. For the six months ended June 30, 2001, we generated $150.9 million in revenues and $5.4 million in net income. Our Industry Medicaid is a health insurance program for low-income individuals and individuals with disabilities. In 1998, Medicaid covered 15% of the total U.S. population, or 40.6 million people. Historically, children have represented the largest eligibility group for Medicaid, accounting for approximately 46% of the covered individuals in 1998. The State Children's Health Insurance Program was established to provide coverage for low-income children not otherwise covered by Medicaid or other insurance programs. All states have adopted the State Children's Health Insurance Program. Since the early 1980s, increasing healthcare costs combined with significant growth in the number of Medicaid recipients have led many states to establish Medicaid managed care initiatives. State premium payments to managed care plans are financed in part by the federal government and increased from $700 million in 1988 to $13.2 billion in 1998. Recently, a growing number of states have mandated that their Medicaid recipients enroll in managed care plans. Our Approach Our approach to managed care is based on the following key attributes: . Medicaid Expertise. Over the last 17 years, we have developed a specialized Medicaid expertise that has helped us establish and maintain strong relationships with our constituent communities of members, providers and state governments. We achieve savings for state governments and improve medical outcomes for members by reducing inappropriate emergency room use, inpatient days and high cost interventions, as well as by managing care of chronic illnesses. . Localized Services, Support and Branding. We provide access to healthcare services through local networks of providers and staff who focus on the cultural norms of their individual communities. We use locally recognized plan names, and we tailor our materials and processes to meet the needs of the communities and the state programs we serve. 4

. Physician-Driven Approach. We have implemented a physician-driven approach designed to eliminate unnecessary costs, improve service to our members and simplify the administrative burdens on our providers. This approach has enabled us to strengthen our provider networks through improved physician recruitment and retention that, in turn, have helped to increase our membership base. . Efficiency and Scalability of Business Model. The combination of our decentralized local approach to operating our health plans and our centralized finance, information systems, claims processing and medical management support functions allows us to quickly and economically integrate new business opportunities. . Specialized Systems and Technology. Through our specialized information systems, we are able to strengthen our relationships with providers and states, which helps us to grow our membership base. These systems also help us identify needs for new healthcare programs. Physicians use our claims, utilization and membership data to manage their practices more efficiently, and they benefit from our timely and accurate payments. State agencies use data from our information systems to demonstrate that their Medicaid populations are receiving quality healthcare in an efficient manner. . Complementary Business Lines. We have begun to broaden our service offerings to address areas that we believe have been traditionally underserved by Medicaid managed care organizations. We believe other business lines, such as our NurseWise triage program, will allow us to provide innovative healthcare management solutions while diversifying our sources of revenue. Our Strategy Our objective is to become the leading national Medicaid managed care organization. We intend to achieve this objective by implementing the following key components of our strategy: . increase penetration of existing state markets; . develop and acquire additional state markets; . diversify our business lines; and . leverage our information technologies to enhance operating efficiencies. Corporate Information We were organized in Wisconsin in 1993 as Coordinated Care Corporation, and we changed our corporate name to Centene Corporation in 1997. We initially were formed to serve as a holding company for a Medicaid managed care line of business that has been operating in Wisconsin since 1984. We will reincorporate in Delaware immediately before the closing of this offering. Our corporate office is located at 7711 Carondelet Avenue, Suite 800, Saint Louis, Missouri 63105, and our telephone number is (314) 725-4477. The address of our Web site is www.centene.com. The information on our Web site is not part of this prospectus. 5

The Offering Common stock we are offering...................... shares Common stock to be outstanding after this offering shares Underwriters' over-allotment option............... shares Use of proceeds................................... We intend to use our net proceeds of this offering to repay $4.0 million in principal amount of subordinated notes and for general corporate purposes, including working capital and potential acquisitions. See "Use of Proceeds." Proposed Nasdaq National Market symbol............ CNTE The number of shares of common stock to be outstanding after this offering is based on shares of common stock outstanding as of October 5, 2001. This number includes shares to be issued upon conversion of our outstanding preferred stock and the exercise of outstanding warrants at or before the closing of this offering. It excludes: . shares subject to stock options outstanding as of October 5, 2001 at a weighted average exercise price of $ per share; and . additional shares reserved as of October 5, 2001 for future issuance under our stock-based compensation plans. ----------------- Except where we state otherwise, the information we present in this prospectus reflects: . no exercise of the underwriters' over-allotment option; . a -for- common stock split to be effected on , 2001; . the automatic conversion of our outstanding preferred stock into common stock immediately before the closing of this offering; . the exercise of outstanding warrants to purchase common stock before the closing of this offering; and . our reincorporation in Delaware immediately before the closing of this offering, which will result in changes in our charter and by-laws and in the conversion of our outstanding Series A voting common stock and Series B non-voting common stock into a single class of common stock. 6

Summary Consolidated Financial and Operating Data (dollars in thousands, except per share data) The following summary consolidated statement of operations data are derived from, and qualified by reference to, the consolidated financial statements and related notes appearing elsewhere in this prospectus. The pro forma share information included in the consolidated statement of operations data have been computed as described in note 22 of those notes. Six Months Ended Year Ended December 31, June 30, ------------------------------ -------------------- 1998 1999 2000 2000 2001 -------- -------- ---------- -------- ---------- Statement of Operations Data: Premiums (1)......................................... $149,577 $200,549 $ 216,414 $100,959 $ 150,682 Administrative services fees......................... 861 880 4,936 2,064 182 Total revenues..................................... 150,438 201,429 221,350 103,023 150,864 Medical services costs............................... 132,199 178,285 182,495 85,514 125,039 General and administrative expenses.................. 25,066 29,756 32,335 15,517 18,406 Total operating expenses........................... 157,265 208,041 214,830 101,031 143,445 Income (loss) from continuing operations (2)......... (4,739) (5,484) 7,728 2,370 5,412 Net income (loss).................................... (6,962) (9,411) 7,728 2,370 5,412 Pro forma net income per common share: Basic.............................................. $ 1.14 $ 0.80 Diluted............................................ $ 1.13 $ 0.70 Pro forma weighted average common shares outstanding: Basic.............................................. 6,775,866 6,783,247 Diluted............................................ 6,819,595 7,748,825 Operating Data: Medical loss ratio (3)............................... 88.4% 88.9% 84.3% 84.7% 83.0% General and administrative expenses ratio (4)........ 16.7% 14.8% 14.6% 15.1% 12.2% EBITDA from continuing operations (5)................ $ (4,403) $ (3,844) $ 8,830 $ 3,172 $ 10,101 Members at end of period............................. 135,600 142,300 194,200 179,300 213,200 -------- (1)Premiums consist of payments we receive from states to provide health benefits to members and do not include investment income. (2)We discontinued our commercial managed care line of business in 1999. (3)Medical loss ratio represents medical services costs as a percentage of premiums. (4)General and administrative expenses ratio represents general and administrative expenses as a percentage of total revenues. (5)EBITDA from continuing operations represents net income (loss) before interest expense, income tax expense (benefit), depreciation and amortization, and discontinued operations. EBITDA should not be considered in isolation or as a substitute for net income (loss), operating income (loss), cash flows provided by operating activities or any other measure of operating performance calculated in accordance with generally accepted accounting principles. EBITDA from continuing operations is included because we believe that some investors may find it useful in evaluating our ability to meet future capital expenditure and working capital requirements. EBITDA from continuing operations is not necessarily a measure of our ability to fund our cash needs. The following table summarizes our balance sheet data at June 30, 2001: . on an actual basis; . on a pro forma basis to reflect the conversion of outstanding preferred stock into common stock, as described in note 22 of the notes to the consolidated financial statements included elsewhere in this prospectus; and . on a pro forma as adjusted basis to also reflect the exercise of outstanding warrants before the closing of this offering, our sale of the shares offered by us at an assumed public offering price of $ per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, and the application of our estimated net proceeds. June 30, 2001 ------------------------------ Pro Forma Actual Pro Forma As Adjusted ------- --------- ----------- Balance Sheet Data: Cash, cash equivalents and short-term investments $50,779 $50,779 $ Total assets 92,431 92,431 Long-term debt, net of current portion 4,000 4,000 -- Redeemable convertible preferred stock 19,124 -- -- Total stockholders' equity (deficit) (3,890) 15,234 7

RISK FACTORS You should carefully consider the risks described below before making an investment decision. The trading price of our common stock could decline due to any of these risks, in which case you could lose all or part of your investment. You should also refer to the other information in this prospectus, including our consolidated financial statements and related notes. The risks and uncertainties described below are those that we currently believe may materially affect our company. Additional risks and uncertainties that we are unaware of or that we currently deem immaterial also may become important factors that affect our company. Risks Related to Being a Regulated Entity Reductions in Medicaid funding could substantially reduce our profitability. Nearly all of our revenues come from Medicaid premiums. The base premium rate paid by each state differs, depending on a combination of factors such as defined upper payment limits, a member's health status, age, gender, county or region, benefit mix and member eligibility categories. Future levels of Medicaid premium rates may be affected by continued government efforts to contain medical costs and may further be affected by state and federal budgetary constraints. Changes to Medicaid programs could reduce the number of persons enrolled or eligible, reduce the amount of reimbursement or payment levels, or increase our administrative or healthcare costs under those programs. States periodically consider reducing or reallocating the amount of money they spend for Medicaid. We believe that additional reductions in Medicaid payments could substantially reduce our profitability. Further, our contracts with the states are subject to cancellation by the state immediately or after a short notice period in the event of unavailability of state funds. If state governments do not renew our contracts with them, our business will suffer. We provide healthcare services through five contracts with the regulatory entities in the jurisdictions in which we operate. These contracts expire on various dates between December 31, 2001 and December 31, 2002. Two of those contracts accounted for 74% of our revenues for the six months ended June 30, 2001. Four of our contracts are subject to a re-bidding process. We are subject to a re-bidding process in each of our three Texas markets every five years and in our Indiana market every two years. If any of our contracts is not renewed, is renewed on less favorable terms or is terminated for cause, our business will suffer. Termination or non-renewal of any one contract could materially affect our operating results. Changes in government regulations designed to protect providers and members rather than our stockholders could force us to change how we operate and could harm our business. Our business is extensively regulated by the states in which we operate and by the federal government. The applicable laws and regulations are subject to frequent change and generally are intended to benefit and protect health plan providers and members rather than stockholders. Changes in existing laws and rules, the enactment of new laws and rules, and changing interpretations of these laws and rules could, among other things: . force us to restructure our relationships with providers within our network; . require us to implement additional or different programs and systems; . mandate minimum medical expense levels as a percentage of premiums revenues; . restrict revenue and enrollment growth; 8

. require us to develop plans to guard against the financial insolvency of our providers; . increase our healthcare and administrative costs; . impose additional capital and reserve requirements; and . increase or change our liability to members in the event of malpractice by our providers. For example, Congress currently is considering various forms of legislation commonly known as the Patients' Bill of Rights. We cannot predict the impact of this legislation, if adopted, on our business. Regulations may decrease the profitability of our health plans. Our Texas plans are required to pay a rebate to the state in the event profits exceed established levels. This regulatory requirement, changes in this requirement or the adoption of similar requirements by our other regulators may limit our ability to increase our overall profits as a percentage of revenues. In addition, states may attempt to reduce their contract premium rates if regulators perceive our medical loss ratio as too low. Any of these regulatory actions could harm our operating results. Failure to comply with government regulations could subject us to civil and criminal penalties. Violation of the laws or regulations governing our operations could result in the imposition of sanctions, the cancellation of our contracts to provide services, or the suspension or revocation of our licenses. For example, failure to pay our providers promptly could result in the imposition of fines and other penalties. The Health Insurance Portability and Accountability Act of 1996, or HIPAA, broadened the scope of fraud and abuse laws applicable to healthcare companies. HIPAA created civil penalties for, among other things, billing for medically unnecessary goods or services. HIPAA established new enforcement mechanisms to combat fraud and abuse, including a whistle blower program. Further, a new regulation promulgated pursuant to HIPAA imposes civil and criminal penalties for failure to comply with the privacy standards set forth in the regulation relating to health records. In the press release related to the new regulation, the Department of Health and Human Services, or HHS, called on Congress to enact legislation to "fortify" penalties and to create a private right of action under HIPAA, which would entitle patients to seek monetary damages for violations of the regulation. The federal government has enacted, and state governments are enacting, other fraud and abuse laws. Our failure to comply with HIPAA or these other laws could result in criminal or civil penalties and exclusion from Medicaid or other governmental healthcare programs and could lead to the revocation of our licenses. These penalties or exclusions, were they to occur, would negatively impact our ability to operate our business. Compliance with new government regulations may require us to make unanticipated expenditures. In August 2000, HHS issued a new regulation under HIPAA requiring the use of uniform electronic data transmission standards for healthcare claims and payment transactions submitted or received electronically. We are required to comply with the new regulation by October 16, 2002, and Texas has indicated that it may impose an earlier compliance deadline. Also in August 2000, HHS proposed a regulation that would require healthcare participants to implement organizational and technical practices to protect the security of electronically maintained or transmitted health-related information. In December 2000, HHS issued a new regulation mandating heightened privacy and confidentiality protections under HIPAA that became effective on April 14, 2001. Compliance with this regulation will be required by April 15, 2003, unless the Bush administration revises the regulation or defers the implementation date. 9

In January 2001, the federal Centers for Medicare and Medicaid Services, or CMS (then the Health Care Financing Administration), published new regulations regarding Medicaid managed care. CMS subsequently delayed the effective date of these regulations until August 16, 2002. In August 2001, CMS proposed new regulations that would replace the January regulations in their entirety. If enacted, these regulations would implement the requirements of the Balanced Budget Act of 1997 that are intended to give states more flexibility in their administration of Medicaid managed care programs, provide new patient protections for Medicaid managed care enrollees and require states to meet new actuarial soundness requirements. The Bush administration's review of the HIPAA and other newly published regulations, the states' ability to promulgate stricter rules, and uncertainty regarding many aspects of the regulations make compliance with the relatively new regulatory landscape difficult. Our existing programs and systems would not enable us to comply in all respects with these new regulations. In order to comply with the regulatory requirements, we will be required to employ additional or different programs and systems, the costs of which are unknown to us at this time. Further, compliance with these pervasive regulations would require changes to many of the procedures we currently use to conduct our business, which may lead to additional costs that we have not yet identified. We do not know whether, or the extent to which, we will be able to recover our costs of complying with these new regulations from the states. The new regulations and the related compliance costs could have a material adverse effect on our business. Changes in healthcare law may reduce our profitability. Numerous proposals relating to changes in healthcare law have been introduced, some of which have been passed by Congress and the states in which we operate or may operate in the future. Changes in applicable laws and regulations are continually being considered, and interpretations of existing laws and rules may also change from time to time. We are unable to predict what regulatory changes may occur or what effect any particular change may have on our business. These changes could reduce the number of persons enrolled or eligible for Medicaid and reduce the reimbursement or payment levels for medical services. More generally, we are unable to predict whether new laws or proposals will favor or hinder the growth of managed healthcare. A recent example is state and federal legislation that would enable physicians to collectively bargain with managed healthcare organizations. The legislation, as currently proposed, generally contains an exemption for public sector managed healthcare organizations. If legislation of this type were passed without this exemption, it would negatively impact our bargaining position with many of our providers and might result in an increase in our cost of providing medical benefits. We cannot predict the outcome of these legislative or regulatory proposals or the effect that they will have on us. Legislation or regulations that require us to change our current manner of operation, provide additional benefits or change our contract arrangements may seriously harm our operations and financial results. If we are unable to participate in SCHIP programs our growth rate may be limited. The State Children's Health Insurance Program is a relatively new federal initiative designed to provide coverage for low-income children not otherwise covered by Medicaid or other insurance programs. The programs vary significantly from state to state. Participation in SCHIP programs is an important part of our growth strategy. If states do not allow us to participate or if we fail to win bids to participate, our growth strategy may be materially and adversely affected. 10

If state regulators do not approve payments of dividends and distributions by our subsidiaries to us, we may not have sufficient funds to implement our business strategy. We principally operate through our health plan subsidiaries. If funds normally available to us become limited in the future, we may need to rely on dividends and distributions from our subsidiaries to fund our operations. These subsidiaries are subject to regulations that limit the amount of dividends and distributions that can be paid to us without prior approval of, or notification to, state regulators. If these regulators were to deny our subsidiaries' request to pay dividends to us, the funds available to our company as a whole would be limited, which could harm our ability to implement our business strategy. Risks Related to Our Business Receipt of inadequate premiums would negatively affect our revenues and profitability. Nearly all of our revenues are generated by premiums consisting of fixed monthly payments per member. These premiums are fixed by contract, and we are obligated during the contract periods to provide healthcare services as established by the state governments. We use a large portion of our revenues to pay the costs of healthcare services delivered to our customers. If premiums do not increase when expenses related to medical services rise, our earnings would be affected negatively. In addition, our actual medical services costs may exceed our estimates. The premiums we receive under our current contracts may therefore be inadequate to cover all claims, which would cause our medical loss ratio to increase and our profits to decline. In addition, it is possible for a state to increase the rates payable to the hospitals without granting a corresponding increase in premiums to us. If this were to occur, or if other states were to take similar actions, our profitability would be harmed. Failure to effectively manage our medical costs or related administrative costs would reduce our profitability. Our profitability depends, to a significant degree, on our ability to predict and effectively manage expenses related to health benefits. We have less control over the costs related to medical services than we do over our general and administrative expenses. Historically, our expenses related to medical services as a percentage of premiums revenues, known as the medical loss ratio, have fluctuated. For example, our medical loss ratio was 83.0% for the six months ended June 30, 2001 and 84.7% for 2000, but was 88.9% for 1999 and 88.4% for 1998. Because of the narrow margins of our health plan business, relatively small changes in our medical loss ratio can create significant changes in our financial results. Changes in healthcare regulations and practices, the level of use of healthcare services, hospital costs, pharmaceutical costs, major epidemics, new medical technologies and other external factors, including general economic conditions such as inflation levels, are beyond our control and could reduce our ability to predict and effectively control the costs of providing health benefits. We may not be able to manage costs effectively in the future. If our costs related to health benefits increase, our profits could be reduced or we may not remain profitable. Failure to accurately predict our medical expenses could negatively affect our reported results. Our medical expenses include estimates of medical expenses incurred but not yet reported, or IBNR. We estimate our IBNR medical expenses monthly based on a number of factors. Adjustments, if necessary, are made to medical expenses in the period during which the actual claim costs are ultimately determined or when criteria used to estimate IBNR change. We cannot be sure that our IBNR estimates are adequate or that adjustments to those estimates will not harm our results of operations. Our failure to accurately estimate IBNR may also affect our ability to take timely corrective actions, further harming our results. 11

Difficulties in executing our acquisition strategy could adversely affect our business. Historically, the acquisition of Medicaid contract rights and related assets of other health plans, both in our existing service areas and in new markets, has accounted for a significant amount of our growth. For example, our acquisition of contract rights from Humana in February 2001 accounted for 88% of the increase in our net premium revenues for the six months ended June 30, 2001 compared to the same period in 2000. Many of the other potential purchasers of Medicaid assets have greater financial resources than we have. In addition, many of the sellers are interested either in (1) selling, along with their Medicaid assets, other assets in which we do not have an interest or (2) selling their companies, including their liabilities, as opposed to the assets of their ongoing businesses. We generally are required to obtain regulatory approval from one or more state agencies when making acquisitions. In the case of an acquisition of a business located in a state in which we do not currently operate, we would be required to obtain the necessary licenses to operate in that state. In addition, even if we may already operate in a state in which we acquire a new business, we would be required to obtain additional regulatory approval if the acquisition would result in our operating in an area of the state in which we did not operate previously. We cannot assure you that we would be able to comply with these regulatory requirements for an acquisition in a timely manner, or at all. In deciding whether to approve a proposed acquisition, state regulators may consider a number of factors outside our control, including giving preference to competing offers made by locally owned entities or by not-for-profit entities. Furthermore, we expect to enter into a credit facility that will prohibit some acquisitions without the consent of our bank lender. In addition to the difficulties we may face in identifying and consummating acquisitions, we will also be required to integrate and consolidate any acquired business or assets with our existing operations. This may include the integration of: . additional personnel who are not familiar with our operations and corporate culture; . existing provider networks, which may operate on different terms than our existing networks; . existing members, who may decide to switch to another healthcare plan; and . disparate administrative, accounting and finance, and information systems. Accordingly, we may be unable to successfully identify, consummate and integrate future acquisitions or operate acquired businesses profitably. We also may be unable to obtain sufficient additional capital resources for future acquisitions. If we are unable to effectively execute our acquisition strategy, our future growth will suffer and our results of operations could be harmed. Failure to achieve timely profitability in any business would negatively affect our results of operations. Start-up costs associated with a new business can be substantial. For example, in order to obtain a certificate of authority in most jurisdictions, we must first establish a provider network, have systems in place and demonstrate our ability to obtain a state contract and process claims. If we were unsuccessful in obtaining the necessary license, winning the bid to provide service or attracting members in numbers sufficient to cover our costs, any new business of ours would fail. We also could be obligated by the state to continue to provide services for some period of time without sufficient revenue to cover our ongoing costs or recover start-up costs. In addition, we may not be able to effectively commercialize any new programs or services we seek to market to third parties. The expenses associated with starting up a new business could have a significant impact on our results of operations if we are unable to achieve profitable operations in a timely fashion. 12

We derive all of our revenues from operations in three states, and our operating results would be materially affected by a decrease in revenues or profitability in any one of those states. Operations in Wisconsin, Indiana and Texas account for all of our revenues. If we were unable to continue to operate in each of those states or if our current operations in any portion of one of those states were significantly curtailed, our revenues would decrease materially. Our reliance on operations in a limited number of states could cause our revenue and profitability to change suddenly and unexpectedly, depending on legislative actions, economic conditions and similar factors in those states. Our inability to continue to operate in any of the states in which we operate would harm our business. If we fail to effectively manage our growth, our results of operations, financial condition and business may be negatively affected. Depending on acquisition and other opportunities, we expect to continue to grow rapidly. Continued growth could place a significant strain on our management and on other resources. We anticipate that continued growth, if any, will require us to continue to recruit, hire, train and retain a substantial number of new and highly-skilled medical, administrative, information technology, finance and support personnel. The execution of our business plan depends upon our ability to implement and improve operational, financial and management information systems on a timely basis and to expand, train, motivate and manage our work force. If we continue to experience rapid growth, our personnel, systems, procedures and controls may be inadequate to support our operations, and our management may fail to anticipate adequately all demands that growth will place on our resources. In addition, due to the initial costs incurred upon the acquisition of new businesses, rapid growth could adversely affect our short-term profitability. If we are unable to manage growth effectively, our business could suffer. Competition may limit our ability to increase penetration of the markets that we serve. We compete for members principally on the basis of size and quality of provider network, benefits provided and quality of service. We compete with numerous types of competitors, including other health plans and traditional state Medicaid programs that reimburse providers as care is provided. Subject to limited exceptions by federally approved state applications, the federal government requires that there be choices for Medicaid recipients among managed care programs. Voluntary programs and mandated competition may limit our ability to increase our market share. Some of the health plans with which we compete have greater financial and other resources and offer a broader scope of products than we do. In addition, significant merger and acquisition activity has occurred in the managed care industry, as well as in industries that act as suppliers to us, such as the hospital, physician, pharmaceutical, medical device and health information systems industries. To the extent that competition intensifies in any market that we serve, our ability to retain or increase members and providers, or maintain or increase our revenue growth, pricing flexibility and control over medical cost trends may be adversely affected. In addition, in order to increase our membership in the markets we currently serve, we believe that we must continue to develop and implement community-specific products, alliances with key providers and localized outreach and educational programs. If we are unable to develop and implement these initiatives, or if our competitors are more successful than us in doing so, we may not be able to further penetrate our existing markets. If we are unable to maintain satisfactory relationships with our provider networks, our profitability will be harmed. Our profitability depends, in large part, upon our ability to contract favorably with hospitals, physicians and other healthcare providers. Our provider arrangements with our primary care physicians, 13

specialists and hospitals generally may be cancelled by either party without cause upon 90 to 120 days' prior written notice. We cannot assure you that we will be able to continue to renew our existing contracts or enter into new contracts enabling us to service our members profitably. We will be required to establish acceptable provider networks prior to entering new markets. We may be unable to enter into agreements with providers in new markets on a timely basis or under favorable terms. If we are unable to retain our current provider contracts or enter into new provider contracts timely or on favorable terms, our profitability will be harmed. We may be unable to attract and retain key personnel. We are highly dependent on our ability to attract and retain qualified personnel to operate and expand our Medicaid managed care business. If we lose one or more members of our senior management team, including our chief executive officer, Michael F. Neidorff, who has been instrumental in developing our mission and forging our business relationships, our business and operating results could be harmed. We do not have an employment agreement with Mr. Neidorff, and we cannot assure you that we will be able to retain his services. Our ability to replace any departed members of our senior management or other key employees may be difficult and may take an extended period of time because of the limited number of individuals in the Medicaid managed care industry with the breadth of skills and experience required to operate and expand successfully a business such as ours. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these personnel. Negative publicity regarding the managed care industry may harm our business and operating results. Recently, the managed care industry has received negative publicity. This publicity has led to increased legislation, regulation, review of industry practices and private litigation in the commercial sector. These factors may adversely affect our ability to market our services, require us to change our services, and increase the regulatory burdens under which we operate. Any of these factors may increase the costs of doing business and adversely affect our operating results. Claims relating to medical malpractice could cause us to incur significant expenses. Our providers and employees involved in medical care decisions may be subject to medical malpractice claims. In addition, some states, including Texas, have adopted legislation that permits managed care organizations to be held liable for negligent treatment decisions or benefits coverage determinations. Claims of this nature, if successful, could result in substantial damage awards against us and our providers that could exceed the limits of any applicable insurance coverage. Therefore, successful malpractice or tort claims asserted against us, our providers or our employees could adversely affect our financial condition and profitability. Even if any claims brought against us are unsuccessful or without merit, they would still be time-consuming and costly and could distract our management's attention. As a result, we may incur significant expenses and may be unable to operate our business effectively. Growth in the number of Medicaid-eligible persons during economic downturns could cause our operating results and stock prices to suffer if state and federal budgets decrease or do not increase. Less favorable economic conditions may cause our membership to increase as more people become eligible to receive Medicaid benefits. During such economic downturns, however, state and federal budgets could decrease, causing states to attempt to cut healthcare programs, benefits and rates. In particular, the terrorist acts of September 11, 2001 have created an uncertain economic environment, and we cannot predict the impact of these events, other acts of terrorism or related military action, on federal or state 14

funding of healthcare programs or on the size of the Medicaid-eligible population. If federal funding were decreased or unchanged while our membership was increasing, our results of operations would suffer. Growth in the number of Medicaid-eligible persons may be countercyclical, which could cause our operating results to suffer when general economic conditions are improving. Historically, the number of persons eligible to receive Medicaid benefits has increased more rapidly during periods of rising unemployment, corresponding to less favorable general economic conditions. Conversely, this number may grow more slowly or even decline if economic conditions improve. Therefore, improvements in general economic conditions may cause our membership levels to decrease, thereby causing our operating results to suffer, which could lead to decreases in our stock price during periods in which stock prices in general are increasing. We intend to expand primarily into markets where Medicaid recipients are required to enroll in managed care plans. We expect to continue to focus our business in states in which Medicaid enrollment in managed care is mandatory. Currently, there are a number of states, or portions of states, that require health plan enrollment for Medicaid-eligible participants. The programs are voluntary in other states. Because we concentrate on markets with mandatory enrollment, we expect the geographic expansion of our business to be limited to those states. If we are unable to integrate and manage our information systems effectively, our operations could be disrupted. Our operations depend significantly on effective information systems. The information gathered and processed by our information systems assists us in, among other things, monitoring utilization and other cost factors, processing provider claims, and providing data to our regulators. Our providers also depend upon our information systems for membership verifications, claims status and other information. Our information systems and applications require continual maintenance, upgrading and enhancement to meet our operational needs. Moreover, our acquisition activity requires frequent transitions to or from, and the integration of, various information systems. We regularly upgrade and expand our information systems capabilities. If we experience difficulties with the transition to or from information systems or are unable to properly maintain or expand our information systems, we could suffer, among other things, from operational disruptions, loss of existing members and difficulty in attracting new members, regulatory problems and increases in administrative expenses. In addition, our ability to integrate and manage our information systems may be impaired as the result of events outside our control, including acts of nature, such as earthquakes or fires, or acts of terrorists. Risks Relating to This Offering and Ownership of Our Common Stock Volatility of our stock price could cause you to lose all or part of your investment. The market price of our common stock, like that of the common stock of others in our industry, may be highly volatile. The stock market in general has recently experienced extreme price and volume fluctuations, and this volatility has affected the market prices of securities of other companies for reasons frequently unrelated, or disproportionate, to the operating performance of those companies. The market price of our common stock may fluctuate significantly in response to the following factors, some of which are beyond our control: . state and federal budget decreases; 15

. changes in securities analysts' estimates of our financial performance; . changes in market valuations of similar companies, including commercial managed care organizations; . variations in our quarterly operating results; . acquisitions and strategic partnerships; . adverse publicity regarding managed care organizations; . government action regarding Medicaid eligibility; . changes in state mandatory Medicaid programs; . changes in our management; . broad fluctuations in stock market prices and volume; and . general economic conditions, including inflation and unemployment rates. Investors may not be able to resell their shares of our common stock following periods of volatility because of the market's adverse reaction to the volatility. We cannot assure you that our stock will trade at the same levels as the stock of other companies in our industry or that the market in general will sustain its current prices. We cannot guarantee that an active trading market for our common stock will develop or be sustained. Prior to this offering, you could not buy or sell our common stock publicly. An active public market for our common stock may not develop or be sustained after this offering. We will negotiate the initial public offering price with the representatives of the underwriters based on several factors. This price may not be indicative of prices that will prevail in the trading market after this offering. If an active trading market fails to develop or be sustained, you may be unable to sell your shares of common stock at or above the initial offering price. Future sales of common stock by our existing stockholders could cause our stock price to fall. Sales of substantial amounts of our common stock in the public market after the completion of this offering, or the perception that those sales could occur, could adversely affect the market price of our common stock and could materially impair our future ability to raise capital through offerings of our common stock. Based on shares outstanding as of September 30, 2001, a total of shares of common stock may be sold in the public market by existing stockholders. The holders of these shares are contractually restricted from selling their shares for 180 days from the date of this prospectus, but SG Cowen Securities Corporation may release these shares from these contractual restrictions at any time in its discretion. Our officers and directors and their affiliates may be able to control the outcome of most corporate actions requiring stockholder approval. After this offering, our directors and officers and their affiliates will beneficially own % of our outstanding common stock. As a result, these stockholders, if they act together, will be able to influence our management and affairs and all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change in control of our company and might affect the market price of our common stock. 16

We may allocate the net proceeds from this offering in ways with which you may not agree. Our business plan is general in nature and is subject to change based upon changing conditions and opportunities. Our management has broad discretion in applying $ million of the total $ million in net proceeds we estimate we will receive in this offering. Because this portion of the net proceeds is not required to be allocated to any specific investment or transaction, you cannot determine at this time the value or propriety of our application of the proceeds. Moreover, you will not have the opportunity to evaluate the economic, financial or other information on which we base our decisions on how to use our proceeds. As a result, you and other stockholders may not agree with our decisions. Our corporate documents and provisions of Delaware law may prevent a change in control or management that stockholders may consider desirable. Section 203 of the Delaware General Corporation Law, laws of states in which we operate, and our charter and by-laws contain provisions that might enable our management to resist a takeover of our company. These provisions could have the effect of delaying, deferring, or preventing a change in control of Centene or a change in our management that stockholders may consider favorable or beneficial. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors and take other corporate actions. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock. You will pay a much higher price per share than the book value of our common stock. If you purchase our common stock in this offering, you will incur immediate and substantial dilution, which means that: . assuming a public offering price of $ , you will pay a price per share that exceeds by $ the per share book value of our assets immediately following the offering after subtracting our liabilities; and . the purchasers in the offering will have contributed % of the total amount to fund us but will own only % of our outstanding shares. In the past, we issued options to acquire common stock at prices significantly below the public offering price of this offering. To the extent these outstanding options are ultimately exercised, you will experience further dilution. 17

FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements that relate to future events or our future financial performance. We have attempted to identify these statements by terminology including "believe," "anticipate," "plan," "expect," "estimate," "intend," "seek," "goal," "may," "will," "should," "can," "continue" or the negative of these terms or other comparable terminology. These statements include statements about our market opportunity, our growth strategy, competition, expected activities and future acquisitions and investments, and the adequacy of our available cash resources. These statements may be found in the sections of this prospectus entitled "Prospectus Summary," "Risk Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." Investors are cautioned that matters subject to forward-looking statements involve known and unknown risks and uncertainties, including economic, regulatory, competitive and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions. Actual results may differ from projections or estimates due to a variety of important factors. Our results of operations and projections of future earnings depend in large part on accurately predicting and effectively managing health benefits and other operating expenses. A variety of factors, including competition, changes in health care practices, changes in federal or state laws and regulations or their interpretations, inflation, provider contract changes, new technologies, government-imposed surcharges, taxes or assessments, reduction in provider payments by governmental payors, major epidemics, disasters and numerous other factors affecting the delivery and cost of healthcare, such as major healthcare providers' inability to maintain their operations, may in the future affect our ability to control our medical costs and other operating expenses. Governmental action or business conditions could result in premium revenues not increasing to offset any increase in medical costs and other operating expenses. Once set, premiums are generally fixed for one year periods and, accordingly, unanticipated costs during such periods cannot be recovered through higher premiums. The expiration, cancellation or suspension of our Medicaid managed care contracts by the state governments would also negatively impact us. Due to these factors and risks, we cannot assure you with respect to our future premium levels or our ability to control our future medical costs. 18

USE OF PROCEEDS We estimate that our net proceeds of our sale of the shares of common stock offered by us will be approximately $ million, assuming a public offering price of $ per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any of the proceeds of the sale of shares of common stock by the selling stockholders to the underwriters to cover over-allotments, if any. The principal purposes of this offering are to obtain additional capital, to create a public market for our common stock and to facilitate future access to public debt and equity markets. We expect to use $4.0 million of our net proceeds to repay all of the principal amount of our outstanding subordinated notes at or shortly after the closing of this offering. The subordinated notes bear interest at a fixed rate of 8.5% per year and mature in two equal installments in September 2003 and 2004. We can repay the notes at any time without premium or penalty. We issued these notes in September 1998 to refinance notes that had been issued in 1993 to fund expansion opportunities and statutory net worth requirement needs. An aggregate of $2.5 million of the subordinated notes are held by Greylock Limited Partnership, which owns 31.1% of our common stock and is an affiliate of our director, Howard E. Cox, Jr., and $235,499, $205,352 and $7,980 of the notes, respectively, are held by Claire W. Johnson, Richard P. Wiederhold and Michael F. Neidorff, each of whom is one of our directors. Mr. Neidorff is also our President and Chief Executive Officer. We intend to use the remainder of our net proceeds for working capital and other general corporate purposes, which may include acquisitions of businesses, assets and technologies that are complementary to our business. For example, we may use proceeds to acquire Medicaid and SCHIP contract rights and related assets to increase our membership and to expand our business into new service areas. Although we have evaluated possible acquisitions from time to time, we currently have no commitments or agreements to make any acquisitions, and we cannot assure you that we will make any acquisitions in the future. We also may apply proceeds to fund working capital to: . increase market penetration within our current service areas; . pursue opportunities for the development of new markets; . expand services and products available to our members; and . strengthen our capital base by increasing the statutory capital of our health plan subsidiaries. We have not determined the amount of net proceeds to be used specifically for the foregoing purposes, other than for repayment of our subordinated notes. As a result, our management will have broad discretion to allocate our net proceeds of this offering. Pending application of our net proceeds, we intend to invest our net proceeds in short-term, investment-grade, interest-bearing instruments, repurchase agreements and high-grade corporate notes. DIVIDEND POLICY We have never declared or paid any cash dividends on our capital stock. We currently anticipate that we will retain any future earnings for the development, operation and expansion of our business. Accordingly, we do not anticipate declaring or paying any cash dividends in the foreseeable future. Also, we expect to enter into a credit facility that will prohibit us from paying dividends without the consent of our lender. 19

CAPITALIZATION The following table shows our capitalization as of June 30, 2001: . on an actual basis; . on a pro forma basis to reflect the conversion of our outstanding preferred stock into common stock, as described in note 22 of the notes to the consolidated financial statements included elsewhere in this prospectus; and . on a pro forma as adjusted basis to also reflect (a) the exercise of outstanding warrants and our reincorporation in Delaware, all to occur before the closing of this offering, and (b) our sale of the shares of common stock offered by us at an assumed public offering price of $ per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, and the application of our estimated net proceeds. You should read this table in conjunction with the consolidated financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this prospectus. June 30, 2001 ----------------------------- Pro Forma Actual Pro Forma As Adjusted ------- --------- ----------- (in thousands) Long-term debt, net of current portion: Subordinated debt....................................................... $ 4,000 $ 4,000 $ -- ------- ------- ------- Series D redeemable convertible preferred stock, $.167 par value; 4,000,000 shares authorized and 3,718,000 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted................................................................. 19,124 -- -- ------- ------- ------- Stockholders' equity: Series A, B and C convertible preferred stock, $.167 par value; 4,300,000 shares authorized and 2,156,340 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma or pro forma as adjusted.................................... 360 -- -- Undesignated preferred stock, $.001 par value; no shares authorized, issued or outstanding, actual or pro forma; 10,000,000 shares authorized and no shares issued or outstanding, pro forma as adjusted. -- -- -- Series A and B common stock, $.003 par value; 17,000,000 shares authorized and 912,526 shares issued and outstanding, actual; 17,000,000 shares authorized and 6,786,866 shares issued and outstanding, pro forma; no shares authorized, issued or outstanding, pro forma as adjusted................................................. 3 20 -- Common stock, $.001 par value; no shares authorized, issued or outstanding, actual or pro forma; 40,000,000 shares authorized and shares issued and outstanding, pro forma as adjusted............... -- -- Additional paid-in capital.............................................. 30 19,497 Net unrealized loss on investments, net of tax.......................... (164) (164) (164) Accumulated deficit..................................................... (4,119) (4,119) (4,119) ------- ------- ------- Total stockholders' equity (deficit)................................ (3,890) 15,234 ------- ------- ------- Total capitalization............................................... $19,234 $19,234 $ ======= ======= ======= 20

DILUTION Our pro forma net tangible book value as of June 30, 2001 was $ million, or $ per share of common stock. Pro forma net tangible book value per share represents the amount of our total tangible assets less our total liabilities, divided by the pro forma number of shares of common stock outstanding after giving effect to the conversion of our preferred stock into common stock to occur before the closing of this offering. After giving effect to our sale of shares of common stock in this offering at an assumed public offering price of $ per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our adjusted pro forma net tangible book value as of June 30, 2001 would have been $ million, or $ per share. This represents an immediate increase in pro forma net tangible book value of $ per share to our existing stockholders and an immediate dilution in pro forma net tangible book value of $ per share to new investors purchasing shares in this offering. The following table illustrates this dilution on a per share basis: Assumed public offering price per share................................. $ Pro forma net tangible book value per share as of June 30, 2001...... $ Increase per share attributable to new investors..................... ----- Adjusted pro forma net tangible book value per share after this offering -- Dilution per share to new investors..................................... $ == If the underwriters exercise their option to purchase additional shares in this offering, our adjusted pro forma net tangible book value at June 30, 2001 would have been $ million, or $ per share, representing an immediate increase in pro forma net tangible book value of $ per share to our existing stockholders and an immediate dilution in pro forma net tangible book value of $ per share to new investors purchasing shares in this offering. The following table summarizes on a pro forma basis as of June 30, 2001, after giving effect to the conversion of our preferred stock into common stock and the expected exercise of warrants to acquire common stock to occur at or before the closing of this offering, the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid by existing stockholders and by new investors, based upon an assumed public offering price of $ per share and before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us: Shares Purchased Total Consideration ---------------- ------------------- Average Price Number Percent Amount Percent Per Share ------ ------- ------ ------- ------------- Existing stockholders % $ % $ New investors........ ---- ------ -- ------ Total............. 100.0% 100.0% ==== ====== == ====== The above discussion and tables assume no exercise of stock options, except as described above, after June 30, 2001. As of June 30, 2001, we had outstanding options to purchase a total of shares of common stock at a weighted average exercise price of $ per share. To the extent any of these options are exercised, there will be further dilution to new investors. 21

SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data should be read in connection with, and are qualified by reference to, the consolidated financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this prospectus. The data for the years ended December 31, 1998, 1999 and 2000 and as of December 31, 1999 and 2000 are derived from consolidated financial statements audited by Arthur Andersen LLP and included elsewhere in this prospectus. The data for the years ended December 31, 1996 and 1997 and as of December 31, 1996, 1997 and 1998 are derived from audited consolidated financial statements not included in this prospectus. The data for the six months ended June 30, 2000 and 2001 and as of June 30, 2001 are derived from unaudited consolidated financial statements appearing elsewhere in this prospectus. The unaudited consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of our management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information set forth therein. Operating results for the six months ended June 30, 2001 are not necessarily indicative of operating results to be expected for the full year. The pro forma share information included in the consolidated statement of operations data have been computed as described in note 22 of the notes to consolidated financial statements included elsewhere in this prospectus. Year Ended December 31, -------------------------------------------------------- 1996 1997 1998 1999 2000 ---------- ---------- ---------- -------- ---------- (in thousands, except share data) Statement of Operations Data: Revenues: Premiums $ 72,595 $ 114,531 $ 149,577 $200,549 $ 216,414 Administrative services fees -- 719 861 880 4,936 ---------- ---------- ---------- -------- ---------- Total revenues 72,595 115,250 150,438 201,429 221,350 ---------- ---------- ---------- -------- ---------- Operating expenses: Medical services costs 59,532 95,994 132,199 178,285 182,495 General and administrative expenses 11,041 19,799 25,066 29,756 32,335 ---------- ---------- ---------- -------- ---------- Total operating expenses 70,573 115,793 157,265 208,041 214,830 ---------- ---------- ---------- -------- ---------- Income (loss) from operations 2,022 (543) (6,827) (6,612) 6,520 Other income (expense): Investment and other income, net 898 1,207 1,794 1,623 1,784 Interest expense (592) (854) (771) (498) (611) Equity in income (losses) from joint ventures -- (356) (477) 3 (508) ---------- ---------- ---------- -------- ---------- Income (loss) from continuing operations before income taxes 2,328 (546) (6,281) (5,484) 7,185 Income tax expense (benefit) 821 (39) (1,542) -- (543) ---------- ---------- ---------- -------- ---------- Income (loss) from continuing operations 1,507 (507) (4,739) (5,484) 7,728 Loss from discontinued operations, net -- (808) (2,223) (3,927) -- ---------- ---------- ---------- -------- ---------- Net income (loss) 1,507 (1,315) (6,962) (9,411) 7,728 Accretion of redeemable preferred stock -- -- (122) (492) (492) ---------- ---------- ---------- -------- ---------- Net income (loss) attributable to common stockholders $ 1,507 $ (1,315) $ (7,084) $ (9,903) $ 7,236 ========== ========== ========== ======== ========== Net income (loss) from continuing operations per common share: Basic $ 1.47 $ (0.48) $ (4.65) $ (6.63) $ 8.03 Diluted $ 0.45 $ (0.48) $ (4.65) $ (6.63) $ 1.06 Net income (loss) per common share: Basic $ 1.47 $ (1.23) $ (6.78) $ (10.99) $ 8.03 Diluted $ 0.45 $ (1.23) $ (6.78) $ (10.99) $ 1.06 Weighted average common shares outstanding: Basic 1,023,363 1,066,068 1,044,434 900,944 901,526 Diluted 3,337,554 1,066,068 1,044,434 900,944 6,819,595 Pro forma net income per common share: Basic $ 1.14 Diluted $ 1.13 Pro forma weighted average common shares outstanding: Basic 6,775,866 Diluted 6,819,595 Six Months Ended June 30, ---------------------- 2000 2001 ---------- ---------- Statement of Operations Data: Revenues: Premiums $ 100,959 $ 150,682 Administrative services fees 2,064 182 ---------- ---------- Total revenues 103,023 150,864 ---------- ---------- Operating expenses: Medical services costs 85,514 125,039 General and administrative expenses 15,517 18,406 ---------- ---------- Total operating expenses 101,031 143,445 ---------- ---------- Income (loss) from operations 1,992 7,419 Other income (expense): Investment and other income, net 985 1,897 Interest expense (303) (196) Equity in income (losses) from joint ventures (304) -- ---------- ---------- Income (loss) from continuing operations before income taxes 2,370 9,120 Income tax expense (benefit) -- 3,708 ---------- ---------- Income (loss) from continuing operations 2,370 5,412 Loss from discontinued operations, net -- -- ---------- ---------- Net income (loss) 2,370 5,412 Accretion of redeemable preferred stock (246) (246) ---------- ---------- Net income (loss) attributable to common stockholders $ 2,124 $ 5,166 ========== ========== Net income (loss) from continuing operations per common share: Basic $ 2.36 $ 5.68 Diluted $ 0.31 $ 0.67 Net income (loss) per common share: Basic $ 2.36 $ 5.68 Diluted $ 0.31 $ 0.67 Weighted average common shares outstanding: Basic 901,526 908,907 Diluted 6,776,566 7,748,825 Pro forma net income per common share: Basic $ 0.80 Diluted $ 0.70 Pro forma weighted average common shares outstanding: Basic 6,783,247 Diluted 7,748,825 December 31, ------------------------------------------ June 30, 1996 1997 1998 1999 2000 2001 ------- ------- ------- -------- ------- -------- (in thousands) Balance Sheet Data: Cash, cash equivalents and short-term investments $ 9,759 $17,976 $17,777 $ 23,663 $26,423 $50,779 Total assets..................................... 25,313 39,330 45,727 52,207 66,017 92,431 Long-term debt, net of current portion........... 4,000 4,000 4,000 4,000 4,000 4,000 Redeemable convertible preferred stock........... -- -- 17,700 18,386 18,878 19,124 Total stockholders' equity (deficit)............. 3,765 2,495 (6,196) (16,367) (8,834) (3,890) 22

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion contains forward-looking statements based upon current expectations and related to future events and our future financial performance that involve risks and uncertainties. Our actual results and timing of events could differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under "Risk Factors," "Forward-Looking Statements," "Business" and elsewhere in this prospectus. Overview We provide managed care programs and related services to individuals receiving benefits under Medicaid, including Supplemental Security Income, and the State Children's Health Insurance Program. We have health plans in Wisconsin, Indiana and Texas. Revenues We generate revenues primarily from premiums we receive from the states in which we operate to provide health benefits to our members. We receive a fixed premium per member per month pursuant to our state contracts. We generally receive premiums in advance of providing services and recognize premium revenue during the period in which we are obligated to provide services to our members. We also generate administrative services fees for providing services to SSI members on a non-risk basis. The primary driver of our increasing revenues has been membership growth. We have increased our membership through both internal growth and acquisitions. From December 31, 1998 to June 30, 2001, we have grown our membership by 57%. The following table sets forth our membership by service area, excluding members related to the commercial operations that we discontinued in 1999: December 31, ----------------------- June 30, 1998 1999 2000 2001 ------- ------- ------- -------- Wisconsin 37,600 36,600 60,200 103,000 Indiana.. 93,500 102,200 108,000 54,600 Texas.... -- 3,500 26,000 55,600 Illinois. 4,500 -- -- -- ------- ------- ------- ------- Total. 135,600 142,300 194,200 213,200 ======= ======= ======= ======= In the first half of 2001, our membership in Indiana declined due to a subcontracting provider organization terminating a percent-of-premium arrangement, which was our only contract of that type. Separately, we entered into agreements with Humana that resulted in the transfer to us of 35,000 members in Wisconsin and 30,000 members in Texas. In 2000, a competitor in our Wisconsin market terminated its participation in the Medicaid program benefiting our enrollment growth. Our membership growth in the northern and central regions of Indiana was offset by our decision to reduce our participation in the less profitable southern region. Our El Paso health plan achieved sizable growth because we were named the default health plan in this area and enrolled a majority of the members who failed to select a specific plan. In 1999, we terminated our commercial operations in Wisconsin and Indiana to further concentrate our efforts in government supported health care. Changes effected by the Balanced Budget Act of 1997 enabled 23

us to terminate these operations. Our El Paso market became operational as the state of Texas converted the fee-for-service market to a mandatory Medicaid managed care market. Also, we sold our Illinois operation to focus our business on states where Medicaid enrollment in managed care is mandatory. Operating Expenses Our operating expenses include medical services costs and general and administrative expenses. Our medical services costs include payments to physicians, hospitals, and other providers for healthcare and specialty product claims. Medical service costs also include estimates of medical expenses incurred but not yet reported, or IBNR. Monthly, we estimate our IBNR based on a number of factors, including inpatient hospital utilization data and prior claims experience. As part of this review, we also consider the costs to process medical claims, and estimates of amounts to cover uncertainties related to fluctuations in physician billing patterns, membership, products and inpatient hospital trends. These estimates are adjusted as more information becomes available. We utilize the services of independent actuarial consultants who are contracted to review our estimates periodically. While we believe that our process for estimating IBNR is actuarily sound, we cannot assure you that healthcare claim costs will not exceed our estimates. Our results of operations depend on our ability to manage expenses related to health benefits and to accurately predict costs incurred. The table below depicts our medical loss ratio, which represents medical services costs as a percentage of premium revenues and reflects the direct relationship between the premium received and the medical services provided. Our stabilization in the ratio primarily reflects member reductions in our southern Indiana market, improved provider contract terms and premium rate increases in our markets served. Six Months Ended Year Ended December 31, June 30, ---------------------- --------------- 1998 1999 2000 2000 2001 ---- ---- ---- ---- ---- Medical loss ratio 88.4% 88.9% 84.3% 84.7% 83.0% Our general and administrative expenses primarily reflect wages and benefits and other administrative costs related to our employee base, including those fees incurred to provide services to our members. These expenses are funded by our management contract fees. Some of these services are provided locally, while others are delivered to our health plans from a centralized location. This approach provides the opportunity to control both direct and indirect costs. The major centralized functions are claims processing, information systems, finance and administration. The following table sets forth the general and administrative expense ratio, which represents general and administrative expenses as a percent of total revenues and reflects the relationship between revenues earned and the costs necessary to drive those revenues. The improvement in the ratio reflects growth in membership and leveraging of our overall infrastructure. Six Months Ended Year Ended December 31, June 30, ---------------------- --------------- 1998 1999 2000 2000 2001 ---- ---- ---- ---- ---- General and administrative expenses ratio 16.7% 14.8% 14.6% 15.1% 12.2% Other Income Other income consists principally of investment and other income, interest expense, and equity in income (loss) from joint ventures. . Investment income is derived from our cash, cash equivalents and investments. Information about our investments is presented below under "Liquidity and Capital Resources." 24

. Interest expense primarily reflects interest paid on our subordinated notes, which we intend to repay in full from our net proceeds of this offering. . Equity in income (loss) from joint ventures principally represents our share of operating results from Superior HealthPlan, which we formed with Community Health Centers Network in 1997. We owned 39% of the capital stock of Superior from 1997 through 2000, and then increased our ownership to 90% on January 1, 2001. While we held 39% of the equity of Superior, we reported our interest in Superior as equity in income (loss) from joint ventures, using the equity method of accounting. Commencing January 1, 2001, we are using consolidation accounting to reflect our majority ownership of Superior. We therefore no longer reflect any operations of Superior in equity in income (loss) from joint ventures and we eliminate in consolidation all administrative fees from Superior. The minority stockholder of Superior has the right to require that, within 20 days after completion of this offering, we acquire the remaining 10% equity interest in Superior for $100,000 in cash or in shares of our common stock, based on the public offering price. Results of Operations Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000 Revenues Premiums for the six months ended June 30, 2001 increased $49.7 million, or 49.2%, to $150.7 million from $101.0 million for the six months ended June 30, 2000. This increase was due to the Humana contract purchases, the consolidation of our El Paso market and membership growth, net of the termination of our Indiana sub-contract arrangement. Administrative services fees for the six months ended June 30, 2001 decreased $1.9 million, or 91.2%, to $182,000 from $2.1 million for the six months ended June 30, 2000 as a result of our acquisition of a majority share of Superior HealthPlan, as described above. Operating Expenses Medical services costs. Medical services costs for the six months ended June 30, 2001 increased $39.5 million, or 46.2%, to $125.0 million from $85.5 million for the six months ended June 30, 2000. This increase was due to the Humana contract purchases, the consolidation of our El Paso market and membership growth, net of the termination of our Indiana sub-contract arrangement. General and administrative expenses. General and administrative expenses for the six months ended June 30, 2001 increased $2.9 million, or 18.6%, to $18.4 million from $15.5 million for the six months ended June 30, 2000. The increase was primarily due to a higher level of wages and related expenses for additional staff to support our membership growth. Other income Other income for the six months ended June 30, 2001 increased $1.3 million, or 350%, to $1.7 million from $378,000 for the six months ended June 30, 2000. This primarily reflects a significant increase in investment income due to a significant increase in cash, cash equivalents and investments. This increase was offset in part by a change in our accounting due to our acquisition of a majority share of Superior HealthPlan, as described above. 25

Income tax expense In the first six months of 2001, we recorded $3.7 million of income tax expense based on a 40.7% effective tax rate. In the first six months of 2000, we recorded no income tax expense or benefit as the change in our valuation allowance related to deferred tax assets offset the income tax provision. Year Ended December 31, 2000 Compared to Year Ended December 31, 1999 Revenues Premiums for the year ended December 31, 2000 increased $15.9 million, or 7.9%, to $216.4 million from $200.5 million in 1999. This increase was primarily due to membership growth in our Wisconsin market and rate increases in Wisconsin and Indiana. Administrative services fees for the year ended December 31, 2000 increased $4.0 million, or 460.9%, to $4.9 million from $880,000 in 1999 due to membership increases in our El Paso market. Operating expenses Medical services costs. Medical services increased $4.2 million, or 2.4%, to $182.5 million for the year ended December 31, 2000 from $178.3 million in 1999. The increase was primarily due to the net increase in membership. General and administrative expenses. General and administrative expenses for the year ended December 31, 2000 increased $2.6 million, or 8.7%, to $32.3 million from $29.8 million in 1999. The increase was primarily due to a higher level of wages and related expenses for additional staff to support our membership growth. Other Income Other income for the year ended December 31, 2000 decreased $463,000, or 40.7%, to $665,000 from $1.1 million in 1999. This decrease primarily reflects an increase in equity in losses from our El Paso start-up market. Income tax benefit In 2000, we recorded an income tax benefit of $543,000 as a result of the reversal of our valuation allowance related to deferred tax assets, as it became apparent that it was more likely than not that the benefits of our net operating losses would be realized. In 1999, we recorded a tax benefit offset by a valuation allowance, resulting in no benefit or provision for the year. Year Ended December 31, 1999 Compared to Year Ended December 31, 1998 Revenues Premiums for the year ended December 31, 1999 increased $51.0 million, or 34.1%, to $200.5 million from $149.6 million in 1998. The increase was due to increases in membership that occurred in Indiana during the second half of 1998. Administrative services fees remained relatively flat year over year. 26

Operating expenses Medical services costs. Medical services costs for the year ended December 31, 1999 increased $46.1 million, or 34.9%, to $178.3 million from $132.2 million in 1998. The increase was primarily due to a full year of increased membership that had occurred in Indiana in the latter half of 1998. General and administrative expenses. General and administrative expenses for the year ended December 31, 1999 increased $4.7 million, or 18.7%, to $29.8 million from $25.1 million in 1998. The increase was primarily due to a higher level of wages and related expenses for additional staff to support our membership growth. Other Income Other income for the year ended December 31, 1999 increased $582,000, or 106%, to $1.1 million in 1998 primarily due to a reduction in equity in losses from joint ventures as a result of the sale of our Illinois plan. Income tax expense (benefit) For the year ended December 31, 1999, we recorded a tax benefit offset by a valuation allowance resulting in no benefit or provision for the year. For the year ended December 31, 1998, we recorded a tax benefit of $1.5 million as a result of our loss from operations. Liquidity and Capital Resources Historically, we have financed our operations and growth through private equity and debt financings and internally generated funds. Since 1993, we have raised $22.4 million, consisting of $18.4 million through the issuance of equity securities and $4.0 million through subordinated debt financing. Our liquidity requirements have arisen primarily from statutory capital requirements in the states in which we operate. Our operating activities used cash of $7.5 million in 1998 and provided cash of $5.1 million in 1999, $13.5 million in 2000 and $28.0 million in the six months ended June 30, 2001. The increased cash flow in 1999 was due to an increase in average monthly membership. The growth in 2000 was due to increased membership and improved profitability. The increase in cash provided by operating activities in 2001 was due to the timing of capitation payments, as well as an increase in membership. Our investing activities used cash of $2.2 million in 1998, $2.9 million in 1999, $14.6 million in 2000 and $555,000 in the six months ended June 30, 2001. Our investment policies are designed to provide liquidity, preserve capital and maximize total return on invested assets. As of June 30, 2001, our investment portfolio consisted primarily of fixed-income securities with an average maturity of 3.2 years. Cash is invested in investment vehicles such as municipal bonds, commercial paper, U.S. government-backed agencies and U.S. Treasury instruments. The states in which we operate prescribe the types of instruments in which our subsidiaries may invest their cash. The average portfolio yield was 7.3%, as of December 31, 2000 and 3.4%, as of June 30, 2001. Our financing activities provided cash of $9.5 million in 1998 and $2.5 million in 1999, used cash of $2.4 million in 2000 and provided cash of $17,000 in the six months ended June 30, 2001. Financing cash flows consisted of borrowings under a credit facility and issuances of preferred stock. We have received a commitment letter from a commercial bank for a $5.0 million revolving line of credit. The line of credit will bear interest at the bank's prime rate or a LIBOR-based rate. The line of credit 27

will mature one year from closing. Amounts borrowed under this facility will be secured by a pledge of all of the stock of our subsidiaries. The definitive agreement for the line of credit will include requirements that, among other things, we maintain minimum specified levels of interest coverage, earnings before income tax, depreciation and amortization, and tangible net worth. It will prohibit us from incurring additional indebtedness or paying dividends without prior bank approval. In addition, we have raised capital from time to time to fund planned geographic and product expansion, necessary regulatory reserves, and acquisitions of healthcare contracts. In the six months ended June 30, 2001, we purchased the rights to the Humana Medicaid contracts with the states of Texas and Wisconsin for $1.2 million and spent $1.8 million on purchases of furniture, equipment and leasehold improvements due to the addition of the Austin and San Antonio markets and the expansion of the Wisconsin market. For the six months ended December 31, 2001, and the year ended December 31, 2002, we anticipate purchasing $1.0 million and $3.0 million, respectively, of new software, software and hardware upgrades, and furniture, equipment and leasehold improvements related to office and market expansions. At June 30, 2001, we had working capital of $(10.9) million as compared to $7.3 million at December 31, 1998, $(7.2) million at December 31, 1999 and $(5.3) million at December 31, 2000. Our working capital is often negative due to our efforts to increase investment returns through purchases of long-term investments, which have maturities of greater than one year. Our investment policies are also designed to provide liquidity and preserve capital. We manage our short-term and long-term investments to ensure that a sufficient portion is held in investments that are highly liquid and can be sold to fund working capital as needed. Cash, cash equivalents and short term investments were $26.4 million at December 31, 2000 and $50.8 million at June 30, 2001. Long-term investments were $14.5 million at December 31, 2000, and $23.7 million at June 30, 2001. Based on our operating plan, we expect that our available cash, cash equivalents and investments, net proceeds of this offering, and cash from our operations will be sufficient to finance our operations and capital expenditures for at least 12 months from the date of this prospectus. Regulatory Capital and Dividend Restrictions Our operations are conducted through our subsidiaries. As managed care organizations, our subsidiaries are subject to state regulations that, among other things, may require the maintenance of minimum levels of statutory capital, as defined by each state, and restrict the timing, payment and amount of dividends and other distributions that may be paid to us. Our subsidiaries are required to maintain minimum quarterly capital requirements prescribed by various regulatory authorities in each of the states in which we operate. As of June 30, 2001, our subsidiaries had aggregate statutory capital and surplus of $11.2 million, compared with the required minimum aggregate statutory capital and surplus requirements of $7.2 million. The National Association of Insurance Commissioners has adopted rules which, to the extent that they are implemented by the states, will set new minimum capitalization requirements for insurance companies, managed care organizations and other entities bearing risk for healthcare coverage. The requirements take the form of risk-based capital rules. The change in rules for insurance companies became effective as of December 31, 1998. The new managed care organization rules, which may vary from state to state, are currently being considered for adoption. Wisconsin and Texas adopted various forms of the rules as of December 31, 1999. The managed care organization rules, if adopted by other states in their proposed form, may increase the minimum capital required for our subsidiaries. 28

Recent Accounting Pronouncements In July 2001, SFAS No. 141, Business Combinations, was issued which requires that the purchase method of accounting be used for all business combinations completed after June 30, 2001. In July 2001, SFAS No. 142, Goodwill and Other Intangible Assets, was issued which requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested annually for impairment. We will adopt SFAS No. 142 effective January 1, 2002. Quantitative and Qualitative Disclosures About Market Risk As of June 30, 2001, we had short-term investments of $4.3 million and long-term investments of $23.7 million. The short-term investments consist of highly liquid securities with maturities between three and 12 months. The long-term investments consist of municipal bonds, commercial paper, U.S. government-backed agencies and U.S. Treasury instruments, and have original maturities greater than one year. These investments are subject to interest rate risk and will decrease in value if market rates increase. We have the ability to hold these short-term investments to maturity, and as a result, we would not expect the value of these investments to decline significantly as a result of a sudden change in market interest rates. Declines in interest rates over time will reduce our investment income. Inflation Although the general rate of inflation has remained relatively stable and healthcare cost inflation has stabilized in recent years, the national healthcare cost inflation rate still exceeds the general inflation rate. We use various strategies to mitigate the negative effects of healthcare cost inflation. Specifically, our health plans try to control medical and hospital costs through contracts with independent providers of healthcare services. Through these contracted care providers, our health plans emphasize preventive healthcare and appropriate use of specialty and hospital services. While we currently believe our strategies to mitigate healthcare cost inflation will continue to be successful, competitive pressures, new healthcare and pharmaceutical product introductions, demands from healthcare providers and customers, applicable regulations or other factors may affect our ability to control the impact of healthcare cost increases. Compliance Costs The new federal and state regulations promulgated under HIPAA mandating uniform standards for electronic transactions and confidentiality requirements of patient information are currently unsettled, making certainty of compliance impossible at this time. Due to the uncertainty surrounding the regulatory requirements, we cannot be sure that the systems and programs that we plan to implement will comply adequately with the regulations that are ultimately approved. Implementation of additional systems and programs may be required, the cost of which is unknown to us at this time. Further, compliance with these regulations would require changes to many of the procedures we currently use to conduct our business, which may lead to additional costs that we have not yet identified. We do not know whether, or the extent to which, we will be able to recover our costs of complying with these new regulations from the states. 29

BUSINESS Overview We provide managed care programs and related services to individuals receiving benefits under Medicaid, including Supplemental Security Income or SSI, and the State Children's Health Insurance Program or SCHIP. We have health plans in Wisconsin, Indiana and Texas. In each of our service areas, we have more Medicaid members than any other managed care entity. Medicaid Managed Care Market From the 1930s until the 1970s, healthcare in the United States generally was provided on a fee-for-service basis, with financial support from private health insurance. By the early 1970s, however, there was concern that indemnity insurance could not contain costs or support benefits required by the U.S. population. In 1973, Congress passed the Federal Health Maintenance Organization Act in order to encourage the creation of managed care organizations, such as health maintenance organizations, that might address the shortcomings of the indemnity insurance system. Managed care organizations finance and deliver healthcare services for their members through contracts with selected physicians, hospitals and other providers. After additional federal legislation in 1976 and 1979, the number and size of managed care organizations began to grow dramatically. The federal Centers for Medicare and Medicaid Services, or CMS, reports that, U.S. healthcare costs grew from $73.0 billion in 1970 to $1.2 trillion in 1999, and projects that those costs will continue to grow at a rate that is in excess of 7% per year to $2.6 trillion in 2010. In light of this significant growth in membership and healthcare spending, many managed care organizations have chosen to narrow their focus to enable them to tailor appropriate programs to meet members' medical needs. Some organizations have chosen to offer a limited range of services, such as dental care or behavioral healthcare. Other managed care organizations have chosen to focus on targeted populations by, for example, offering commercial and Medicare plans and leaving the Medicaid market. Medicaid provides health insurance to low-income families and individuals with disabilities. Each state establishes its own eligibility standards, benefit packages, payment rates and program administration within federal standards. As a result, there are 56 Medicaid programs - one for each state, each territory and the District of Columbia. Medicaid eligibility is based on a combination of income and asset requirements subject to federal guidelines. Financial requirements are most often determined by an income level relative to the federal poverty level. Medicaid covered 15% of the total U.S. population in 1998. The number of persons covered by Medicaid increased from 23.5 million in 1989 to 40.6 million in 1998, including 18.7 million children. Historically, children have represented the largest eligibility group, and in 1995, 39% of all births in the United States were covered by Medicaid. SSI covers low-income aged, blind and disabled persons. SSI beneficiaries represent a growing portion of all Medicaid recipients, with the proportion of disabled enrollees increasing from 11% of recipients in 1973 to 18% in 1998. In addition, SSI recipients typically utilize more services because of their more critical health issues. In 1998, average expenditures for disabled SSI recipients were $9,558, compared to $1,892 for other adult Medicaid recipients. Since the late 1980s Medicaid has been used by the federal and state governments as the vehicle for providing coverage to uninsured persons. These efforts culminated in the Balanced Budget Act of 1997 which created SCHIP to help states expand coverage primarily to children whose families earn too much to qualify for Medicaid, yet not enough to afford private health insurance. 30

SCHIP is the single largest expansion of health insurance coverage for children since the enactment of Medicaid and some states are expanding their SCHIP coverage to include adults. States can use SCHIP funds to provide coverage through three options: separate health programs, expansion of Medicaid coverage, or a combination of both of these strategies. In the federal fiscal year ended September 30, 2000, 2.3 million of the 3.3 million SCHIP recipients were served through separate SCHIP programs. Unlike Medicare, which is financed entirely by the federal government, the states and the federal government jointly finance the Medicaid and SCHIP programs. The federal matching assistance percentage is based on the average per capita income in each state and typically, exceeds 50%. While Medicaid programs have directed funds to many individuals who could not afford or otherwise maintain health insurance coverage, they did not initially address the inefficient and costly manner in which the Medicaid population tends to access healthcare. Medicaid recipients typically have not sought preventive care or routine treatment for chronic conditions, such as asthma and diabetes. Rather, they have sought healthcare in hospital emergency rooms, which tend to be more expensive. As a result, many states have found that the costs of providing Medicaid benefits have increased while the medical outcomes for the recipients remained unsatisfactory. In the early 1980s, states began pursuing Medicaid managed care initiatives when the combination of rising Medicaid costs and national recession put pressure on states to control spending growth. Throughout the 1990's, states significantly expanded enrollment in Medicaid managed care programs. In 1991, less than 10% of all Medicaid enrollees were covered under managed care plans. By 1998, nearly 54% (21.9 million) of the Medicaid population was enrolled in some type of managed care plan. Medicaid's premium payments to Medicaid managed care plans rose from $700 million in 1988 to $13.2 billion in 1998. A growing number of states have mandated that their Medicaid recipients enroll in managed care plans. While some states have included SSI beneficiaries in their managed care programs, others are planning to do so in the near future. Historically, commercial managed care organizations contracted with states to provide healthcare benefits to Medicaid enrollees. Many of these organizations encountered difficulties in adapting their commercial approaches and infrastructures to address the Medicaid market in a cost-effective manner. Some commercial plans have chosen to exit all or a portion of their Medicaid markets. As a result, a significant market opportunity exists for managed care organizations with operations and programs focused on the distinct socio-economic, cultural and healthcare needs of the Medicaid and SCHIP populations. The Centene Approach We provide managed care programs and related services to individuals receiving benefits under Medicaid, including SSI, and SCHIP. We operate in Wisconsin, Indiana and Texas. In each of our service areas, we have more Medicaid members than any other managed care organization. Unlike many managed care organizations that attempt to serve the general commercial population, as well as Medicare and Medicaid populations, we are focused exclusively on the Medicaid, including SSI, and SCHIP populations. Our approach to managed care is based on the following key attributes: . Medicaid Expertise. Over the last 17 years, we developed a specialized Medicaid expertise that has helped us establish and maintain strong relationships with our constituent communities of members, providers and state governments. 31

Our expertise in care coordination allows us to achieve savings by reducing inappropriate emergency room use, inpatient days and high cost interventions, as well as by managing care of chronic illnesses. We recruit and train staff and providers who are attentive to the needs of our members and who are experienced in working with culturally diverse, low income Medicaid populations. Our close relationships with state regulators help us efficiently implement and deliver our programs and services and allow us to provide input on Medicaid industry practices and policies. . Localized Services, Support and Branding. We provide access to healthcare services through local networks of providers and staff who focus on the cultural norms of their individual communities. Our systems and procedures have been designed to address these community-specific challenges through outreach, education, transportation and other member support activities. For example, our community outreach program employs former Medicaid recipients to work with our members and their communities to promote health, and to promote self-improvement through employment and higher education. We use locally recognized plan names, and we tailor our materials and processes to meet the needs of the communities and state programs which we serve. Our approach to community-based service results in local accountability and solidifies our decentralized management and operational structure. . Physician-Driven Approach. We have implemented a physician-driven approach designed to eliminate unnecessary costs, improve service to our members and simplify the administrative burdens on our providers. This approach has enabled us to strengthen our provider networks through improved physician recruitment and retention that, in turn, have helped to increase our membership base. Our physicians are proactively engaged in developing and implementing our healthcare delivery policies and strategies and are instrumental in supporting our member services. Our local Boards of Directors have significant provider representation in each of our principal geographic markets and help shape the character and quality of our organization. Our approach grants a greater degree of autonomy to providers in healthcare decisions and patient management. . Efficiency and Scalability of Business Model. We designed our business model to allow us to readily add new members in our existing markets and expand into new regions in which we may choose to operate. The combination of our decentralized local approach to operating our health plans and our centralized finance, information systems, claims processing and medical management support functions allows us to seek additional business opportunities without being impaired by many of the logistical and financial obstacles customarily faced by growing companies. For example, we integrated 65,000 former Humana members within 75 days after acquiring Humana's Medicaid contracts in Wisconsin and Texas. Because of our business model, we believe we would be able to quickly recover from a disaster in one of our plan locations by moving member and physician services to one of our other locations. . Specialized Systems and Technology. Through our specialized information systems, we are able to strengthen our relationships with providers and states, which helps us to grow our membership base. These systems also help us identify needs for new healthcare programs. These systems provide the physicians with claims information, timely and accurate payment, utilization data, and membership eligibility which enables providers to more efficiently manage their practices and focuses them on specific patient needs. Our information systems also closely track and manage utilization data for the state which demonstrates that their Medicaid populations are receiving quality healthcare in an efficient manner. This information enables us to accommodate the expansion of our membership base. . Complementary Business Lines. We have begun to broaden our service offerings to address areas we believe have been traditionally underserved by Medicaid managed care organizations. We believe other business lines, such as our NurseWise triage program, will allow us to provide innovative healthcare management solutions while diversifying our sources of revenue. 32

Strategy Our objective is to become the leading national Medicaid managed care organization. We intend to achieve this objective by implementing the following key components of our strategy: . Increase penetration of existing state markets. We intend to increase our membership in states in which we currently operate through development and implementation of community-specific products, alliances with key providers, outreach efforts and acquisitions. For example, in Indiana, where the state assigns members to physicians, we have increased our membership by recruiting additional physicians. We may also increase membership by acquiring Medicaid contracts and other related assets from our competitors in our existing markets. In Texas, we recently completed the acquisition of Humana's Medicaid contracts in Austin and San Antonio, which resulted in the addition of 30,000 new members. . Develop and acquire additional state markets. We intend to leverage our experience in identifying and developing new markets by seeking both to acquire existing businesses and to build our own operations. We expect to focus our expansion on states where Medicaid recipients are mandated to enroll in managed care organizations and in which we believe we can be the market leader. . Diversify our business lines. We seek to broaden our business lines into areas that complement our business to enable us to grow our revenue stream and decrease our dependence on Medicaid reimbursement. In addition to NurseWise, we are considering services such as behavioral health, transportation and dental care. We believe we may have opportunities to offer these services to other managed care organizations and states. . Leverage our information technologies to enhance operating efficiencies. We intend to continue to invest in our centralized information systems to further streamline our processes and drive efficiencies in our operations and to add functionality to improve the service we provide to our members. Our information systems are scalable and enable us to add members and markets quickly and economically. Member Programs and Services We recognize the importance of member-focused services in the delivery of quality managed care services. Our locally based staff assists members in accessing care, coordinating referrals to related health and social services, and addressing member concerns and questions. Our health plans provide the following services: . primary and specialty physician care; . inpatient and outpatient hospital care; . emergency and urgent care; . prenatal care; . laboratory and x-ray services; . home health and durable medical equipment; . behavioral health and substance abuse services; . after hours nurse advice line; . transportation assistance; . health status calls to coordinate care; . vision care; and . prescriptions and limited over-the-counter drugs and inoculations. 33

We also provide the following education and outreach programs to inform and assist members in accessing quality, appropriate healthcare services in an efficient manner. . CONNECTIONS is designed to create a link between the member and the provider and help identify potential challenges or risk elements to a member's health, such as abuse risks, nutritional challenges and health education shortcomings. CONNECTIONS representatives, many of whom are former Medicaid enrollees, also contact new members by phone or mail to discuss managed care, the Medicaid program and our services. They make home visits, conduct educational programs and represent the plan at community events such as health fairs. . NurseWise provides a toll-free nurse triage line between the hours of 5:00 p.m. and 8:00 a.m. each weekday and 24 hours on weekends and holidays. Our members can call one number and reach a bilingual nursing staff who can provide triage advice and referrals, and if necessary, arrange for treatment and transportation and contact qualified behavioral health professionals for assessments. . START SMART For Your Baby is a prenatal and infant health program designed to increase the percentage of pregnant women receiving early prenatal care, reduce the incidence of low birth weight babies, identify high risk pregnancies, increase participation in the federal Women, Infant, and Children program, and increase well-child visits. The program includes risk assessments, education through face-to-face meetings and materials, behavior modification plans and assistance in selecting a provider for the infant and scheduling newborn follow-up visits. . EPSDT Case Management is a preventive care program designed to educate our members on the benefits of Early and Periodic Screening, Diagnosis and Treatment, or EPSDT, services. We have a systematic program of communication, tracking, outreach, reporting, and follow-through that promotes state EPSDT programs. . Disease Management Programs are designed to help members understand their disease and treatment plan, and improve or maintain their quality of life. These programs address medical conditions that are common within the Medicaid population such as asthma, diabetes and prenatal care. Providers For each of our service areas, we establish a provider network consisting of primary and specialty care physicians, hospitals and ancillary providers. As of September 30, 2001, our health plans had the following numbers of physicians and hospitals: Wisconsin Indiana Texas Total --------- ------- ----- ----- Primary Care Physicians.. 2,281 515 891 3,687 Specialty Care Physicians 3,360 448 1,071 4,879 Hospitals................ 60 23 25 108 The primary care physician is a critical component in care delivery, and also in the management of costs and the attraction and retention of new members. Primary care physicians include family and general practitioners, pediatricians, internal medicine physicians and OB/GYNs. Specialty care physicians provide medical care to members generally upon referral by the primary care physicians. We work closely with physicians to help them operate efficiently by providing financial and utilization information, physician and patient educational programs and disease and medical management programs, as well as adhering to a prompt payment policy. Our programs are also designed to help the physicians coordinate care outside of their offices. 34

We believe our collaborative approach with physicians gives us a competitive advantage in entering new markets. Our physicians serve on local committees that assist us in implementing preventive care methods, managing costs and improving the overall quality of care delivered to our members, while assuming responsibility for medical policy decision-making. The following are among the services we provide to support physicians. . Customized Utilization Reports provide our contracted physicians with information that enables them to run their practices more efficiently and focuses them on specific patient needs. For example, quarterly fund-detail reports update physicians on their status within their risk pools. Equivalency reports provide physicians with financial comparisons of capitated versus fee-for service arrangements. . Case Management Support helps the physician coordinate specialty care and ancillary services for patients with complex conditions and direct members to appropriate community resources to address both their health and socio-economic needs. . Web-based Claims and Eligibility Resources are being tested in selected markets to provide physicians with on-line access to perform claims and eligibility inquiries. Our physicians also benefit from several of the services offered to our members, including the CONNECTIONS program, EPSDT case management and disease management programs. We provide access to healthcare services for our members primarily through non-exclusive contracts with our providers. The majority of our primary care physicians share in our Medicaid reimbursement risk as well as in the success of efficient and appropriate management of care. Our contracts with primary and specialty care physicians and hospitals usually are for one to two year periods and automatically renew for successive one year terms, but generally are subject to termination by either party upon 90 to 120 days' prior written notice. In the absence of a contract, we typically pay providers at state Medicaid reimbursement levels. We pay physicians under a capitated or fee-for-service arrangement. . Under our capitated contract, primary care physicians are paid a monthly capitation rate for each of our members assigned to his or her practice and are at risk for all costs related to primary and specialty physician and emergency room services. In return for this payment, these physicians provide all requested, covered primary care and preventive services, including EPSDT services, and primary care office visits. If these physicians also provide non-capitated services to their assigned members, they may bill and be paid under fee-for-service arrangements at Medicaid rates. . Under our capitated contracts with physicians, particularly specialty care physicians, we pay the physicians a negotiated fee for covered services. This model is characterized as having no financial risk for the physician. We also contract with ancillary providers on a negotiated fee arrangement for physical therapy, mental health and chemical dependency care, home healthcare, vision care, diagnostic laboratory tests, x-ray examinations, ambulance services and durable medical equipment. Additionally, we contract with dental vendors in markets where routine dental care is a covered benefit. We have a capitated arrangement with a national pharmacy vendor that provides a pharmacy network in our markets where prescription and limited over-the-counter drugs are a covered benefit. Health Plans We have three health plan subsidiaries offering healthcare services in Wisconsin, Indiana and Texas. We have never been denied a contract renewal from the states in which we do business. The table below provides certain highlights to the markets we currently serve. 35

Wisconsin Indiana Texas ----------------------- ----------------------- ------------------- Local Health Plan Name Managed Health Services Managed Health Services Superior HealthPlan First Year of Operations 1984 1995 1999 Counties Licensed 19 92 5 Membership at September 30, 2001 108,126 61,840 54,901 Ownership 100% 100% 90% States Our ability to establish and maintain our position as a leader in the markets we serve results primarily from our demonstrated success in providing quality care while reducing and managing costs for, and our customer-focused approach to working with, state governments. Among the benefits we are able to provide to the states with which we contract are: . timely and accurate reporting; . responsible collection and dissemination of encounter data; . cost saving outreach and disease management programs; . improved medical outcomes; and . expertise in Medicaid managed care. Quality Management Our medical management program focuses on improving quality of care in areas that have the greatest impact on our members. We employ strategies including disease management and complex case management that are fine-tuned for implementation in our individual markets by a system of physician committees chaired by local physician leaders. This process promotes physician participation and support, both critical factors in the success of any clinical quality improvement program. We have implemented specialized information systems to support our medical quality management activities. Information is drawn from our data warehouse, AMISYS and the clinical databases as sources to identify opportunities to improve care and to track the outcomes of the interventions implemented to achieve those improvements. Some examples of these intervention programs include: . a prenatal case management program to help women with high-risk pregnancies deliver full-term, healthy infants; . a program to reduce the number of inappropriate emergency room visits; and . a disease management program to decrease the need for emergency room visits and hospitalizations for asthma patients. Additionally, we provide extensive quality reporting on a regular basis using our data warehouse. State and Health Employer Data and Information Set, or HEDIS, reporting constitutes the core of the information base that drives our clinical quality performance efforts. This reporting is monitored by Plan Quality Improvement Committees and our corporate medical management team. In order to ensure the quality of our provider networks, we verify the credentials and background of our providers using standards that are supported by the National Committee for Quality Assurance. 36

Additionally, we provide feedback and evaluations to our providers on quality and medical management in order to improve the quality of care, increase their support of our programs and enhance our ability to attract and retain providers. Management Information Systems The ability to access data and translate them into meaningful information is essential to operating across a multi-state service area in a cost-effective manner. Our centralized information systems located in Saint Louis, Missouri, support our core processing functions under a set of integrated databases and are designed to be both replicable and scalable to accommodate internal growth and growth from acquisitions. We have the ability to leverage the platform we have developed for one state for configuration into new states or health plan acquisitions. This integrated approach helps to assure that consistent sources of claim and member information are provided across all of our health plans. The system is currently configured and is supporting claims auto adjudication rates that exceed 85% in all markets. Our current AMISYS production system is capable of supporting over a million members. The following table summarizes our information systems and their functions: System/Program Platform Function -------------- -------- -------- AMISYS HP3000 Series 997/400 Core Managed Care Functions: Claims; IMAGE Eligibility; Claims Payable Clinical Case Management Systems HP Netserver/SQL2000 Core Medical Management: Case Management; Authorizations; Medical Records InterQual HP Netserver/SQL2000 Clinical Guideline Assessment Distributed Reporting System ASP/Oracle Data Warehouse: HEDIS; Provider Profiling; Member Profiling E-Commerce HP Netserver/SQL2000 Internet Inquiry: Claims Payment Status; Member Eligibility; Authorization Status NurseWise HP Netserver/SQL 2000 Nurse Triage; After Hours Authorizations Scanning/Imaging HP Netserver/SQL2000 Hospital Claims Scanning; Medical Claims Scanning; Workflow We have a disaster recovery and business resumption plan developed and implemented in conjunction with Sungard Planning. This plan allows us complete access to the business resumption centers and hot-site facilities provided by Sungard. We have contracted with Sungard to provide us with annual plan updates through 2005. Competition In the Medicaid business, our principal competitors for state contracts, members and providers consist of the following types of organizations: Primary Care Case Management Programs are programs established by the states through contracts with primary care providers. Under these programs, physicians provide primary care services to the Medicaid recipient, as well as limited oversight over other services. National And Regional Commercial Managed Care Organizations have Medicaid and Medicare members in addition to members in private commercial plans. 37

Medicaid managed care organizations focus solely on providing healthcare services to Medicaid recipients, the vast majority of which operate in one city or state. Many of these plans are owned by providers, especially hospitals. Their membership is small relative to the infrastructure that is required for them to do business. There are a few multi-state Medicaid-only organizations that tend to be larger in size and therefore are able to leverage their infrastructure over larger membership. We will continue to face varying levels of competition as we expand in our existing service areas or enter new markets. Healthcare reform proposals may cause a number of commercial managed care organizations already in our service areas to decide to enter or exit the Medicaid market. However, the licensing requirements and bidding and contracting procedures in some states present barriers to entry into the Medicaid managed healthcare industry. We compete with other managed care organizations for state contracts. In order to win a bid for or be awarded a state contract, state governments consider many factors, which include providing quality care, satisfying financial requirements, demonstrating an ability to deliver services, and establishing networks and infrastructure. Some of the factors may be outside our control. For example, state regulators may prefer competitors with substantial local ownership or entities formed as not-for-profit organizations. We also compete to enroll new members and retain existing members. People who wish to enroll in a managed healthcare plan or to change healthcare plans typically choose a plan based on the quality of care and service offered, ease of access to services, a specific provider being part of the network and the availability of supplemental benefits. We also compete with other managed care organizations to enter into contracts with physicians, physician groups and other providers. We believe the factors that providers consider in deciding whether to contract with us include existing and potential member volume, reimbursement rates, medical management programs, timeliness of reimbursement and administrative service capabilities. Regulation Our healthcare operations are regulated at both state and federal levels. Government regulation of the provision of healthcare products and services is a changing area of law that varies from jurisdiction to jurisdiction. Regulatory agencies generally have discretion to issue regulations and interpret and enforce laws and rules. Changes in applicable laws and rules also may occur periodically. Managed Care Organizations Our three health plan subsidiaries are licensed to operate as health maintenance organizations in each of Wisconsin, Indiana and Texas. In each of the jurisdictions in which we operate, we are regulated by the relevant health, insurance and/or human services departments that oversee the activities of managed care organizations providing or arranging to provide services to Medicaid enrollees. The process for obtaining authorization to operate as a managed care organization is a lengthy and involved process and requires demonstration to the regulators of the adequacy of the health plan's organizational structure, financial resources, utilization review, quality assurance programs and complaint procedures. Under both state managed care organization statutes and state insurance laws, our health plan subsidiaries must comply with minimum net worth requirements and other financial requirements, such as minimum capital, deposit and reserve requirements. Insurance regulations may also require the prior state approval of acquisitions of other managed care organizations' businesses and the payment of dividends, as well as notice requirements for loans or the transfer of funds. Our subsidiaries are also subject to periodic reporting requirements. In addition, each health plan must meet numerous criteria to secure the approval of 38

state regulatory authorities before implementing operational changes, including the development of new product offerings and, in some states, the expansion of service areas. Medicaid In order to be a Medicaid managed care organization in each of the states in which we operate, we must enter into a contract with the state's Medicaid agency. States generally use either a formal proposal process, reviewing a number of bidders, or award individual contracts to qualified applicants that apply for entry to the program. The contractual relationship with the state is generally for a period of one to five years. The contracts with the states and regulatory provisions applicable to us generally set forth in great detail the requirements for operating in the Medicaid sector including provisions relating to: . eligibility, enrollment and disenrollment processes; . covered services; . eligible providers; . subcontractors; . record-keeping and record retention; . periodic financial and informational reporting; . quality assurance; . marketing; . financial standards; . timeliness of claims payment; . health education and wellness and prevention programs; . safeguarding of member information; . fraud and abuse detection and reporting; . grievance procedures; and . organization and administrative systems. A health plan's compliance with these requirements is subject to monitoring by state regulators and by CMS. A health plan is subject to periodic comprehensive quality assurance evaluation by a third party reviewing organization and generally by the insurance department of the jurisdiction that licenses the health plan. A health plan must also submit many reports to various regulatory agencies, including quarterly and annual statutory financial statements and utilization reports. HIPAA In 1996, Congress enacted the Health Insurance Portability and Accountability Act of 1996, or HIPAA. The Act is designed to improve the portability and continuity of health insurance coverage and simplify the administration of health insurance claims. One of the main requirements of HIPAA is the implementation of standards for the processing of health insurance claims and for the security and privacy of individually identifiable health information. 39

In August 2000, the Department of Health and Human Services, or HHS, issued new standards for submitting electronic claims and other administrative healthcare transactions. The new standards were designed to streamline the processing of claims, reduce the volume of paperwork and provide better service. The administrative and financial healthcare transactions covered include: . health claims and equivalent encounter information; . enrollment and disenrollment in a health plan; . eligibility for a health plan; . healthcare payment and remittance advice; . health plan premium payments; . healthcare claim status; and . referral certification and authorization. In general, healthcare organizations will be required to comply with the new standards by October 2002. The regulation's requirements apply only when a transaction is transmitted using "electronic media." Because "electronic media" is defined broadly to include "transmissions that are physically moved from one location to another using magnetic tape, disk or compact disk media," many communications will be considered electronically transmitted. In addition, health plans will be required to have the capacity to accept and send all standard transactions in a standardized electronic format. The regulation sets forth other rules that apply specifically to health plans as follows: . a plan may not delay processing of a standard transaction (that is, it must complete transactions using the new standards at least as quickly as it had prior to implementation of the new standards); . there should be "no degradation in the transmission of, receipt of, processing of, and response to" a standard transaction as compared to the handling of a non-standard transaction; . if a plan uses a healthcare clearinghouse to process a standard request, the other party to the transaction may not be charged more or otherwise disadvantaged as a result of using the clearinghouse; . a plan may not reject a standard transaction on the grounds that it contains data that is not needed or used by the plan; . a plan may not adversely affect (or attempt to adversely affect) the other party to a transaction for requesting a standard transaction; and . if a plan coordinates benefits with another plan, then upon receiving a standard transaction, it must store the coordination of benefits data required to forward the transaction to the other plan. On December 28, 2000, HHS published a final regulation setting forth new standards for protecting the privacy of individually identifiable health information in any medium. Compliance with these rules will be required by April 2003. The new regulation is designed to protect medical records and other personal health information maintained and used by healthcare providers, hospitals, health plans and health insurers, and healthcare clearinghouses. Among numerous other requirements, the new standards: . limit both the routine and non-routine non-consensual use and release of private health information, and require patient authorizations for most uses and disclosures of such information; . give patients new rights to access their medical records and to know who else has accessed them; 40

. limit most disclosure of health information to the minimum needed for the intended purpose; . establish procedures to ensure the protection of private health information; . establish new criminal and civil sanctions for improper use or disclosure of health information; and . establish new requirements for access to records by researchers and others. The preemption provisions of the regulation provide that the federal law will preempt a contrary state law. However, a state (or any person) may submit a request to the Secretary of HHS that a provision of state law be excepted from the preemption rules. The Secretary may grant an exception if one or more of a number of conditions are met, including: . the state law is necessary to prevent fraud and abuse related to the provision of and payment for healthcare; . the state law will ensure appropriate state regulation of insurance and health plans, the state law is necessary to state reporting on healthcare delivery or costs; or . the state law related to the privacy of health information is more stringent than the federal law. In addition, on August 12, 1998, HHS published proposed regulations relating to the security of individually identifiable health information. These rules would require healthcare providers, health plans and healthcare clearinghouses to ensure the privacy and confidentiality of such information when it is electronically stored, maintained or transmitted through such devices as user authentication mechanisms and system activity audits. These regulations have not been finalized. We are in the process of assessing the impact that these new regulations will have on us, given their complexity and the likelihood that they will be subject to changing, and perhaps conflicting, interpretation. New Medicaid Managed Care Regulations On January 19, 2001, HHS issued final Medicaid managed care regulations to implement certain provisions of the Balanced Budget Act of 1997, or BBA. Since the publication of this final rule, CMS delayed the rule's effective date three times, the most recent of which delays the effective date of the final rule to August 16, 2002. In addition, on August 20, 2001, CMS proposed a new Medicaid managed care rule that is intended to eventually replace the final rule published on January 19, 2001. The proposed rule would implement BBA provisions intended to (1) give states the flexibility to enroll certain Medicaid recipients in managed care plans without a federal waiver if the state provides the recipients with a choice of managed care plans; (2) establish protections for members in areas such as quality assurance, grievance rights and coverage of emergency services; and (3) eliminate certain requirements viewed by the states as impediments to the growth of managed care programs, such as the enrollment composition requirement, the right to disenroll without cause at any time, and the prohibition against enrollee cost-sharing. The rule would also establish requirements intended to ensure that state Medicaid managed care capitation rates are actuarially sound. According to HHS, this requirement would eliminate the generally outdated regulatory ceiling on what states may pay managed care plans, a particularly important provision as more state Medicaid programs include people with chronic illnesses and disabilities in managed care. CMS will accept comments on the proposed rule until October 16, 2001, and the Secretary of HHS has indicated an intent to finalize the regulations by early 2002. Because the final content of the rule has not yet been determined, we cannot predict what requirements it will ultimately entail, nor when such requirements will become effective. Changes to the regulations 41

affecting our business, including these proposed regulations, could increase our healthcare costs and administrative expenses, reduce our reimbursement rates, and otherwise adversely affect our business, results of operations, and financial condition. Patients' Rights Legislation The United States Senate and House of Representatives passed two versions of patients' rights legislation in May and August 2001, respectively. Both versions include provisions that specifically apply protections to participants in federal healthcare programs, including Medicaid beneficiaries. Either version of this legislation could expand our potential exposure to lawsuits and increase our regulatory compliance costs. Depending on the final form of any patients' rights legislation, such legislation could, among other things, expose us to liability for economic and punitive damages for making determinations that deny benefits or delay beneficiaries' receipt of benefits as a result of our medical necessity or other coverage determinations. According to published reports, Congress may convene a conference committee shortly to attempt to resolve differences between the Senate and House bills, including such matters as the amount of allowable damages, whether cases would be governed by federal or state law, and whether such actions could be brought in federal or state courts. We cannot predict whether patients' rights legislation will be enacted into law or, if enacted, what final form such legislation might take. Other Fraud and Abuse Laws Investigating and prosecuting healthcare fraud and abuse became a top priority for law enforcement entities in the last decade. The focus of these efforts has been directed at participants in public government healthcare programs such as Medicaid. The laws and regulations relating to Medicaid fraud and abuse and the contractual requirements applicable to plans participating in these programs are complex and changing and will require substantial resources. Properties Our headquarters occupy approximately 36,000 square feet of office space in Saint Louis, Missouri under a lease expiring in 2010. We currently are subleasing approximately 4,000 square feet of this space. Our claims center occupies approximately 14,000 square feet of office space in Farmington, Missouri under a lease expiring in 2009. We also lease space in Wisconsin, Indiana and Texas where our health plans are located. We are required by various insurance and Medicaid regulatory authorities to have offices in the service areas where we provide Medicaid benefits. We believe our current facilities are adequate to meet our operational needs for the foreseeable future. Employees As of September 30, 2001, we had 401 employees, of whom 88 were employed at our Saint Louis headquarters, 91 at our Farmington claims center, 57 by our Indiana plan, 79 by our Wisconsin plan and 86 by our Texas plans. Our employees are not represented by a union. We believe our relationships with our employees are good. Legal Proceedings In the normal course of our business, we may be a party to legal proceedings. We are not currently a party to any material legal proceedings. 42

MANAGEMENT The following table sets forth information regarding our executive officers, key employees and directors as of September 30, 2001: Name Age Position ---- --- -------- Executive Officers and Directors Michael F. Neidorff............. 58 President, Chief Executive Officer, Treasurer and Director Joseph P. Drozda, Jr., M.D...... 56 Senior Vice President, Medical Affairs Catherine M. Halverson.......... 52 Senior Vice President, Business Development Mary O'Hara..................... 51 Senior Vice President, Operations Services Brian G. Spanel................. 46 Senior Vice President and Chief Information Officer Karey L. Witty.................. 37 Senior Vice President, Chief Financial Officer and Secretary Claire W. Johnson (1)........... 59 Chairman of the Board of Directors Samuel E. Bradt (1)............. 63 Director Walter E. Burlock, Jr........... 38 Director Edward L. Cahill (2)............ 48 Director Howard E. Cox, Jr. (2).......... 57 Director Robert K. Ditmore (2)........... 67 Director Richard P. Wiederhold (1)....... 58 Director Key Employees Kathleen R. Crampton............ 57 President and Chief Executive Officer, Managed Health Services Wisconsin Rita Johnson-Mills.............. 42 President and Chief Executive Officer, Managed Health Services Indiana -------- (1) Member of the Audit Committee. (2) Member of the Compensation Committee. Michael F. Neidorff has served as our President, Chief Executive Officer and Treasurer and as a member of our board of directors since May 1996. 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. Joseph P. Drozda, Jr., M.D. has served as our Senior Vice President, Medical Affairs since November 2000 and served as our part-time Medical Director from January 2000 through October 2000. From June 1999 to October 2000, Dr. Drozda was self-employed as a consultant to managed care organizations, physician groups, hospital networks and employer groups on a variety of managed care delivery and financing issues. From 1996 to April 1999, Dr. Drozda served as the Vice President of Medical Management of SSM Health Care, a health services network. From 1994 to 1996, Dr. Drozda was the Vice President and Chief Medical Officer of PHP, Inc., a health maintenance organization based in North Carolina. From 1987 until 1994, Dr. Drozda served as Medical Director of Physicians Health Plan of Greater St. Louis, a health plan that he co-founded. Catherine M. Halverson has served as our Senior Vice President, Business Development since September 2001. From March 2001 to September 2001, Ms. Halverson was self-employed as a consultant to a pharmaceutical benefit management company and Medicaid managed care plans. From 1993 to March 43

2001, Ms. Halverson was the Vice President and Director of Medicaid Programs of UnitedHealth Group Incorporated. Mary O'Hara has served as our Senior Vice President, Operations Services since January 1999. From December 1998 to January 1999, Ms. O'Hara served as our Chief Contracting Officer. From March 1997 to October 1998, Ms. O'Hara was the Chief Contracting Officer of Unity Health Network, a network of hospitals and physicians in Missouri and Illinois. From 1990 to February 1997, Ms. O'Hara was the Director of Managed Care for Virginia Mason Medical Center, an integrated healthcare delivery system, in Seattle, Washington. Brian G. Spanel has served as our Senior Vice President and Chief Information Officer since December 1996. From 1988 to 1996, Mr. Spanel served as President of GBS Consultants, a healthcare consulting and help desk software developer. From 1987 to 1988, Mr. Spanel was Director of Information Services for CompCare, a managed care organization. From 1984 to 1987, Mr. Spanel was Director of Information Services for Peak Health Care, a managed care organization. Karey L. Witty has served as our Senior Vice President and Chief Financial Officer since August 2000 and as our Secretary since February 2000. From March 1999 to August 2000, Mr. Witty served as our Vice President of Health Plan Accounting. From 1996 to March 1999, Mr. Witty was Controller of Heritage Health Systems, Inc., a healthcare company in Nashville, Tennessee. From 1994 to 1996, Mr. Witty served as Director of Accounting for Healthwise of America, Inc., a publicly traded managed care organization. Claire W. Johnson has served as a member of our board of our directors since 1987 and served as our Acting President and Chief Executive Officer from 1995 to April 1996. Mr. Johnson served as the Chief Executive Officer of Group Health Cooperative of Eau Claire, Wisconsin, a health maintenance organization, from 1972 to 1994. Samuel E. Bradt has served as a member of our board of directors since 1993 and served as our Secretary from 1993 to July 2000. Mr. Bradt is President of Merganser Corporation, a business advisory and venture capital firm he founded in 1980. Walter E. Burlock, Jr. has served as a member of our board of directors since September 1998. Mr. Burlock has been a Managing Director of Origin Capital Management, a private venture capital firm located in San Francisco, California, since July 2000. From 1990 to June 2000, Mr. Burlock was a Managing Director of Soros Fund Management LLC, a hedge fund manager. Edward L. Cahill has served as a member of our board of directors since September 1998. Mr. Cahill has been a Partner of HLM, a private venture capital firm located in Boston, Massachusetts, since April 2000. From 1995 to April 2000, Mr. Cahill was a partner at Cahill Warnock Strategic Partners Fund, L.P., a venture capital firm he co-founded. From 1981 to 1995, Mr. Cahill was employed by Alex, Brown & Sons, an investment banking and brokerage firm. Howard E. Cox, Jr. has served as a member of our board of directors since 1993. Mr. Cox is a partner of Greylock Limited Partnership, a national venture capital firm headquartered in Waltham, Massachusetts and San Mateo, California, with which he has been associated since 1971. Mr. Cox also currently serves as a director of Stryker Corporation in Michigan and Landacorp, Inc. in Atlanta. Robert K. Ditmore has served as a member of our board of directors since April 1996. From 1985 to 1991, Mr. Ditmore was the President and Chief Operating Officer of United Healthcare Corp., a publicly traded managed care organization now known as UnitedHealth Group Incorporated. 44

Richard P. Wiederhold has served as a member of our board of directors since 1993. Mr. Wiederhold has served since 1992 as President of Managed Health Services, Inc. d/b/a the Elizabeth A. Brinn Foundation, a charitable foundation. From 1973 to 1985, Mr. Wiederhold held several positions, most recently Corporate Treasurer, with Allen-Bradley Company, a manufacturer of industrial motor controls and electronic and magnetic components. Kathleen R. Crampton has served as the President and Chief Executive Officer of Managed Health Services Insurance Corp., our health plan in Wisconsin, since June 2000. From November 1999 to May 2000, Ms. Crampton was a Senior Consultant for PricewaterhouseCoopers LLC. From June 1996 to October 1999, Ms. Crampton served as Vice President of the Patterson Group, a private consulting firm serving health maintenance organizations and their service providers and medical manufacturers. From 1993 to 1996, Ms. Crampton served as Vice President of Marketing for Healthtech Services Corporation, a home care robotics and telemedicine information systems company. Rita Johnson-Mills has served as the President and Chief Executive Officer of Managed Health Services Indiana, Inc., our health plan in Indiana, since April 2001. From March 2000 to April 2001, Ms. Johnson-Mills served as the Chief Operating Officer of Managed Health Services Indiana, Inc. From July 1999 to March 2000, Ms. Johnson-Mills was a Senior Vice President and the Chief Operating Officer of Medical Diagnostic Management. From 1995 to March 1999, Ms. Johnson-Mills served as Senior Vice President and Chief Operating Officer of DC Chartered Health Plan, Inc., a health maintenance organization. Classified Board of Directors We currently have eight directors, four of whom were elected as directors under a stockholders' agreement that will automatically terminate upon the closing of this offering. At our request, all directors elected to the board of directors pursuant to the stockholders' agreement have agreed to remain on the board following this offering. There are no family relationships among any of our directors or executive officers. Our charter includes a provision establishing a classified board of directors. Upon the closing of this offering, our board will be divided into three classes, each of whose members will serve for a staggered three-year term. The division of the three classes, the initial directors and their respective election dates are as follows: . the class 1 directors will be Samuel E. Bradt, Walter E. Burlock, Jr. and Michael F. Neidorff, and their term will expire at the annual meeting of stockholders to be held in 2002; . the class 2 directors will be Edward L. Cahill, Howard E. Cox, Jr. and Robert K. Ditmore, and their term will expire at the annual meeting of stockholders to be held in 2003; and . the class 3 directors will be Claire W. Johnson and Richard P. Wiederhold, and their term will expire at the annual meeting of stockholders to be held in 2004. At each annual meeting of stockholders after the initial classification, a class of directors will be elected to serve for a three-year term to succeed the directors of the same class whose terms are then expiring. The authorized number of directors may be changed only by resolution of the board of directors. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as early as possible, each class will consist of one-third of the directors. This classification of our board of directors may have the effect of delaying or preventing changes in control or management of our company. See "Description of Capital Stock-Anti-Takeover Effects of Provisions of Delaware Law and Our Charter and By-Laws." 45

Board Committees We have established an audit committee and a compensation committee of our board of directors. Audit Committee. Our audit committee consists of Samuel E. Bradt, Claire W. Johnson and Richard P. Wiederhold. The audit committee assists the board in fulfilling its oversight responsibilities by reviewing all audit processes and fees, the financial information that will be provided to our stockholders and our systems of internal financial controls. The audit committee shares with the board the authority and responsibility to select, evaluate and, where appropriate, replace the independent public accountants. Compensation Committee. Our compensation committee consists of Edward L. Cahill, Howard E. Cox, Jr., and Robert K. Ditmore. The compensation committee reviews, and makes recommendations to the board of directors regarding, the compensation and benefits of our executive officers and key managers. The compensation committee also administers the issuance of stock options and other awards under our stock plans and establishes and reviews policies relating to the compensation and benefits of our employees and consultants. Director Compensation Our non-employee directors receive an annual fee from us of $4,000 and a fee of $1,000 for each meeting of the board of directors he or she attends in person and $250 for each meeting attended by means of conference telephone call. In addition, each member of our audit and compensation committees receives $500 from us for each committee meeting he or she attends in person and $200 for each meeting attended by means of conference telephone call. Directors are reimbursed for expenses incurred in connection with their service. In addition, we may, in our discretion, grant stock options and other equity awards to our employee and non-employee directors under our stock plans. We have granted the following non-qualified stock options shares to our non employee directors: . In January 1996, we granted options to purchase shares at an exercise price of $ per share to Claire W. Johnson. . In September 1997, we granted options to purchase shares at an exercise price of $ per share to each of Samuel E. Bradt, Howard E. Cox, Jr., Mr. Johnson and Richard P. Wiederhold. . In 2000, we granted options to purchase shares to each of Messrs. Bradt, Cox, Johnson, Wiederhold, Walter E. Burlock, Jr. and Edward L. Cahill. Half of these options were granted in January and have an exercise price of $ per share, and the balance of the options were granted in October and have an exercise price of $ per share. All of the above options vest ratably over five years from the date of grant. Compensation Committee Interlocks And Insider Participation None of our executive officers serves as a member of the board of directors or 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 employee of Centene. 46

Executive Compensation Compensation Earned The following summarizes the compensation earned during the fiscal year ended December 31, 2000 by our chief executive officer and our four other most highly compensated executive officers who were serving as executive officers on December 31, 2000 and whose total compensation exceeded $100,000. We refer to these individuals as our "named executive officers." Summary Compensation Table Long-Term Compensation ------------ Annual Compensation Securities ------------------- Underlying Name and Principal Position Salary Bonus Options --------------------------- -------- -------- ------------ Michael F. Neidorff........................... $300,000 $160,000 President and Chief Executive Officer Mary O'Hara................................... 230,000 60,000 Senior Vice President, Operations Services Karey L. Witty................................ 149,615 75,000 Senior Vice President and Chief Financial Officer Brian G. Spanel............................... 148,249 43,000 Senior Vice President and Chief Information Officer Joseph P. Drozda, Jr., M.D.................... 97,981 35,000 Senior Vice President, Medical Affairs Option Grants The following table sets forth information concerning the individual grants of stock options to each of the named executive officers who received grants during the fiscal year ended December 31, 2000. The exercise price per share of each option was equal to the fair market value of the common stock on the date of grant, as determined by the board of directors. We have never granted any stock appreciation rights. The potential realizable value is calculated based on the term of the option at its time of grant, which is ten years. This value is based on assumed rates of stock appreciation of 5% and 10% compounded annually from the date the options were granted until their expiration date. These numbers are calculated based on the requirements of the SEC and do not reflect our estimate of future stock price growth. Actual gains, if any, on stock option exercises will depend on the future performance of the common stock and the date on which the options are exercised. 47

Option Grants In Year Ended December 31, 2000 Individual Grants Value ----------------------- Potential Realizable Value at Assumed Number of Percent of Annual Rates of Stock Securities Total Options Price Appreciation Underlying Granted to Exercise for Option Term Options Employees in Price Per Expiration --------------------- Name Granted Fiscal Year Share Date 5% 10% ---- ---------- ------------- --------- ---------- ------- -------- Michael F. Neidorff........ 7.5% $ 10/20/10 $86,583 $137,847 Mary O'Hara................ 0.6 10/20/10 6,499 10,349 Karey L. Witty............. 3.8 10/20/10 43,292 68,924 Brian G. Spanel............ 0.9 10/20/10 10,823 17,231 Joseph P. Drozda, Jr., M.D. 6.6 01/03/10 75,760 120,616 Option Exercises and Holdings None of our named executive officers exercised options during 2000. The following table sets forth certain information regarding the number and value of unexercised options held by each of the named executive officers as of December 31, 2000. There was no public market for our common stock as of December 31, 2000. Accordingly, amounts described in the following table under the heading "Value of Unexercised In-The-Money Options at Year End" are determined by multiplying the number of shares underlying the options by the difference between an assumed public offering price of $ per share and the per share option exercise price. Aggregated 2000 Year-End Option Values Number of Securities Underlying Unexercised Value of Unexercised Options at In-The-Money Options at Fiscal Year End Year End ------------------------- ------------------------- Name Exercisable Unexercisable Exercisable Unexercisable ---- ----------- ------------- ----------- ------------- Michael F. Neidorff........ $ $ Mary O'Hara................ Karey L. Witty............. Bria G. Spanel............. Joseph P. Drozda, Jr., M.D. Stock options that are otherwise unvested may be exercised for shares which are subject to vesting and a repurchase option at the exercise price. Except for shares subject to an option granted to Mr. Neidorff in 1997, all shares subject to options vest ratably over 5 years. The option granted to Mr. Neidorff in 1997 will vest in full on the fifth anniversary of the date of grant. Fifty percent of shares underlying options granted under our 1994 Stock Plan, 1996 Stock Plan and 1998 Stock Plan vest automatically upon a change of control. Shares underlying options granted under our 1999 Stock Plan and 2000 Stock Plan vest automatically in full upon a change in control. Employee Benefit Plans Stock Plans We have five stock plans: the 1994 Stock Plan, 1996 Stock Plan, 1998 Stock Plan, 1999 Stock Plan and 2000 Stock Plan. The stock plans have the same basic terms. General. We have reserved for issuance under the plans an aggregate maximum of shares of common stock. As of September 30, 2001, options to purchase shares of our common stock were 48

outstanding and shares of common stock had been issued upon the exercise of options under the plans. If an award granted under the plan expires or is terminated, the shares of common stock underlying the award will be available for issuance under the plans. Types of Awards. The following awards may be granted under the plans: . stock options, including incentive stock options and non-qualified stock options; . stock bonuses; and . the opportunity to make direct purchases of stock. Administration. The plans are administered by the board of directors, which may designate a committee to administer the plans. The board or committee may, subject to the provisions of the plans, determine the persons to whom awards will be granted, the type of award to be granted, the number of shares to be made subject to awards, the exercise price and other terms and conditions of the awards, and interpret the plans and prescribe, amend and rescind rules and regulations relating to the plans. Eligibility. Awards may be granted under the plans to our employees, directors and consultants or employees, directors and consultants of any of our subsidiaries, as selected by the board of directors or committee. Terms and Conditions of Options. Stock options may be either "incentive stock options," as that term is defined in Section 422 of the Internal Revenue Code, or non-qualified stock options. The exercise price of a stock option granted under the plan is determined by the board or committee at the time the option is granted, but the exercise price of an incentive stock option may not be less than the fair market value per share of common stock on the date of grant. Stock options are exercisable at the times and upon the conditions that the board or committee may determine, as reflected in the applicable option agreement. The exercise period may not extend beyond ten years from the date of grant. The option exercise price must be paid in full at the time of exercise, and is payable by any one of the following methods or a combination thereof: . in cash or cash equivalents or, at the discretion of the board or committee; . by surrender of previously acquired shares of our common stock with a fair market value, as determined by the board of directors, equal to the exercise price; . by delivery of the optionee's personal recourse promissory note with interest payable at a rate approved by the board of directors; or . through a specified "broker cashless exercise" procedure. Stock Bonuses. The plans provide that the board or committee, in its discretion, may award shares of common stock to plan participants. Purchase Opportunity. The plans provide that the board or committee, in its discretion, may authorize plan participants to purchase shares of common stock. Director Awards. The board or committee, in its discretion, may grant awards under the plan to both employee and nonemployee directors. The terms of the awards granted to directors are to be generally consistent with the terms of awards granted to other participants under the plan. Termination of Employment. If a participant ceases to be an employee or perform services for us or one of our affiliates for any reason other than death or disability, his or her option will expire one month 49

after the date of termination or such lesser period, or greater period in the case of nonqualified options, as the board or committee shall determine. If such termination is as a result of death or disability, the options will be terminate three months after the date of termination, unless the board or committee determines a shorter period. No option may, however, be exercised after the date of its expiration, and may be exercised after termination only to the extent it was exercisable on the date of termination. The options granted to date each provide that options are fully exercisable on the date of grant, but shares subject to the options vest ratably over five years. Fifty percent of shares underlying options granted under our 1994 Stock Plan, 1996 Stock Plan and 1998 Stock Plan vest automatically upon a "change of control" as defined in the option agreements. Shares underlying options granted under our 1999 Stock Plan and 2000 Stock Plan vest automatically in full upon a "change in control" as defined in the option agreements. If an option holder leaves our employ for any reason or, in the case of an option holder who is a non-employee director, ceases to be a member of our board of directors, we may repurchase from such holder all unvested shares acquired by him or her at the option exercise price. Amendment and Termination of Plans. The board of directors may modify or terminate the plans or any portion of the plans at any time, except that shareholder approval is required for any amendment that would increase the total number of shares reserved for issuance under a plan, materially increase the plan benefits available to participants, materially modify the plan eligibility requirements, or otherwise as required to comply with applicable law. No awards may be granted under any plan after the day prior to the tenth anniversary of its adoption date. Employment Agreements Joseph P. Drozda serves as our Senior Vice President, Medical Affairs pursuant to an employment agreement dated October 30, 2000. We have agreed to pay Dr. Drozda an annual salary of $180,000, which may be adjusted by our President. Dr. Drozda may also receive an annual bonus in the discretion of our President. Dr. Drozda has agreed not to disclose confidential information about our business, and not to compete with us during the term of his employment and for nine months thereafter. Dr. Drozda's employment may be terminated by us for cause or permanent disability. If we terminate Dr. Drozda without cause, he will be entitled to receive one year's salary continuation, and we will be obligated to pay premiums for the health and dental coverage to which he would be entitled under the Consolidated Omnibus Budget Reconciliation Act of 1985, or COBRA, for 12 months. If, after a change in control, Dr. Drozda's position is eliminated, his salary is reduced or he is asked and refuses to relocate outside of the Saint Louis metropolitan area, he will, upon termination, be entitled to the above benefits, but his one year salary will be paid either in a lump sum or as salary continuance, at his option. Mary O'Hara serves as our Senior Vice President, Operations Services pursuant to an employment agreement dated December 16, 1998. This agreement had an initial term of one year and renews automatically on an annual basis unless we provide 30 days' prior written notice of non-renewal. We have agreed to pay Ms. O'Hara an annual salary of $200,000, which may be adjusted by our President. Ms. O'Hara may also receive an annual bonus in an amount to be determined by the board of directors. Ms. O'Hara has agreed not to disclose confidential information about our business or, during the term of her employment and for a period of one year thereafter, solicit any of our customers, suppliers, employees or agents. Ms. O'Hara has also agreed not to compete with us during the term of her employment or for a period of six months thereafter. Ms. O'Hara's employment may be terminated by us for cause or permanent disability. If we terminate Ms. O'Hara without cause, Ms. O'Hara will be entitled to receive one year's salary continuation and COBRA coverage for 12 months. 50

Brian G. Spanel serves as our Senior Vice President and Chief Information Officer pursuant to an employment agreement dated August 6, 2001. This agreement has an initial term of one year and renews automatically on an annual basis unless we provide 30 days' prior written notice of non-renewal. We have agreed to pay Mr. Spanel an annual salary of $175,000, which may be adjusted by our President. Mr. Spanel may also receive an annual bonus in the discretion of our President. Mr. Spanel has agreed not to disclose confidential information about our business. Mr. Spanel has also agreed not to compete with us during the term of his employment and for nine months thereafter. Mr. Spanel's employment may be terminated by us for cause or permanent disability. If we terminate Mr. Spanel without cause, he will be entitled to receive 39 weeks salary continuation and COBRA coverage for nine months. If, within 24 months after a change in control, Mr. Spanel is involuntarily terminated or voluntarily resigns due to a reduction in his compensation, a material adverse change in his position with us or the nature or scope of his duties or a request that he relocate outside of the Saint Louis metropolitan area, he will be entitled to receive one year's salary, either in a lump sum or as salary continuance, at his option, COBRA coverage for 18 months and the use of an outplacement service. Karey L. Witty serves as our Senior Vice President and Chief Financial Officer pursuant to an employment agreement dated as of January 1, 2001. This agreement has an initial term of one year and renews automatically unless we provide 30 days' prior written notice of non-renewal. We have agreed to pay Mr. Witty an annual salary of $175,000, which may be adjusted by our President. Mr. Witty may also receive an annual bonus to be determined by our President. Mr. Witty has agreed not to disclose confidential information about our business or, during the term of his employment and for a period of six months thereafter, not to compete with us. Mr. Witty's employment may be terminated by us for cause or permanent disability. If we terminate Mr. Witty without cause, Mr. Witty will be entitled to receive one year's salary continuation and COBRA coverage for 12 months. If, after a change in control, Mr. Witty is involuntarily terminated or voluntarily resigns due to a reduction in his compensation, a material adverse change in his position with us or the nature or scope of his duties or a request that he relocate outside of the Saint Louis metropolitan area, he will be entitled to receive one year's salary, either in a lump sum or as salary continuance, at his option, COBRA coverage for 18 months and the use of an outplacement service. Limitation of Liability of Directors and Indemnification of Directors and Officers As permitted by the Delaware General Corporation Law, our charter provides that our directors shall not be liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director to the fullest extent permitted by Delaware law as it now exists or as it may be amended. As of the date of this prospectus, Delaware law permits limitations of liability for a director's breach of fiduciary duty other than liability for (1) any breach of the director's duty of loyalty to us or our stockholders, (2) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) unlawful payments of dividends or unlawful stock repurchases or redemptions, or (4) any transaction from which the director derived an improper personal benefit. In addition, our by-laws provide that we will indemnify all of our directors, officers, employees and agents for acts performed on our behalf in such capacity. 51

RELATED PARTY TRANSACTIONS Since January 1, 1998, we have engaged in the following transactions with our directors, officers and holders of more than five percent of our voting securities and affiliates of our directors, officers and five percent stockholders. Issuances of Series D Convertible Preferred Stock In September 1998, we sold 3,680,000 shares of series D preferred stock at a price of $5.00 per share for gross proceeds of $18,400,000. . We sold 2,000,000 of the shares to Strategic Investment Partners, Ltd. for a total price of $10,000,000. Strategic Investment Partners, Ltd. is a five percent stockholder. . We sold 947,500 of the shares to Cahill Warnock Strategic Partners Fund, L.P. for a total price of $4,737,500. Cahill Warnock Strategic Partners Fund, L.P. is a five percent stockholder with which Edward L. Cahill, one of our directors, is affiliated. . We sold 600,000 of the shares to Greylock Limited Partnership for a total price of $3,000,000. Greylock Limited Partnership is a five percent stockholder. . We sold 52,500 of the shares to Strategic Associates, L.P. for a total price of $262,500. Mr. Cahill, one of our directors, is affiliated with Strategic Associates, L.P. . We sold 40,000 of the shares to D.L. Associates for a total price of $200,000. Robert K. Ditmore, one of our directors, is affiliated with D.L. Associates. . We sold 20,000 of the shares to Claire W. Johnson for a total price of $100,000. Mr. Johnson is one of our directors. . We sold 5,000 of the shares to a trust for the benefit of Richard P. Wiederhold for a total price of $25,000. Mr. Wiederhold is one of our directors. In May 1999, we sold 40,000 shares of series D preferred stock at a price of $5.00 per share for gross proceeds of $200,000. We sold 25,000 of the shares to Michael F. Neidorff and 5,000 of the shares to Brian G. Spanel, both of whom are our executive officers. Registration Rights The holders of shares of our common stock are entitled to rights to register their shares under the Securities Act. These rights are provided under the terms of an agreement between us and the holders of registrable securities, who are former holders of some series of our common and preferred stock. These holders include: . Greylock Limited Partnership, which has registration rights covering shares of common stock; . Strategic Investment Partners, Ltd., which has registration rights covering shares of common stock; . Cahill Warnock Strategic Partners Fund, L.P., which has registration rights covering shares of common stock; . Mr. Johnson, who has registration rights covering shares of common stock; . Mr. Neidorff, who has registration rights covering shares of common stock; . Strategic Associates, L.P., which has registration rights covering shares of common stock; 52

. D.L. Associates, which has registration rights covering shares of common stock; and . Mr. Spanel, who has registration rights covering shares of common stock. The registration rights: . are held by all persons and entities that purchased series A common stock and series A, series B and series D preferred stock; . allow holders to require us to register their shares under the Securities Act; and . allow holders to include their shares in registration statements filed by us. For a more detailed description of the registration rights, see "Description of Capital Stock--Registration Rights." Employment Agreements We have entered into employment agreements with and Joseph P. Drozda, Mary O'Hara, Brian G. Spanel and Karey L. Witty. For a more detailed description of these employment agreements, including severance provisons, see "Management--Employment Agreements." 53

PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth information regarding the beneficial ownership of our common stock as of September 30, 2001, as adjusted to reflect the sale of the shares of common stock offered in this offering, for: . each person, entity or group of affiliated persons or entities known by us to own beneficially more than 5% of our outstanding common stock; . each of our named executive officers and directors; . all of our executive officers and directors as a group; and . each of the selling stockholders. Beneficial ownership is determined in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities and include shares of common stock issuable upon the exercise of stock options or warrants that are immediately exercisable or exercisable within 60 days. 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, subject to applicable community property laws. The address of our officers and directors is in care of Centene Corporation, 7711 Carondelet Avenue, Suite 800, Saint Louis, Missouri 63105. Percentage ownership calculations are based on shares outstanding as of September 30, 2001. All of the following information gives effect to the conversion of all of our outstanding convertible preferred stock into common stock upon the closing of this offering and the exercise of outstanding warrants to purchase common stock before the closing of this offering. To the extent that any shares are exercised on exercise of options to acquire shares of our capital stock, there may be further dilution to new public investors. 54

Beneficial Ownership Prior to Offering ------------------------------------------- Shares Issuable Pursuant to Number of Options Number of Shares Exercisable Shares of Beneficially within 60 days of Common Stock Name of Beneficial Owner Owned September 30, 2001 Percentage Being Offered ------------------------ ------------ ------------------ ---------- ------------- 5% Stockholders: % Greylock Limited Partnership...................... -- -- One Federal Street, 26th Floor Boston, Massachusetts 02110 Strategic Investment Partners, Ltd................ -- -- c/o Soros Fund Management LLC 888 Seventh Avenue, 33rd Floor New York, New York 10016 Cahill Warnock Strategic Partners Fund, L.P....... -- -- c/o Cahill, Warnock & Company One South Street, Suite 2150 Baltimore, Maryland 21202 Named Executive Officers and Directors: Michael F. Neidorff............................... -- Karey L. Witty.................................... -- Brian Spanel...................................... -- Joseph P. Drozda, Jr., M.D........................ -- Claire W. Johnson................................. (1) -- Samuel E. Bradt................................... (1) -- Walter E. Burlock, Jr............................. -- Edward L. Cahill.................................. -- Howard E. Cox, Jr................................. (2) -- -- Robert K. Ditmore................................. -- -- Richard P. Wiederhold............................. (1) -- All directors and executive officers as a group (13 persons)..................................... Selling Stockholders (3): William P. Jollie................................. (1) -- Thomas M. Gazzana................................. -- Jerome M. Fritsch................................. -- Leon K. Rusch..................................... -- Raymond C. Brinn.................................. (1) -- Kathleen A. Tordik................................ -- Tracey Klein...................................... (4) -- Richard S. Nemitz................................. -- Elaine E. Laverenz................................ -- Beneficial Ownership After Offering ----------------------- Number of Shares Beneficially Name of Beneficial Owner Owned Percentage ------------------------ ------------ ---------- 5% Stockholders: % Greylock Limited Partnership...................... One Federal Street, 26th Floor Boston, Massachusetts 02110 Strategic Investment Partners, Ltd................ c/o Soros Fund Management LLC 888 Seventh Avenue, 33rd Floor New York, New York 10016 Cahill Warnock Strategic Partners Fund, L.P....... c/o Cahill, Warnock & Company One South Street, Suite 2150 Baltimore, Maryland 21202 Named Executive Officers and Directors: Michael F. Neidorff............................... Karey L. Witty.................................... Brian Spanel...................................... Joseph P. Drozda, Jr., M.D........................ Claire W. Johnson................................. Samuel E. Bradt................................... Walter E. Burlock, Jr............................. Edward L. Cahill.................................. Howard E. Cox, Jr................................. Robert K. Ditmore................................. Richard P. Wiederhold............................. All directors and executive officers as a group (13 persons)..................................... Selling Stockholders (3): William P. Jollie................................. Thomas M. Gazzana................................. Jerome M. Fritsch................................. Leon K. Rusch..................................... Raymond C. Brinn.................................. Kathleen A. Tordik................................ Tracey Klein...................................... Richard S. Nemitz................................. Elaine E. Laverenz................................ -------- * Represents less than 1% of outstanding shares of common stock. (1) Includes shares owned of record by Managed Health Services, Inc. Messrs. Johnson, Bradt, Wiederhold, Jolie and Brinn are directors of Managed Health Services. Messrs. Bradt and Wiederhold are also executive officers of Managed Health Services. These persons share voting and investment power with respect to these shares. (2) Includes shares owned of record by Greylock Limited Partnership. Mr. Cox is a co-managing director of Greylock Limited Partnership and share voting and investment power with respect to these shares. (3) Selling stockholders have granted to the underwriters an option, exercisable not later than 30 days after the date of this prospectus, to purchase up to an aggregate of shares to cover over-allotments. If the underwriters exercise their option, shares will be purchased from the selling stockholders on a pro-rata basis at the public offering price. (4) Includes shares held in trust for the benefit of Ms. Klein. 55

DESCRIPTION OF CAPITAL STOCK Upon completion of this offering, we will be authorized to issue 40,000,000 shares of common stock and 10,000,000 shares of undesignated preferred stock. Shares of each class will have a par value of $0.001 per share. The following description summarizes information about our capital stock. You can obtain more comprehensive information about our capital stock by consulting our charter and by-laws, as well as the Delaware General Corporation Law. Common Stock As of September 30, 2001, our charter provided for two series of common stock, which were held as follows: . Series A voting common stock, of which 277,247 shares were issued and outstanding held by ten holders of record; and . Series B non-voting common stock, of which 624,279 shares were issued and outstanding held by six holders of record. Each share of Series A and Series B common stock will convert into one share of common stock upon our reincorporation in Delaware immediately prior to the time we close this offering. Each share of our common stock entitles the holder to one vote on all matters submitted to a vote of stockholders, including the election of directors. Subject to any preference rights of holders of preferred stock, the holders of common stock are entitled to receive dividends, if any, declared from time to time by the directors out of legally available funds. See "Dividend Policy." In the event of our liquidation, dissolution or winding up, the holders of common stock are entitled to share ratably in all assets remaining after the payment of liabilities, subject to any rights of holders of preferred stock to prior distribution. The common stock has no preemptive or conversion rights or other subscription rights. No redemption or sinking fund provisions apply to the common stock. All outstanding shares of common stock are fully paid and nonassessable, and the shares of common stock to be issued upon the completion of this offering will be fully paid and nonassessable. Preferred Stock As of September 30, 2001, our charter provided for four series of preferred stock, which were held as follows: . Series A preferred stock, of which 733,850 shares were issued and outstanding held by nine holders of record; . Series B preferred stock, of which 864,640 shares were issued and outstanding held by one holder of record; . Series C preferred stock, of which 557,850 shares were issued and outstanding held by five holders of record; and . Series D preferred stock, of which 3,716,000 shares were issued and outstanding held by 15 holders of record. Each share of preferred stock will convert into shares of common stock immediately upon the closing of this offering. The board of directors will have the authority, without action by the stockholders, to designate and issue up to an aggregate of 10,000,000 shares of preferred stock, in one or more series, each series to have 56

the voting rights, dividend rights, conversion rights, liquidation preferences and redemption privileges as shall be determined by the board of directors. The rights of the holders of common stock will be affected by, and may be adversely affected by, the rights of holders of any preferred stock that may be issued in the future. It is not possible to state the actual effect of the issuance of any shares of preferred stock on the rights of holders of common stock until the board of directors determines the specific rights attached to that preferred stock. The effects of issuing preferred stock could include one or more of the following: . restricting dividends on the common stock; . diluting the voting power of the common stock; . impairing the liquidation rights of the common stock; or . delaying or preventing changes in control or management of Centene. Anti-Takeover Effects of Provisions of Delaware Law and Our Charter and By-Laws Delaware law and our charter and by-laws could make it more difficult to acquire us by means of a tender offer, a proxy contest, open market purchases, removal of incumbent directors and otherwise. These provisions, summarized below, are expected to discourage types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of us to first negotiate with us. We believe that the benefits of increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging takeover or acquisition proposals because negotiation of these proposals could result in an improvement of their terms. We must comply with Section 203 of the Delaware General Corporation Law, an anti-takeover law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years following the date the person became an interested stockholder, unless the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Generally, a "business combination" includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to an interested stockholder. An "interested stockholder" includes a person who, together with affiliates and associates, owns, or did own within three years prior to the determination of interested stockholder status, 15% or more of the corporation's voting stock. The existence of this provision generally will have an anti-takeover effect for transactions not approved in advance by the board of directors, including discouraging attempts that might result in a premium over the market price for the shares of common stock held by stockholders. Upon the closing of this offering, our charter and by-laws will require that any action required or permitted to be taken by our stockholders must be effected at a duly called annual or special meeting of the stockholders and may not be effected by a consent in writing. In addition, upon the completion of this offering, special meetings of our stockholders may be called only by the board of directors or some of our officers. Our charter and by-laws also provide that, effective upon the completion of this offering, our board of directors will be divided into three classes, with the classes serving staggered three-year terms. These provisions may have the effect of deterring hostile takeovers or delaying or preventing changes in our control or management. Transfer Agent and Registrar The transfer agent and registrar for our common stock is Mellon Investor Services LLC. Nasdaq National Market Listing We expect our common stock to be approved for quotation on the Nasdaq National Market under the symbol "CNTE." 57

SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no market for our common stock. We cannot provide any assurance that an active public market for our common stock will develop or be sustained after the closing of this offering. Future sales in the public markets of substantial amounts of our common stock, including shares issued on the exercise of outstanding options, could adversely affect the prevailing market price of our common stock. It could also impair our ability to raise additional capital through future sales of equity securities. Upon the closing of this offering, a total of shares of our common stock will be outstanding assuming (1) no exercise of the underwriters' over-allotment option and no exercise of options outstanding as of September 30, 2001 or granted thereafter and (2) the conversion upon the closing of this offering of all of our outstanding preferred stock into common stock and the exercise of outstanding warrants to purchase common stock at or before the closing of this offering. Of these shares, all of the shares of common stock sold in this offering will be freely transferable without restriction or further registration under the Securities Act, except for any shares acquired by "affiliates" as that term is defined in Rule 144 under the Securities Act. Shares acquired by affiliates and the remaining shares held by existing stockholders are "restricted securities" as that term is defined in Rule 144 under the Securities Act. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rule 144, which is summarized below. Lock-Up Agreements Our executive officers, directors and stockholders have entered into lock-up agreements pursuant to which they have agreed, with limited exceptions, not to dispose of or hedge any of their common stock for 180 days following the date of this prospectus without the written consent of SG Cowen Securities Corporation. We have also agreed that, without the prior written consent of SG Cowen Securities Corporation, we will not, directly or indirectly, offer, sell or otherwise dispose of any shares of common stock or any securities that may be converted into or exchanged for shares of common stock for a period of 180 days from the date of this prospectus. Upon the closing of this offering, options to purchase shares of common stock will be held by existing optionees, based on options outstanding on September 30, 2001. Under the terms of their option agreements, holders of all of these options have agreed to be bound by the 180-day lock-up. We intend to file with the SEC a registration statement on Form S-8 as soon as practicable after the closing of this offering registering shares of common stock reserved for future issuance under our stock plans or subject to presently outstanding options. This registration statement will allow holders of shares of common stock issued under our stock plans to resell those shares in the public market, without restriction under the Securities Act, subject to the lock-up agreements and, in the case of affiliates, Rule 144 limitations. As a result of the lock-up agreements, the Form S-8 registration statement, the provisions of Rule 144 and Rule 701 under the Securities Act, the common shares outstanding upon the closing of this offering, including shares subject to presently outstanding options, will be eligible for resale in the public market in the United States as follows, subject in some cases to Rule 144 limitations: 58

Number of Shares Date ---------------- ---- After completion of this offering, freely tradable shares sold in this offering After 180 days from the closing of this offering, the 180-day lock-up will be released, and these shares will be eligible for sale in the public market under Rule 144 (subject, in some cases, to volume limitations), Rule 144(k) or Rule 701 After 180 days from the closing of this offering, restricted securities that have been held for less than one year and are not eligible for sale in the public market under Rule 144 Rule 144 In general, under Rule 144, as in effect on the date of this prospectus, any person, including any of our affiliates, who has beneficially owned restricted common shares for at least one year, would be entitled to sell, within any three-month period, a number of shares that, together with sales of any common shares with which such person's sales must be aggregated, does not exceed the greater of: . 1% of the total number of shares of common stock then outstanding, or . the average weekly trading volume of the common stock on the Nasdaq National Market during the four calendar weeks preceding the date on which the notice of the sale on Form 144 is filed with the SEC. Sales of restricted securities under Rule 144 are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us. Persons who are our affiliates must also comply with the restrictions and requirements of Rule 144, other than the one-year holding period requirement, in order to sell common shares in the public market that are not restricted securities. We are unable to estimate the number of shares that will be sold under Rule 144, as this will depend on the market price for our common stock, the personal circumstances of the sellers and other factors. Rule 144(k) Under Rule 144(k), a person who is not deemed to have been one of our affiliates at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, including the holding period of any prior owner that was not an affiliate, is entitled to sell the shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Rule 701 In general, under Rule 701, as in effect on the date of this prospectus, our employees, directors, officers, consultants or advisors who purchase shares from us in connection with a compensatory stock or option plan or other written agreement before the effective date of this prospectus may rely on Rule 701 to resell those shares 90 days after the effective date of this prospectus. Rule 701 permits non-affiliates to sell their Rule 701 shares in reliance on Rule 144 without having to comply with the holding period, public information, volume limitation or notice provisions of Rule 144. Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. All holders of Rule 701 shares are required to wait until 90 days after the date of this prospectus before selling those shares. 59

Registration Rights Pursuant to a shareholders' agreement dated September 23, 1998, the holders of approximately shares of common stock will be entitled to require us to register their shares under the Securities Act. Under this agreement, if we propose to register any of our securities under the Securities Act for our account, other than for employee benefit plans and business acquisitions or corporate restructurings, the holders of the registration rights are entitled to written notice of the registration and to include their shares of common stock in the registration. In addition, such holders may on up to two occasions, or three occasions under some circumstances, require us to register their shares of common stock under the Securities Act, and we are required to use our best efforts to effect any such registration. These registration rights are subject to conditions and limitations, including (1) the right of the underwriters of an offering to limit the number of shares included in such registration and (2) the right of the underwriters to lock-up the shares of such holders for a period of 120 days after the effective date of any registration statement filed by us. We have the right to defer the filing of any registration statement for up to 180 days if our board of directors determines that the filing would be seriously detrimental to us and our stockholders. We are responsible for paying the expenses of any registration pursuant to the shareholders' agreement, other than any underwriters' discounts and commissions. 60

UNDERWRITING We, the selling stockholders and the underwriters named below have entered into an underwriting agreement with respect to the shares being offered. Subject to the terms and conditions of the underwriting agreement, the underwriters named below have severally agreed to purchase from us the number of shares set forth opposite their names on the table below at the public offering price, less the underwriting discounts and commissions, as set forth on the cover page of this prospectus. SG Cowen Securities Corporation, Thomas Weisel Partners LLC and CIBC World Markets Corp. are acting as the representatives of the several underwriters named below. Number of Name Shares ---- --------- SG Cowen Securities Corporation Thomas Weisel Partners LLC..... CIBC World Markets Corp........ ---- Total....................... ==== The underwriting agreement provides that the obligations of the several underwriters to purchase the shares of common stock offered hereby are conditional and may be terminated at their discretion based on their assessment of the state of the financial markets. The obligations of the underwriters may also be terminated upon the occurrence of other events specified in the underwriting agreement. The underwriters are severally committed to purchase all of the shares of common stock being offered by us if any shares are purchased, other than those covered by the over-allotment option described below. The underwriters propose to offer the shares of common stock to the public at the public offering price set forth on the cover of this prospectus. The underwriting fee will be an amount equal to the offering price to the public less the amount paid per share by the underwriters to us. The underwriters may offer to securities dealers, and those dealers may re-allow, a concession not in excess of $ per share. After the shares of common stock are released for sale to the public, the underwriters may vary the offering price and other selling terms from time to time. The selling stockholders have granted to the underwriters an option, exercisable not later than 30 days after the date of this prospectus, to purchase up to an aggregate of additional shares of common stock at the public offering price set forth on the cover page of this prospectus less the underwriting discounts and commissions. The underwriters may exercise this option only to cover over-allotments, if any, made in connection with the sale of the common stock offered hereby. If the underwriters exercise their over-allotment option, the underwriters have severally agreed to purchase shares from the selling stockholders in approximately the same proportion as shown in the table above. We estimate that our share of the total expenses of this offering, excluding underwriting discounts and commissions, will be approximately $ . We and the selling stockholders have agreed to indemnify the underwriters against certain civil liabilities, including liabilities under the Securities Act and liabilities arising from breaches of representations and warranties contained in the underwriting agreement, and to contribute to payments the underwriters may be required to make in respect of any such liabilities. 61

Our directors, executive officers, stockholders and optionholders have agreed with the underwriters, or are otherwise subject to agreements which provide, that for a period of 180 days following the date of this prospectus, they will not dispose of or hedge any shares of common stock or any securities convertible into or exchangeable for shares of common stock. SG Cowen Securities Corporation may, in its sole discretion, at any time without prior notice, release all or any portion of the shares from the restrictions in any such agreement to which SG Cowen Securities Corporation is a party. We have entered into a similar agreement with the representatives of the underwriters, provided we may grant options and sell shares pursuant to our stock plans without such consent. There are no agreements between SG Cowen Securities Corporation and any of our stockholders or affiliates releasing them from these lock-up agreements prior to the expiration of the 180-day period. The representatives of the underwriters have advised us that the underwriters do not intend to confirm sales to any account over which they exercise discretionary authority. The representatives of the underwriters may engage in over-allotment, stabilizing transactions, syndicate covering transactions, penalty bids and passive market making in accordance with Regulation M under the Securities Exchange Act. Over-allotment involves syndicate sales in excess of the offering size, which creates a syndicate short position. Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. Syndicate covering transactions involve purchases of the shares of common stock in the open market after the distribution has been completed in order to cover syndicate short positions. Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the shares of common stock originally sold by such syndicate member is purchased in a syndicate covering transaction to cover syndicate short positions. Penalty bids may have the effect of deterring syndicate members from selling to people who have a history of quickly selling their shares. In passive market making, market makers in the shares of common stock who are underwriters or prospective underwriters may, subject to certain limitations, make bids for or purchases of the shares of common stock until the time, if any, at which a stabilizing bid is made. These stabilizing transactions, syndicate covering transactions and penalty bids may cause the price of the shares of common stock to be higher than it would otherwise be in the absence of these transactions. These transactions may be effected on the Nasdaq National Market or otherwise and, if commenced, may be discontinued at any time. Prior to this offering, there has been no public market for shares of our common stock. Consequently, the initial public offering price will be determined by negotiations between us and the underwriters. The various factors to be considered in these negotiations will include prevailing market conditions, the market capitalizations and the states of development of other companies that we and the underwriters believe to be comparable to us, estimates of our business potential, our results of operations in recent periods, the present state of our development and other factors deemed relevant. At our request, the underwriters have reserved for sale, at the initial public offering price, up to five percent of the offered shares for employees, family members of employees, business associates and other third party vendors. The number of shares of our common stock available for sale to the general public will be reduced to the extent these reserved shares are purchased. Any reserved shares not purchased will be offered by the underwriters to the general public on the same terms as the other shares in this offering. Thomas Weisel Partners LLC, one of the representatives of the underwriters, was organized and registered as a broker-dealer in December 1998. Since December 1998, Thomas Weisel Partners LLC has been named as a lead or co-manager on numerous public offerings of equity securities. SG Cowen Securities Corporation provides financial advisory services to us from time to time in the ordinary course of its business. 62

LEGAL MATTERS The validity of the common stock offered by this prospectus will be passed upon for us by Armstrong Teasdale LLP, Saint Louis, Missouri. Legal matters in connection with the offering will be passed upon for the underwriters by Hale and Dorr LLP, Boston, Massachusetts. EXPERTS The consolidated financial statements and schedule included in this prospectus and elsewhere in the registration statement to the extent and for the periods indicated in their reports, have been audited by Arthur Andersen LLP, independent public accountants, and are included herein in reliance upon the authority of said firm as experts in giving said reports. WHERE YOU CAN FIND ADDITIONAL INFORMATION This prospectus constitutes a part of a registration statement on Form S-1 (together with all amendments, supplements, schedules and exhibits to the registration statement, referred to as the registration statement) that we have filed with the SEC under the Securities Act . This prospectus does not contain all the information that is in the registration statement. We refer you to the registration statement for further information about our company and the securities offered by this prospectus. Statements contained in this prospectus concerning the provisions of documents filed as exhibits are not necessarily complete, and reference is made to the copy filed, each such statement being qualified in all respects by such reference. You can inspect and copy the registration statement and the reports and other information on file with the SEC at the SEC's public reference room at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You can obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a Web site which provides on-line access to reports, proxy and information statements and other information regarding registrants that file electronically with the SEC at the address http://www.sec.gov. Upon the effectiveness of the registration statement, we will become subject to the information requirements of the Securities Exchange Act. We will then file reports, proxy statements and other information under the Securities Exchange Act with the SEC. You can inspect and copy these reports and other information of our company at the locations set forth above or download these reports from the SEC's Web site. 63

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page ---- Centene Corporation and Subsidiaries: Report of Independent Public Accountants............................................................ F-2 Consolidated Balance Sheets at December 31, 1999 and 2000, and June 30, 2001 (Unaudited)............ F-3 Consolidated Statements of Operations for the Years Ended December 31, 1998, 1999 and 2000 and the Six Months Ended June 30, 2000 and 2001 (Unaudited)............................................... F-4 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1998, 1999 and 2000 and the Six Months Ended June 30, 2001 (Unaudited)................................................ F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1999 and 2000 and the Six Months Ended June 30, 2000 and 2001 (Unaudited)............................................... F-6 Notes to Consolidated Financial Statements.......................................................... F-7 F-1

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Centene Corporation: We have audited the accompanying consolidated balance sheets of Centene Corporation (a Wisconsin corporation) and subsidiaries as of December 31, 1999 and 2000, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects the financial position of Centene Corporation and subsidiaries as of December 31, 1999 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. /s/ ARTHUR ANDERSEN LLP St. Louis, Missouri March 2, 2001 F-2

CENTENE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data) December 31, ----------------- 1999 2000 -------- ------- ASSETS CURRENT ASSETS: Cash and cash equivalents................................................................. $ 22,532 $19,023 Premium and related receivables, net of allowances of $1,245, $1,866 and $2,034, respectively............................................................................. 11,451 15,538 Short-term investments, at fair value (amortized cost $1,131, $7,404 and $4,242, respectively)............................................................................ 1,131 7,400 Other current assets...................................................................... 2,854 2,170 Deferred income taxes..................................................................... 1,010 2,585 -------- ------- Total current assets.................................................................... 38,978 46,716 LONG-TERM INVESTMENTS, at fair value (amortized cost $7,898, $14,326 and $24,000, respectively)..................................................................... 7,593 14,459 INVESTMENTS IN JOINT VENTURES............................................................... 1,833 2,422 FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net........................................ 1,528 1,360 INTANGIBLE ASSETS........................................................................... 571 347 DEFERRED INCOME TAXES....................................................................... 1,704 713 -------- ------- Total assets............................................................................ $ 52,207 $66,017 ======== ======= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Medical claims liabilities................................................................ $ 37,339 $45,805 Unearned premiums......................................................................... 3,601 -- Accounts payable and accrued expenses..................................................... 2,898 6,168 Note payable.............................................................................. 2,350 -- -------- ------- Total current liabilities............................................................... 46,188 51,973 SUBORDINATED DEBT........................................................................... 4,000 4,000 -------- ------- Total liabilities....................................................................... 50,188 55,973 -------- ------- SERIES D REDEEMABLE PREFERRED STOCK, $.167 par value; authorized 4,000,000 shares; 3,718,000 shares issued and outstanding historical, and no shares pro forma (liquidation value of $18,590)............................................................. 18,386 18,878 -------- ------- STOCKHOLDERS' EQUITY: Preferred stock, $.167 par value; authorized 4,300,000 Series A convertible, authorized 2,400,000 shares; 733,850 shares issued and outstanding historical, and no shares pro forma......................................... 123 123 Series B convertible, authorized 1,050,000 shares; 864,640 shares issued and outstanding historical, and no shares pro forma......................................... 144 144 Series C convertible, authorized 850,000 shares; 557,850 shares issued and outstanding historical, and no shares pro forma..................................................... 93 93 Common stock, $.003 par value; authorized 17,000,000 shares-- Series A, authorized 16,000,000 shares; 277,247, 277,247 and 288,247 shares at December 31, 1999, 2000 and June 30, 2001 issued and outstanding historical, respectively, and 6,162,587 shares pro forma............................................ 1 1 Series B, authorized 1,000,000 shares; 624,279 shares issued and outstanding historical and pro forma........................................................................... 2 2 Additional paid-in capital................................................................ 7 7 Net unrealized gain (loss) on investments, net of tax..................................... (216) 81 Accumulated deficit....................................................................... (16,521) (9,285) -------- ------- Total stockholders' equity (deficit).................................................... (16,367) (8,834) -------- ------- Total liabilities and stockholders' equity.............................................. $ 52,207 $66,017 ======== ======= Pro Forma June 30, June 30, 2001 2001 -------- --------- (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents................................................................. $46,479 Premium and related receivables, net of allowances of $1,245, $1,866 and $2,034, respectively............................................................................. 8,351 Short-term investments, at fair value (amortized cost $1,131, $7,404 and $4,242, respectively)............................................................................ 4,300 Other current assets...................................................................... 1,688 Deferred income taxes..................................................................... 1,533 ------- Total current assets.................................................................... 62,351 LONG-TERM INVESTMENTS, at fair value (amortized cost $7,898, $14,326 and $24,000, respectively)..................................................................... 23,688 INVESTMENTS IN JOINT VENTURES............................................................... -- FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net........................................ 2,663 INTANGIBLE ASSETS........................................................................... 2,650 DEFERRED INCOME TAXES....................................................................... 1,079 ------- Total assets............................................................................ $92,431 ======= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Medical claims liabilities................................................................ $61,868 Unearned premiums......................................................................... -- Accounts payable and accrued expenses..................................................... 11,329 Note payable.............................................................................. -- ------- Total current liabilities............................................................... 73,197 SUBORDINATED DEBT........................................................................... 4,000 ------- Total liabilities....................................................................... 77,197 ------- SERIES D REDEEMABLE PREFERRED STOCK, $.167 par value; authorized 4,000,000 shares; 3,718,000 shares issued and outstanding historical, and no shares pro forma (liquidation value of $18,590)............................................................. 19,124 $ -- ------- ------- STOCKHOLDERS' EQUITY: Preferred stock, $.167 par value; authorized 4,300,000 Series A convertible, authorized 2,400,000 shares; 733,850 shares issued and outstanding historical, and no shares pro forma......................................... 123 -- Series B convertible, authorized 1,050,000 shares; 864,640 shares issued and outstanding historical, and no shares pro forma......................................... 144 -- Series C convertible, authorized 850,000 shares; 557,850 shares issued and outstanding historical, and no shares pro forma..................................................... 93 -- Common stock, $.003 par value; authorized 17,000,000 shares-- Series A, authorized 16,000,000 shares; 277,247, 277,247 and 288,247 shares at December 31, 1999, 2000 and June 30, 2001 issued and outstanding historical, respectively, and 6,162,587 shares pro forma............................................ 1 18 Series B, authorized 1,000,000 shares; 624,279 shares issued and outstanding historical and pro forma........................................................................... 2 2 Additional paid-in capital................................................................ 30 19,497 Net unrealized gain (loss) on investments, net of tax..................................... (164) (164) Accumulated deficit....................................................................... (4,119) (4,119) ------- ------- Total stockholders' equity (deficit).................................................... (3,890) $15,234 ------- ======= Total liabilities and stockholders' equity.............................................. $92,431 ======= The accompanying notes are an integral part of these balance sheets. F-3

CENTENE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share data) Six Months Ended Year Ended December 31, June 30, -------------------------------- ---------------------- 1998 1999 2000 2000 2001 ---------- -------- ---------- ---------- ---------- (Unaudited) REVENUES: Premiums....................................................... $ 149,577 $200,549 $ 216,414 $ 100,959 $ 150,682 Administrative services fees................................... 861 880 4,936 2,064 182 ---------- -------- ---------- ---------- ---------- Total revenues................................................ 150,438 201,429 221,350 103,023 150,864 ---------- -------- ---------- ---------- ---------- EXPENSES: Medical services costs......................................... 132,199 178,285 182,495 85,514 125,039 General and administrative expenses............................ 25,066 29,756 32,335 15,517 18,406 ---------- -------- ---------- ---------- ---------- Total operating expenses...................................... 157,265 208,041 214,830 101,031 143,445 ---------- -------- ---------- ---------- ---------- Income (loss) from operations................................. (6,827) (6,612) 6,520 1,992 7,419 OTHER INCOME (EXPENSE): Investment and other income, net............................... 1,794 1,623 1,784 985 1,897 Interest expense............................................... (771) (498) (611) (303) (196) Equity in income (losses) from joint ventures.................. (477) 3 (508) (304) -- ---------- -------- ---------- ---------- ---------- Income (loss) from continuing operations before income taxes.. (6,281) (5,484) 7,185 2,370 9,120 INCOME TAX EXPENSE (BENEFIT)..................................... (1,542) -- (543) -- 3,708 ---------- -------- ---------- ---------- ---------- Income (loss) from continuing operations...................... (4,739) (5,484) 7,728 2,370 5,412 LOSS FROM DISCONTINUED OPERATIONS, net........................... (2,223) (3,927) -- -- -- ---------- -------- ---------- ---------- ---------- Net income (loss)............................................. (6,962) (9,411) 7,728 2,370 5,412 ACCRETION OF REDEEMABLE PREFERRED STOCK.......................... (122) (492) (492) (246) (246) ---------- -------- ---------- ---------- ---------- Net income (loss) attributable to common stockholders......... $ (7,084) $ (9,903) $ 7,236 $ 2,124 $ 5,166 ========== ======== ========== ========== ========== INCOME (LOSS) PER COMMON SHARE, BASIC: Continuing operations.......................................... $ (4.65) $ (6.63) $ 8.03 $ 2.36 $ 5.68 Discontinued operations........................................ (2.13) (4.36) -- -- -- Net income (loss) per common share............................. (6.78) (10.99) 8.03 2.36 5.68 INCOME (LOSS) PER COMMON SHARE, DILUTED: Continuing operations.......................................... $ (4.65) $ (6.63) $ 1.06 $ 0.31 $ 0.67 Discontinued operations........................................ (2.13) (4.36) -- -- -- Net income (loss) per common share............................. (6.78) (10.99) 1.06 0.31 0.67 SHARES USED IN COMPUTING PER SHARE AMOUNTS: Basic.......................................................... 1,044,434 900,944 901,526 901,526 908,907 Diluted........................................................ 1,044,434 900,944 6,819,595 6,776,566 7,748,825 Six Months Year Ended Ended December 31, June 30, 2000 2001 ------------ ---------- (Unaudited) PRO FORMA NET INCOME PER COMMON SHARE INFORMATION (Note 22): Net income attributable to common stockholders................. $ 7,236 $ 5,166 Pro forma adjustment to eliminate Series D preferred accretion. 492 246 ---------- ---------- Pro forma net income.......................................... $ 7,728 $ 5,412 ========== ========== Basic pro forma net income per share........................... $ 1.14 $ 0.80 Diluted pro forma net income per share......................... $ 1.13 $ 0.70 Shares used in computing pro forma per common share amounts-- Basic......................................................... 6,775,866 6,783,247 Diluted....................................................... 6,819,595 7,748,825 The accompanying notes are an integral part of these statements. F-4

CENTENE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands, except share data) Preferred Stock Common Stock ---------------------------------------------- -------------------------------- Additional Series A Series B Series C Series A Series B Paid-in -------------- -------------- --------------- ---------------- --------------- Capital Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount ------- ------ ------- ------ -------- ------ -------- ------ ------- ------ ---------- BALANCE, December 31, 1997 796,350 $ 133 864,640 $ 144 664,950 $ 111 406,363 $ 1 676,472 $ 2 $ 962 Net loss -- -- -- -- -- -- -- -- -- -- -- Net unrealized gain during the year on investments available for sale -- -- -- -- -- -- -- -- -- -- -- Comprehensive loss Issuance of common stock and warrants -- -- -- -- -- -- 1,000 -- 12,499 -- 80 Redemption of stock (20,000) (3) -- -- -- -- (15,000) -- -- -- -- Purchase of stock (42,500) (7) -- -- (107,100) (18) (118,511) -- (64,766) -- (1,041) Series D preferred stock accretion -- -- -- -- -- -- -- -- -- -- -- ------- ----- ------- ----- -------- ----- -------- --- ------- --- ------- BALANCE, December 31, 1998 733,850 123 864,640 144 557,850 93 273,852 1 624,205 2 1 Net loss -- -- -- -- -- -- -- -- -- -- -- Net unrealized loss during the year on investments available for sale -- -- -- -- -- -- -- -- -- -- -- Comprehensive loss Issuance of common stock -- -- -- -- -- -- 3,395 -- 74 -- 6 Series D preferred stock accretion -- -- -- -- -- -- -- -- -- -- -- ------- ----- ------- ----- -------- ----- -------- --- ------- --- ------- BALANCE, December 31, 1999 733,850 123 864,640 144 557,850 93 277,247 1 624,279 2 7 Net income -- -- -- -- -- -- -- -- -- -- -- Net unrealized gain during the year on investments available for sale -- -- -- -- -- -- -- -- -- -- -- Comprehensive earnings Series D preferred stock accretion -- -- -- -- -- -- -- -- -- -- -- ------- ----- ------- ----- -------- ----- -------- --- ------- --- ------- BALANCE, December 31, 2000 733,850 123 864,640 144 557,850 93 277,247 1 624,279 2 7 Net income (unaudited) -- -- -- -- -- -- -- -- -- -- -- Net unrealized loss during the period on investments available for sale (unaudited) -- -- -- -- -- -- -- -- -- -- -- Comprehensive earnings (unaudited) Issuance of common stock (unaudited) -- -- -- -- -- -- 11,000 -- -- -- 17 Stock compensation expense (unaudited) -- -- -- -- -- -- -- -- -- -- 6 Series D preferred stock accretion (unaudited) -- -- -- -- -- -- -- -- -- -- -- ------- ----- ------- ----- -------- ----- -------- --- ------- --- ------- BALANCE, June 30, 2001 (unaudited) 733,850 $ 123 864,640 $ 144 557,850 $ 93 288,247 $ 1 624,279 $ 2 $ 30 ======= ===== ======= ===== ======== ===== ======== === ======= === ======= Net Unrealized Accumulated Gain (Loss) Earnings on Investments (Deficit) Total -------------- ----------- -------- ----------- -------- BALANCE, December 31, 1997 $ 12 $ 1,130 $ 2,495 Net loss -- (6,962) (6,962) Net unrealized gain during the year on investments available for sale 46 -- 46 -------- Comprehensive loss (6,916) Issuance of common stock and warrants -- -- 80 Redemption of stock -- -- (3) Purchase of stock -- (664) (1,730) Series D preferred stock accretion -- (122) (122) ----- -------- -------- BALANCE, December 31, 1998 58 (6,618) (6,196) Net loss -- (9,411) (9,411) Net unrealized loss during the year on investments available for sale (274) -- (274) -------- Comprehensive loss (9,685) Issuance of common stock -- -- 6 Series D preferred stock accretion -- (492) (492) ----- -------- -------- BALANCE, December 31, 1999 (216) (16,521) (16,367) Net income -- 7,728 7,728 Net unrealized gain during the year on investments available for sale 297 -- 297 -------- Comprehensive earnings 8,025 Series D preferred stock accretion -- (492) (492) ----- -------- -------- BALANCE, December 31, 2000 81 (9,285) (8,834) Net income (unaudited) -- 5,412 5,412 Net unrealized loss during the period on investments available for sale (unaudited) (245) -- (245) -------- Comprehensive earnings (unaudited) 5,167 Issuance of common stock (unaudited) -- -- 17 Stock compensation expense (unaudited) -- -- 6 Series D preferred stock accretion (unaudited) -- (246) (246) ----- -------- -------- BALANCE, June 30, 2001 (unaudited) $(164) $ (4,119) $ (3,890) ===== ======== ======== The accompanying notes are an integral part of these statements. F-5

CENTENE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, ---------------------------- 1998 1999 2000 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss).................................................. $ (6,962) $ (9,411) $ 7,728 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities-- Depreciation and amortization..................................... 1,107 1,142 1,034 Stock compensation expense........................................ -- -- -- Loss on disposal of equipment..................................... -- 10 -- (Gain) loss on sale of investments................................ (276) (55) 40 Equity in (income) losses from joint ventures..................... 477 (3) 508 Changes in assets and liabilities-- (Increase) decrease in premium and related receivables............ (2,244) 35 (4,087) (Increase) decrease in other current assets....................... (1,835) (212) 684 Decrease (increase) in deferred income taxes...................... 835 -- (584) Increase in medical claims liabilities............................ 3,797 13,815 8,466 Increase (decrease) in unearned premiums.......................... 244 (1,144) (3,601) (Decrease) increase in accounts payable and accrued expenses...... (2,643) 950 3,270 -------- -------- -------- Net cash provided by (used in) operating activities.............. (7,500) 5,127 13,458 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of equipment.............................................. (610) (861) (642) Proceeds from sale of equipment.................................... -- 34 -- Purchase of investments............................................ (11,848) (11,286) (20,260) Sales and maturities of investments................................ 8,652 9,019 7,382 Contract acquisition............................................... (58) -- -- Investments in joint ventures...................................... 1,658 178 (1,097) -------- -------- -------- Net cash used in investing activities............................ (2,206) (2,916) (14,617) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of note payable............................. -- 2,500 -- Payment of note payable............................................ (6,467) (150) (2,350) Proceeds from sale of common stock................................. 80 -- -- Proceeds from sale of preferred stock.............................. 17,578 200 -- Purchase/redemption of stock....................................... (1,727) (6) -- Deferred financing costs........................................... 43 -- -- -------- -------- -------- Net cash provided by (used in) financing activities.............. 9,507 2,544 (2,350) -------- -------- -------- Net increase (decrease) in cash and cash equivalents............. (199) 4,755 (3,509) -------- -------- -------- CASH AND CASH EQUIVALENTS, beginning of period....................... 17,976 17,777 22,532 -------- -------- -------- CASH AND CASH EQUIVALENTS, end of period............................. $ 17,777 $ 22,532 $ 19,023 ======== ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid...................................................... $ 684 $ 80 $ 531 Income taxes paid.................................................. $ 827 $ 146 $ 310 Six Months Ended June 30, ----------------- 2000 2001 ------- -------- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss).................................................. $ 2,370 $ 5,412 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities-- Depreciation and amortization..................................... 499 631 Stock compensation expense........................................ -- 6 Loss on disposal of equipment..................................... -- -- (Gain) loss on sale of investments................................ 43 (49) Equity in (income) losses from joint ventures..................... 304 -- Changes in assets and liabilities-- (Increase) decrease in premium and related receivables............ (5,150) 10,882 (Increase) decrease in other current assets....................... 1,501 2,104 Decrease (increase) in deferred income taxes...................... (68) 925 Increase in medical claims liabilities............................ 1,878 2,784 Increase (decrease) in unearned premiums.......................... (3,601) -- (Decrease) increase in accounts payable and accrued expenses...... 190 5,299 ------- -------- Net cash provided by (used in) operating activities.............. (2,034) 27,994 ------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of equipment.............................................. (384) (1,793) Proceeds from sale of equipment.................................... -- -- Purchase of investments............................................ (2,176) (15,918) Sales and maturities of investments................................ 1,997 10,455 Contract acquisition............................................... -- (1,000) Investments in joint ventures...................................... (460) 7,701 ------- -------- Net cash used in investing activities............................ (1,023) (555) ------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of note payable............................. -- -- Payment of note payable............................................ (1,275) -- Proceeds from sale of common stock................................. -- 17 Proceeds from sale of preferred stock.............................. -- -- Purchase/redemption of stock....................................... -- -- Deferred financing costs........................................... -- -- ------- -------- Net cash provided by (used in) financing activities.............. (1,275) 17 ------- -------- Net increase (decrease) in cash and cash equivalents............. (4,332) 27,456 ------- -------- CASH AND CASH EQUIVALENTS, beginning of period....................... 22,532 19,023 ------- -------- CASH AND CASH EQUIVALENTS, end of period............................. $18,200 $ 46,479 ======= ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid...................................................... $ 52 Income taxes paid.................................................. $ -- $ The accompanying notes are an integral part of these statements. F-6

CENTENE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share data) 1. Organization and Operations: Centene Corporation (Centene or the Company) provides managed care programs and related services to individuals receiving benefits under Medicaid, including Supplemental Security Income (SSI) and State Children's Health Insurance Program, (SCHIP). Centene operates under its own state licenses in Wisconsin, Indiana and Texas and contracts with other managed care organizations to provide risk and nonrisk management services. Centene's managed care organization (MCO) subsidiaries include Managed Health Services Insurance Corp. (MHSIC), a wholly owned Wisconsin corporation; Coordinated Care Corporation Indiana, Inc. (CCCI), a wholly owned Indiana corporation; and Superior HealthPlan, Inc. (Superior), a 39% owned Texas corporation (90% after January 1, 2001). 2. Summary of Significant Accounting Policies: The accompanying consolidated financial statements include the accounts of Centene Corporation and all majority owned subsidiaries. All material intercompany balances and transactions have been eliminated. The investments in minority owned joint ventures are accounted for under the equity method. The accompanying unaudited interim consolidated financial statements reflect all adjustments, consisting solely of normal recurring adjustments, needed to present the financial results for these interim periods fairly. Cash and Cash Equivalents Investments with original maturities of three months or less at the date of acquisition are considered to be cash equivalents. Cash equivalents consist of commercial paper, money market mutual funds and bank insured savings accounts. Investments Short-term and long-term investments available for sale are carried at market value. Any changes in fair value due to market conditions are reflected as a separate component of equity, net of any tax benefit or expense. Short-term investments include securities with original maturities between three months and one year. Long-term investments include securities with original maturities greater than one year. Furniture, Equipment and Leasehold Improvements Furniture, equipment and leasehold improvements are carried at cost less accumulated depreciation. Depreciation for furniture and equipment, other than computer equipment, is calculated using the straight-line method based on the estimated useful lives of the assets ranging between five and seven years. Depreciation for computer equipment is calculated using the straight-line method based on a three-year life. Software is stated at cost in accordance with Statement of Position 98-1, Accounting for the Costs of Software Developed or Obtained for Internal Use. Software is amortized over its estimated useful life of F-7

CENTENE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollars in thousands, except share data) three years using the straight-line method. Depreciation for leasehold improvements is calculated using the straight-line method based on the shorter of the estimated useful lives of the asset or the term of the respective leases, ranging between three and ten years. Intangible Assets Intangible assets consist primarily of goodwill, representing the excess of aggregate purchase price over the estimated fair value of net assets acquired, and are amortized using a straight-line method over a 60 month period. Accumulated amortization of goodwill as of December 31, 1999 and 2000, was $530 and $754, respectively. Amortization expense was $221, $235 and $224 for the years ended December 31, 1998, 1999 and 2000, respectively. The Company reviews goodwill and other long-lived assets for impairment whenever events and changes in business circumstances indicate the carrying value of the assets may not be recoverable. The Company recognizes impairment losses if expected undiscounted future cash flows from the related assets are less than their carrying value. An impairment loss represents the amount by which the carrying value of an asset exceeds the fair value of the asset. The Company did not recognize any impairment losses for the periods presented. Medical Claims Liabilities Medical services costs include claims paid, claims adjudicated but not yet paid, estimates for claims received but not yet adjudicated, estimates for claims incurred but not yet received and estimates for the costs necessary to process unpaid claims. The estimates of medical claims liabilities are developed using actuarial methods based upon historical data for payment patterns, cost trends, product mix, seasonality, utilization of healthcare services and other relevant factors including product changes. These estimates are continually reviewed and adjustments, if necessary, are reflected in the period known. Premium Revenue Premium revenue is recognized as earned over the covered period of services. Premiums collected in advance are recorded as unearned premiums. Significant Customers Centene receives the majority of its revenues under contracts or subcontracts with state Medicaid managed care programs. The contracts which expire on various dates between December 31, 2001, and December 31, 2002, are expected to be renewed. Reinsurance Centene's MCO subsidiaries have purchased reinsurance to cover eligible healthcare services. The current reinsurance agreements generally cover 80% of healthcare expenses in excess of an annual deductible of $50 to $75 per member, up to a lifetime maximum of $2,000. The subsidiaries are responsible for inpatient charges in excess of an average daily per diem. F-8

CENTENE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollars in thousands, except share data) Reinsurance recoveries were approximately $1,484, $1,182 and $1,454 in 1998, 1999 and 2000, respectively. Reinsurance expenses were approximately $2,030, $2,708 and $3,391 in 1998, 1999 and 2000, respectively. Reinsurance recoveries, net of expenses, are included in medical services costs. Income Taxes Centene recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date of the tax rate change. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Risks and Uncertainties The Company's profitability depends in large part on accurately predicting and effectively managing medical services costs. The Company continually reviews its premium and benefit structure to reflect its underlying claims experience and revised actuarial data; however, several factors could adversely affect the medical services costs. Certain of these factors, which include changes in healthcare practices, inflation, new technologies, major epidemics, natural disasters and malpractice litigation, are beyond any health plan's control and could adversely affect the Company's ability to accurately predict and effectively control healthcare costs. Costs in excess of those anticipated could have a material adverse effect on the Company's results of operations. Recent Accounting Pronouncements In July 2001, Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations, was issued which requires that the purchase method of accounting be used for all business combinations completed after June 30, 2001. The Company has adopted SFAS 141. In July 2001, SFAS No. 142, Goodwill and Other Intangible Assets, was issued which requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested annually for impairment. The Company will adopt SFAS No. 142 effective January 1, 2002. F-9

CENTENE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollars in thousands, except share data) 3. Discontinued Operations: During 1999, the Company decided to exit its commercial line of business. The results of these activities have been reflected as discontinued operations in the accompanying consolidated financial statements for all periods presented. The operating results of discontinued operations are as follows: 1998 1999 ------- ------- Total revenues.......................... $21,534 $15,054 Pretax loss from discontinued operations (2,390) (3,927) Income tax benefit...................... (167) -- Net loss from discontinued operations... (2,223) (3,927) Basic and diluted net loss per share.... (2.13) (4.36) There were no assets attributable to the commercial line of business as of December 31, 1999. 4. Investments: Investments available for sale by investment type as of December 31 consist of the following: 1999 ----------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value --------- ---------- ---------- --------- U.S. Treasury securities and obligations of U.S. government corporations and agencies................................ $7,798 $-- $(295) $7,503 Commercial paper........................................... 931 -- -- 931 State/municipal securities and other....................... 300 -- (10) 290 ------ --- ----- ------ Total................................................... $9,029 $-- $(305) $8,724 ====== === ===== ====== 2000 ----------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value --------- ---------- ---------- --------- U.S. Treasury securities and obligations of U.S. government corporations and agencies................................ $14,041 $133 $-- $14,174 Commercial paper........................................... 7,211 2 (6) 7,207 State/municipal securities and other....................... 478 -- -- 478 ------- ---- --- ------- Total................................................... $21,730 $135 $(6) $21,859 ======= ==== === ======= The contractual maturity of investments as of December 31, 2000, is as follows: Estimated Amortized Market Cost Value --------- --------- One year or less............ $ 7,404 $ 7,400 One year through five years. 5,066 5,149 Five years through ten years 9,260 9,310 ------- ------- $21,730 $21,859 ======= ======= F-10

CENTENE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollars in thousands, except share data) Following is a summary of net investment income for the years ended December 31: 1998 1999 2000 ------ ------ ------ Commercial paper........................................... $ 179 $ 217 $ 759 U.S. Treasury securities and obligations of U.S. government corporation and agencies................................. 573 243 370 States/municipal securities and other...................... 10 13 (2) Money market and other..................................... 813 951 1,035 ------ ------ ------ $1,575 $1,424 $2,162 ====== ====== ====== Various state statutes require MCO's to deposit or pledge minimum amounts of investments to state agencies. At December 31, 1999 and 2000, securities with a book value of $713 and $693, respectively, were deposited or pledged to state agencies by Centene's MCO subsidiaries. 5. Furniture, Equipment and Leasehold Improvements: Furniture, equipment and leasehold improvements at December 31 consist of the following: 1999 2000 ------- ------- Furniture and office equipment...................... $ 2,891 $ 3,014 Computer software................................... 938 1,293 Leasehold improvements.............................. 307 287 Construction in process............................. 11 -- ------- ------- 4,147 4,594 Less--Accumulated depreciation and amortization..... (2,619) (3,234) ------- ------- Furniture, equipment and leasehold improvements, net $ 1,528 $ 1,360 ======= ======= 6. Income Taxes: Centene files a consolidated federal income tax return while Centene and each subsidiary file separate state income tax returns. The consolidated income tax expense (benefit) consists of the following: Six Months Year Ended December 31, Ended ---------------------- June 30, 1998 1999 2000 2001 ------- ---- ------- ----------- (Unaudited) Current: Federal......................... $ (869) $-- $ 629 $3,272 State........................... 227 -- 625 888 ------- --- ------- ------ Total current............... (642) -- 1,254 4,160 Deferred........................... (1,067) -- (1,797) (452) ------- --- ------- ------ Total expense (benefit)..... $(1,709) $-- $ (543) $3,708 ======= === ======= ====== For the year ended December 31, 1998, the income tax benefit was $1,542 for continuing operations and $167 for discontinued operations. F-11

CENTENE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollars in thousands, except share data) The following is a reconciliation of the expected income tax expense (benefit) as calculated by multiplying pretax income by federal statutory rates and Centene's actual income tax benefit: Six Months Year Ended December 31, Ended ------------------------- June 30, 1998 1999 2000 2001 ------- ------- ------- ----------- (Unaudited) Expected federal income tax expense (benefit).......... $(2,948) $(3,199) $ 2,443 $3,101 State income taxes, net of federal income tax benefit.. 150 160 761 777 Equity in (income) losses of joint ventures, net of tax 161 (1) 175 -- Change in valuation allowance.......................... 833 2,926 (3,764) -- Other, net............................................. 95 114 (158) (170) ------- ------- ------- ------ Income tax expense (benefit)........................ $(1,709) $ -- $ (543) $3,708 ======= ======= ======= ====== Temporary differences that give rise to deferred tax assets and liabilities are presented below: December 31, --------------- June 30, 1999 2000 2001 ------- ------ ----------- (Unaudited) Medical claims liabilities and other accruals $ 342 $1,539 $1,555 Net operating loss carryforward.............. 5,167 1,132 -- Allowance for doubtful accounts.............. 461 690 753 Unearned premiums............................ 266 -- -- Depreciation................................. 51 246 280 Other........................................ 244 189 546 ------- ------ ------ Total deferred tax assets................. 6,531 3,796 3,134 ------- ------ ------ Prepaid asset................................ 44 -- -- Other........................................ 9 498 522 ------- ------ ------ Total deferred tax liabilities............ 53 498 522 ------- ------ ------ Valuation allowance.......................... (3,764) -- -- ------- ------ ------ Net deferred tax assets and liabilities... $ 2,714 $3,298 $2,612 ======= ====== ====== The Company is required to record a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management believes that a valuation allowance is no longer necessary for its federal net operating loss carryforward as of December 31, 2000. As a result, the income tax benefit recorded for 2000 includes the reversal of $3,764 of deferred tax valuation allowance. 7. Note Payable and Subordinated Debt: In September 2000, the Company entered into a $1,500 unsecured revolving credit agreement with a bank. The agreement bears interest at a rate of prime due and payable monthly. Direct borrowings under this agreement total $-0- at December 31, 2000. The prime rate at December 31, 2000, was 9.5%. The average prime rate for the year ended December 31, 2000, was 9.23%. F-12

CENTENE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollars in thousands, except share data) Note payable at December 31, 1999, consisted of a term note payable to a bank in the amount of $2,350 bearing interest at a rate of prime plus 1%. The note was paid in full in September 2000. Subordinated debt at December 31 consists of the following: 1999 2000 ------ ------ $4,000 subordinated promissory notes dated September 1998. Interest is due and payable annually in September at a rate of 8.5% and a default rate of 10.5%. Principal on this note is due and payable in two equal installments September 2003 and September 2004................... $4,000 $4,000 During 1999 and 2000 the Company was in default due to late interest payments and, therefore, recorded interest at the 10.5% rate. In February, 2001 all accrued interest was paid and the interest rate reverted back to 8.5%. Current subordinated debt holders include stockholders, directors and past and present employees. 8. Redeemable Preferred Stock: Series D preferred stock is redeemable for cash at the option of the holder for up to 50% of that holder's Series D preferred stock outstanding on each of September 1, 2003, and September 1, 2004, at a price equal to the sum of (1) $5.50 per share plus (2) an amount equal to any dividends declared or accrued but unpaid on such shares. The number of shares of Series D preferred stock to be redeemed from each holder on a redemption date shall be equal to 50% of the total number of shares initially held by such holder less the number of shares of Series D preferred stock for which the holder has exercised its conversion right. Series D preferred stock is convertible, at the option of the holder, into Series A common stock at an initial conversion rate of one common share for each preferred share and is automatically converted at an initial public offering. Series D preferred stock is entitled to an initial liquidation preference in the amount of $5.00 per share and then participates on an as-converted basis. Redeemable preferred stock is summarized as follows: Series D Shares Amount --------- ------- Balance, December 31, 1997............... -- $ -- Issuance of preferred stock........... 3,680,000 17,578 Preferred stock accretion............. -- 122 --------- ------- Balance, December 31, 1998............... 3,680,000 17,700 Issuance of preferred stock........... 40,000 200 Purchase of stock..................... (2,000) (6) Preferred stock accretion............. -- 492 --------- ------- Balance, December 31, 1999............... 3,718,000 18,386 Preferred stock accretion............. -- 492 --------- ------- Balance, December 31, 2000............... 3,718,000 18,878 Preferred stock accretion (unaudited). -- 246 --------- ------- Balance, June 30, 2001 (unaudited)....... 3,718,000 $19,124 ========= ======= F-13

CENTENE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollars in thousands, except share data) 9. Stockholders' Equity: Series A and Series B preferred stock is convertible, at the option of the holder or on the date at which the Company effects an initial public offering, into Series A common stock at an initial conversion rate of one common share for each preferred share. Series C preferred stock is mandatorily convertible upon a change of ownership or at an initial public offering. In addition, each share of Series B preferred stock is convertible into one share of Series A preferred stock. Series A, Series B and Series C preferred stock are entitled to a liquidation preference in the amount of $.44 per share. 10. Statutory Net Worth Requirements: Various state laws require Centene's MCO subsidiaries to maintain a minimum statutory net worth. At December 31, 1999 and 2000, Centene's MCO subsidiaries are in compliance with the various required minimum statutory net worth requirements. 11. Dividend Restrictions: Under the laws of the states of which we operate, our managed care subsidiaries are required to obtain approval for dividends from the appropriate state regulatory body. No dividends were declared in 1998, 1999 or 2000. 12. Warrants: Centene currently has 60,000 Series D preferred warrants outstanding. Each warrant entitles the holder to purchase one share of the Company's Series D preferred stock at an exercise price of $5.00 per share. These warrants will expire upon the earliest of the following: 1) September 23, 2003, 2) a date of "change in control" or 3) the date on which the Company effects an initial public offering. There are currently 7,432 warrants outstanding to purchase shares of the Company's Series B common stock on a one-to-one basis at an exercise price of $2.40 per share. These warrants will expire upon the earliest of the following: 1) September 7, 2002, 2) a date of "change in control" or 3) the date on which the Company effects an initial public offering. 13. Stock Option Plans: As of December 31, 2000, Centene has five stock option plans (the Plans) for issuance of common stock. The Plans allow for the granting of options to purchase either Series A common stock and/or Series B common stock at the market price at the date of grant for key employees, consultants, and other individual contributors of or to Centene. Both incentive options and nonqualified stock options can be awarded under the Plans. Each option awarded under the Plans is exercisable as determined by the Board of Directors upon grant. Further, depending on the type of grant, no option will be exercisable for longer than either five (incentive options) or ten (all other options) years after date of grant. The Plans have reserved 2,000,000 shares for option grants. Options outstanding generally vest over a five year period. Vesting generally begins on the anniversary of the date of grant and quarterly or annually thereafter. F-14

CENTENE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollars in thousands, except share data) Option activity for the years ended December 31, follows: 1998 1999 2000 ----------------- ------------------ ------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------- -------- -------- -------- --------- -------- Options outstanding, beginning of year........................... 478,249 $2.54 522,249 $2.50 955,992 $1.91 Granted.......................... 82,000 2.24 583,500 1.49 531,000 1.26 Exercised........................ (1,000) 2.40 (3,395) 1.39 -- Canceled......................... (37,000) 2.40 (146,362) 2.34 (76,952) 1.69 ------- -------- --------- Options outstanding, end of year. 522,249 2.50 955,992 1.91 1,410,040 1.68 ======= ======== ========= Weighted Average Remaining Life.. 5.9 years 7.3 years 7.7 years Weighted Average Fair Value of Options granted................ $0.51 $0.21 $0.39 The Company accounts for the Plans in accordance with the intrinsic value based method of Accounting Principles Board Opinion No. 25 as permitted by SFAS No. 123. Accordingly, compensation cost related to stock options issued to employees is calculated on the date of grant only if the current market price of the underlying stock exceeds the exercise price. Compensation expense is then recognized on a straight-line basis over the years the employees' services are received (over the vesting period), generally five years. No compensation cost related to the Plans has been charged against income during 1998, 1999 or 2000. Had compensation cost for the Plans been determined based on the fair value method at the grant dates as specified in SFAS No. 123, Centene's net income would have decreased $69, $74 and $131 in 1998, 1999 and 2000, respectively. Diluted net income (loss) per common share would have been $(6.85), $(11.07) and $1.04 in 1998, 1999 and 2000, respectively. The fair value of each option grant is estimated on the date of grant using an option pricing model with the following assumptions: no dividend yield and expected volatility of 1% for all years, risk-free interest rates of 4.5%, 6.4% and 5.3% and expected lives of 5.9, 7.3 and 7.7 for the years 1998, 1999 and 2000, respectively. During the period ended June 30, 2001, the Company recognized $6 (unaudited) in noncash compensation expense related to the issuance of stock options to employees. 14. Retirement Plan: Centene has a defined contribution plan (Retirement Plan) which covers substantially all employees who work at least 1,000 hours in a twelve consecutive month period and are at least twenty-one years of age. Under the Retirement Plan, eligible employees may contribute a percentage of their base salary, subject to certain limitations. Centene may elect to match a portion of the employee's contribution. In addition, Centene may make a profit sharing contribution to the Retirement Plan covering all eligible employees. Expenses under the Retirement Plan were $112, $144 and $203 during the years ended December 31, 1998, 1999 and 2000, respectively. F-15

CENTENE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollars in thousands, except share data) 15. Related-Party Transactions: Certain members of Centene's Board of Directors performed consulting services for the Company. Consulting fees paid in 1998, 1999 and 2000, totaled $7, $5 and $36, respectively. Legal fees of $242, $50 and $48 were paid in 1998, 1999 and 2000, respectively, to a law firm affiliated through a stockholder of the Company. 16. Commitments: Centene and its subsidiaries lease office facilities and various equipment under noncancellable operating leases. In addition to base rental costs, Centene and its subsidiaries are responsible for property taxes and maintenance for both facility and equipment leases. Rental expense included in the accompanying consolidated financial statements is $1,662, $1,268 and $1,383 for the years ended December 31, 1998, 1999 and 2000, respectively. The significant annual noncancelable lease payments over the next five years and thereafter are as follows: 2001...... $ 1,261 2002...... 1,135 2003...... 1,336 2004...... 1,125 2005...... 1,149 Thereafter 4,478 ------- $10,484 ======= 17. Contingencies: The Company is a party to various legal actions normally associated with the managed care industry, the aggregate effect of which, in management's opinion after consultation with legal counsel, will have no material adverse impact on the financial position or results of operations of Centene. F-16

CENTENE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollars in thousands, except share data) Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, investments in marketable securities and accounts receivable. The Company invests its excess cash in interest bearing deposits with major banks, commercial paper, government and agency securities, and money market funds. Investments in marketable securities are managed within guidelines established by the Company's Board of Directors. The Company carries these investments at fair value. Concentrations of credit risk with respect to accounts receivable is limited due to the significant customers paying as services are rendered. Significant customers include the federal government and the states in which Centene operates. The Company has a risk of incurring loss if its allowance for doubtful collections is not adequate. As discussed in Note 2 to the consolidated financial statements, the Company has reinsurance agreements with insurance companies. The Company monitors the insurance companies' financial ratings to determine compliance with standards set by state law. The Company has a credit risk associated with these reinsurance agreements to the extent the reinsurers are unable to pay valid reinsurance claims of the Company. 18. Joint Ventures: At December 31, 1999 and 2000, Centene is an owner of Superior, a joint venture. Superior participates in the state of Texas medical assistance program. Superior had no enrolled membership during 1998, but became fully operational on December 1, 1999. Centene has provided surplus notes to Superior to fund its initial operations and meet the net worth requirements of the state of Texas. Surplus notes outstanding to Superior at December 31, 1999 and 2000, totaled $2,041 and $3,000, respectively, and are included in investment in joint venture. Interest accrues on the surplus notes at a rate of the greater of Prime + 2% or 10%, and is payable to Centene quarterly upon regulatory approval. Interest receivable is included in accrued investment income and totaled $52 and $352 at December 31, 1999 and 2000, respectively. Under the terms of a management agreement, a wholly owned subsidiary of Centene performs third-party administrative services for Superior. This agreement generated $-0-, $72 and $4,936 of administrative service fees during 1998, 1999 and 2000, respectively. Summary financial information for Superior as of and for the years ended December 31 follows: 1999 2000 ------ ------- Total assets................ $1,821 $ 7,284 Stockholders' deficit....... (536) (1,481) Revenues.................... 346 34,102 Net loss.................... (457) (1,303) Company's equity in net loss (178) (508) On January 1, 2001, Centene purchased an additional 51% of Superior, increasing Centene's ownership to 90%, for $290 in cash and stock. When the change in ownership occurred, the assets and liabilities were revalued resulting in $1,600 of goodwill. The goodwill is being amortized on a straight-line basis over five years (unaudited). F-17

CENTENE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollars in thousands, except share data) The following unaudited pro forma summary information presents the consolidated income statement information as if the aforementioned transaction had been consummated on January 1, 2000, and does not purport to be indicative of what would have occurred had the acquisition been made at that date or of the results which may occur in the future. Year Ended December 31, 2000 ------------ Total revenues................................ $250,516 Net income attributable to common stockholders 6,441 Diluted net income per common share........... .94 Centene sold its interest in another joint venture, Community Health Choice of Illinois, Inc. (Choice) to American HealthCare Providers (AHCP) on August 10, 1999. Choice was a participant in the state of Illinois medical assistance program. Choice contracted directly with healthcare providers on a fee-for-service, per diem and capitation basis. Centene maintained a 49% equity interest in Choice and accounted for the venture using the equity method. Under the terms of a management agreement, a wholly owned subsidiary of Centene performed third-party administrative services for Choice which generated $861, $808 and $-0- of administrative service fees during 1998, 1999 and 2000, respectively. Centene retained the risk for claims incurred prior to May 1, 1999, and consequently established an escrow account for the estimated claims. The balance of escrowed funds, $35, at December 31, 2000, is considered to be adequate for the remaining claims exposure. Centene reflected a net loss on the sale of Choice totaling $377 in 1999, which is included in equity income from joint ventures. F-18

CENTENE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollars in thousands, except share data) 19. Earnings Per Share: The following table sets forth the calculation of basic and diluted net income (loss) per share: Year Ended December 31, Six Months Ended June 30, -------------------------------- ------------------------ 1998 1999 2000 2000 2001 ---------- -------- ---------- ---------- ---------- (Unaudited) Income (loss) from continuing operations......... $ (4,739) $ (5,484) $ 7,728 $ 2,370 $ 5,412 Accretion of redeemable preferred stock.......... (122) (492) (492) (246) (246) ---------- -------- ---------- ---------- ---------- Income (loss) from continuing operations attributable to common stockholders............ (4,861) (5,976) 7,236 2,124 5,166 Loss from discontinued operations, net........... (2,223) (3,927) -- -- -- ---------- -------- ---------- ---------- ---------- Net income (loss) attributable to common stockholders................................ $ (7,084) $ (9,903) $ 7,236 $ 2,124 $ 5,166 ========== ======== ========== ========== ========== Shares used in computing per share amounts: Weighted average number of common shares outstanding................................. 1,044,434 900,944 901,526 901,526 908,907 Dilutive effect of stock options and warrants (as determined by applying the treasury stock method) and convertible preferred stock....................................... -- -- 5,918,069 5,875,040 6,839,918 ---------- -------- ---------- ---------- ---------- Weighted average number of common shares and potential dilutive common shares outstanding................................. 1,044,434 900,944 6,819,595 6,776,566 7,748,825 ========== ======== ========== ========== ========== INCOME (LOSS) PER COMMON SHARE, BASIC: Continuing operations......................... $ (4.65) $ (6.63) $ 8.03 $ 2.36 $ 5.68 Discontinued operations....................... (2.13) (4.36) -- -- -- Net income (loss) per common share............ (6.78) (10.99) 8.03 2.36 5.68 INCOME (LOSS) PER COMMON SHARE, DILUTED: Continuing operations......................... $ (4.65) $ (6.63) $ 1.06 $ 0.31 $ 0.67 Discontinued operations....................... (2.13) (4.36) -- -- -- Net income (loss) per common share............ (6.78) (10.99) 1.06 0.31 0.67 F-19

CENTENE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollars in thousands, except share data) 20. Segment Reporting: For the Year Ended For the Year Ended December 31, 1998 December 31, 1999 ------------------- ------------------- Medicaid Commercial Medicaid Commercial -------- ---------- -------- ---------- Total revenues.............. $150,438 $21,534 $201,429 $15,054 Segment loss from operations (5,285) (1,677) (5,484) (3,927) Segment assets.............. 45,727 -- 52,207 -- Segment information has been prepared in accordance with SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information. Centene has two reportable segments: Medicaid and commercial. The segments were determined based upon types of services provided by each segment. Segment performance is evaluated based upon operating income after income taxes. Accounting policies of the segments are the same as those described in the Summary of Significant Accounting Policies (Note 2). The Medicaid segment includes operations to provide healthcare services to Medicaid eligible recipients through various federal and state supported programs. The commercial segment includes group accident and health managed care coverage. Effective December 31, 1999, the commercial line of business was discontinued. 21. Contract Acquisitions: In December 2000, MHSIC and Superior entered into agreements with Humana Inc. to transfer Humana's Medicaid contract with the state of Wisconsin to MHSIC and Humana's Medicaid contract with the state of Texas to Superior. Effective February 1, 2001, the state of Wisconsin approved the agreement, thereby allowing MHSIC to serve approximately 35,000 additional members in the state. Effective February 1, 2001, the state of Texas approved a management agreement between Superior and Humana Inc., thereby allowing Superior to manage approximately 30,000 additional members in Texas. As a result of the above transactions, $1,250 (the purchase price) was recorded as an intangible, purchased contract rights. Centene is amortizing the contract rights on a straight-line basis over five years, the period expected to be benefited. 22. Common Stock Pro Forma Information (Unaudited): On October 4, 2001, the Board of Directors authorized the Company to file a Registration Statement with the U.S. Securities and Exchange Commission for an initial public offering of its common stock. The unaudited June 30, 2001, pro forma consolidated stockholders' equity and pro forma net income per common share information for the year ended December 31, 2000, and the six months ended June 30, 2001, give effect to the conversion of all of the outstanding preferred stock into 5,874,340 shares of common stock upon the completion of the proposed offering. For purposes of the unaudited pro forma stockholders' equity, the transactions have been assumed to have occurred on June 30, 2001. For purposes of the unaudited pro forma net income per common share information, the transactions were assumed to have occurred as of January 1, 2000. The unaudited pro forma information presented does not purport to represent the financial position or net income per common share of the Company if such transactions had occurred on such dates or to project the Company's financial position or net income per common share as of any future date or for any future period. F-20

CENTENE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollars in thousands, except share data) The table below provides supporting calculations for the unaudited pro forma net income per common share. Six Months Year Ended Ended December 31, June 30, 2000 2001 ------------ ---------- Computation of pro forma weighted average number of common shares outstanding: Historical................................................................. 901,526 908,907 Common shares issued on conversion of convertible preferred stock.......... 5,874,340 5,874,340 ---------- ---------- Basic......................................................................... 6,775,866 6,783,247 ========== ========== Computation of pro forma weighted average number of common shares and potentially dilutive common shares outstanding: Historical................................................................. 6,819,595 7,748,825 Common shares issued on conversion of convertible preferred stock.......... 5,874,340 5,874,340 Elimination of effect of convertible preferred shares in historical amount. (5,874,340) (5,874,340) ---------- ---------- Diluted....................................................................... 6,819,595 7,748,825 ========== ========== F-21

-------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Shares [LOGO] Centene Logo Common Stock -------------------- PROSPECTUS -------------------- SG COWEN THOMAS WEISEL PARTNERS LLC CIBC WORLD MARKETS , 2001 -------------------------------------------------------------------------------- --------------------------------------------------------------------------------

PART II Item 13. Other Expenses of Issuance and Distribution. The following table indicates the expenses to be incurred in connection with the offering described in this Registration Statement, other than underwriting discounts and commissions, all of which will be paid by us. All amounts are estimates, other than the SEC registration fee and the NASD fee. SEC registration fee.............................. $ 14,375 NASD fee.......................................... 6,250 Nasdaq National Market application and listing fee * Accounting fees and expenses...................... 150,000 Legal fees and expenses........................... 250,000 Printing and engraving............................ 225,000 Transfer agent fees and expenses.................. 5,000 Blue sky fees and expenses........................ 15,000 Miscellaneous expenses............................ * -------- Total.......................................... $ * ======== ----- * To be filed by amendment. Item 14. Indemnification of Directors and Officers. Section 102 of the Delaware General Corporation Law ("DGCL"), as amended, allows a corporation to eliminate or limit the personal liability of a director of a corporation to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except where the director breached his duty of loyalty, failed to act in good faith, engaged in intentional misconduct or knowingly violated a law, authorized the payment of a dividend or approved a stock repurchase in violation of Delaware corporate law or obtained an improper personal benefit. Section 145 of the DGCL provides, among other things, that we may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (other than an action by us or in our right) by reason of the fact that the person is or was one of our directors, officers, agents or employees or is or was serving at our request as a director, officer, agent, or employee of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding. The power to indemnify applies (a) if such person is successful on the merits or otherwise in defense of any action, suit or proceeding, or (b) if such person acted in good faith and in a manner which the person reasonably believed to be in our best interest, or not opposed to our best interest, and with respect to any criminal action or proceeding, had no reasonable cause to believe such conduct was unlawful. The power to indemnify applies to actions brought by us or in our right as well but only to the extent of defense expenses (including attorneys' fees but excluding amounts paid in settlement) actually and reasonably incurred and not to any satisfaction of judgment or settlement of the claim itself, and with the further limitation that in such actions no indemnification shall be made in the event of any adjudication of negligence or misconduct in the performance of his duties to us, unless the court believes that in light of all the circumstances indemnification should apply. Section 174 of the DGCL provides, among other things, that a director, who willfully or negligently approves of an unlawful payment of dividends or an unlawful stock purchase or redemption, may be held liable for such actions. A director who was either absent when the unlawful actions were approved or II-1

dissented at the time, may avoid liability by causing his or her dissent to such actions to be entered in the books containing the minutes of the meetings of the board of directors at the time such action occurred or immediately after such absent director receives notice of the unlawful acts. As permitted under Delaware law, our certificate of incorporation includes a provision that eliminates the personal liability of our directors for monetary damages for breach of fiduciary duty as a director, except for liability for: . any breach of the director's duty of loyalty to us or our stockholders; . acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; . unlawful payments of dividends or unlawful stock re-purchases or redemptions; or . any transaction from which the director derived an improper personal benefit. Our by-laws further provide that: . we must indemnify our directors and officers to the fullest extent permitted by Delaware law; . we may indemnify our other employees and agents to the same extent that we indemnified our officers and directors, unless otherwise determined by our board of directors; and . we must advance expenses, as incurred, to our directors and executive officers in connection with a legal proceeding to the fullest extent permitted by Delaware law. The indemnification provisions contained in our certificate of incorporation and by-laws are not exclusive of any other rights to which a person may be entitled by law, agreement, vote of stockholders or disinterested directors or otherwise. In addition, we maintain insurance on behalf of our directors and executive officers insuring them against any liability asserted against them in their capacities as directors or officers or arising out of such status. Please also see section 7 of the underwriting agreement relating to the offering, filed as Exhibit 1 to this Registration Statement, for indemnification arrangements between the underwriters, the selling stockholders and us. Item 15. Recent Sales of Unregistered Securities. Set forth below is a description of our sales of unregistered securities since January 1, 1998. The sales made to investors were made in accordance with Section 4(2) of the Securities Act and Regulation D under the Securities Act. Sales to our employees, directors and officers were deemed to be exempt from registration under the Securities Act in reliance on Rule 701 promulgated under Section 3(b) of the Securities Act as transactions under compensatory benefit plans and contracts relating to compensation provided under Rule 701. Series D Convertible Preferred Stock In March 1998, we sold 12,499 shares of common stock to Greylock Limited Partnership upon exercise of warrants at a price of $2.40 per share for gross proceeds of $29,998. In September 1998, we sold 3,680,000 shares of series D preferred stock at a price of $5 per share for gross proceeds of $18,400,000. Investors included Strategic Investment Partners, Ltd., Cahill Warnock Strategic Partners Fund, L.P., Greylock Limited Partnership, Strategic Associates, L.P., D.L. Associates, Claire W. Johnson, Marshall & Ilsley Trust Company f/b/o Richard P. Wiederhold, Raymond Brinn, Robert J. Johannes and Jerome Fritsch. II-2

In February 1999, we sold 74 common shares to an employee upon exercise of warrants at a price of $2.40 per share for gross proceeds of $178. In May 1999, we sold 40,000 shares of shares of series D preferred stock at a price of $5.00 per share for gross proceeds of $200,000. We sold the shares to Michael F. Neidorff, Brian Spanel and some of our other employees. Stock Options In 1998, we granted options to purchase 50,000, 25,000 and 7,000 shares of common stock to employees pursuant to our 1994, 1996 and 1998 Stock Plans, respectively. In 1999, we granted options to purchase 2,000, 107,000, 297,500 and 177,000 shares of common stock to employees pursuant to our 1994, 1996, 1998 and 1999 Stock Plans, respectively. In 2000, we granted options to purchase 115,000 and 416,000 shares of common stock to employees and directors pursuant to our 1999 and 2000 Stock Plans, respectively. In 2001, we granted options to purchase 149,500 shares of common stock to employees pursuant to our 2001 Stock Plan. Between January 1, 1998 and September 1, 2001, 15,395 options granted pursuant to our stock plans have been exercised at exercise prices ranging from $0.803 to $2.80. Item 16. Exhibits and Financial Statement Schedules. a. Exhibits Exhibit Number Description ------ ----------- 1* Underwriting Agreement 3.1 Articles of Incorporation of Centene Corporation, a Wisconsin corporation 3.2 Certificate of Incorporation of Centene Corporation, a Delaware corporation 3.3 By-laws of Centene Corporation, a Wisconsin corporation 3.4 By-laws of Centene Corporation, a Delaware corporation 4.1* Specimen certificate for shares of common stock of Centene Corporation 4.2 Amended and Restated Shareholders' Agreement, dated September 23, 1998 5* Legal opinion of Armstrong Teasdale LLP 10.1 Stock Purchase and Recapitalization Agreement by and among Community Health Centers Network, L.P., Superior HealthPlan, Inc., Centene Corporation and TACHC GP, Inc., dated September 10, 2001 10.2 Contract for Medicaid/BadgerCare HMO Services between Managed Health Services Insurance Corp. and Wisconsin Department of Health and Family Services, January 2000 - December 2001 10.3** Agreement between Network Health Plan of Wisconsin, Inc. and Managed Health Services Insurance Corp., dated January 1, 2001 10.4 1999 Contract for Services between the Texas Department of Health and Superior HealthPlan, Inc. (El Paso Service Area), dated May 14, 1999 10.5 1999 Contract for Services between the Texas Department of Health and Superior HealthPlan, Inc. (Travis Service Area), dated August 9, 1999 II-3

Exhibit Number Description ------ ----------- 10.6 1999 Contract for Services between the Texas Department of Health and Superior HealthPlan, Inc. (Bexar Service Area), dated August 9, 1999 10.7 Contract between the Office of Medicaid Policy and Planning, the Office of the Children's Health Insurance Program and Coordinated Care Corporation Indiana, Inc., dated January 1, 2001 10.8 1994 Stock Plan 10.9 1996 Stock Plan 10.10 1998 Stock Plan 10.11 1999 Stock Plan 10.12 2000 Stock Plan 10.13 Form of Incentive Stock Option Agreement 10.14 Form of Non-statutory Stock Option Agreement 10.15 Executive Employment Agreement between Centene Corporation and Karey L. Witty, dated January 1, 2001 10.16 Executive Employment Agreement between Centene Corporation and Brian G. Spanel, dated August 6, 2001 10.17 Executive Employment Agreement between Centene Corporation and Joseph P. Drozda, M.D., dated October 30, 2000 10.18 Executive Employment Agreement between Centene Management Corporation and Mary O'Hara, dated December 16, 1998 21 List of subsidiaries 23 Consent of Independent Public Accountants 24 Power of Attorney (included on signature page of the Registration Statement) -------- * To be filed by amendment. **Confidential treatment has been requested for a portion of this Exhibit pursuant to Rule 406 promulgated under the Securities Act. b. Financial Statement Schedule Report of Independent Public Accountants and Schedule of Valuation and Qualifying Accounts II-4

Item 17. Undertakings. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the registrant pursuant to the provisions described in Item 14, or otherwise, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification by the registrant against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes to provide to the underwriters at the closing certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. The undersigned registrant hereby undertakes that: 1. For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. 2. For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5

SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Clayton, Missouri, on October 9, 2001. CENTENE CORPORATION /s/ MICHAEL F. NEIDORFF By: _________________________________ Michael F. Neidorff President and Chief Executive Officer POWER OF ATTORNEY We, the undersigned officers and directors of Centene Corporation hereby severally constitute and appoint Michael F. Neidorff, Karey L. Witty and John L. Gillis, and each of them singly, our true and lawful attorneys-in-fact and agents with full power to them, to sign for us and in our names in the capacities indicated below, any and all pre-effective and post-effective amendments to the Registration Statement on Form S-1 filed herewith, and any subsequent Registration Statement for the same offering which may be filed under Rule 462(b), and generally to do all such things in our names and on our behalf in our capacities as officers and directors to enable Centene Corporation to comply with the provisions of the Securities Act of 1933, as amended, and all requirements of the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys-in-fact and agents, or any of them, to said amendments or to any subsequent Registration Statement for the same offering which may be filed pursuant to Rule 462(b). Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed as of October 9, 2001 by the following persons in the capacities indicated. Name Title ---- ----- /s/ MICHAEL F. NEIDORFF President and Chief Executive Officer -------------------------- (Chief Executive Officer) Michael F. Neidorff /s/ KAREY L. WITTY Senior Vice President, Chief Financial Officer and -------------------------- Secretary (Chief Financial and Accounting Officer) Karey L. Witty /s/ SAMUEL E. BRADT Director -------------------------- Samuel E. Bradt /s/ WALTER E. BURLOCK, JR. Director -------------------------- Walter E. Burlock, Jr. /s/ EDWARD L. CAHILL Director -------------------------- Edward L. Cahill ------------------ Director Howard E. Cox, Jr. II-6

Name Title ---- ----- ------------------------- Director Robert K. Ditmore /s/ CLAIRE W. JOHNSON Director ------------------------- Claire W. Johnson /s/ RICHARD P. WIEDERHOLD Director ------------------------- Richard P. Wiederhold II-7

EXHIBIT INDEX Exhibit Number Description ------ ----------- 1* Underwriting Agreement 3.1 Articles of Incorporation of Centene Corporation, a Wisconsin corporation 3.2 Certificate of Incorporation of Centene Corporation, a Delaware corporation 3.3 By-laws of Centene Corporation, a Wisconsin corporation 3.4 By-laws of Centene Corporation, a Delaware corporation 4.1* Specimen certificate for shares of common stock of Centene Corporation 4.2 Amended and Restated Shareholders' Agreement, dated September 23, 1998 5* Legal opinion of Armstrong Teasdale LLP 10.1 Stock Purchase and Recapitalization Agreement by and among Community Health Centers Network, L.P., Superior HealthPlan, Inc., Centene Corporation and TACHC GP, Inc., dated September 10, 2001 10.2 Contract for Medicaid/BadgerCare HMO Services between Managed Health Services Insurance Corp. and Wisconsin Department of Health and Family Services, January 2000 - December 2001 10.3** Agreement between Network Health Plan of Wisconsin, Inc. and Managed Health Services Insurance Corp., dated January 1, 2001 10.4 1999 Contract for Services between the Texas Department of Health and Superior HealthPlan. Inc. (El Paso Service Area), dated May 14, 1999 10.5 1999 Contract for Services between the Texas Department of Health and Superior HealthPlan, Inc. (Travis Service Area), dated August 9, 1999 10.6 1999 Contract for Services between the Texas Department of Health and Superior HealthPlan, Inc. (Bexar Service Area), dated August 9, 1999 10.7 Contract between the Office of Medicaid Policy and Planning, the Office of the Children's Health Insurance Program and Coordinated Care Corporation Indiana, Inc., dated January 1, 2001 10.8 1994 Stock Plan 10.9 1996 Stock Plan 10.10 1998 Stock Plan 10.11 1999 Stock Plan 10.12 2000 Stock Plan 10.13 Form of Incentive Stock Option Agreement 10.14 Form of Non-statutory Stock Option Agreement 10.15 Executive Employment Agreement between Centene Corporation and Karey Witty, dated January 1, 2001 10.16 Executive Employment Agreement between Centene Corporation and Brian G. Spanel, dated September 26, 2001 10.17 Executive Employment Agreement between Centene Corporation and Joseph P. Drozda, M.D., dated October 30, 2000 10.18 Executive Employment Agreement between Centene Management Corporation and Mary O'Hara, dated December 16, 1998 21 List of subsidiaries 23 Consent of Independent Public Accountants 24 Power of Attorney (included on signature page of the Registration Statement) -------- * To be filed by amendment. **Confidential treatment has been requested for a portion of this Exhibit pursuant to Rule 406 promulgated under the Securities Act.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Centene Corporation: We have audited in accordance with auditing standards generally accepted in the United States, the financial statements of Centene Corporation and subsidiaries included in this registration statement and have issued our report thereon dated March 2, 2001. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule II is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ ARTHUR ANDERSEN LLP St. Louis, Missouri March 2, 2001

SCHEDULE II CENTENE CORPORATION SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS Balance Amounts Write-offs of Balance Allowance for Beginning of Charged to Uncollectible End of Doubtful Receivables the Year Expense Receivable Year -------------------- ------------ ---------- ------------- ------- 1998 $ -- $ 412 $ -- $ 412 1999 412 833 -- 1,245 2000 1,245 1,390 (769) 1,866 1

Exhibit 3.1 RESTATED ARTICLES OF INCORPORATION OF CENTENE CORPORATION The following Restated Articles of Incorporation, duly adopted pursuant to the provisions of the Wisconsin Business Corporation Law, supersede and take the place of the heretofore existing Articles of Incorporation of Centene Corporation: ARTICLE I --------- The name of the corporation is Centene Corporation (the "Corporation"). ----------- ARTICLE II ---------- The aggregate number of shares which the Corporation shall have authority to issue is thirty million (30,000,000), consisting of seventeen million (17,000,000) shares of common stock, one-third of one cent ($0.00333...) par value per share ("Common Stock"), and thirteen million (13,000,000) shares ------------ of preferred stock, sixteen and two-third cents ($0.16666...) par value per share ("Preferred Stock"). --------------- The board of directors of the Corporation (the "Board of Directors") ------------------ is authorized at any time and from time to time to provide for the issuance of shares of Common Stock and shares of Preferred Stock in one or more series with such distinguishing designations and preferences, limitations and relative rights, in whole or in part, as are stated in these Restated Articles of Incorporation or, to the extent not so stated or expressed, as may be stated and expressed in a resolution or resolutions establishing such series and providing for the issuance thereof, adopted by the Board of Directors (a "Series ------ Resolution"), including without limitation the designation and number of shares ---------- of each such series, the voting rights, if any, of each such series, and the dividend, redemption, liquidation, conversion and other rights, if any, of each such series. A total of 16,000,000 shares of Common Stock shall be known and designated as Series A Common Stock ("Series A Common Stock"). A total of --------------------- 1,000,000 shares of Common Stock shall be known and designated as Series B Common Stock ("Series B Common Stock"). A total of 2,400,000 shares of Preferred --------------------- Stock shall be known and designated as Series A Preferred Stock ("Series A -------- Preferred Stock"). A total of 1,050,000 shares of Preferred Stock shall be known --------------- and designated as Series B Preferred Stock ("Series B Preferred Stock"). A total ------------------------ of 850,000 shares of Preferred Stock shall be known and designated as Series C Preferred Stock ("Series C Preferred A Stock"). A total of 4,000,000 shares of -------------------------- Preferred Stock shall be known and designated as Series D Preferred Stock ("Series D Preferred Stock"). The remaining number of authorized shares of ------------------------ Preferred Stock which are not Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or the subject of a Series Resolution shall be undesignated Preferred Stock. The Board of Directors

from time to time may increase or decrease the number of shares of any series, but not, in the case of a decrease, to a number less than the number of shares of such series then outstanding. The Series A Common Stock, Series B Common Stock, Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall have the following relative rights, preferences and limitations, but except as so set forth shall be identical in every respect. A. Dividends. The holders of Preferred Stock, including the Series A --------- Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, shall be entitled to participate with the holders of Common Stock in any dividends paid or set aside for payment (other than dividends payable solely in shares of Common Stock) so that holders of Preferred Stock shall receive with respect to each share of Preferred Stock an amount equal to (i) the dividend payable with respect to each share of Common Stock multiplied by (ii) the number of shares (and fraction of a share, if any) of Common Stock into which such share of Preferred Stock is convertible as of the record date for such dividend; provided, however, that the holders of the Series D Preferred -------- ------- Stock shall be entitled to receive such dividends in preference to any other class or series of stock. B. Liquidation Preference. The following provisions shall apply in ---------------------- the event of any liquidation, dissolution or winding up of the Corporation either voluntarily or involuntarily (a "Liquidation Event"). The following ----------------- events also shall be considered a Liquidation Event: (i) a consolidation or merger of the Corporation with or into another corporation or other entity or person, or any other corporate reorganization (other than a consolidation, merger or reorganization following which the holders of fifty percent (50%) or more of the capital stock of the resulting or surviving entity, determined on a common equivalent basis, are persons or entities who were shareholders of the Corporation or affiliates of shareholders immediately prior to such consolidation, merger or reorganization) or (ii) a sale, lease or other disposition of all or substantially all of the assets of the Corporation (other than to an entity which is at least 50% owned by persons or entities who were shareholders or affiliates of shareholders of the Corporation immediately prior to such sale, lease or other disposition), unless in the case of either ------ subsections (i) or (ii) the holders of more than 50% of the then outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and any of one or more additional series of the Corporation's Preferred Stock (each such series being referred to herein as an "Additional Series"), acting together, consent in writing, within 20 days of ----------------- receiving notice from the Corporation of the imminence of such consolidation, merger, or sale, that such consolidation, merger or sale, for purposes of this Section B, shall not be deemed a Liquidation Event: (1) Preference Amount. Upon any Liquidation Event, before any ----------------- distribution or payment shall be made to the holders of Series A Common Stock, Series B Common Stock, Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Additional Series, the holders of Series D Preferred Stock shall be entitled to receive prior to and in preference of any distribution of the assets or surplus funds of the Corporation to such -2-

holders of Series A Common Stock, Series B Common Stock, Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Additional Series, (i) the greater of (x) an amount equal to five dollars ($5.00) per share (such amount to be adjusted proportionately in the event of any stock splits, stock combinations, stock dividends or recapitalizations) or (y) the amount per share that would be received if the Series D Preferred Stock was converted into Series A Common Stock prior to the Liquidation Event plus (ii) a further amount equal to any dividends declared or accrued but unpaid on such shares (the sum of clauses (i) and (ii), the "Series D Preferred Stock Preference Amount"). After ------------------------------------------ the payment of the Series D Preferred Stock Preference Amount, the holders of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock shall be entitled to receive out of the remaining assets of the Corporation legally available for distribution if any, prior to and in preference of any distribution of the assets or surplus funds of the Corporation to the holders of Series A Common Stock or Series B Common Stock, an amount equal to forty-four and one-third cents ($0.44333...) per share (such amount to be adjusted proportionately in the event of any stock splits, stock combinations, stock dividends or recapitalizations) plus a further amount equal to any dividends declared or accrued but unpaid on such shares, based upon the relative liquidation preferences of the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock (the "Second Preference Amount"). The ------------------------ aggregate sum payable to all holders of Preferred Stock hereunder is herein referred to as the "Preference Amount." If, upon such Liquidation Event, the ----------------- assets of the Corporation available for distribution to the shareholders of the Corporation are insufficient to pay the entire Second Preference Amount, such assets as are so available shall be distributed on a common equivalent basis among the holders of Series A Preferred Stock, Series B Preferred Stock and the Series C Preferred Stock in relation to their respective liquidation preferences. (2) Remainder. After the payment or the setting aside for payment --------- of the Preference Amount, the assets of the Corporation remaining available for distribution shall be distributed among all the holders of Series A Common Stock, Series B Common Stock, Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock on a common equivalent basis. (3) Noncash Distributions, Common Equivalency. If any of the ----------------------------------------- assets of the Corporation are to be distributed other than in cash under this Section B or for any purpose, then the Board of Directors shall promptly engage independent competent appraisers to determine the value of the assets to be distributed to the shareholders of the Corporation. The Corporation shall, upon receipt of such appraiser's valuation, give prompt written notice of the appraiser's valuation to each shareholder. As used herein, the "common ------ equivalence" of any share of Preferred Stock is the number of shares of Common ----------- Stock into which such share of Preferred Stock is at the time convertible and the phrase "on a common equivalent basis" refers to a calculation done on the ---------------------------- basis of common equivalence. -3-

C. Voting Rights. ------------- (1) Series A Common Stock, Series A Preferred Stock and Series D ------------------------------------------------------------ Preferred Stock. The holders of Series A Common Stock shall be entitled to one --------------- vote for each share of Series A Common Sock held with respect to all matters submitted for a vote or written consent of shareholders. The holders of Series A Preferred Stock and Series D Preferred Stock shall be entitled, for each share of Series A Preferred Stock or Series D Preferred Stock, respectively, held to the number of votes equal to the number of shares of Series A Common Stock into which each share of Series A Preferred Stock or Series D Preferred Stock could be converted on the record date, with respect to all matters submitted for a vote or written consent of shareholders and, except as otherwise required by law, shall have voting rights and powers equal to the voting rights and powers of the Series A Common Stock. The holder of each share of Series A Preferred Stock or Series D Preferred Stock shall be entitled to notice of any shareholders' meeting in accordance with the Bylaws of the Corporation and shall vote together as a single voting group with holders of Series A Common Stock upon all other matters submitted for a vote or written consent of shareholders, except those matters required to be submitted to a class or series vote pursuant to Section F of this Article II, Article IV or by law. Fractional votes shall not, however, be permitted and any fractional voting rights resulting from the above formula (after aggregating all shares of Series A Common Stock into which shares of Series A Preferred Stock or Series D Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half rounded upward to one). The holders of each Additional Series shall have the voting rights, if any, specified in the applicable Series Resolution. (2) Series B Common Stock, Series B Preferred Stock and Series C ------------------------------------------------------------ Preferred Stock. The holders of Series B Common Stock, Series B Preferred Stock --------------- and Series C Preferred Stock shall not be entitled to vote (except as otherwise required by law) but shall be entitled to notice of all meetings of shareholders. D. Conversion. ---------- (1) Rights to Convert. Each share of Series A Preferred Stock, ----------------- Series B Preferred Stock and Series D Preferred Stock shall be convertible at the option of the holder thereof and at any time after the date of issuance of such share, into Series A Common Stock, subject to the conditions set forth below. Each share of Series A Preferred Stock, Series B Preferred Stock or Series D Preferred Stock shall be convertible into the number of shares of Series A Common Stock which results from dividing the "Conversion Price" per ---------------- share in effect for such class at the time of conversion into the "Conversion ---------- Value" per share for such c1ass. The number of shares of Common Stock into ----- which a share of Preferred Stock is convertible is hereinafter referred to as the "Conversion Rate." The Conversion Price per share of Series A Preferred --------------- Stock initially in effect shall be forty-four and one-third cents ($0.44333...); the Conversion Price per share of Series B Preferred Stock initially in effect shall be forty-four and one-third cents ($0.44333...); and the Conversion Price per share of Series D Preferred Stock -4-

initially in effect shall be five dollars ($5.00). The Conversion Value per share of Series A Preferred Stock and Series B Preferred Stock shall be forty-four and one-third cents ($0.44333...); and the Conversion Value per share of Series D Preferred Stock shall be five dollars ($5.00). The initial Conversion Price for each such series of Preferred Stock shall be subject to adjustment as hereinafter provided. In addition, each share of Series B Preferred Stock shall be convertible, at the option of the holder thereof and at any time after the date of issuance of such share, into one share of Series A Preferred Stock; provided, that such a conversion into Series A Preferred Stock -------- may not occur to the extent that the holder of Series B Preferred Stock would immediately following such conversion, hold capital stock of the Corporation with voting power in the election of directors equaling or exceeding 50% of the total voting power in such election. Such conversion of shares of stock shall be at the office of the Corporation. In no event shall shares of Series B Common Stock be convertible into any other class or series of capital stock. Each share of any Additional Series shall have the conversion rights, if any, specified in the applicable Series Resolution. (2) Automatic Conversion. -------------------- (a) Each share of Series A Preferred Stock and Series B Preferred Stock shall automatically be converted into shares of Series A Common Stock at its then effective Conversion Rate immediately upon the closing of a public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"), covering the -------------- Corporation's Series A Common Stock in a firm-commitment, underwritten public offering by a nationally recognized investment banking firm with aggregate net cash proceeds to the Corporation (after deducting underwriters' discounts and expenses), at the public offering price, of at least $10,000,000 and an equivalent public offering price per share of Series A Common Stock (as such shares of stock are presently constituted) of at least $1.33. Additionally, upon such an event, each share of Series C Preferred Stock shall automatically be converted into shares of Series B Common Stock at its then effective Conversion Rate; the Conversion Price per share of Series C Preferred Stock initially in effect shall be forty-four and one-third cents ($0.44333...) (subject to adjustment as hereinafter provided) and the Conversion Value per share of Series C Preferred Stock shall be forty-four and one-third cents ($0.44333...). (b) Each share of Series D Preferred Stock shall automatically be converted into shares of Series A Common Stock at the then effective Conversion Rate immediately upon the closing of a public offering pursuant to an effective registration statement under the Securities Act, covering the Corporation's Series A Common Stock in a firm-commitment, underwritten public offering by a nationally recognized investment banking firm with net cash proceeds to the Corporation (after deducting underwriters' discounts, commissions and expenses) of at least $20 million and an equivalent public offering price per share of Series A Common Stock of at least $10 (as adjusted for stock splits, dividends and recapitalizations and the like). -5-

(3) Mechanics of Conversion. Before any shareholder shall be ----------------------- entitled to convert shares of stock as provided in Section D(1) above, he shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation and shall give written notice to the Corporation at such office that he elects to convert the same. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder a certificate or certificates for the number and type of shares of stock to which he shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of stock to be converted, and the person or persons entitled to receive the shares of stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of stock on such date. In the event of an automatic conversion pursuant to Section D(2) above, the outstanding shares of Preferred Stock shall be converted automatically without any further action by the holders of such shares of Preferred Stock and whether or not the certificates representing such shares are surrendered to the Corporation; provided, however, that the Corporation shall -------- ------- not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such automatic conversion unless the certificates evidencing such shares of Preferred Stock are either delivered to the Corporation as provided above, or the holder notifies the Corporation that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates. The Corporation shall, as soon as practicable after such delivery, or such agreement and indemnification in the case of a lost certificate, issue and deliver at such office to such holder, a certificate or certificates for the number of shares of Common Stock to which he shall be entitled as aforesaid and a check payable to the holder in the amount of any cash amounts payable as the result of a conversion into fractional shares of Common Stock. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of closing of the offering, and the person and persons entitled to receive the shares issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares on such date. (4) Fractional Shares. No fractional shares shall be issued ----------------- upon any conversion described in this Section D. In lieu of any fractiona1 shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the Conversion Price. (5) Adjustment of Conversion Price. The Conversion Price of each ------------------------------ class or series of Preferred Stock shall be subject to adjustment from time to time after the date of filing of these Restated Articles of Incorporation (the "Filing Date") as follows: ----------- (a) Except for Series D Preferred Stock (which shall be subject to the adjustments set forth in Section D(5)(c)), if the Corporation after the Filing Date shall issue (i) any Common Stock or other securities of the Corporation convertible into or exchangeable for Common Stock (other than "Excluded Stock" (as defined below) or stock -------------- -6-

dividends, subdivisions, split-ups, combinations or dividends, which are events covered by Sections D(5)(d), (e) and (f) of this Article II) for a consideration per share less than the Conversion Price applicable to such class or series of Preferred Stock in effect immediately prior to the issuance of such Common Stock (or other securities convertible into or exchangeable for such Common Stock), then the Conversion Price for such class or series of Preferred Stock shall forthwith be decreased immediately after such issuance to a price equal to the quotient obtained by dividing: (i) an amount equal to the sum of (x) the total number of shares of Common Stock outstanding (including any shares deemed to have been issued pursuant to subsection (C) of this Section D(5)(a)) immediately prior to such issuance multiplied by the Conversion Price in effect for such class or series of Preferred Stock immediately prior to such instance, plus (y) the consideration received by the Corporation upon such issuance, by (ii) the total number of shares of Common Stock outstanding (including any shares deemed to have been issued pursuant to subsection (C) of this Section D(5)(a)) immediately after such issuance of Common Stock (or other securities convertible into or exchangeable for such Common Stock). (b) "Excluded Stock" shall mean: -------------- (i) shares of Common Stock issued or issuable on or after the Filing Date upon exercise of options or other purchase rights granted to employees, officers, directors or consultants of the Corporation and approved by the Board of Directors of the Corporation (and any reissuance of such shares after repurchase thereof); and (ii) all shares of Common Stock or other securities issued or to be issued to employees, officers, directors or consultants of the Corporation after receipt of written consent to such issuance from the holders of 50% of the then outstanding shares of Preferred Stock and approval of such issuance by the Board of Directors of the Corporation; and -7-

(iii) all shares of Common Stock or other securities issued to an investment firm or similar person as a fee in connection with capital finance activities of the Corporation. Shares of Excluded Stock shall not be deemed to be outstanding for purposes of the computations of Section D(5)(a) above prior to their actual issuance. (c) Adjustment of Series D Preferred Stock Conversion ------------------------------------------------- Price. If the Corporation shall issue, after the Filing Date, (i) any Common ----- Stock. warrants, rights, options or other securities of the Corporation convertible into or exchangeable for Common Stock (excluding shares of Common Stock issued or issuable to employees, officers, directors or consultants pursuant to the Corporation's now or hereafter existing benefit plans as approved by the Board of Directors; or warrants, options or stock not to exceed a value of $5O,000 per employee issued in connection with employment agreements with new members of executive management, or shares of Common Stock or securities issued to an investment banking firm or similar person as a fee in connection with capital finance activities of the Corporation) that have an exercise or conversion price at issuance lower than the Conversion Price of the Series D Preferred Stock in effect immediately prior to such issuance (the "Trigger Stock") or (ii) stock dividends, subdivisions, split-ups, combinations ------------- or dividends, which are events covered by Sections D(5)(d), (e) and (f) of this Article II), then the Conversion Price for the Series D Preferred Stock shall forthwith be adjusted to a price equal to the lowest consideration received per share for any share of such Trigger Stock. (d) For purposes of making any such calculation pursuant to this Sections D(5)(a) and (c), the shares of Common Stock issuable upon conversion of the outstanding shares of Preferred Stock, together with any other shares of the same class of capital stock deemed issued and outstanding pursuant to subsection (C) of this Section D(5)(d), shall be deemed issued and outstanding at all times. For purposes of any adjustment of the Conversion Price pursuant to this subsection (a) and (c) of this Section D(5), the following provisions shall be applicable: (i) In the case of the issuance of Common Stock for cash, the consideration received therefor shall be deemed to be the amount of cash paid therefor without deducting any discounts or commissions paid or incurred by the Corporation in connection with the issuance and sale thereof. (ii) In the case of the issuance of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as determined in good faith by the Board of Directors of the Corporation, in accordance with generally accepted accounting treatment -8-

(iii) In the case of the issuance of (i) options to purchase or rights to subscribe for Common Stock (other than Excluded Stock), (ii) securities by their terms convertible or exchangeable for such Common Stock (other than Excluded Stock), or (iii) options to purchase or rights to subscribe for such convertible or exchangeable securities: (A) the aggregate maximum number of shares of Common Stock deliverable upon exercise of such options to purchase or rights to subscribe for Common Stock shall be deemed to be issuable for a consideration equal to the consideration (determined in the manner provided in subsections (i) and (ii) above), if any, received by the Corporation upon the issuance of such options or rights plus the minimum purchase price provided in such options or rights for the Common Stock covered thereby; (B) the aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange for any such convertible or exchangeable securities, or upon the exercise of options to purchase or rights to subscribe for such convertible or exchangeable securities and subsequent conversion or exchange thereof, shall be deemed to be issuable for a consideration equal to the consideration received by the Corporation for any such securities and related options or rights (including any cash received on account of accrued interest or accrued dividends), plus the additional consideration, if any, to be received by the Corporation upon the conversion or exchange of such securities or the exercise of any related options or rights (the consideration in each case to be determined in the manner provided in subsections (i) and (ii) above); (C) the aggregate maximum number of shares of Common Stock deliverable upon exercise of such options or rights or upon conversion of or in exchange for such convertible or exchangeable securities upon the exercise of options to purchase or rights to subscribe for such convertible or exchangeable securities and subsequent conversion or exchange thereof, shall be deemed to have been issued at the time such options or rights or securities were issued, provided that the consideration for which such Common Stock is deemed to be issuable does not exceed the issuance price of securities issued in the latest bona fide round of financing by the Corporation; (D) on any change in the number of shares of Common Stock deliverable upon exercise of any such options or rights or conversion of or exchange for such convertible or exchangeable securities, or on any change in the minimum purchase price of such options, rights or securities, other than a change resulting from the antidilution provisions of such options, rights or securities, the Conversion Price shall forthwith be readjusted to such Conversion Price as would have obtained had the adjustment (and any subsequent adjustments) made upon (x) the basis of the issuance of such options, rights or securities not exercised, converted or exchanged prior to such change, as the case may be, been made upon the basis of such change, or (y) the basis of the issuance of the options or rights related to such securities not -9-

converted or exchanged prior to such change, as the case may be, been made upon the basis of such change; and (E) on the expiration of any such options or rights, the termination of any such rights to convert or exchange or the expiration of any options or rights related to such convertible or exchangeable securities, the Conversion Price shall forthwith be readjusted to such Conversion Price as would have obtained had the adjustment (and any subsequent adjustments) made upon the basis of the issuance of such options, rights, convertible or exchangeable securities or options or rights related to such convertibIe or exchangeable securities, as the case may be, been made upon the issuance of only the number of shares of Common Stock actually issued upon the exercise of such options or rights, upon the conversion or exchange of such convertible or exchangeable securities or upon the exercise of the options or rights related to such convertible or exchangeable securities, as the case may be. (e) If the number of shares of Common Stock outstanding at any time after the date hereof is increased by a stock dividend payable in shares of such Common Stock or by a subdivision or split-up of shares of such Common Stock, then, on the date such payment is made or such change is effective, the Conversion Price for each class or series of Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of such class or series of Preferred Stock shall be increased in proportion to such increase of outstanding shares. (f) If the number of shares of Common Stock outstanding at any time after the date hereof is decreased by a combination of the outstanding shares of such Common Stock, then, on the effective date of such combination, the Conversion Price for each class or series of Preferred Stock shall be appropriateIy increased so that the number of shares of Common Stock issuable on conversion of such class or series of Preferred Stock shall be decreased in proportion to such decrease in outstanding shares. (g) If the Corporation shall declare a cash dividend upon Common Stock payable otherwise than out of retained earnings or shall distribute to holders of such Common Stock shares of another class or series of capital stock, stock or other securities of other persons, evidences of indebtedness issued by the Corporation or other persons, assets (excluding cash dividends) or options or rights (excluding options to purchase and rights to subscribe for such Common Stock or other securities of the Corporation convertible into or exchangeable for such Common Stock), then, in such case, the holders of shares of Preferred Stock shall, concurrent with the distribution to holders of such Common Stock, receive a like distribution based upon the number of shares of such Common Stock into which the shares of Preferred Stock are then convertible. (h) In the event, at any time after the date hereof, of (i) a capital reorganization or any reclassification of the stock of the Corporation (other than a change in par value or as a result of a stock dividend or subdivision, split-up or combination of shares) or (ii) -10-

the consolidation or merger of the Corporation with or into another person (other than a consolidation or merger in which the Corporation is the continuing entity and which does not result in any change in Common Stock, or (iii) the sale or other disposition of all or substantially all the properties and assets of the Corporation as an entirety to any other person, the shares of Preferred Stock shall, if such event is not deemed a Liquidation Event (as defined in Section B of this Article II), after such reorganization, reclassification, consolidation, merger, sale or other disposition, be convertible into the kind and number of shares of stock or other securities or property of the Corporation or of the entity resulting from such consolidation or surviving such merger or to which such properties and assets shall have been sold or otherwise disposed to which such holder would have been entitled if immediately prior to such reorganization, reclassification, consolidation, merger, sale or other disposition he had converted his shares of Preferred Stock into such Common Stock. The provisions of this subsection (h) shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales or other dispositions. (i) All calculations under this Section D shall be made to the nearest cent or to the nearest one hundredth (l/100) of a share, as the case may be. (6) Minimal Adjustments. No adjustment in a Conversion Price need be ------------------- made if such adjustment would result in a change in a Conversion Price of less than $0.01. Any adjustment of less than $0.01 which is not made shall be carried forward and shall be made at the time of and together with any subsequent adjustment which, on a cumulative basis, amounts to an adjustment of $0.01 or more in a Conversion Price. (7) Certificate as to Adjustments. Upon the occurrence of each ----------------------------- adjustment or readjustment of a Conversion Price pursuant to this Section D, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each shareholder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation upon written request at any time by any shareholder, shall furnish or cause to be furnished to such shareholder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price and Conversion Rate at the time in effect, and (iii) the number of shares and the amount, if any, of other property which at the time would be received upon the conversion. (8) Notices of Record Date. In the event of any taking by the ---------------------- Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive a dividend (other than a cash dividend) or other distribution, the Corporation shall mail to each shareholder at least twenty (20) days prior to the date specified herein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend or distribution. -11-

(9) Reservation of Common Stock Issuable Upon Conversion. The ---------------------------------------------------- Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the conversion of shares of Preferred Stock such number of its shares as shall from time to time be sufficient to effect the conversion of all outstanding shares of Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. (10) Notices. Any notice required by the provisions of this Section D ------- to be given to a shareholder shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his latest address appearing on the books of the Corporation. E. Redemption. ---------- (1) Optional Redemption. At the individual option of each holder of ------------------- shares of Series D Preferred Stock, the Corporation shall redeem for cash up to fifty percent (50%) of that holder's Series D Preferred Stock outstanding on each of September 1, 2003 and September 1, 2004 (each, a "Redemption Date") at a --------------- price equal to the sum of (i) 110% of five dollars ($5.00) per share (such amount to be adjusted proportionately in the event of any stock splits, stock combinations, stock dividends or recapitalizations) plus (ii) a further amount equal to any dividends declared or accrued but unpaid in such shares (the "Redemption Amount"). The number of shares of Series D Preferred Stock to be ----------------- redeemed from each holder on a Redemption Date shall be equal to fifty percent (50%) of the total number of shares initially held by such holder less the number of shares of Series D Preferred Stock for which the holder has exercised its conversion right under Section D of this Article I). (2) Mandatory Redemption. Notwithstanding any provision to the -------------------- contrary, in the event of a Change of Control (as defined below) and upon the request of a holder of Series D Preferred Stock, the Corporation shall be obligated to repurchase the Series D Preferred Stock held by such holder for an amount equal to the Redemption Amount. For purposes of this Section E(2), "Change of Control" shall mean any event or series of events by which (i) any ----------------- person or group, who are not shareholders or affiliates of shareholders of the Corporation immediately prior to such event, obtains a majority of the securities of the Corporation ordinarily having the right to vote in the election of directors; (ii) 50% or less of the Common Stock equivalents are held after a merger, consolidation, reorganization, recapitalization, dissolution or liquidation of the Corporation by persons who immediately prior to such event were shareholders or affiliates of shareholders of the Corporation; (iii) any sale, lease, exchange, or other transfer of all, or substantially all of the assets of the Corporation; or (iv) the adoption of a plan leading to the liquidation, dissolution or winding up of the Corporation. -12-

F. Protective Provisions. So long as any of the Series A Preferred Stock, --------------------- Series D Preferred Stock or any Additional Series is outstanding, the Corporation shall not without obtaining the approval (by vote or written consent as provided by law) of the holders of at least a majority of the outstanding shares of Series A Preferred Stock, Series D Preferred Stock and such Additional Series, acting as a single class: (1) Change of Rights. Materially and adversely alter or change the ---------------- rights, preferences or privileges of any series of Preferred Stock. (2) Create a New Class. Create any new class or series of shares ------------------ having a preference over or being on a parity with any outstanding shares of Preferred Stock as to dividends or assets, or authorize or issue shares of stock of any class or series or any bonds, debentures, notes or other obligations convertible into or exchangeable for, or having options or rights to purchase, any shares of stock of this Corporation having any preference over or being on a parity with any outstanding shares of Preferred Stock as to dividends or assets. (3) Reclassification. Reclassify any class or series of Common Stock ---------------- into shares having any preference as to dividends or assets superior to or on a parity with any outstanding shares of Preferred Stock. ARTICLE III ----------- The name and address of the registered agent and registered office of the Corporation are MIBEF Corporate Services, Inc., 100 East Wisconsin Avenue, Suite 3300, Milwaukee, Wisconsin 53202-4108. ARTICLE IV ---------- The number of directors constituting the Board of Directors of the Corporation shall be fixed in the manner specified in the Corporation's By-Laws; provided, -------- however, that so long as at least 25% of the Series D Preferred Stock issued as ------- of the date hereof remains outstanding, the holders of Series D Preferred Stock, voting as a separate class, shall be entitled to designate two (2) persons to the Board of Directors, one of whom shall be Edward Cahill and the second designee shall be an individual who is acceptable to the Corporation's President and Chief Executive Officer. The Series D Directors can only be removed by the holders of a majority of the Series D Preferred Stock. ARTICLE V --------- Any action required or permitted to be taken at a meeting of the shareholders of the Corporation may be taken without a meeting by shareholders who would be entitled to vote at a meeting those shares with voting power to cast no less than the minimum number or, in the case of voting groups, numbers of votes that would be necessary to authorize or take the action at a meeting at -13-

which all shares entitled to vote were present and voted. Any action so take must be evidenced by one or more written consents describing the action taken, signed by the number of shareholders necessary to take the action and delivered to the Corporation for inclusion in the corporate records. _____________________________________ The foregoing Restated Articles of Incorporation of Centene Corporation contain amendments to the Articles of Incorporation requiring shareholder approval; do not provide for an exchange, reclassification or cancellation of issued shares; and were duly adopted on _______________, 1998 in accordance with Section 180.1003 and 180.1007 of the Wisconsin Business Corporation Law. Dated this 23rd day of September, 1998. /s/ Michael Neidorff ---------------------------------- Michael Neidorff, President This instrument was drafted by and is returnable to: Robert J. Johannes, Esq. Michael Best & Friedrich 100 East Wisconsin Avenue, Suite 3300 Milwaukee, Wisconsin 53202 414-271-6560 -14-

Exhibit 3.2 CENTENE CORPORATION CERTIFICATE OF INCORPORATION The undersigned, being a natural person of the age of twenty-one (21) or more, for the purpose of forming a corporation under the General Corporation Law of the State of Delaware, adopts the following Certificate of Incorporation: FIRST: The name of the Corporation is Centene Corporation (the "Corporation"). SECOND: The address of the registered office of the Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, New Castle County, Delaware 19801. The name of its registered agent at that address is The Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware (the "GCL"). FOURTH: (a) Authorized Capital Stock. The total number of shares of stock which the Corporation shall have authority to issue is 50,000,000 shares of capital stock, consisting of (i) 40,000,000 shares of common stock, par value of one cent ($0.01) per share (the "Common Stock") and (ii) 10,000,000 shares of preferred stock, par value of one cent ($0.01) per share (the "Preferred Stock"). (b) Common Stock. The powers, preferences and rights, and the qualifications, limitations and restrictions, of each class of the Common Stock are as follows: (1) No Cumulative Voting. The holders of shares of Common Stock shall not have cumulative voting rights. (2) Dividends; Stock Splits. Subject to the rights of the holders of Preferred Stock, and subject to any other provisions of this Certificate of Incorporation, as it may be amended from time to time, holders of shares of Common Stock shall be entitled to receive such dividends and other distributions in cash, stock or property of the Corporation when, as and if declared thereon by the Board of Directors from time to time out of assets or funds of the Corporation legally available therefor. (3) Liquidation, Dissolution, etc. In the event of any liquidation, dissolution or winding up (either voluntary or involuntary) of the Corporation, the holders of shares of Common Stock shall be entitled to receive the assets and funds of the Corporation available for distribution after payments to creditors and to the holders of any Preferred Stock of the Corporation that may at the time be outstanding, in proportion to the number of shares held by them, respectively. (4) Merger, etc. In the event of a merger or consolidation of the Corporation with or into another entity (whether or not the Corporation is the surviving entity), the holders of each share of Common Stock shall be entitled to receive the same per share consideration on a per share basis.

(5) No Preemptive or Subscription Rights. No holder of shares of Common Stock shall be entitled to preemptive or subscription rights. (c) Preferred Stock. The Board of Directors is hereby expressly authorized to provide for the issuance of all or any shares of the Preferred Stock in one or more classes or series, and to fix for each such class or series such voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issuance of such class or series, including, without limitation, the authority to provide that any such class or series may be (i) subject to redemption at such time or times and at such price or prices; (ii) entitled to receive dividends (which may be cumulative or non-cumulative) at such rates, on such conditions, and at such times, and payable in preference to, or in such relation to, the dividends payable on any other class or classes or any other series; (iii) entitled to such rights upon the dissolution of, or upon any distribution of the assets of, the Corporation; or (iv) convertible into, or exchangeable for, shares of any other class or classes of stock, or of any other series of the same or any other class or classes of stock, of the Corporation at such price or prices or at such rates of exchange and with such adjustments; all as may be stated in such resolution or resolutions. (d) Power to Sell and Purchase Shares. Subject to the requirements of applicable law, the Corporation shall have the power to issue and sell all or any part of any shares of any class of stock herein or hereafter authorized to such persons, and for such consideration, as the Board of Directors shall from time to time, in its discretion, determine, whether or not greater consideration could be received upon the issue or sale of the same number of shares of another class, and as otherwise permitted by law. Subject to the requirements of applicable law, the Corporation shall have the power to purchase any shares of any class of stock herein or hereafter authorized from such persons, and for such consideration, as the Board of Directors shall from time to time, in its discretion, determine, whether or not less consideration could be paid upon the purchase of the same number of shares of another class, and as otherwise permitted by law. FIFTH: The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders: (a) The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. (b) The number of directors of the Corporation shall be as from time to time fixed by the Board of Directors, within any limitations as may be fixed by the By-Laws. Election of directors need not be by written ballot unless the By-Laws so provide. (c) The directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. The initial division of the Board of Directors into classes shall be made by the decision of the affirmative vote of a majority of the entire Board of Directors. The term of the initial Class I directors shall terminate on the date of the 2002 annual meeting; the term of the initial Class II directors shall terminate on the date of the 2

2003 annual meeting; and the term of the initial Class III directors shall terminate on the date of the 2004 annual meeting. At each succeeding annual meeting of stockholders beginning in 2002, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. (d) A director shall hold office until the annual meeting for the year in which his or her term expires and until his or her successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. (e) Subject to the terms of any one or more classes or series of Preferred Stock, any vacancy on the Board of Directors that results from an increase in the number of directors may be filled by a majority of the Board of Directors then in office, provided that a quorum is present, and any other vacancy occurring on the Board of Directors may be filled by a majority of the Board of Directors then in office, even if less than a quorum, or by a sole remaining director. Any director of any class elected to fill a vacancy resulting from an increase in the number of directors of such class shall hold office for a term that shall coincide with the remaining term of that class. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of his predecessor. Subject to the rights, if any, of the holders of shares of Preferred Stock then outstanding, any or all of the directors of the Corporation may be removed from office at any time, with or without cause, by the affirmative vote of the holders of at least seventy-five percent (75%) of the voting power of the Corporation's then outstanding capital stock entitled to vote generally in the election of directors. Notwithstanding the foregoing, whenever the holders of any one or more classes or series of Preferred Stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of this Certificate of Incorporation applicable thereto, and such directors so elected shall not be divided into classes pursuant to this Article FIFTH unless expressly provided by such terms. (f) In addition to the powers and authority hereinbefore or by statute expressly conferred upon them, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject, nevertheless, to the provisions of the GCL, this Certificate of Incorporation, and any By-Laws adopted by the stockholders; provided, however, that no By-Laws hereafter adopted by the stockholders shall invalidate any prior act of the directors which would have been valid if such By-Laws had not been adopted. SIXTH: No director shall be personally liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the GCL as the same exists or may hereafter be amended. If the GCL is amended hereafter to authorize the further elimination or limitation of the liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent authorized by the GCL, as so amended. Any repeal or 3

modification of this Article SIXTH by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification with respect to acts or omissions occurring prior to such repeal or modification. SEVENTH: The Corporation shall indemnify its directors and officers to the fullest extent authorized or permitted by law, as now or hereafter in effect, and such right to indemnification shall continue as to a person who has ceased to be a director or officer of the Corporation and shall inure to the benefit of his or her heirs, executors and personal and legal representatives; provided, however, that, except for proceedings to enforce rights to indemnification, the Corporation shall not be obligated to indemnify any director or officer (or his or her heirs, executors or personal or legal representatives) in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors. The right to indemnification conferred by this Article SEVENTH shall include the right to be paid by the Corporation the expenses incurred in defending or otherwise participating in any proceeding in advance of its final disposition. The Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article SEVENTH to directors and officers of the Corporation. The rights to indemnification and to the advance of expenses conferred in this Article SEVENTH shall not be exclusive of any other right which any person may have or hereafter acquire under this Certificate of Incorporation, the By-Laws of the Corporation, any statute, agreement, vote of stockholders or disinterested directors or otherwise. Any repeal or modification of this Article SEVENTH by the stockholders of the Corporation shall not adversely affect any rights to indemnification and to the advancement of expenses of a director or officer of the Corporation existing at the time of such repeal or modification with respect to any acts or omissions occurring prior to such repeal or modification. EIGHTH: The name and mailing address of the incorporator is John L. Gillis, Jr., One Metropolitan Square, St. Louis, Missouri 63102-2740. NINTH: Unless otherwise required by law, special meetings of stockholders, for any purpose or purposes may be called by either (i) the Chairman of the Board of Directors, if there be one, (ii) the Chief Executive Officer, or (iii) the Board of Directors. The ability of the stockholders to call a special meeting is hereby specifically denied. TENTH: Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation, and the ability of the stockholders to consent in writing to the taking of any action is hereby specifically denied. ELEVENTH: Meetings of stockholders may be held within or without the State of Delaware, as the By-Laws may provide. The books of the Corporation may be kept (subject to any provision contained in the GCL) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the By-Laws of the Corporation. 4

TWELFTH: In furtherance and not in limitation of the powers conferred upon it by the laws of the State of Delaware, the Board of Directors shall have the power to adopt, amend, alter or repeal the Corporation's By-Laws. The affirmative vote of at least a majority of the entire Board of Directors shall be required to adopt, amend, alter or repeal the Corporation's By-Laws. The Corporation's By-Laws also may be adopted, amended, altered or repealed by the affirmative vote of the holders of at least seventy-five percent (75%) of the voting power of the shares entitled to vote at an election of directors. THIRTEENTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation in the manner now or hereafter prescribed in this Certificate of Incorporation, the Corporation's By-Laws or the GCL, and all rights herein conferred upon stockholders are granted subject to such reservation; provided, however, that, notwithstanding any other provision of this Certificate of Incorporation (and in addition to any other vote that may be required by law), the affirmative vote of the holders of at least seventy-five percent (75%) of the voting power of the shares entitled to vote at an election of directors shall be required to amend, alter, change or repeal, or to adopt any provision as part of this Certificate of Incorporation inconsistent with the purpose and intent of Articles FIFTH and TWELFTH of this Certificate of Incorporation or this Article THIRTEENTH. THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose of forming the Corporation pursuant tot he General Corporation Law of the State of Delaware, has hereunto set his hand this 26/th/ day of September, 2001. John L. Gillis, Jr., Incorporator 5

EXHIBIT 3.3 BY-LAWS OF COORDINATED CARE CORPORATION (a Wisconsin corporation) Adopted June 24, 1993

BY-LAWS OF COORDINATED CARE CORPORATION (a Wisconsin corporation) Introduction - Variable References 0.01. Date of annual shareholders' meeting (See Section 2.01): As determined by the Board of Directors. 0.02. Required notice of shareholders' meeting (See Section 2.04): not less than 10 days. 0.03. Authorized number of Directors (See Section 3.01): 7. 0.04. Required notice of Directors' meeting (See Section 3.05): not less than 48 hours.

TABLE OF CONTENTS ----------------- ARTICLE I. OFFICES 1.01 Principal and Business Offices ................................... 1 1.02 Registered Office ................................................ 1 ARTICLE II. SHAREHOLDERS 2.01 Annual Meeting ................................................... 1 2.02 Special Meeting .................................................. 1 2.03 Place of Meeting ................................................. 1 2.04 Notice of Meeting ................................................ 1 2.05 Fixing of Record Date ............................................ 2 2.06 Voting Record .................................................... 3 2.07 Quorum and Voting Requirements; Postponements; Adjournments ...... 3 2.08 Conduct of Meetings .............................................. 4 2.09 Proxies .......................................................... 4 2.10 Voting of Shares ................................................. 5 2.11 Voting of Shares by Certain Holders .............................. 5 (a) Other Corporations .......................................... 5 (b) Legal Representatives and Fiduciaries ....................... 5 (c) Pledgees .................................................... 5 (d) Treasury Stock and Subsidiaries ............................. 5 (e) Minors ...................................................... 6 (f) Incompetents and Spendthrifts ............................... 6 (g) Joint Tenants ............................................... 6 2.12 Waiver of Notice By Shareholders ................................. 6 2.13 Majority Consent Without Meeting ................................. 7 ARTICLE III. BOARD OF DIRECTORS 3.01 General Powers and Number ........................................ 7 3.02 Tenure and Qualifications ........................................ 7 3.03 Regular Meetings ................................................. 7 3.04 Special Meetings ................................................. 8 3.05 Notice; Waiver ................................................... 8 3.06 Quorum ........................................................... 9 3.07 Manner of Acting ................................................. 9 3.08 Conduct of Meetings .............................................. 9 3.09 Vacancies ........................................................ 9 3.10 Compensation ..................................................... 9 3.11 Presumption of Assent ............................................ 10 3.12 Committees ....................................................... 10 3.13 Unanimous Consent Without Meeting ................................ 10 3.14 Meetings By Telephone Or By Other Communication Technology ....... 11 (i)

ARTICLE IV. OFFICERS 4.01 Number ........................................................... 11 4.02 Election and Term of Office....................................... 11 4.03 Removal .......................................................... 11 4.04 Vacancies ........................................................ 11 4.05 Chairman of the Board ............................................ 11 4.06 Vice Chairman of the Board ....................................... 11 4.07 President ........................................................ 12 4.08 The Executive Vice President ..................................... 12 4.09 The Vice Presidents .............................................. 12 4.10 The Secretary .................................................... 13 4.11 The Treasurer .................................................... 13 4.12 Assistant Secretaries and Assistant Treasurers ................... 13 4.13 Other Assistants and Acting Officers ............................. 13 4.14 Salaries ......................................................... 14 ARTICLE V. CONFLICT OF INTEREST TRANSACTIONS, CONTRACTS LOANS, CHECKS AND DEPOSITS; SPECIAL CORPORATE ACTS 5.01 Conflict of Interest Transactions ................................ 14 5.02 Contracts ........................................................ 14 5.03 Loans ............................................................ 14 5.04 Checks, Drafts, etc .............................................. 14 5.05 Deposits ......................................................... 14 5.06 Voting of Securities Owned by this Corporation ................... 14 ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER 6.01 Certificates for Shares .......................................... 15 6.02 Facsimile Signatures ............................................. 15 6.03 Signature by Former Officers ..................................... 15 6.04 Transfer of Shares ............................................... 16 6.05 Restrictions on Transfer ......................................... 16 6.06 Lost, Destroyed or Stolen Certificates ........................... 16 6.07 Consideration for Shares ......................................... 16 6.08 Stock Regulations ................................................ 17 ARTICLE VII. INDEMNIFICATION 7.01 Indemnification for Successful Defense ........................... 17 7.02 Other Indemnification ............................................ 17 7.03 Allowance of Expenses ............................................ 17 ARTICLE VIII. SEAL ARTICLE IX. AMENDMENTS 9.01 By Shareholders .................................................. 18 9.02 By Directors ..................................................... 18 9.03 Implied Amendments ............................................... 18 ARTICLE X. SHAREHOLDER AGREEMENT (ii)

ARTICLE I. OFFICERS 1.01 Principal and Business Offices. The Corporation may have such ------------------------------ principal and other business offices, either within or without the State of Wisconsin, as the Board of Directors may designate or as the business of the Corporation may require from time to time. 1.02 Registered Office. The registered office of the Corporation ----------------- required by the Wisconsin Business Corporation Law to be maintained in the State of Wisconsin may be, but need not be, identical with the principal office in the State of Wisconsin, and the address of the registered office may be changed from time to time by the Board of Directors or by the registered agent. The business office of the registered agent of the Corporation shall be identical to such registered office. ARTICLE II. SHAREHOLDERS 2.01 Annual Meeting. The annual meeting of the shareholders shall be -------------- held at such time and date as may be fixed by or under the authority of the Board of Directors, for the purpose of electing Directors and for the transaction of such other business as may come before the meeting. If the day fixed for the annual meeting shall be a legal holiday in the State of Wisconsin, such meeting shall be held on the next succeeding business day. If the election of Directors shall not be held on the day designated herein, or fixed as herein provided, for any annual meeting of the shareholders, or at any adjournment thereof, the Board of Directors shall cause the election to be held at a special meeting of the shareholders as soon thereafter as conveniently may be. 2.02 Special Meeting. Special meetings of the shareholders, for any --------------- purpose or purposes, unless otherwise prescribed by the Wisconsin Business Corporation Law, may be called by the Chairman or Vice Chairman of the Board of Directors, the President, the Board of Directors, or the holders of at least ten percent of all the votes entitled to be cast on any issue proposed to be considered at the proposed special meeting who sign, date and deliver to the Corporation one or more written demands for the meeting describing one or more purposes for which it is to be held. The record date for determining shareholders entitled to demand a special meeting shall be the date that the first shareholder signs the demand. If duly called, the Corporation shall communicate notice of a special meeting as set forth in Section 2.04. 2.03 Place of Meeting. The Board of Directors may designate any place, ---------------- either within or without the State of Wisconsin, as the place of meeting for any annual or special meeting. If no designation is made, the place of meeting shall be the principal business office of the Corporation in the State of Wisconsin. 2.04 Notice of Meeting. Notice may be communicated in person, by ----------------- telephone, telegraph, teletype, facsimile or other form of wire or wireless communication, or by mail or private carrier. Such notice stating the place, day and hour of the meeting and, in -1-

case of a special meeting, a description of each purpose for which the meeting is called, shall be communicated or sent not less than the number of days set forth in Section 0.02 (unless a longer period is required by the Wisconsin Business Corporation Law or the Articles of Incorporation) nor more than 60 days before the date of the meeting, by or at the direction of the Chairman or Vice Chairman of the Board, the President, the Secretary, or other Officer or persons calling the meeting, to each shareholder of record entitled to vote at such meeting. Written notice is effective at the earliest of the following: (i) when received; (ii) on deposit in the U.S. mail, if mailed postpaid and correctly addressed; or (iii) on the date shown on the return receipt, if sent by registered or certified mail, return receipt requested and the receipt is signed by or on behalf of the addressee. Written notice to a shareholder shall be deemed correctly addressed if it is addressed to the shareholder's address shown in the Corporation's current record of shareholders. Oral notice is effective when communicated and the Corporation shall maintain a record setting forth the date, time, manner and recipient of the notice. 2.05 Fixing of Record Date. A "shareholder" of the --------------------- Corporation shall mean the person in whose name shares are registered in the stock transfer books of the Corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with the Corporation. Such nominee certificates, if any, shall be reflected in the stock transfer books of the Corporation. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, the Board of Directors shall fix a future date not less than ten days and not more than 70 days prior to the date of any meeting of shareholders for the determination of the shareholders entitled to notice of, or to vote at, such meeting. If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, the close of business on the day before the notice of the meeting is mailed shall be the record date for such determination of shareholders. The Board of Directors also may fix a future date as the record date for the purpose of determining shareholders entitled to take any other action or determining shareholders for any other purpose, which record date shall not be more than 70 days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this Section, such determination shall be applied to any adjournment thereof unless the Board of Directors fixes a new record date, which it shall do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting. The record date for determining shareholders entitled to a distribution or a share -2-

dividend shall be the date on which the Board of Directors authorizes the distribution or share dividend, as the case may be, unless the Board of Directors fixes a different record date. 2.06 Voting Record. The Officer or agent having charge of the ------------- stock transfer books for shares of the Corporation shall, before each meeting of shareholders, make a complete list of the shareholders entitled to vote at such meeting, or any adjournment thereof, with the address of and the number of shares held by each. The Corporation shall make the shareholders' list available for inspection by any shareholder beginning two business days after the notice of meeting is given for which the list was prepared and continuing to the date of the meeting, at the Corporation's principal office. Such record also shall be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting for the purposes of the meeting. A shareholder or his or her agent or attorney may, on written demand, inspect and copy the list subject to the requirements set forth in Sections 180.1602 and 180.0720 of the Wisconsin Business Corporation Law. The original stock transfer books shall be prima facie evidence as to who are the shareholders entitled to examine such record or transfer books or to vote at any meeting of shareholders. Failure to comply with the requirements of this Section shall not affect the validity of any action taken at such meeting. 2.07 Quorum and Voting Requirements; Postponements; --------------------------------------------- Adjournments. Shares entitled to vote as a separate voting group as defined in ------------ the Wisconsin Business Corporation Law may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. Unless the Articles of Incorporation or the Wisconsin Business Corporation Law provides otherwise, a majority of the votes entitled to be cast on the matter by the voting group constitutes a quorum of that voting group for action on that matter. Once a share is represented for any purpose at a meeting, other than for the purpose of objecting to holding the meeting or transacting business at the meeting, it is considered present for purposes of determining whether a quorum exists, for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that adjourned meeting. If a quorum exists, action on a matter, other than the election of directors, by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless the Articles of Incorporation or the Wisconsin Business Corporation Law requires a greater number of affirmative votes. Unless otherwise provided in the Articles of Incorporation of the Corporation, directors are elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present. "Plurality" means that the individuals with the largest number of votes are elected as directors up to the maximum number of directors to be chosen at the election. "Voting group" means any of the following: -3-

(i) All shares of one or more classes or series that under the Articles of Incorporation or the Wisconsin Business Corporation Law are entitled to vote and be counted together collectively on a matter at a meeting of shareholders. (ii) All shares that under the Articles of Incorporation or the Wisconsin Business Corporation Law are entitled to vote generally on a matter. The Board of Directors acting by resolution may postpone and reschedule any previously scheduled meeting; provided, however, that a special meeting called by at least 10% of the shareholders may not be postponed beyond the 30th day following the originally scheduled meeting. Any meeting may be adjourned from time to time, whether or not there is a quorum: (i) at any time, upon a resolution of shareholders if the votes cast in favor of such resolution by the holders of shares of each voting group, entitled to vote on any matter theretofore properly brought before the meeting exceed the number of votes cast against such resolution by the holders of shares of each such voting group; or (ii) at any time prior to the transaction of any business at a meeting which was not called by at least 10% of the shareholders, by the Chairman or Vice Chairman of the Board, the President or pursuant to a resolution of the Board of Directors. No notice of the time and place of adjourned meetings need be given except as required by the Wisconsin Business Corporation Law. At any adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. 2.08 Conduct of Meetings. The Chairman of the Board, or in the ------------------- Chairman's absence, the Vice Chairman, or in the Vice Chairman's absence, the President, or in the President's absence, the Executive Vice President (if one is designated), or in the Executive Vice President's absence, a Vice President in the order provided under Section 4.08, and in their absence, any person chosen by the shareholders present shall call the meeting of the shareholders to order and shall act as chairman of the meeting, and the Secretary of the Corporation shall act as Secretary of all meetings of the shareholders, but, in the absence of the Secretary, the presiding Officer may appoint any other person to act as Secretary of the meeting. 2.09 Proxies. At all meetings of shareholders, a shareholder ------- entitled to vote may vote in person or by proxy. A shareholder may appoint a proxy to vote or otherwise act for the shareholder by signing an appointment form, either personally or by his or her attorney-in-fact. Such proxy appointment is effective when received by the Secretary of the Corporation before or at the time of the meeting. Unless otherwise provided in the appointment form of proxy, a proxy appointment may be revoked at any time before it is voted, either by written notice filed with the Secretary or the acting Secretary of the meeting or by oral notice -4-

given by the shareholder to the presiding Officer during the meeting. The presence of a shareholder who has filed his or her proxy appointment shall not of itself constitute a revocation. No proxy appointment shall be valid after eleven months from the date of its execution, unless otherwise provided in the appointment form of proxy. In addition to the presumptions set forth in Section 2.11 below, the Board of Directors shall have the power and authority to make rules establishing presumptions as to the validity and sufficiency of proxy appOintmentS. 2.10 Voting of Shares. Each outstanding share shall be ---------------- entitled to one vote upon each matter submitted to a vote at a meeting of shareholders, except to the extent that the voting rights of the shares of any voting group or groups are enlarged, limited or denied by the Articles of Incorporation. 2.11 Voting of Shares by Certain Holders. ----------------------------------- (a) Other Corporations. Shares standing in the name of ------------------ another corporation may be voted either in person or by proxy, by the president of such corporation or any other officer appointed by such president. An appointment form of proxy executed by any principal officer of such other corporation or assistant thereto shall be conclusive evidence of the signer's authority to act, in the absence of express notice to this Corporation, given in writing to the Secretary of this Corporation, or the designation of some other person by the board of directors or by the by-laws of such other corporation. (b) Legal Representatives and Fiduciaries. Shares held ------------------------------------- by an administrator, executor, guardian, conservator, trustee in bankruptcy, receiver or assignee for creditors may be voted by him, either in person or by proxy, without a transfer of such shares into his or her name, provided there is filed with the Secretary before or at the time of meeting proper evidence of his or her incumbency and the number of shares held by him or her. Shares standing in the name of a fiduciary may be voted by him or her, either in person or by proxy. An appointment form of proxy executed by a fiduciary shall be conclusive evidence of the signer's authority to act, in the absence of express notice to this Corporation, given in writing to the Secretary of this Corporation, that such manner of voting is expressly prohibited or otherwise directed by the document creating the fiduciary relationship. (c) Pledgees. A shareholder whose shares are pledged -------- shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred; provided, however, a pledgee shall be entitled to vote shares held of record by the pledgor if the Corporation receives acceptable evidence of the pledgee's authority to sign. (d) Treasury Stock and Subsidiaries. Neither treasury ------------------------------- shares, nor shares held by another corporation if a majority of the shares entitled to vote for the election of directors of such other corporation is held by this Corporation, shall be voted at any meeting or counted in determining the total -5-

number of outstanding shares entitled to vote, but shares of its own issue held by this Corporation in a fiduciary capacity, or held by such other corporation in a fiduciary capacity, may be voted and shall be counted in determining the total number of outstanding shares entitled to vote. (e) Minors. Shares held by a minor may be voted by such minor in ------ person or by proxy and no such vote shall be subject to disaffirmance or avoidance, unless prior to such vote the Secretary of the Corporation has received written notice or has actual knowledge that such shareholder is a minor. Shares held by a minor may be voted by a personal representative, administrator, executor, guardian or conservator representing the minor if evidence of such fiduciary status is presented and acceptable to the Corporation. (f) Incompetents and Spendthrifts. Shares held by an incompetent ----------------------------- or spendthrift may be voted by such incompetent or spendthrift in person or by proxy and no such vote shall be subject to disaffirmance or avoidance, unless prior to such vote the Secretary of the Corporation has actual knowledge that such shareholder has been adjudicated an incompetent or spendthrift or actual knowledge of filing of judicial proceedings for appointment of a guardian. Shares held by an incompetent or spendthrift may be voted by a personal representative, administrator, executor, guardian or conservator representing the minor if evidence of such fiduciary status is presented and acceptable to the Corporation. (g) Joint Tenants. Shares registered in the names of two or more ------------- individuals who are named in the registration as joint tenants may be voted in person or by proxy signed by any one or more of such individuals if either (i) no other such individual or his or her legal representative is present and claims the right to participate in the voting of such shares or prior to the vote files with the Secretary of the Corporation a contrary written voting authorization or direction or written denial or authority of the individual present or signing the appointment form of proxy proposed to be voted or (ii) all such other individuals are deceased and the Secretary of the Corporation has no actual knowledge that the survivor has been adjudicated not to be the successor to the interests of those deceased. 2.12 Waiver of Notice by Shareholders. Whenever any notice whatsoever -------------------------------- is required to be given to any shareholder of the Corporation under the Articles of Incorporation or By-laws or any provision of law, a waiver thereof in writing, signed at any time, whether before or after the time of meeting, by the shareholder entitled to such notice, shall be deemed equivalent to the giving of such notice and the Corporation shall include copies of such waivers in its corporate records; provided that such waiver in respect to any matter of which notice is required under any provision of the Wisconsin Business Corporation Law, shall contain the same information as would have been required to be included in such notice, except the time and place of meeting. A shareholder's attendance at a meeting, in person or by proxy, waives objection to the following: -6-

(i) lack of notice or defective notice of the meeting unless the shareholder at the beginning of the meeting or promptly upon arrival objects to holding the meeting or transacting business at the meeting; and (ii) consideration of a particular matter at the meeting that is not within the purpose described in the meeting notice, unless the shareholder objects to considering the matter when it is presented. 2.13 Majority Consent Without Meeting. As provided in the Articles of -------------------------------- Incorporation of this Corporation, any action required or permitted to be taken at a meeting of the shareholders of the Corporation may be taken without a meeting by shareholders who would be entitled to vote at a meeting those shares with voting power to cast no less than the minimum number or, in the case of voting by voting groups, numbers of votes that would be necessary to authorize or take the action at a meeting at which all shares entitled to vote were present and voted. Any action so taken must be evidenced by one or more written consents describing the action taken, signed by the number of shareholders necessary to take the action and delivered to the Corporation for inclusion in the corporate records. ARTICLE III. BOARD OF DIRECTORS 3.01 General Powers and Number. All corporate powers shall be ------------------------- exercised by or under the authority of, and the business and affairs of the Corporation managed under the direction of, the Board of Directors, subject to any limitation set forth in the Articles of Incorporation. The number of Directors of the Corporation shall be as provided in Section 0.03. The number of Directors may be increased or decreased from time to time by amendment to this Section adopted by the shareholders or the Board of Directors but no decrease shall have the effect of shortening the term of an incumbent director. 3.02 Tenure and Qualifications. Each Director shall hold office until ------------------------- the next annual meeting of shareholders and until his or her successor shall have been elected, or until his or her prior death, resignation or removal. A Director may be removed from office by the shareholders if, at a meeting of shareholders called for that purpose, the number of votes cast to remove the Director exceeds the number of votes cast not to remove him or her; provided, however, if a Director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove that Director. A Director may resign at any time by filing his or her written resignation with the Secretary of the Corporation. Directors need not be residents of the State of Wisconsin or shareholders of the Corporation. 3.03 Regular Meetings. A regular meeting of the Board of Directors ---------------- shall be held without other notice than this by-law immediately after the annual meeting of shareholders, and each adjourned session thereof. The place of such regular meeting shall be the same as the place of the meeting of shareholders which precedes it, or such other suitable place as may be announced at -7-

such meeting of shareholders. The Board of Directors may provide, by resolution, the time and place, either within or without the State of Wisconsin, for the holding of additional regular meetings without other notice than such resolution. 3.04 Special Meetings. Special meetings of the Board of Directors may ---------------- be called by or at the request of the Chairman or Vice Chairman of the Board, President, Secretary or any two Directors. The Chairman or Vice Chairman of the Board, President, Secretary or Directors calling any special meeting of the Board of Directors may fix any place, either within or without the State of Wisconsin, as the place for holding any special meeting of the Board of Directors called by them, and if no other place is fixed, the place of meeting shall be the principal business office of the Corporation in the State of Wisconsin. 3.05 Notice; Waiver. Notice may be communicated in person, by -------------- telephone, telegraph, teletype, facsimile or other form of wire or wireless communication, or by mail or private carrier. Notice of each meeting of the Board of Directors (unless otherwise provided in or pursuant to Section 3.03) shall be communicated to each Director at his or her business address or telephone number or at such other address or telephone number as such Director shall have designated in writing filed with the Secretary, in each case not less than that number of hours prior thereto as set forth in Section 0.04. Written notice is effective at the earliest of the following: (i) when received; (ii) on deposit in the U.S. Mail, if mailed postpaid and correctly addressed; or (iii) on the date shown on the return receipt, if sent by registered or certified mail, return receipt requested and the receipt is signed by or on behalf of the addressee. Oral notice is effective when communicated and the Corporation shall maintain a record setting forth the date, time, manner and recipient of the notice. Whenever any notice whatsoever is required to be given to any Director of the Corporation under the Articles of Incorporation or By-laws or any provision of law, a waiver thereof in writing, signed at any time, whether before or after the time of meeting, by the Director entitled to such notice, shall be deemed equivalent to the giving of such notice, and the Corporation shall retain copies of such waivers in its corporate records. A Director's attendance at or participation in a meeting waives any required notice to him or her of the meeting unless the Director at the beginning of the meeting or promptly upon his or her arrival objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assert to action taken at the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. -8-

3.06 Quorum. Except as otherwise provided by the Wisconsin Business ------ Corporation Law or by the Articles of Incorporation or the By-laws, a majority of the number of Directors as provided in Section 0.03 shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but a majority of the Directors present or participating (though less than such quorum) may adjourn the meeting from time to time without further notice. 3.07 Manner of Acting. If a quorum is present or participating when a ---------------- vote is taken, the affirmative vote of a majority of Directors present or participating is the act of the Board of Directors or a committee of the Board of Directors, unless the Wisconsin Business Corporation Law or the Articles of Incorporation or the By-laws require the vote of a greater number of Directors. 3.08 Conduct of Meetings. The Chairman of the Board, or in the ------------------- Chairman's absence, the Vice Chairman, or in the Vice Chairman's absence, the President, or in the President's absence, the Executive Vice President (if one is designated), or in the Executive Vice President's absence, a Vice President in the order provided under Section 4.08, and in their absence, any Director chosen by the Directors present, shall call meetings of the Board of Directors to order and shall act as chairman of the meeting. The Secretary of the Corporation shall act as Secretary of all meetings of the Board of Directors, but in the absence of the Secretary, the presiding Officer may appoint any Assistant Secretary or any Director or other person present or participating to act as Secretary of the meeting. 3.09 Vacancies. Any vacancy occurring in the Board of Directors, --------- including a vacancy created by an increase in the number of Directors, may be filled until the next succeeding annual election by the affirmative vote of a majority of the Directors then in office, though less than a quorum of the Board of Directors, or by the shareholders; provided, that in case of a vacancy created by the removal of a Director by vote of the shareholders, the shareholders shall have the right to fill such vacancy at the same meeting or any adjournment thereof. 3.10 Compensation. The Board of Directors, by affirmative-vote of a ------------ majority of the Directors then in office, and irrespective of any personal interest of any of its members, may establish reasonable compensation of all Directors for services to the Corporation as Directors, Officers or otherwise, or may delegate such authority to an appropriate committee. The Board of Directors also shall have authority to provide for or to delegate authority to an appropriate committee to provide for reasonable pensions, disability or death benefits, and other benefits of payments, to Directors, Officers and employees and to their estates, families, dependents or beneficiaries on account of prior services rendered by such Directors, Officers and employees to the Corporation. -9-

3.11 Presumption of Assent. A Director of the Corporation who is --------------------- present at or participates in a meeting of the Board of Directors or a committee thereof of which he or she is a member, at which action on any corporate matter is taken, shall be presumed to have assented to the action taken unless his or her dissent shall be entered in the minutes of the meeting or unless he or she shall file his or her written dissent to such action with the person acting as the Secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a Director who voted in favor of such action. 3.12 Committees. The Board of Directors, by resolution adopted by the ---------- affirmative vote of a majority of the number of Directors as provided in Section 0.03, may designate one or more committees, each committee to consist of two or more Directors elected by the Board of Directors, which to the extent provided in said resolution as initially adopted, and as thereafter supplemented or amended by further resolution adopted by a like vote, shall have and may exercise, when the Board of Directors is not in session, the powers of the Board of Directors in the management of the business and affairs of the Corporation, except that a committee may not do any of the following: (i) authorize distributions; (ii) approve or propose to shareholders action that the Wisconsin Business Corporation Law requires be approved by shareholders; (iii) fill vacancies on the Board of Directors or on any of its committees, unless the Board of Directors provides by resolution that any vacancies on a committee shall be filled by the affirmative vote of a majority of the remaining committee members; (iv) amend the Articles of Incorporation under Section 180.1002 of the Wisconsin Business Corporation Law; (v) adopt, amend or repeal the By-laws; (vi) approve a plan of merger not requiring shareholder approval; (vii) authorize or approve reacquisition of shares, except according to a formula or method prescribed by the Board of Directors; or (viii) authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences and limitations of a class or series of shares, except that the Board of Directors may authorize a committee or a senior executive officer of the Corporation to do so within limits prescribed by the Board of Directors. The Board of Directors may elect one or more of its members as alternate members of any such committee who may take the place of any absent member or members at any meeting of such committee, upon request by the President or upon request by the chairman of such meeting. Each such committee shall fix its own rules governing the conduct of its activities and shall make such reports to the Board of Directors of its activities as the Board of Directors may request. 3.13 Unanimous Consent Without Meeting. Any action required or --------------------------------- permitted by the Articles of Incorporation or the By-laws or any provision of law to be taken by the Board of Directors at a meeting or by resolution may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the Directors then in office. -lO-

3.14 Meetings By Telephone Or By Other Communication Technology. ---------------------------------------------------------- Meetings of the Board of Directors or committees may be conducted by telephone or by other communication technology in accordance with Section 180.0820 of the Wisconsin Business Corporation Law (or any successor statutory provision). ARTICLE IV. OFFICERS 4.01 Number. The principal Officers of the Corporation shall be a ------ President, the number of Vice Presidents as may be determined by the Board, a Secretary, and a Treasurer, each of whom the Board of Directors shall from time to time determine. Such other Officers and Assistant Officers as may be deemed necessary may be elected or appointed by the Board of Directors. The Board of Directors may authorize a duly appointed Officer to appoint one or more Officers or Assistant Officers. The same natural person may simultaneously hold more than one office in the Corporation. 4.02 Election and Term of Office. The Officers of the Corporation to --------------------------- be elected by the Board of Directors shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of the shareholders. If the election of Officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. Each Officer shall hold office until his or her successor shall have been duly elected or until his or her prior death, resignation or removal. 4.03 Removal. Any Officer or agent may be removed by the Board of ------- Directors whenever in its judgment the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment shall not of itself create contract rights. 4.04 Vacancies. A vacancy in any principal office because of death, --------- resignation, removal, disqualification or otherwise, shall be filled by the Board of Directors for the unexpired portion of the term. 4.05 Chairman of the Board. The Board of Directors may at their --------------------- discretion elect a Chairman of the Board. The Chairman of the Board shall preside at all meetings of the shareholders and Board of Directors, and shall carry out such other duties and have such responsibilities as may be specified by the Board of Directors. 4.06 Vice Chairman of the Board. The Board of Directors may at their -------------------------- discretion elect a Vice Chairman of the Board. The Vice Chairman of the Board shall preside, in the Chairman's absence, at all meetings of the shareholders and Board of Directors, and shall carry out such other duties and have such responsibilities as may be specified by the Board of Directors. -11-

4.07 President. The President shall be the chief executive officer of --------- the Corporation and, subject to the control of the Board of Directors, shall in general supervise and control all of the business and affairs of the Corporation. In the absence of the Chairman of the Board, or if one is not designated, he or she shall preside at all meetings of the shareholders and of the Board of Directors. He or she shall have authority, subject to such rules as may be prescribed by the Board of Directors, to appoint such agents and employees of the Corporation as he or she shall deem necessary, to prescribe their powers, duties and compensation, and to delegate authority to them. Such agents and employees shall hold office at the discretion of the President. He or she shall have authority to sign, execute and acknowledge, on behalf of the Corporation, all deeds, mortgages, bonds, stock certificates, contracts, leases, reports and all other documents or instruments necessary or proper to be executed in the course of the Corporation's regular business, or which shall be authorized by resolution of the Board of Directors; and, except as otherwise provided by law or the Board of Directors, he or she may authorize any Vice President or other Officer or agent of the Corporation to sign, execute and acknowledge such documents or instruments in his or her place and stead. In general, he or she shall perform all duties incident to the office of chief executive officer and such other duties as may be prescribed by the Board of Directors from time to time. 4.08 The Executive Vice President. The Executive Vice President, if ---------------------------- one is designated, shall assist the President in the discharge of supervisory, managerial and executive duties and functions. In the absence of the President or in the event of his or her death, inability or refusal to act, the Executive Vice President shall perform the duties of the President and when so acting shall have all the powers and duties of the President. He or she shall perform such other duties as from time to time may be assigned to him or her by the Board of Directors or the President. 4.09 The Vice Presidents. In the absence of the President and the ------------------- Executive Vice President or in the event of their death, inability or refusal to act, or in the event for any reason it shall be impracticable for them to act personally, the Vice President (or in the event there is more than one Vice President, the Vice Presidents in the order designated by the Board of Directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Any Vice President shall perform such other duties and have such authority as from time to time may be delegated or assigned to him or her by the President, the Executive Vice President or by the Board of Directors. The execution of any instrument of the Corporation by any Vice President shall be conclusive evidence, as to third parties, of his or her authority to act in the stead of the President. -12-

4.10 The Secretary. The Secretary shall: (i) keep the minutes of the ------------- meetings of the shareholders and of the Board of Directors in one or more books provided for that purpose; (ii) see that all notices are duly given in accordance with the provisions of the By-laws or as required by law; (iii) be custodian of the corporate records; (iv) keep or arrange for the keeping of a register of the post office address of each shareholder which shall be furnished to the Secretary by such shareholder; (v) have general charge of the stock transfer books of the Corporation; and (vi) in general, perform all duties incident to the office of Secretary and have such other duties and exercise such authority as from time to time may be delegated or assigned to him or her by the President or by the Board of Directors. 4.11 The Treasurer. The Treasurer shall: (i) have charge and ------------- custody, of and be responsible for all funds and securities of the Corporation; (ii) receive and give receipts for monies due and payable to the Corporation from any source whatsoever, and deposit all such monies in the name of the Corporation in such banks, trust companies or other depositories as shall be selected in accordance with the provisions of Section 5.05 hereof; and (iii) in general, perform all of the duties incident to the office of Treasurer and have such other duties and exercise such other authority as from time to time may be delegated or assigned to him or her by the President or by the Board of Directors. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board of Directors shall determine. 4.12 Assistant Secretaries and Assistant Treasurers. There shall be ---------------------------------------------- such number of Assistant Secretaries and Assistant Treasurers as the Board of Directors may from time to time authorize. The Assistant Treasurers shall, if required by the Board of Directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the Board of Directors shall determine. The Assistant Secretaries and Assistant Treasurers, in general, shall perform such duties and have such authority as shall from time to time be delegated or assigned to them by the Secretary or the Treasurer, respectively, or by the President or the Board of Directors. 4.13 Other Assistants and Acting Officers. The Board of Directors ------------------------------------ shall have the power to appoint any person to act as assistant to any Officer, or as agent for the Corporation in his or her stead, or to perform the duties of such Officer whenever, for any reason, it is impracticable for such Officer to act personally and such assistant or acting Officer or other agent so appointed by the Board of Directors shall have the power to perform all the duties of the office to which he or she is so appointed to be assistant, or as to which he or she is so appointed to act, except as such power may be otherwise defined or restricted by the Board of Directors. -13-

4.14 Salaries. The salaries of the principal Officers shall be fixed -------- from time to time by the Board of Directors or by a duly authorized committee thereof, and no Officer shall be prevented from receiving such salary by reason of the fact that he or she is also a Director of the Corporation. ARTICLE V. CONFLICT OF INTEREST TRANSACTIONS, CONTRACTS, LOANS, CHECKS AND DEPOSITS: SPECIAL CORPORATE ACTS 5.01 Conflict of Interest Transactions. A "conflict of interest" --------------------------------- transaction means a transaction with the Corporation in which a Director of the Corporation has a direct or indirect interest. The circumstances in which a Director of the Corporation has an indirect interest in a transaction include but are not limited to a transaction under any of the following circumstances: (i) another entity in which the Director has a material financial interest or in which the Director is a general partner is a party to the transaction; or (ii) another entity of which the Director is a director, officer or trustee is a party to the transaction and the transaction is or, because of its significance to the Corporation should be, considered by the Board of Directors of the Corporation. A conflict of interest transaction is not voidable by the Corporation solely because of the Director's interest in the transaction if any of the circumstances set forth in Section 180.0831 of the Wisconsin Business Corporation Law (or any successor statutory provision) are true or occur. 5.02 Contracts. The Board of Directors may authorize any Officer or --------- Officers, agent or agents, to enter into any contract or execute or deliver any instrument in the name of and on behalf of the Corporation, and such authorization may be general or confined to specific instances. 5.03 Loans. No indebtedness for borrowed money shall be contracted ----- on behalf of the Corporation and no evidences of such indebtedness shall be issued in its name unless authorized by or under the authority of a resolution of the Board of Directors. Such authorization may be general or confined to specific instances. 5.04 Checks, Drafts, etc. All checks, drafts or other orders for the ------------------- payment of money, notes or other evidences of indebtedness issued in the name of the Corporation, shall be signed by such Officer or Officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by or under the authority of a resolution of the Board of Directors. 5.05 Deposits. All funds of the Corporation not otherwise employed -------- shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as may be selected by or under the authority of a resolution of the Board of Directors. 5.06 Voting of Securities Owned by this Corporation. Subject always ---------------------------------------------- to the specific directions of the Board of Directors, (i) any shares or other securities issued by any other corporation and owned or controlled by this Corporation may be -14-

voted at any meeting of security holders of such other corporation by the President of this Corporation if he or she is present, or in the President's absence by the Executive Vice President (if one is designated), or in the Executive Vice President's absence, by any Vice President of this Corporation who may be present, and (ii) whenever, in the judgment of the President, or in his absence, of the Executive Vice President (if one is designated), or in the Executive Vice President's absence, of any Vice President, it is desirable for this Corporation to execute an appointment of proxy or written consent in respect to any shares or other securities issued by any other corporation and owned by this Corporation, such proxy appointment or consent shall be executed in the name of this Corporation by the President, Executive Vice President or one of the Vice Presidents of this Corporation in the order as provided in clause (i) of this Section, without necessity of any authorization by the Board of Directors or countersignature or attestation by another Officer. Any person or persons designated in the manner above stated as the proxy or proxies of this Corporation shall have full right, power and authority to vote the shares or other securities issued by such other corporation and owned by this Corporation the same as such shares or other securities might be voted by this Corporation. ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER 6.01 Certificates for Shares. Certificates representing shares of the ----------------------- Corporation shall be in such form, consistent with law, as shall be determined by the Board of Directors. Such certificates shall be signed by the President or by another Officer designated by the President or the Board of Directors. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the Corporation. All certificates surrendered to the Corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except as provided in Section 6.06 hereof. 6.02 Facsimile Siqnatures. The signature of the President or other -------------------- authorized Officer upon a certificate may be a facsimile if the certificate is manually signed on behalf of a transfer agent, or a registrar, other than the Corporation itself or an employee of the Corporation. 6.03 Siqnature by Former Officers. In case any Officer, who has signed ---------------------------- or whose facsimile signature has been placed upon, any certificate for shares, shall have ceased to be such Officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such Officer at the date of its issue. -15-

6.04 Transfer of Shares. Prior to due presentment of a certificate for ------------------ shares for registration of transfer, the Corporation may treat the shareholder of such shares as the person exclusively entitled to vote, to receive notifications and otherwise to have and exercise all the rights and powers of an owner. Where a certificate for shares is presented to the Corporation with a request to register for transfer, the Corporation shall not be liable to the owner or any other person suffering loss as a result of such registration of transfer if (i) there were on or with the certificate the necessary endorsements, and (ii) the Corporation had no duty to inquire into adverse claims or has discharged any such duty. The Corporation may require reasonable assurance that said endorsements are genuine and effective and in compliance with such other regulations as may be prescribed by or under the authority of the Board of Directors. 6.05 Restrictions on Transfer. The face or reverse side of each ------------------------ certificate representing shares shall bear a conspicuous notation of any restriction imposed by the Corporation upon the transfer of such shares. 6.06 Lost, Destroyed or Stolen Certificates. Where the owner claims -------------------------------------- that his or her certificate for shares has been lost, destroyed or wrongfully taken, a new certificate shall be issued in place thereof if the owner (i) so requests before the Corporation has notice that such shares have been acquired by a bona fide purchaser, and (ii) files with the Corporation a sufficient indemnity bond, and (iii) satisfies such other reasonable requirements as may be prescribed by or under the authority of the Board of Directors. 6.07 Consideration for Shares. The shares of the Corporation may be ------------------------ issued for such consideration as shall be fixed from time to time by the Board of Directors, provided that any shares having a par value shall not be issued for a consideration less than the par value thereof. The consideration to be received for shares may consist of any tangible or intangible property or benefit to the Corporation, including cash, promissory notes, services performed, contracts for services to be performed or other securities of the Corporation. When the Corporation receives the consideration for which the Board of Directors authorized the issuance of shares, the shares issued for that consideration are fully paid and nonassessable, except as provided by Section 180.0622 of the Wisconsin Business Corporation Law (or any successor statutory provision) which may require further assessment for unpaid wages to employees under certain circumstances. The Corporation may place in escrow shares issued for a contract for future services or benefits or a promissory note, or make other arrangements to restrict the transfer of the shares, and may credit distributions in respect of the shares against their purchase price, until the services are performed, the benefits are received or the note is paid. If the services are not performed, the benefits are not received or the note is not paid, the Corporation may cancel, in whole or in part, the shares escrowed or restricted and the distributions credited. -16-

6.08 Stock Regulations. The Board of Directors shall have the power ----------------- and authority to make all such further rules and regulations not inconsistent with the statutes of the State of Wisconsin as it may deem expedient concerning the issue, transfer and registration of certificates representing shares of the Corporation. ARTICLE VII. INDEMNIFICATION 7.01 Indemnification for Successful Defense. As required by the -------------------------------------- Wisconsin Business Corporation Law, the Corporation shall indemnify a Director, Officer or Employee to the extent he or she has been successful on the merits or otherwise in the defense of a proceeding, for all reasonable expenses (including attorneys' fees and expenses of separate counsel for such Director, Officer or Employee) incurred in the proceeding if the Director, Officer or Employee was a party because he or she is a Director, Officer or Employee of the Corporation. 7.02 Other Indemnification. In cases not included under Section 7.01 --------------------- hereof, and as provided by Section 180.0851(2) of the Wisconsin Business Corporation Law (or any successor statutory provision), the Corporation shall indemnify a Director or Officer against liability incurred by the Director or Officer in a proceeding to which the Director or Officer was a party because he or she is a Director or Officer of the Corporation, unless liability was incurred because the Director or Officer breached or failed to perform a duty that he or she owes to the Corporation and the breach or failure to perform constitutes any of the following: (i) A wilful failure to deal fairly with the Corporation or its shareholders in connection with a matter in which the Director or Officer has a material conflict of interest; (ii) A violation of the criminal law, unless the Director or Officer has reasonable cause to believe that his or her conduct was lawful or no reasonable cause to believe that his or her conduct was unlawful; (iii) A transaction from which the Director or Officer derived an improper personal profit; or (iv) Wilful misconduct. 7.03 Allowance of Expenses. Within ten days after receipt of a --------------------- written request by a Director or Officer who is a party to a proceeding, the Corporation shall pay or reimburse his or her reasonable expenses (including attorneys' fees and expenses of separate counsel for such Director or Officer) as incurred if the Director or Officer provides the Corporation with all of the following: (i) A written affirmation of his or her good faith belief that he or she has not breached or failed to perform his or her duties to the Corporation; and -17-

(ii) A written undertaking, executed personally or on his or her behalf, to repay the allowance to the extent that it is ultimately determined under Sections 7.01 and 7.02 hereof and pursuant to Section 180.0855 of the Wisconsin Business Corporation Law (or any successor statutory provision) that indemnification is not required, will not be provided, or is not so ordered by a court under Section 180.0854 of the Wisconsin Business Corporation Law (or any successor statutory provision). The undertaking under this subsection shall be an unlimited general obligation of the Director or Officer, and may be accepted without reference to his or her ability to repay the allowance. The undertaking may be secured or unsecured as determined by the Board of Directors. ARTICLE VIII. SEAL There shall be no corporate seal. ARTICLE IX. AMENDMENTS 9.01. By Shareholders. The By-laws may be altered, amended or repealed --------------- and new By-laws may be adopted by the shareholders by affirmative vote of not less than a majority of the shares present or represented at an annual or special meeting of the shareholders at which a quorum is in attendance. 9.02. By Directors. The By-laws may also be altered, amended or ------------ repealed and new By-laws may be adopted by the Board of Directors by affirmative vote of a majority of the number of Directors present at or participating in any meeting at which a quorum is in attendance; but no By-law adopted by the shareholders shall be amended or repealed by the Board of Directors if the By-law so adopted so provides. 9.03. Implied Amendments. Any action taken or authorized by the ------------------ shareholders or by the Board of Directors, which would be inconsistent with the By-laws then in effect but is taken or authorized by affirmative vote of not less than the number of shares or the number of Directors required to amend the By-laws so that the By-laws would be consistent with such action, shall be given the same effect as though the By-laws had been temporarily amended or suspended so far, but only so far, as is necessary to permit the specific action so taken or authorized. ARTICLE X. SHAREHOLDER AGREEMENT Notwithstanding any provision contained in the By-laws, the provisions contained in any shareholder agreement entered into by and among the Corporation and the shareholders shall govern and control in the event any conflict exists between the By-laws and such shareholder agreement. -18-

Exhibit 3.4 BY-LAWS OF CENTENE CORPORATION A Delaware Corporation Effective October ___, 2001

TABLE OF CONTENTS ARTICLE I OFFICES ....................................................... 1 Section 1. Registered Office ........................................ 1 Section 2. Other Offices ............................................ 1 ARTICLE II MEETINGS OF STOCKHOLDERS ...................................... 1 Section 1. Place of Meetings ........................................ 1 Section 2. Annual Meetings .......................................... 1 Section 3. Special Meetings ......................................... 1 Section 4. Quorum ................................................... 2 Section 5. Proxies .................................................. 2 Section 6. Voting ................................................... 3 Section 7. Nature of Business at Meetings of Stockholders ........... 3 Section 8. List of Stockholders Entitled to Vote .................... 4 Section 9. Stock Ledger ............................................. 4 Section 10. Record Date .............................................. 4 Section 11. Inspectors of Election ................................... 4 ARTICLE III DIRECTORS ..................................................... 5 Section 1. Number and Election of Directors ......................... 5 Section 2. Nomination of Directors .................................. 5 Section 3. Vacancies ................................................ 6 Section 4. Duties and Powers ........................................ 6 Section 5. Organization ............................................. 7 Section 6. Resignations and Removals of Directors ................... 7 Section 7. Meetings ................................................. 7 Section 8. Quorum ................................................... 7 Section 9. Actions of Board ......................................... 7 Section 10. Meetings by Means of Conference Telephone ................ 8 Section 11. Committees ............................................... 8 Section 12. Compensation ............................................. 8 Section 13. Interested Directors ..................................... 8 ARTICLE IV OFFICERS ...................................................... 9 Section 1. General .................................................. 9 Section 2. Election ................................................. 9 Section 3. Voting Securities Owned by the Corporation ............... 9 Section 4. Chairman of the Board of Directors ....................... 9 Section 5. President ................................................ 9 Section 6. Vice Presidents .......................................... 10 Section 7. Secretary ................................................ 10 Section 8. Treasurer ................................................ 10 Section 9. Assistant Secretaries .................................... 11 Section 10. Assistant Treasurers ..................................... 11

Section 11. Other Officers ............................................................................................... 11 ARTICLE V STOCK ............................................................................................................ 11 Section 1. Form of Certificates ......................................................................................... 11 Section 2. Signatures ................................................................................................... 11 Section 3. Lost, Destroyed, Stolen or Mutilated Certificates ............................................................ 12 Section 4. Transfers .................................................................................................... 12 Section 5. Transfer and Registry Agents ................................................................................. 12 Section 6. Beneficial Owners ............................................................................................ 12 ARTICLE VI NOTICES .......................................................................................................... 12 Section 1. Notices ...................................................................................................... 12 Section 2. Waivers of Notice ............................................................................................ 13 ARTICLE VII GENERAL PROVISIONS ............................................................................................... 13 Section 1. Dividends .................................................................................................... 13 Section 2. Disbursements ................................................................................................ 13 Section 3. Fiscal Year .................................................................................................. 13 Section 4. Corporate Seal ............................................................................................... 13 ARTICLE VIII INDEMNIFICATION .................................................................................................. 14 Section 1. Power to Indemnify in Actions, Suits or Proceedings Other than Those by or in the Right of the Corporation ... 14 Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation .................... 14 Section 3. Authorization of Indemnification ............................................................................. 14 Section 4. Good Faith Defined ........................................................................................... 15 Section 5. Indemnification by a Court ................................................................................... 15 Section 6. Expenses Payable in Advance .................................................................................. 15 Section 7. Nonexclusivity of Indemnification and Advancement of Expenses ................................................ 16 Section 8. Insurance .................................................................................................... 16 Section 9. Certain Definitions .......................................................................................... 16 Section 10. Survival of Indemnification and Advancement of Expenses ...................................................... 16 Section 11. Limitation on Indemnification ................................................................................ 17 Section 12. Indemnification of Employees and Agents ...................................................................... 17 ARTICLE IX AMENDMENTS ....................................................................................................... 17 Section 1. Amendments ................................................................................................... 17 Section 2. Entire Board of Directors .................................................................................... 17 ii

BY-LAWS OF CENTENE CORPORATION (hereinafter called the "Corporation") ARTICLE I OFFICES Section 1. Registered Office. The registered office of the Corporation ----------------- shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. Other Offices. The Corporation may also have offices at such ------------- other places, both within and without the State of Delaware, as the Board of Directors may from time to time determine. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. Place of Meetings. Meetings of the stockholders for the election ----------------- of directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual Meetings. The annual meetings of stockholders shall be --------------- held on such date and at such time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which meetings the stockholders shall elect directors, and transact such other business as may properly be brought before the meeting. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. Section 3. Special Meetings. Unless otherwise prescribed by law or by the ---------------- certificate of incorporation of the Corporation, as amended and restated from time to time (the "Certificate of Incorporation"), special meetings of stockholders, for any purpose or purposes, may be called by either (i) the Chairman of the Board of Directors, (ii) the President, or (iii) the Board of Directors. Such request shall state the purpose or purposes of the proposed meeting. At a special meeting of the stockholders, only such business shall be conducted as shall be specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting.

Section 4. Quorum. Except as otherwise required by law or by the ------ Certificate of Incorporation, the holders of a majority of the capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business. A quorum, once established, shall not be broken by the withdrawal of enough votes to leave less than a quorum. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder entitled to vote at the meeting not less than ten nor more than sixty days before the date of the meeting. Section 5. Proxies. Any stockholder entitled to vote may do so in person or ------- by his or her proxy appointed by an instrument in writing subscribed by such stockholder or by his or her attorney thereunto authorized, delivered to the Secretary of the meeting; provided, however, that no proxy shall be voted or acted upon after three years from its date, unless said proxy provides for a longer period. Without limiting the manner in which a stockholder may authorize another person or persons to act for him or her as proxy, either of the following shall constitute a valid means by which a stockholder may grant such authority: (1) A stockholder may execute a writing authorizing another person or persons to act for him or her as proxy. Execution may be accomplished by the stockholder or his or her authorized officer, director, employee or agent signing such writing or causing his or her signature to be affixed to such writing by any reasonable means, including, but not limited to, by facsimile signature. (2) A stockholder may authorize another person or persons to act for him or her as proxy by transmitting or authorizing the transmission of a telegram or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such telegram or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telegram or other electronic transmission was authorized by the stockholder. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission authorizing another person or persons to act as proxy for a stockholder may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used; provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. 2

Section 6. Voting. At all meetings of the stockholders at which a quorum is ------ present, except as otherwise required by law, the Certificate of Incorporation or these By-Laws, any question brought before any meeting of stockholders shall be decided by the affirmative vote of the holders of a majority of the total number of votes of the capital stock present in person or represented by proxy and entitled to vote on such question, voting as a single class. The Board of Directors, in its discretion, or the officer of the Corporation presiding at a meeting of stockholders, in his or her discretion, may require that any votes cast at such meeting shall be cast by written ballot. Section 7. Nature of Business at Meetings of Stockholders. No business may ---------------------------------------------- be transacted at an annual meeting of stockholders, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (c) otherwise properly brought before the annual meeting by any stockholder of the Company (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 7 and on the record date for the determination of stockholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this Section 7. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Company. To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Company not less than sixty (60) days nor more than ninety (90) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs. To be in proper written form, a stockholder's notice to the Secretary must set forth as to each matter such stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of such stockholder, (iii) the class or series and number of shares of capital stock of the Company which are owned beneficially or of record by such stockholder, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting. No business shall be conducted at the annual meeting of stockholders except business brought before the annual meeting in accordance with the procedures set forth in this Section 7, 3

provided, however, that, once business has been properly brought before the annual meeting in accordance with such procedures, nothing in this Section 7 shall be deemed to preclude discussion by any stockholder of any such business. If the Chairman of an annual meeting determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted. Section 8. List of Stockholders Entitled to Vote. The officer of the ------------------------------------- Corporation who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder of the Corporation who is present. Section 9. Stock Ledger. The stock ledger of the Corporation shall be the ------------ only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 8 of this Article II or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders. Section 10. Record Date. In order that the Corporation may determine the ----------- stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors and which record date: (1) in the case of determination of stockholders entitled to vote at any meeting of stockholders or adjournment thereof, shall not be more than sixty nor less than ten days before the date of such meeting; and (2) in the case of any other action, shall not be more than sixty days prior to such other action. If no record date is fixed: (1) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; and (2) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 11. Inspectors of Election. In advance of any meeting of ---------------------- stockholders, the Board by resolution or the Chairman or President shall appoint one or more inspectors of election to act at the meeting and make a written report thereof. One or more other persons may 4

be designated as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is present, ready and willing to act at a meeting of stockholders, the Chairman of the meeting shall appoint one or more inspectors to act at the meeting. Unless otherwise required by law, inspectors may be officers, employees or agents of the Corporation. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspector shall have the duties prescribed by law and shall take charge of the polls and, when the vote is completed, shall make a certificate of the result of the vote taken and of such other facts as may be required by law. ARTICLE III DIRECTORS Section 1. Number and Election of Directors. The Board of Directors shall -------------------------------- consist of not less than five nor more than eleven members, the exact number of which shall be determined from time to time by resolution adopted by the Board of Directors. Except as provided in Section 3 of this Article III, directors shall be elected by the stockholders at the annual meetings of stockholders, and each director so elected shall hold office until such director's successor is duly elected and qualified, or until such director's death, or until such director's earlier resignation or removal. Directors need not be stockholders. Section 2. Nomination of Directors. Only persons who are nominated in ----------------------- accordance with the following procedures shall be eligible for election as directors of the Company, except as may be otherwise provided in the Certificate of Incorporation with respect to the right of holders of preferred stock of the Corporation to nominate and elect a specified number of directors in certain circumstances. Nominations of persons for election to the Board of Directors may be made at any annual meeting of stockholders, or at any special meeting of stockholders called for the purpose of electing directors, (a) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (b) by any stockholder of the Company (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 2 and on the record date for the determination of stockholders entitled to vote at such meeting and (ii) who complies with the notice procedures set forth in this Section 2. In addition to any other applicable requirements, for a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Company. To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Company (a) in the case of an annual meeting, not less than sixty (60) days nor more than ninety (90) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs; and (b) in the case of a special meeting of stockholders called for the purpose of electing directors, not later than the close of business on 5

the tenth (10th) day following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever first occurs. To be in proper written form, a stockholder's notice to the Secretary must set forth (a) as to each person whom the stockholder proposes to nominate for election as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the Company which are owned beneficially or of record by the person and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice (i) the name and record address of such stockholder, (ii) the class or series and number of shares of capital stock of the Company which are owned beneficially or of record by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected. No person shall be eligible for election as a director of the Company unless nominated in accordance with the procedures set forth in this Section 2. If the Chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded. Section 3. Vacancies. Subject to the terms of any one or more classes or --------- series of preferred stock, any vacancy on the Board of Directors that results from an increase in the number of directors may be filled by a majority of the directors then in office, provided that a quorum is present, and any other vacancy occurring on the Board of Directors may be filled by a majority of the Board of Directors then in office, even if less than a quorum, or by a sole remaining director. Notwithstanding the foregoing, whenever the holders of any one or more class or classes or series of preferred stock of the Corporation shall have the right, voting separately as a class, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the Certificate of Incorporation. Section 4. Duties and Powers. The business of the Corporation shall be ----------------- managed by or under the direction of the Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By-Laws required to be exercised or done by the stockholders. 6

Section 5. Organization. At each meeting of the Board of Directors, the ------------ Chairman of the Board of Directors, or, in his or her absence, the President or in the President's absence, a director chosen by a majority of the directors present, shall act as Chairman. The Secretary of the Corporation shall act as Secretary at each meeting of the Board of Directors. In case the Secretary shall be absent from any meeting of the Board of Directors, an Assistant Secretary shall perform the duties of Secretary at such meeting; and in the absence from any such meeting of the Secretary and all the Assistant Secretaries, the Chairman of the meeting may appoint any person to act as Secretary of the meeting. Section 6. Resignations and Removals of Directors. Any director of the -------------------------------------- Corporation may resign at any time, by giving written notice to the Chairman of the Board of Directors, the President or the Secretary of the Corporation. Such resignation shall take effect at the time therein specified or, if no time is specified, immediately; and, unless otherwise specified in such notice, the acceptance of such resignation shall not be necessary to make it effective. Except as otherwise required by law and subject to the rights, if any, of the holders of shares of preferred stock then outstanding, any director or the entire Board of Directors may be removed from office at any time, with or without cause, by the affirmative vote of the holders of seventy-five percent (75%) in voting power of the issued and outstanding capital stock of the Corporation entitled to vote in the election of directors. Section 7. Meetings. The Board of Directors of the Corporation may hold -------- meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the Board of Directors may be held at such time and at such place as may from time to time be determined by the Board of Directors and, unless required by resolution of the Board of Directors, without notice. Special meetings of the Board of Directors may be called by the Chairman of the Board of Directors, the Vice Chairman, if there be one, or a majority of the directors then in office. Notice thereof stating the place, date and hour of the meeting shall be given to each director either by mail not less than forty-eight (48) hours before the date of the meeting, by telephone, facsimile or telegram on twenty-four (24) hours' notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances. Section 8. Quorum. Except as may be otherwise required by law, the ------ Certificate of Incorporation or these By-Laws, at all meetings of the Board of Directors, a majority of the entire Board of Directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting of the time and place of the adjourned meeting, until a quorum shall be present. Section 9. Actions of Board. Unless otherwise provided by the Certificate ---------------- of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all the members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. 7

Section 10. Meetings by Means of Conference Telephone. Unless otherwise ----------------------------------------- provided by the Certificate of Incorporation or these By-Laws, members of the Board of Directors of the Corporation, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 10 shall constitute presence in person at such meeting. Section 11. Committees. The Board of Directors may, by resolution passed by ---------- a majority of the entire Board of Directors, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. In the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any absent or disqualified member. Any committee, to the extent permitted by law and provided in the resolution establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation. Each committee shall keep regular minutes and report to the Board of Directors when required. Section 12. Compensation. The directors may be paid their expenses, if any, ------------ of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary, or such other emoluments as the Board of Directors shall from time to time determine. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. Section 13. Interested Directors. No contract or transaction between the -------------------- Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because such person's or their votes are counted for such purpose if (i) the material facts as to such person's or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) the material facts as to such person's or their relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, 8

approved or ratified, by the Board of Directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. ARTICLE IV OFFICERS Section 1. General. The officers of the Corporation shall be chosen by the ------- Board of Directors and shall be a President, a Secretary and a Treasurer. The Board of Directors, in its discretion, may also choose a Chairman of the Board of Directors (who must be a director) and one or more Vice Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any number of offices may be held by the same person, unless otherwise prohibited by law, the Certificate of Incorporation or these By-Laws. The officers of the Corporation need not be stockholders of the Corporation nor, except in the case of the Chairman of the Board of Directors, need such officers be directors of the Corporation. Section 2. Election. The Board of Directors at its first meeting held after -------- each Annual Meeting of Stockholders shall elect the officers of the Corporation who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors; and all officers of the Corporation shall hold office until their successors are chosen and qualified, or until their earlier resignation or removal. Any officer elected by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. The salaries of all officers of the Corporation shall be fixed by the Board of Directors. Section 3. Voting Securities Owned by the Corporation. Powers of attorney, ------------------------------------------ proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the President or any Vice President and any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and power incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors may, by resolution, from time to time confer like powers upon any other person or persons. Section 4. Chairman of the Board of Directors. The Chairman of the Board of ---------------------------------- Directors, if there be one, shall preside at all meetings of the stockholders and of the Board of Directors. The Chairman of the Board of Directors shall also perform such other duties and may exercise such other powers as from time to time may be assigned to him or her by these By-Laws or by the Board of Directors. Section 5. President. The President shall be the Chief Executive Officer of --------- the Corporation unless the Board of Directors names the Chairman of the Board as Chief Executive Officer. The President shall, subject to the control of the Board of Directors and, if the Chairman of the Board of Directors is the Chief Executive Officer, subject to the control of the Chairman 9

of the Board of Directors, have general supervision of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. The President shall execute all bonds, mortgages, contracts and other instruments of the Corporation requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except that the other officers of the Corporation may sign and execute documents when so authorized by these By-Laws, the Board of Directors or the President. In the absence or disability of the Chairman of the Board of Directors, or if there be none, the President shall preside at all meetings of the stockholders and the Board of Directors. The President shall also perform such other duties and may exercise such other powers as from time to time may be assigned to him or her by these By-Laws or by the Board of Directors. Section 6. Vice Presidents. At the request of the President or in his or --------------- her absence or in the event of his or her inability or refusal to act, the Vice President or the Vice Presidents if there is more than one (in the order designated by the Board of Directors) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Each Vice President shall perform such other duties and have such other powers as the Board of Directors from time to time may prescribe. If there be no Vice President, the Board of Directors shall designate the officer of the Corporation who, in the absence of the President or in the event of the inability or refusal of the President to act, shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Section 7. Secretary. The Secretary shall attend all meetings of the Board --------- of Directors and all meetings of stockholders and record all the proceedings thereat in a book or books to be kept for that purpose; the Secretary shall also perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or President, under whose supervision the Secretary shall be. If the Secretary shall be unable or shall refuse to cause to be given notice of all meetings of the stockholders and special meetings of the Board of Directors, and if there be no Assistant Secretary, then either the Board of Directors or the President may choose another officer to cause such notice to be given. The Secretary shall have custody of the seal of the Corporation and the Secretary or any Assistant Secretary, if there be one, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the signature of the Secretary or by the signature of any such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his or her signature. The Secretary shall see that all books, reports, statements, certificates and other documents and records required by law to be kept or filed are properly kept or filed, as the case may be. Section 8. Treasurer. The Treasurer shall have the custody of the corporate --------- funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors, at its regular meetings, or when the Board of Directors so 10

requires, an account of all transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, the Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of the office of Treasurer and for the restoration to the Corporation, in case of the Treasurer's death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the Treasurer's possession or under control of the Treasurer belonging to the Corporation. Section 9. Assistant Secretaries. Except as may be otherwise provided in --------------------- these By-Laws, Assistant Secretaries, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, any Vice President, if there be one, or the Secretary, and in the absence of the Secretary or in the event of his or her disability or refusal to act, shall perform the duties of the Secretary, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Secretary. Section 10. Assistant Treasurers. Assistant Treasurers, if there be any, -------------------- shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, any Vice President, if there be one, or the Treasurer, and in the absence of the Treasurer or in the event of the Treasurer's disability or refusal to act, shall perform the duties of the Treasurer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Treasurer. If required by the Board of Directors, an Assistant Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of the office of Assistant Treasurer and for the restoration to the Corporation, in case of the Assistant Treasurer's death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the Assistant Treasurer's possession or under control of the Assistant Treasurer belonging to the Corporation. Section 11. Other Officers. Such other officers as the Board of Directors -------------- may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any other officer of the Corporation, and the Chairman of the Board shall have, unless otherwise determined by the Board, the power to choose such other officers and to prescribe their respective duties and powers. ARTICLE V STOCK Section 1. Form of Certificates. Every holder of stock in the Corporation -------------------- shall be entitled to have a certificate signed, in the name of the Corporation, (i) by the Chairman of the Board of Directors, the President or a Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by such holder of stock in the Corporation. Section 2. Signatures. Any or all of the signatures on a certificate may ---------- be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar 11

before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. Section 3. Lost, Destroyed, Stolen or Mutilated Certificates. The Board of ------------------------------------------------- Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or such person's legal representative, to advertise the same in such manner as the Board of Directors shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 4. Transfers. Stock of the Corporation shall be transferable in the --------- manner prescribed by law and in these By-Laws. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or by such person's attorney lawfully constituted in writing and upon the surrender of the certificate therefor, properly endorsed for transfer and payment of all necessary transfer taxes; provided, however, that such surrender and endorsement or payment of taxes shall not be required in any case in which the officers of the Corporation shall determine to waive such requirement. Every certificate exchanged, returned or surrendered to the Corporation shall be marked "Cancelled," with the date of cancellation, by the Secretary or Assistant Secretary of the Corporation or the transfer agent thereof. No transfer of stock shall be valid as against the Corporation for any purpose until it shall have been entered in the stock records of the Corporation by an entry showing from and to whom transferred. Section 5. Transfer and Registry Agents. The Corporation may from time to ---------------------------- time maintain one or more transfer offices or agencies and registry offices or agencies at such place or places as may be determined from time to time by the Board of Directors. Section 6. Beneficial Owners. The Corporation shall be entitled to ----------------- recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. ARTICLE VI NOTICES Section 1. Notices. Whenever written notice is required by law, the ------- Certificate of Incorporation or these By-Laws, to be given to any director, member of a committee or stockholder, such notice may be given by mail, addressed to such director, member of a committee or stockholder, at such person's address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Written notice may also be given personally or by telegram, facsimile, telex or cable. 12

Section 2. Waivers of Notice. ------------------ (1) Whenever any notice is required by law, the Certificate of Incorporation or these By-Laws, to be given to any director, member of a committee or stockholder, a waiver thereof in writing, signed, by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting, present by person or represented by proxy, shall constitute a waiver of notice of such meeting, except where the person attends the meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. (2) Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors or members of a committee of directors need be specified in any written waiver of notice unless so required by law, the Certificate of Incorporation or these By-Laws. ARTICLE VII GENERAL PROVISIONS Section 1. Dividends. Subject to the requirements of the GCL and the --------- provisions of the Certificate of Incorporation, dividends upon the capital stock of the Corporation may be declared by the Board of Directors at any regular or special meeting of the Board of Directors, and may be paid in cash, in property, or in shares of the Corporation's capital stock. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for purchasing any of the shares of capital stock, warrants, rights, options, bonds, debentures, notes, scrip or other securities or evidences of indebtedness of the Corporation, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for any other proper purpose, and the Board of Directors may modify or abolish any such reserve. Section 2. Disbursements. All checks or demands for money and notes of the ------------- Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. Section 3. Fiscal Year. The fiscal year of the Corporation shall be fixed ----------- by resolution of the Board of Directors. Section 4. Corporate Seal. The corporate seal shall have inscribed thereon -------------- the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. 13

ARTICLE VIII INDEMNIFICATION Section 1. Power to Indemnify in Actions, Suits or Proceedings Other than -------------------------------------------------------------- Those by or in the Right of the Corporation. Subject to Section 3 of this ------------------------------------------- Article VIII, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that such person is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director or officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, such person had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that such person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in the ---------------------------------------------------------------- Right of the Corporation. Subject to Section 3 of this Article VIII, the ------------------------ Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. Section 3. Authorization of Indemnification. Any indemnification under this -------------------------------- Article VIII (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because such person has met the applicable standard of conduct set forth in 14

Section 1 or Section 2 of this Article VIII, as the case may be. Such determination shall be made (i) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (ii) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (iii) by the stockholders. To the extent, however, that a director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith, without the necessity of authorization in the specific case. Section 4. Good Faith Defined. For purposes of any determination under ------------------ Section 3 of this Article VIII, a person shall be deemed to have acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe his or her conduct was unlawful, if such person's action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to such person by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The term "another enterprise" as used in this Section 4 shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee or agent. The provisions of this Section 4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Section 1 or 2 of this Article VIII, as the case may be. Section 5. Indemnification by a Court. Notwithstanding any contrary -------------------------- determination in the specific case under Section 3 of this Article VIII, and notwithstanding the absence of any determination thereunder, any director or officer may apply to the Court of Chancery of the State of Delaware or any other court of competent jurisdiction in the State of Delaware for indemnification to the extent otherwise permissible under Sections 1 and 2 of this Article VIII. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director or officer is proper in the circumstances because such person has met the applicable standards of conduct set forth in Section 1 or 2 of this Article VIII, as the case may be. Neither a contrary determination in the specific case under Section 3 of this Article VIII nor the absence of any determination thereunder shall be a defense to such application or create a presumption that the director or officer seeking indemnification has not met any applicable standard of conduct. Notice of any application for indemnification pursuant to this Section 5 shall be given to the Corporation promptly upon the filing of such application. If successful, in whole or in part, the director or officer seeking indemnification shall also be entitled to be paid the expense of prosecuting such application. Section 6. Expenses Payable in Advance. Expenses incurred by a director or --------------------------- officer in defending or investigating a threatened or pending action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall 15

ultimately be determined that such person is not entitled to be indemnified by the Corporation as authorized in this Article VIII. Section 7. Nonexclusivity of Indemnification and Advancement of Expenses. ------------------------------------------------------------- The indemnification and advancement of expenses provided by or granted pursuant to this Article VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the Certificate of Incorporation or any By-Law, agreement, contract, vote of stockholders or disinterested directors or pursuant to the direction (howsoever embodied) of any court of competent jurisdiction or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified in Section 1 and 2 of this Article VIII shall be made to the fullest extent permitted by law. The provisions of this Article VIII shall not be deemed to preclude the indemnification of any person who is not specified in Section 1 or 2 of this Article VIII but whom the Corporation has the power or obligation to indemnify under the provisions of the GCL, or otherwise. Section 8. Insurance. The Corporation may purchase and maintain insurance --------- on behalf of any person who is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power or the obligation to indemnify such person against such liability under the provisions of this Article VIII. Section 9. Certain Definitions. For purposes of this Article VIII, ------------------- references to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors or officers, so that any person who is or was a director or officer of such constituent corporation, or is or was a director or officer of such constituent corporation serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, shall stand in the same position under the provisions of this Article VIII with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article VIII, references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article VIII. Section 10. Survival of Indemnification and Advancement of Expenses. The ------------------------------------------------------- indemnification and advancement of expenses provided by, or granted pursuant to, this Article 16

VIII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person. Section 11. Limitation on Indemnification. Notwithstanding anything ----------------------------- contained in this Article VIII to the contrary, except for proceedings to enforce rights to indemnification (which shall be governed by Section 5 hereof), the Corporation shall not be obligated to indemnify any director or officer (or his or her heirs, executors or personal or legal representatives) or advance expenses in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Corporation. Section 12. Indemnification of Employees and Agents. The Corporation may, --------------------------------------- to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article VIII to directors and officers of the Corporation. ARTICLE IX AMENDMENTS Section 1. Amendments. These By-Laws may be altered, amended or repealed, ---------- in whole or in part, or new By-Laws may be adopted by the Board of Directors or by the stockholders as provided in the Certificate of Incorporation. Section 2. Entire Board of Directors. As used in this Article IX and in ------------------------- these By-Laws generally, the term "entire Board of Directors" means the total number of directors which the Corporation would have if there were no vacancies. 17

Exhibit 4.2 AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT ----------------------- September 23, 1998

TABLE OF CONTENTS ----------------- 1. Restrictions on Transfer ................................................. 2 1.1 General Prohibitions .......................................... 2 1.2 Notice of Transfer ............................................ 3 1.3 Right of First Offer .......................................... 3 1.4 Certain Permitted Transfers ................................... 4 1.5 Exchange of Shares ............................................ 5 2. Tag-Along Rights ......................................................... 5 2.1 Right to Sell Proportionate Number of Shares of Securities .... 5 2.2 Notifications ................................................. 6 2.3 Selling a Proportionate Number of Securities .................. 6 2.4 Purchase Price ................................................ 6 2.5 Closing of Sale ............................................... 6 3. Drag-Along Right ......................................................... 7 3.1 Sale of the Company ........................................... 7 3.2 Sale Notice ................................................... 7 3.3 Purchase of Drag-Along Amount ................................. 7 4. Directors ................................................................ 8 4.1 Initial Board ................................................. 8 4.2 Voting Agreement .............................................. 8 4.3 Compensation .................................................. 8 4.4 Insurance ..................................................... 8 5. Covenants ................................................................ 9 5.1 Affirmative Covenants ......................................... 9 5.2 Negative Covenants ............................................ 11 6. Endorsement on Certificates .............................................. 12 7. Registration Rights ...................................................... 12 7.1 Certain Definitions ........................................... 12 7.2 Demand Registrations .......................................... 13 7.3 Incidental Registrations ...................................... 14 7.4 Expenses of Registration ...................................... 16 7.5 Registration Procedures ....................................... 16 7.6 Indemnification ............................................... 17 7.7 Other Registration Rights ..................................... 19 7.8 Information by Holders ........................................ 19 i

7.9 Rule 144 Reporting ............................. 19 7.10 Market Stand-off Agreement ..................... 19 7.11 Transfer Restrictions .......................... 20 8. Future Financings ......................................... 20 8.1 Right of First Refusal ......................... 20 8.2 Notice ......................................... 20 8.3 Exceptions ..................................... 21 9. Standstill Agreement ...................................... 21 10. Specific Performance ...................................... 21 11. Notices ................................................... 21 12. Effect of Invalid Provision: Governing Law ................ 22 13. Benefit, Subsequent Shareholders .......................... 22 14. Spouses ................................................... 22 15. Counterparts .............................................. 22 16. Termination ............................................... 22 17. Amendment ................................................. 23 18. Series D Class Vote ....................................... 23 19. Conflicting Provisions .................................... 23 20. Severability .............................................. 23 21. Amendment to 1993 Securities Purchase Agreement ........... 23 22. Termination of 1993 Shareholder Agreement ................. 23 23. Amendment to Certain Subordinated Note Agreements ......... 23 ii

AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT ----------------------- This Amended and Restated Shareholders' Agreement (the "Agreement") is --------- made as of this 23rd day of September, 1998, by and among CENTENE CORPORATION, a Wisconsin corporation (the "Company"), and those persons or entities whose ------- signatures are affixed on Exhibit A attached hereto (collectively, the "Shareholders," individually, a "Shareholder"). This Agreement amends, restates ------------ ----------- and supersedes the Shareholder Agreement, dated as of July 29, 1993, as amended by an Amendment, dated as of October 1, 1994, and as further amended by a Second Amendment, dated as of October 1997 (the "1993 Shareholder Agreement"). The 1993 -------------------------- Shareholder Agreement is hereby amended, restated and superseded with respect to each party as of the date such party executes this Agreement. RECITALS -------- WHEREAS, the Company and certain Shareholders are parties to the 1993 Shareholder Agreement; WHEREAS, whenever the Company issues shares of Capital Stock (as such term is defined below) to a person not previously an owner of the Company's Capital Stock, it requires such person to execute an agreement by which such person assumes and agrees to become bound by the Shareholders' Agreement; and WHEREAS, Strategic Investment Partners Ltd. ("SIP'), Greylock Limited --- Partnership ("Greylock") and Cahill, Warnock Strategic Partners Fund, L.P., -------- Strategic Associates, L.P. (Cahill Wamock Strategic Partners Fund, L.P. and Strategic Associates, L.P. are defined as "Cahill") and certain individual ------ investors (collectively, the "Series D Preferred Stock Holders") are parties to -------------------------------- that certain Securities Purchase Agreement dated the same date hereof (the "Securities Purchase Agreement") pursuant to which the Company issued Series D Preferred Stock, par value $0.1666 to the Series D Preferred Stock Holders; WHEREAS, the Company and the Shareholders listed on Schedule A to this Agreement desire to become parties to this Agreement and to amend and restate the terms and conditions of the Shareholder Agreement as set forth herein; and WHEREAS, certain of the parties hereto are parties to a Securities Purchase Agreement, dated as of October 1,1993 (the "1993 Securities Purchase ------------------------ Agreement") and/or certain Agreements dated as of or about September 7, 1997 --------- (the "Sub Debt Agreements"), and desire to amend certain of the provisions ------------------- thereof; NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, the receipt and sufficiency of which are acknowledged;

IT IS HEREBY AGREED AS FOLLOWS: AGREEMENT --------- 1. Restrictions on Transfer. ------------------------- 1.1 General Prohibitions. --------------------- (a) No Shareholder may sell, transfer, assign, pledge (except with the approval of the Board of Directors of the Company) or otherwise dispose of, whether voluntarily or involuntarily (a "Transfer"), any -------- interest in any Capital Stock (which is defined as all the capital stock authorized by the Company, including the Series A Common Stock, Series B Common Stock, Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock or any additional series of Preferred Stock) or subordinated notes issued on or about September 7, 1997 ("Subordinated Debt" ----------------- and together with Capital Stock, "Securities"), whether now owned or hereafter ---------- acquired, except after compliance with the provisions of this Section 1. In any ------ event, any Shareholder who owns both Capital Stock and Subordinated Debt shall not transfer either without similarly transferring a proportionate amount of the other security (as such proportionate amount shall be reasonably determined in the discretion of the Company's Board of Directors). Notwithstanding the foregoing, the parties aclmowledge and agree that Richard P. Wiederhold has pledged his initial unit purchase of preferred stock and subordinated debt to fund his investment in the Company. To the extent such pledge is enforced, the parties agree that the Company will have a right of first refusal subject to Section 1.3 of this Agreement. (b) No Securities shall be transferred except on the books of the Company by the respective holders of record thereof or by their legal representatives who shall furnish proper evidence of authority to transfer, or by their attorney thereunto authorized by power of attorney duly executed and filed with the secretary of the Company, subject to the restrictions, if any, set forth in the By-Laws and this Agreement. The holder in whose name Securities stand on the books of the Company shall be deemed by the Company to be owner thereof for all purposes. (c) No Shareholder shall transfer any Securities until such Shareholder has first given written notice to the Company describing briefly the manner of any such proposed transfer and until (i) the Company has received, if requested, from the Shareholders counsel an opinion (reasonably satisfactory in form and substance to the Company's counsel) that such transfer can be made without compliance with the registration provisions of the Securities Act or any applicable state securities laws or (ii) the Company and the Shareholder shall have complied with Rule 144 promulgated by the Commission and applicable state securities laws requirements, or (iii) a registration statement filed by the Company is declared effective by the Securities and Exchange Commission and governing state securities act authorities or steps necessary to perfect exemptions from such registration are completed with respect to the Securities to be so transferred. 2

1.2 Notice Of Transfer. Prior to making any Transfer (other than as ------------------ permitted pursuant to Section 1.4 hereof), the transferring Shareholder shall give written notice (the "Sale Notice") to the Company and the Company shall ----------- promptly deliver a copy thereof to all Shareholders. The Sale Notice shall disclose in reasonable detail the number and kind of Securities to be Transferred (the "Transfer Securities"), the identity of the proposed transferee ------------------- (if known) and the terms and conditions of the proposed Transfer, and shall offer to sell the Securities to the Company, and/or any person or entity designated by the Company by action of its Board of Directors (collectively referred to in this Section as the "Company") and the Shareholders at the price ------- and upon the terms set forth in the Sale Notice, and subject to the terms and conditions herein. 1.3 Right of First Offer. -------------------- (a) For all Transfers, the Company shall have priority on any exercise of the right of first offer or may assign (by action of the Board of Directors) such rights to any other person. The Company may elect to purchase all or any of the Securities proposed to be Transferred upon the same terms and conditions as those set forth in the Sale Notice by delivering a written notice of such election to the transferring Shareholder within 45 days after the Sale Notice has been given to the Company. Any such election so made within said period shall be binding upon the Company and irrevocable. (b) In the case the Company does not exercise its right of first offer in Section 1.3(a) as to all the Transfer Securities proposed to be transferred, the Shareholders other than the transferring Shareholder (the "Other Shareholders") shall have the right to exercise the right of first offer ------------------ with respect to the Transfer Securities not purchased by the Company. The Other Shareholders shall have the right to purchase all or a portion of such Transfer Securities; provided, however, that except as provided in the last sentence of -------- ------- this Section 1.3(b), such Other Shareholder shall be entitled to purchase only up to that number of Transfer Securities as shall be equal to the aggregate number of Transfer Securities multiplied by a fraction, the numerator of which is the number of shares of Company Common Stock then held by such Other Shareholder (assuming the conversion and exercise by such Other Shareholder of all securities convertible into or exercisable, for Company Common Stock) and the denominator of which is the total number of shares of Company Common Stock so held or so obtainable by all Other Shareholders (assuming the conversion and exercise of all securities convertible into or exercisable for Company Common Stock). A Shareholder may elect to participate in the purchase of such sale contemplated by the transferring Shareholder(s) by delivering written notice to the Company and the transferring Shareholder(s) within 45 days after the giving of the Sale Notice specifying the number of Transfer Securities as to which such Shareholder desires to accept. If a Shareholder does not so notify the Company and the transferring Shareholder on or before the expiration of said 45-day period, such Shareholder shall be deemed to have elected not to purchase any of the Transfer Securities. Following the expiration of the 45 day notice period, the transferring Shareholder and the Company shall calculate the pro rata portion of Transfer Securities which may be purchased by each Shareholder as follows: 3

i. there shall first be allocated to each electing Shareholder a number of Transfer Securities equal to the lesser of (A) the number of Transfer Securities as to which such Shareholder accepted the Offer or (B) such Shareholder's pro rata fraction thereof, and ii. the balance, if any, not allocated under clause (i) above shall be allocated to those Shareholders who expressed in their election in response to the Sales Notice a desire to purchase more than their pro rata fraction, in each case on a pro rata basis in proportion to the amount of such excess, or in such other manner as the electing Shareholders may agree among themselves. (c) If the Company or any Shareholders elect to exercise their rights of first offer as provided in Section 1.3(a) or (b) within the 45-day period provided therein, the transferring Shareholder shall not consummate any Transfer of Transfer Securities other than pursuant to Section 1.3 unless and to the extent prior to the expiration of such 45-day period, the Company, in the case of Section 1.3(a), and the Other Shareholders in the case of Section 1.3(b), shall have relinquished their rights under Section 1.3 hereof and the transferring Shareholder shall have consented thereto. If less than all of the Transfer Securities are Transferred to the Company or Shareholders pursuant to Section 1.3(a) or (b), the Transferring Shareholder, subject to compliance with the provisions of Section 2.1 hereof, may transfer such Transfer Securities at a price and on terms no more favorable to the transferee(s) thereof than specified in the Sale Notice, during the 180-day period immediately following the Authorization Date (as defined below). Any Securities not transferred within such 180-day period will again be subject to the provisions of this Article 1 upon subsequent transfer. The date of the first to occur of such events (i.e., the (i) expiration of the 45-day period if the Company and other Shareholders do not elect within such periods to exercise rights of first offer or (ii) the relinquishment date, as aforesaid) is referred to herein as the "Authorization ------------- Date." ---- 1.4 Certain Permitted Transfers. Notwithstanding the foregoing --------------------------- provision of this Section 1, the Company and the Shareholders acknowledge and agree that any of the following Transfers shall be deemed to be "Permitted --------- Transfers" which shall not be subject to Sections 1.3 or 2.1: --------- (a) a Transfer in accordance with the provisions of Section 1.3 or 3 hereof or through a sale in a registered offering in accordance with Section 7 hereof; (b) a Transfer from any Shareholder to any Affiliate, or any of their subsidiaries, partners, limited partners or employees; (c) a Transfer upon the death of a Shareholder to his executors, administrators and testamentary trustees; 4

(d) a Transfer to the Shareholder's spouse, parents, siblings or issue (whether natural or adopted) or to a trust, the beneficiaries of which, or to a corporation or partnership the stockholders or partners of which, include only the Shareholders and such Shareholder's spouse, parents, sibling or issue; and (e) Transfers between Shareholders or to the Company. (f) "Affiliate" means, with respect to any Person, (i) any --------- Person in which such Person holds direct or indirect beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of voting securities or other voting interests representing at least 5% of the outstanding voting power of a Person or equity securities or other equity interests representing at least 5% of the outstanding equity securities or equity interests in a Person; and (ii) an entity that shares common control, whether direct or indirectly, and common ultimate beneficial ownership. As a condition to effectuating any Transfer hereunder, the transferee must agree to be bound by this Agreement and all of the terms and conditions hereunder. 1.5 Exchange of Shares. Any purchaser who acquires shares of ------------------ non-voting Capital Stock from a Shareholder in accordance with this Agreement (other than a Purchaser who is an affiliate of such Shareholder) may at any time by written notice to the Company elect to exchange each share so acquired for a share of voting Capital Stock of the same class. Solely for purposes of this Section 1.5, the term "affiliate" of a Shareholder means (a) the Shareholder is --------- a legal entity, (i) any purchaser who directly or indirectly controls, is controlled by or is under common control with such Shareholder, (ii) any purchaser who is an officer of, partner in or trustee of, or who serves in a similar capacity with respect to, such Shareholder, or (iii) any purchaser who directly or indirectly is the beneficial owner of 10% or more or any securities of such Shareholder; or (b) if the Shareholder is an individual, any corporation, partnership or other entity of which the Shareholder serves as an officer, director, managing partner or similar capacity or any family member of such Shareholder. Control means the ownership of or right to vote more than fifty percent (50%) of the voting stock of an entity or the legal or contractual right to elect a majority of an entity's Board of Directors or other supervisory body. 2. Tag-Along Rights. ---------------- 2.1 Right to Sell Proportionate Number of Shares of Securities. The ---------------------------------------------------------- Shareholders agree that if any Shareholder of an Applicable Securities Class (as defined below) (a "Seller") shall receive and determine to accept any bona fide ------ ---- ---- written offer (a "Notice of Offer") from a Buyer (as defined below) to purchase --------------- or otherwise acquire for value, in one transaction or a series of related transactions, Securities of such Applicable Securities Class (the "Offer ----- Securities") beneficially owned by him and representing 10% or more of all ---------- Securities of such Applicable Securities Class beneficially owned by him, each of the other Shareholders owning Securities of the same Applicable Securities Class shall have the right to participate in such transaction in the manner set forth in this 5

Agreement. The term "Buyer," as used herein, means a person or entity, other ----- than the Company, a Shareholder or their Permitted Transferees, that has offered to purchase or otherwise acquire for value Securities (other than in connection with a registered public offering). 2.2 Notifications. The Seller shall deliver a copy of the Notice of ------------- Offer to the Company, and the Company shall deliver a copy thereof to all Shareholders. The delivery of such Notice of Offer shall be effected not less than 30 days prior to the closing of such proposed sale or other acquisition. Upon receipt of a Notice of Offer, each of the Shareholders shall have 15 days to deliver a written notice of its election to participate in such sale or other acquisition and of the number of shares of Capital Stock and principal amount of Subordinated Debt to be included in such sale or other acquisition, subject to and effective upon the closing of such sale or other acquisition. If such written notice of election is not received from the other parties within the 15-day period specified above, then the Seller shall have the right to sell or otherwise transfer the aforesaid Securities specified in the Notice of Offer to the Buyer without any participation by such other parties, but only (a) on the terms and conditions stated in the Notice of Offer and (b) if the sale or other transfer is consummated not later than 30 days after the end of the aforesaid 15-day period. 2.3 Selling a Proportionate Number of Securities. In the event the -------------------------------------------- number of shares (or principal amount of Subordinated Debt) for which a party elects to sell pursuant to a Notice of Offer exceeds the number of shares (or principal amount of Subordinated Debt) which the Buyer is willing to purchase, the number of shares (or principal amount of Subordinated Debt) to be sold or transferred to the Buyer by each transferor shall be reduced so that each transferor is entitled to sell or transfer the same percentage of its shares (or principal amount of Subordinated Debt) as each other transferor. 2.4 Purchase Price. The purchase price and the terms and conditions -------------- of the purchase or other acquisition for each transferor shall be the same as the purchase price and terms and conditions set forth in such Notice of Offer. 2.5 Closing of Sale. Each party in respect of a Notice of Offer shall --------------- deliver to the Buyer in respect of such Notice of Offer, against payment of the total purchase price, on the closing date specified in such Notice of Offer, a certificate or certificates representing the number of such shares (or principal amount of Subordinated Debt) which he or it has elected to sell pursuant to this Agreement, together with appropriate instruments of transfer duly endorsed in blank. 2.6 Applicable Securities Class. For purpose of the Article 2, --------------------------- holders of the following Securities shall be deemed to be holders of the same "Applicable Securities Class": (i) Holders of Company Common Stock (regardless of its series) including any series of Preferred Stock which may be converted into such Common Stock; (ii) Holders of Series A, B or C Preferred Stock, (iii) Holders of Series D Preferred Stock; (iv) Holders of any subsequent Series of Preferred Stock; or (v) Holders of Subordinated Debt. 6

3. Drag-Along Right. ---------------- 3.1 Sale of the Company. In the event any two or more of SIP, ------------------- Greylock or Cahill (the "Initiating Seller") propose a Transfer of their Capital Stock (other than pursuant to Section 1.4) in such amount as shall constitute 50% or more of the Capital Stock (calculated on a fully diluted, as converted basis) of the Company in one or more related transactions, including without limitation, a merger or consolidation (a "Sale of the Company") to a bona fide ------------------- third party purchaser which is not a Permitted Transferee of the Initiating Seller (the "Proposed Transferee") on an arm's length basis, the Initiating ------------------- Seller shall have the right (the "Drag-Along Right") to require all (but not ---------------- less than all) the other Shareholders (each a "Drag-Along Seller" and ----------------- collectively the "Drag-Along Sellers") to sell, and each Drag-Along Seller ------------------ hereby agrees to sell, to the Proposed Transferee that number of shares (but not less than such number of shares) which is equal to the product of (x) the number of shares of Capital Stock (calculated on a fully diluted as converted basis) owned by such Drag-Along Seller and (y) a fraction (A) the numerator of which is the number of shares of Capital Stock (calculated on a fully diluted as converted basis) proposed to be sold by the Initiating Seller and (B) the denominator of which is the number of shares of Capital Stock (calculated on a fully diluted, as converted, basis) owned by the Initiating Seller (such amount for the Drag-Along Sellers in the aggregate being herein referred to as the "Drag-Along Amount"). ----------------- 3.2 Sale Notice. The Initiating Seller shall notify the Company, and ----------- the Company shall promptly notify the Drag-Along Sellers in writing of such proposed Transfer (the "Sale Notice"). The Sale Notice shall set forth (a) the ----------- name and address of the Proposed Transferee and (b) a copy of the written proposal pursuant to which the Sale of the Company will be effected containing all of the material terms and conditions thereof, including (i) the number of shares of Capital Stock (calculated on a fully diluted, as converted, basis) proposed to be transferred by the initiating Seller, (ii) the Drag-Along Amount, (iii) the price per share of Capital Stock (per series) to be paid, (iv) the terms and conditions of payment offered by the Proposed Transferee and, in the case of consideration in whole or in part other than cash, the fair market value thereof as determined in good faith by the Board, which determination shall be evidenced by a Board resolution filed with the minutes of the Company, (v) whether the Initiating Seller has determined to exercise the Drag-Along Right, (vi) in the event the Initiating Seller has determined to exercise the Drag-Along Right, that the Proposed Transferee has been informed of the Drag-Along Right provided for in this Article 3 and has agreed to purchase the Drag-Along Amount in accordance with the terms hereof and to be bound by such terms subsequent to such purchase to the same extent as the Drag-Along Seller immediately prior to that sale and (vii) the date and location of and procedures for selling shares of Capital Stock to the Proposed Transferee. 3.3 Purchase of Drag-Along Amount. The shares purchased from each ----------------------------- Drag-Along Seller by the Proposed Transferee pursuant to this Article 3 or Article 1 shall be paid for at the same price per share (per series) and upon the same terms and conditions as the Shares to be sold by the initiating Seller. 7

4. Directors. --------- 4.1 Initial Board. The initial Board shall consist of Howard Cox, ------------- Michael Neidorff, S.E. Bradt, Claire Johnson, Robert K. Ditmore, Richard Wiederhold, Edward L. Cahill and Walter Burlock, Jr. (collectively the "Individual Investor Directors". ----------------------------- 4.2 Voting Agreement. At each election of directors, each Shareholder ---------------- shall vote all of the shares of Capital Stock held by such Shareholder to cause the authorized number of members of the Board of Directors of the Company to be at least eight (8) and the following persons to be elected to the Board of Directors: (a) The chief executive officer of the Company; (b) One (1) person designated by Greylock Limited Partnership ("Greylock"); -------- (c) So long as at least 25% of the Series D Preferred Stock issued on the date hereof remains outstanding, two (2) persons designated by the holders of the Series D Preferred Stock, one of whom shall be Edward L. Cahill and the second designee shall be an individual who is acceptable to the Company's President and Chief Executive Officer (the "Preferred Stock --------------- Directors"); and --------- (d) The party or parties electing a director under (b) or (c) above, shall have the power to remove and replace such director. Notwithstanding any of the above, this paragraph 4.1 shall terminate and thereafter be of no force and effect upon the effectiveness of a registration statement on Form S-1, Form S-2 or Form S-3 of shares of capital stock of the Company. 4.3 Compensation. Each non-employee Director shall be reimbursed by ------------ the Company for all direct out-of-pocket expenses reasonably incurred in connection with his services as a director and shall receive from the Company an annual fee of $20,000 or such level of compensation as may be adjusted by the Board of Directors from time to time. Such director's fee shall be paid in cash or securities as determined by the Board of Directors. 4.4 Insurance. The Company agrees to obtain and maintain insurance, --------- in an amount determined by the Board of Directors, to indemnify each Director against any liability incurred by him arising as a result of his acting as a director of the Company. 8

5. Covenants. --------- 5.1 Affirmative Covenants. The Company, and the Shareholders in the --------------------- case of Section 5.1(c), hereby covenant and agree as follows: (a) Information Rights. The Company will furnish the following ------------------ information to each person who holds 500,000 or more shares of Capital Stock and is not a member of the Board of Directors i. Annual Financial Statements. As soon as practicable, but in --------------------------- any event within 90 days after the end of each fiscal year of the Company, a statement of earnings for such fiscal year, a balance sheet of the Company as of the end of such year, and a statement of cash flows for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with generally accepted accounting principles, and audited and certified by an independent public accounting firm of nationally recognized standing selected by the Company and reasonably acceptable to the Shareholders. ii. Audit Reports. As soon as available, copies of all other ------------- financial reports submitted to the Company or any of its Subsidiaries by independent public accountants, relating to any annual or interim audit of the books of the Company. iii. Quarterly Financial Statements. Within 45 days after the end ------------------------------ of each quarter, an unaudited statement of earnings, balance sheet and statement of cash flow for or as of the end of such quarter in reasonable detail. All such reports shall be prepared from the books and records of the Company in accordance with generally accepted accounting principles consistently applied. iv. Summary Operating Plan. Promptly after management presents ---------------------- an operating plan to the Board of Directors, a summary operating plan of the Company for such fiscal year, with quarterly breakdowns (the "Operating Plan") and within 10 -------------- days of any revision thereof, a copy of such revision. v. Regulatory Filings. Within 10 days after filing, copies of ------------------ all reports filed by the Company pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 shall be furnished and, promptly upon request by any Shareholder, the Company shall furnish to such 9

Shareholder copies of press releases and other documents that the Company shall have released to the press during the preceding 90 days. vi. Other Information. Promptly following a request therefor, ----------------- the Company agrees to deliver (i) all management letters of accountants; (ii) notification of defaults under material agreements; (iii) notification of material litigation; (iv) all federal and state tax and material regulatory filings, and (v) such other information relating to the financial condition, business, prospects or corporate affairs of the Company, including without limitation a current statement of the nature of the business of the Company and the products and services it offers. (b) Inspection. The Company shall permit each Shareholder, at ---------- such Shareholder's expense, to visit and inspect the Company's properties, to examine its books of account and records, including the Company's monthly financial statements and Operating Plan (which shall be available for inspection promptly after preparation of such materials), and to discuss the Company's affairs, finances and accounts with its officers, all at such reasonable times as may be requested by such Shareholder upon reasonable notice to the Company. (c) Confidentiality of Information. Each Shareholder (whether or ------------------------------ not a holder of 500,000 shares of Capital Stock) agrees to maintain the confidentiality of any information obtained by such Shareholder pursuant to Sections 5.1(a) or 5.1(b) hereof, or otherwise, which may be proprietary to the Company or otherwise confidential and which has not been made available by the Company to the public or to any other third party on a non-confidential basis. Each Shareholder further agrees to use such proprietary and confidential information only to benefit the Company or to monitor such Shareholder's investment in the Company and to make no disclosure thereof to a transferee or prospective transferee without the Company's prior written consent (which may be conditioned upon receipt of a similar undertaking by the transferee or prospective transferee but otherwise shall not be unreasonably withheld). (d) Certain Transactions. The Company agrees that it will not -------------------- enter into any transaction or agreement (other than normal compensation arrangements, which are subject to Section 5.1(e) hereof) including without limitation any lease or other rental or purchase agreement (as used for purposes of this Section 5.1(d), "Contract"), with any "person or entity associated with -------- -------------------------------- the Company," or with respect to which any such person or entity has or is to ----------- have a direct or indirect material interest, unless such Contract has been approved by not less than a majority of the number of directors constituting the whole Board (excluding any such person associated with the Company, if a director) or unless such contract was in effect on the date hereof or unless such Contract is non-material and in the ordinary course of business. For purposes hereof, a Contract shall be deemed to be non-material if it and all other Contracts (excluding, for this purpose, compensation under employment contracts and other compensation arrangements) between the Company and the 10

person or entity in question do not involve payment by or to the Company during any fiscal year of more than $5,000. (e) Management Compensation. Compensation (including salary, ----------------------- bonuses, fringe benefits and stock awards) paid by the Company to its officers shall be established by a compensation committee of the Board of Directors, a majority of the members of which shall be directors who are not employed by the Company in any capacity and which shall initially include at least one member of the Board of Directors specified in sections 4.2(b) or (c). (f) FIRPTA. The Company shall promptly inform the Shareholders if ------ there is any change in the representation in the Securities Purchase Agreement to the effect that the Company is not a United States Real Property Holding Corporation within the meaning of Section 897(c)(2) of the Code. (g) Reincorporation. The Company shall reincorporate in the State --------------- of Delaware within three months following the date of this Agreement, unless otherwise determined by the Board of Directors. 5.2 Negative Covenants. The Company shall not, without the prior ------------------ written consent or approval of (i) so long as any shares of Series D Preferred Stock are outstanding, any two or more of Greylock, Cahill and SIP and (ii) with respect solely to (a) and (b), at least 60% of the holders of all other Preferred Stock: (a) engage in any business other than the managed health care business and any business incidental thereto; (b) purchase, redeem or otherwise acquire any shares of capital stock of the Company, other than upon the exercise, approved by the Board (excluding the seller, if a director) or as required by law, of repurchase rights with respect to shares owned by any employee, director, or consultant of the Company; (c) increase the size of the Board of Directors of the Company; (d) merge or consolidate with any other entity (except if the sole purpose and effect of such merger is to change the Company's State of incorporation) or sell all or substantially all of its assets; (e) issue or guarantee senior debt with the exception of debt issued by a commercial lender; (f) liquidate or dissolve; 11

(g) enter into any agreement or arrangement of any kind that would restrict the Company's ability to perform its obligations under this Agreement or the Securities Purchase Agreement; or (h) issue a press release which mentions the name of a Series D Preferred Stock Holder without the prior approval of such Holder; provided, -------- however, that if a Series D Preferred Stock Holder does not respond within three ------- (3) days of receipt of the draft press release, then the Series D Preferred Stock Holder shall be deemed to approve such press release. 6. Endorsement on Certificates. Certificates representing Securities now --------------------------- or hereafter outstanding and owned by the Shareholders shall be stamped with the following legend: "This security has not been registered under the Securities Act of 1933, as amended (the "Act") or any state securities laws, and has been acquired for investment and not with a view to, or for sale in connection with, any distribution thereof within the meaning of the Act. This security is subject to transfer restrictions contained in a certain Subordination Agreement [as applicable for Subordinated Debt] and a certain Amended and Restated Shareholders' Agreement, and no transfer of the security shall be made unless the conditions specified in said [Agreements] have been fulfilled. Copies of said [Agreements] are on file and available for inspection at the principal offices of the Company." 7. Registration Rights. ------------------- 7.1 Certain Definitions. As used in this Section 7.1, the following ------------------- terms shall have the following respective meanings: "Commission" shall mean the Securities and Exchange Commission or any ---------- other federal agency at the time administering the Securities Act. "Exchange Act" shall mean the Securities Exchange Act of 1934, as ------------ amended, or any similar federal statute, and the rules and regulations of the Commission issued under such Act, as they each may, from time to time, be in effect. "Holders" shall mean any Shareholder so long as such Shareholder holds ------- at least 3% of the outstanding Capital Stock; provided, however, any original -------- ------- signatory to this Agreement shall be deemed a Holder for a period of two years after the Company's initial public offering (whether or not such signatory holds 3% or more of the outstanding Capital Stock). "Registrable Securities" shall mean (i) the shares of Class A Common ---------------------- Stock issued and outstanding, including for this purpose any series of Preferred Stock which may be converted into Class A Common Stock and (ii) any securities issued as a dividend or other distribution with 12

respect to, or in exchange or in replacement of, the securities referred to in the above subsection (i). "Registration Expenses" shall mean all expenses (except for "Selling --------------------- ------- Expenses" as defined below) incurred by the Company in complying with Section -------- 7.2 or 7.3 of this Agreement, including, without limitation, all registration and filing fees, printing expenses, reasonable fees and disbursements of counsel for the Company and, reasonable fees (not exceeding $30,000 unless changed by the Board of Directors) and disbursements of one counsel for the selling Shareholders in each of the two (2) registrations referred to in Section 7.2 and in the first incidental registration referred to in Section 7.3. The terms "register", "registered" and "registration" shall refer to a -------- ---------- ------------ registration to a registration effected by preparing and filing a Registration Statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such Registration Statement. "Registration Statement" shall mean a registration statement on Form ---------------------- S-1, Form S-2 or Form S-3 filed by the Company with the Commission for a public offering and sale of securities of the Company. "Securities Act" shall mean the Securities Act of 1933, as amended, or -------------- any similar federal statute, and the rules and regulations of the Commission issued under such Act, as they each may, from time to time, be in effect. "Selling Expenses" shall mean all underwriting discounts and selling ---------------- commissions applicable to the sale of Registrable Securities pursuant to Section 7.2 or 7.3 and all fees and disbursements of counsel for the selling Shareholders not included in Registration Expenses. 7.2 Demand Registrations. -------------------- (a) If, at any time on or after September 23, 200l and following an initial public offering, the Company shall be requested in writing by the Holders of not less than 50% of the Registrable Securities (treating for this purpose all other securities of the company then held by Holders as having been converted into Registrable Securities on a common equivalent basis) to effect the registration under the Securities Act of outstanding shares of Registrable Securities, the Company shall promptly give written notice of such proposed registration to all Holders. Such Holders shall have the right, by giving written notice to the Company within 30 days from receipt of the Company's notice, to elect to have included in such registration such of their Registrable Securities as such Holders may request in such notice of election. Thereupon, the Company shall, as expeditiously as practicable, use its best efforts to effect the registration, on a form of general use under the Securities Act, of all shares of Registrable Securities which the Company has been requested to register. The Company shall not be obligated to cause to become effective more than two registration statements pursuant to which Registrable Securities are sold under this Section 7.2(a); provided, however, that if the Holders desiring -------- ------- to participate in such registration are unable to sell at least 75% of the Registrable Securities they desire to sell, then such Holders shall be 13

entitled to one additional demand registration pursuant to this subsection 7.2(a). Notwithstanding the foregoing, if the Company shall furnish to the Holders of Registrable Securities requesting registration pursuant to this Section 7.2(a) a certificate signed by the President of the Company stating that the Board of Directors of the Company has made the good faith judgment that it would be seriously detrimental to the Company and its Shareholders for such registration statement to be filed in the near future, then the Company's obligation to use its best efforts to file and cause to become effective such registration statement may be deferred for a period which shall not exceed 180 days. This right may not be exercised by the Company on more than one occasion for each registration pursuant to this Section 7.2(a). (b) The Company may include in a registration requested under this Section 7.2(a) any authorized but unissued shares of Capital Stock for sale by the Company; provided, however, that such shares shall not be included to the -------- ------- extent that the underwriter of the shares so proposed to be registered (if the offering is underwritten) or, if the offering is not underwritten, the holders of a majority of the shares of Registrable Securities included therein determine in good faith that the inclusion of such shares will interfere with the successful marketing of the shares of Registrable Securities to be included therein. If the offering to which a registration statement under this Section 7.2(a) relates is an underwritten offering, and if, after all shares of Capital Stock proposed to be offered by the Company have been excluded from such registration, a greater number of shares of Registrable Securities is offered for participation in such underwriting than in the opinion of the managing underwriter can be accommodated without adversely affecting the underwriting, the amount of Registrable Securities proposed to be offered in the underwriting shall be reduced, pro-rata (based upon the amount of Registrable Securities owned) among all Holders participating in such registration, to a number deemed satisfactory by the managing underwriter; provided, however, that for purposes -------- ------- of making any such reduction, any Holders' family group, partners or affiliates shall be deemed to be a single "holder" of Registrable Securities, and any ------ pro-rata reduction with respect to such "holder" shall be based upon the aggregate amount of shares of Registrable Securities owned by all entities and individuals included in such "holder," as defined in this provision; and further ------ ------- provided that the Series D Preferred Stock Holders along with the Holders shall -------- have priority rights to registration over any and all other persons. 7.3 Incidental Registrations. ------------------------ (a) If at any time or from time to time the Company shall determine to register any of its Capital Stock for its own account (other than a registration relating solely to employee benefit plans, or a registration relating solely to a Commission Rule 145 transaction or any Rule adopted by the Commission in substitution therefor or in amendment thereto, or a registration on any registration form which does not include substantially the same information as would be required to be included in a Registration Statement covering the sale of Registrable Securities), the Company shall: i. promptly give to each Holder written notice thereof (which shall include a list of the jurisdictions in which the Company intends to attempt to 14

qualify such Registrable Securities under the applicable Blue Sky or other state securities laws); and ii. include in such registration (and any related qualification under Blue Sky laws or other compliance), and in any underwriting involved therein, all of the Registrable Securities specified in a written request or requests received by the Company within twenty (20) days after the giving of such written notice by the Company, by any Holder, subject to the limitations set forth in Section 7.3(b). (b) If the registration of which the Company gives notice is for a registered public offering involving an underwritten public offering, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 7.3(a). In such event, the right of any Holder to register Registrable Securities pursuant to this Section 7.3 shall be conditioned upon such Holders' participation in such underwritten public offering and the inclusion of such Holders' Registrable Securities in the underwritten public offering to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwritten public offering shall (together with the Company and the other Holders distributing their securities through such underwritten public offering) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwritten public offering by the Company. Notwithstanding any other provision of this Section 7.3, if the underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, all shares to be sold by the Company shall be included in such offering before any Registrable Securities are so included, and further, the underwriter otherwise may limit the number of Registrable Securities to be included in the registration and underwritten public offering. The Company shall so advise all Holders (except those Holders who have not elected to distribute any of their Registrable Securities through such underwritten public offering), and the number of shares of Registrable Securities that may be included in the registration and underwritten public offering shall be allocated among such Holders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities owned by such Holders at the time of filing the Registration Statement, except that the shares to be registered by the Series D Preferred ------ Stock Holders along with the Holders shall have priority over all other shares to be registered. No Registrable Securities excluded from the underwritten public offering by reason of the underwriter's marketing limitation shall be included in such registration. If any Holder disapproves of the terms of any such underwritten public offering, such person may elect to withdraw therefrom by written notice to the Company and the underwriter, which notice, to be effective, must be received by the Company at least two (2) business days before the anticipated effective date of the Registration Statement. The Registrable Securities so withdrawn from such underwritten public offering shall also be withdrawn from such registration; provided, however, that if by the withdrawal -------- ------- of such Registrable Securities a greater number of Registrable Securities held by other selling Holders may be included in such registration (up to the maximum of any limitation imposed by the underwriters then the Company shall include in such registration in place of such withdrawn Registrable Securities such additional Registrable Securities held by other selling Holders whose Registrable Securities were excluded pursuant to limitation by the underwriter pursuant to 15

this Section 7.3 in the same proportion as such Registrable Securities were excluded pursuant to such underwriter limitation (with no more Registrable Securities being so included than were withdrawn). In the event that the contemplated sale does not involve an underwritten public offering, a determination that the inclusion of the Registrable Securities adversely affects the marketing of the shares shall be made by the Board of Directors of the Company in its good faith discretion. (c) The Company may at any time withdraw or abandon any Registration Statement which triggers the provisions of this Section 7.3 without any liability to the Holders; provided, however, that the Company shall (A) -------- ------- provide prompt notice of its withdrawal or abandonment to each Holder; and (B) pay all reasonable expenses not to exceed $10,000 (unless changed by the Board of Directors). 7.4 Expenses of Registration. All Registration Expenses incurred in ------------------------ connection with any registration pursuant to Section 7.2 and Section 7.3 shall be borne by the Company. All Selling Expenses incurred in connection with any such registration shall be borne by the selling Holders on a pro rata basis. If, notwithstanding this Agreement, applicable authorities in any state wherein Registrable Securities are to be sold require an allocation of Registration Expenses, each Holders agrees to pay its apportioned share thereof. 7.5 Registration Procedures. In the case of each registration ----------------------- effected by the Company pursuant to this Agreement, the Company will keep each Holder advised in writing as to the initiation of each registration and as to the completion thereof. Before filing any registration statement, the Company must provide to each of the Series D Preferred Stock Holders a copy of the "Plan ---- of Distribution" section of such registration statement. At its expense the --------------- Company will: (a) Keep such registration effective for a period of 120 days or until the selling Holders have completed the distribution described in the Registration Statement relating thereto, whichever first occurs; and (b) Furnish such number of prospectus and other documents incident thereto as a selling Holders may from time to time reasonably request. (c) Notify the Holders at any time when a Prospectus relating to the Shares is required to be delivered under the Act, upon discovery that, or upon the happening of any event as a result of which, the Prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made, and prepare and furnish to the Holders one copy of a supplement to or an amendment of such Prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such Prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made. 16

(d) Make available for inspection by the Holders, and any one attorney, accountant or other agent retained by the Holders of Registered Shares, as a group, (the "Inspector"), all financial and other records, --------- pertinent corporate documents and properties of the Company (collectively, the "Records"), as shall be reasonably necessary to enable them to exercise their ------- due diligence responsibility, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such Inspector in connection with such registration statement; provided that records which the Company determines, in good faith, to be confidential and which it notifies the Inspector are confidential shall not be disclosed by the Inspector unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in the Registration Statement or (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction; provided, further, the Holders agree that they will, upon leaning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company and allow the Company, at its expense, to undertake appropriate action and to prevent disclosure of the Records deemed confidential. 7.6 Indemnification. --------------- (a) The Company will indemnify each Holder, each of the officers, directors and partners of such Holder, and each person controlling such Holder, if Registrable Securities held by such Holder are included in the securities with respect to which registration has been effected pursuant to this Agreement, and each underwriter of such Registrable Securities, if any, and each person who controls such underwriter, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on (A) any untrue statement (or alleged untrue statement) or a material fact contained in any prospectus, offering circular or other similar document (including any related Registration Statement, notification or the like) incident to any such registration, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made, or (B) any violation by the Company of any federal, state or common law rule or regulation applicable to the Company and relating to action or inaction required of the Company in connection with any such registration and will reimburse such Holder, each of the officers, directors and partners of such Holder, and each person controlling such Holder, such under-writer and each person who controls such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action; provided that the Company will not be liable to a Holder or underwriter in any such case to the extent that such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission made in reliance upon and in conformance with written information furnished to the Company by or on behalf of such Holder or underwriter and which was furnished specifically for the purpose of being used therein. (b) Each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration is being effected, indemnify the Company, each of its directors and officers, each underwriter, if any, of the Company's securities covered by such registration, qualification or compliance, each person who controls the Company or such 17

underwriter within the meaning of the Securities Act, and each other Holder, each of the officers, directors and partners of each such other Holder and each person controlling such other Holder, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement of a material fact contained in any such Registration Statement, prospectus, offering circular or other similar document, or any omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made, and will reimburse the Company, such other Hoiders, such directors, officers, partners, persons, undeiwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement or omission is made in such Registration Statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Holder and which was furnished specifically for the purpose of being used therein; provided, however, that the liability of such Holder under this Section -------- ------- 4(f) shall be limited to an amount equal to the proceeds to such Holder of Registrable Securities sold as contemplated herein. (c) Each party entitled to indemnification under this Section 7.6 (the "Indemnified Party") shall give notice to the party required to provide ----------------- indemnification (the "Indemnifying Party") promptly after such Indemnified Party ------------------ has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party, at such party's expense, to assume the defense of any such claim or any litigation resulting therefrom; provided that counsel for -------- the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the indemnified Party may participate in such defense at such party's expense (except for the payment of fees, costs and expenses provided for below); provided further that the failure of any -------- ------- Indemnified Party to give as provided herein shall not relieve the Indemnifying Party of its obligations under this Agreement, unless such failure to give notice shall materially adversely affect the Indemnifying Party in the defense of any such claim or any such litigation. No Indemnifying Party, in the defense of any such claim or litigation shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Notwithstanding the election of the Indemnifying Party to assume the defense of any such claim or litigation, the Indemnified Party shall have the right to employ separate counsel and to participate in the defense of such claim or litigation, and the Indemnifying Party shall bear the reasonable fees, costs and expenses of such separate counsel if (A) the use of the counsel chosen by the Indemnifying Party to represent the Indemnified Party would present such counsel with a conflict of interest; (B) the defendants in, or targets of, any such claim or litigation include both the Indemnified Party and the Indemnifying Party and the Indemnified Party shall have reasonably concluded that there may be legal defenses available to it or to other Indemnified Parties which are different from or additional to those available to the Indemnifying Party (in which case the Indemnifying Party shall not have the right to direct the defense of such action on behalf of the Indemnified Party); (C) in the exercise of the Indemnified Party's reasonable 18

judgment, the Indemnifying Party shall not have employed satisfactory counsel to represent the Indemnified Party within a reasonable time after notice of the institution of such claim or litigation; or (D) the Indemnifying Party shall authorize the Indemnified Party to employ separate counsel at the expense of the Indemnifying Party. The Indemnified Party shall not settle any such claim or litigation without the consent of the Indemnifying Party, which consent shall not be unreasonably withheld. 7.7 Other Registration Rights. Nothing herein contained shall ------------------------- prohibit or affect the Company's right to grant registration on a parity with or rights junior to the registration rights herein contained to any other persons. 7.8 Information by Holders. The Holders of Registrable Securities ---------------------- included in any registration shall furnish to the Company in writing such information regarding such Holders and the distribution proposed by such Holders as the Company may reasonably request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Agreement. 7.9 Rule 144 Reporting. With a view to making available the benefits ------------------ of certain rules and regulations of the Commission which may at any time permit the sale of the Capital Stock to the public without registration, at all times after 90 days after the effective date of the first registration under the Securities Act filed by the Company for an offering of its securities to the general public, the Company agrees to: (a) Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act; (b) Use its best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (c) Furnish to each Holder forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of such Rule 144 and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed by the Company as a Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing that Holder to sell any such securities without registration. 7.10 Market Stand-off Agreement. The Holders, if requested by the -------------------------- Company and an underwriter of the Company's securities, shall agree not to sell or otherwise transfer or dispose of any Capital Stock during the 120-day period following the effective date of the first Registration Statement (except for any securities of the Company sold pursuant to such Registration Statement) of the Company filed under the Securities Act; provided, that all Holders holding more -------- than three percent (3%) of the outstanding Capital Stock enters into similar agreements. Such agreement shall 19

be in writing in form satisfactory to the Company and such underwriter. The Company may impose stop-transfer instructions with respect to the shares (or securities) subject to the foregoing restriction until the end of this 120-day period. 7.11 Transfer Restrictions. The transfer restrictions contained in --------------------- Section 1 of this Agreement shall not apply to any offering of Shares pursuant to this Section 7. 8. Future Financings. ----------------- 8.1 Right of First Refusal. The Company grants to each of the ----------------------- Shareholders the right of first refusal to purchase its pro-rata share (as defined below) of any equity securities of the Company, including shares of Capital Stock or securities of any type convertible into, or entitling the holder thereof to purchase shares of, Capital Stock, proposed to be issued by the Company subsequent to the date hereof (such securities being hereafter referred to in this Section 8 only as the "Proposed Securities"). A ------------------- Shareholder's "pro-rata share" shall be that portion of the Proposed Securities -------------- proposed to be issued which bears the same relation to all of the Proposed Securities proposed to be issued as the shares of Capital Stock held by such Shareholder bear to all the outstanding shares of the Capital Stock (assuming the conversion of all outstanding securities which are convertible into Capital Stock), all determined immediately prior to the offering of the Proposed Securities. For purposes of computing a Shareholder's pro-rata share, each Shareholder shall be deemed to be the owner of all Securities transferred to any person or entity pursuant to Section 1.4 hereof. 8.2 Notice. In the event that the Company proposes to undertake an ------ issue of Proposed Securities, it shall deliver to each Shareholder written notice of its intention, describing such, Securities, specifying such Shareholder's pro-rata share and stating the purchase price and other terms upon which it proposes to issue the same (the "Option Notice"). For a period of 15 ------------- days from the receipt of the Option Notice, each Shareholder (or any affiliate, of such Shareholder to whom such Shareholder has assigned such right) shall have the right to elect, by written notice to the Company, to purchase (i) all or any portion of such Shareholder's pro-rata share of the Proposed Securities described in the Option Notice and (ii) all or any part of the pro-rata share of any other Shareholder to the extent that such other Shareholder (and its assignee affiliates) do not elect to purchase such Shareholder's full pro-rata share, upon the terms and conditions specified in the option Notice. If the Shareholders (and such affiliates) who elect to purchase their full pro-rata shares also elect to purchase in the aggregate more than 100% of the Proposed Securities referred to in clause (ii) of the preceding sentence, the Proposed Securities referred to in clause (ii) of the preceding sentence will be sold to such Shareholders (and such affiliates) in accordance with such Shareholders' respective pro-rata shares; provided, however that no such Shareholder (or -------- ------- affiliate) may purchase a greater number of such Proposed Securities than the amount which such Shareholder (or affiliate) elects to purchase pursuant to clause (ii) of the preceding sentence. In the event the Shareholders (and such affiliates) fail to exercise their rights of first refusal within the specified period, or the Shareholders (and such affiliates) elect to acquire less than their aggregate pro-rata shares pursuant to the exercise of such right, then, during the 180 day period following the expiration 20

of such 15 day period, the Company may sell, free of any right of first refusal on the Shareholders' part, the portion of the Shareholders' pro-rata shares not purchased pursuant to such right of first refusal, upon the same terms specified in the option Notice. Any Proposed Securities purchased by an affiliate of such Shareholder to whom such Shareholder has assigned rights pursuant to this Section 9 shall be deemed to have been purchased by, and to be held by, such Shareholder. 8.3 Exceptions. The right of first refusal granted under this Section ---------- 8 shall not apply to (i) the issuance of Capital Stock pursuant to an employee benefit plan approved by the Company's Board of Directors; (ii) any Proposed Securities issued pursuant to a resolution duly adopted by the Company's Board of Directors (or pursuant to a written consent to action in lieu of a meeting) stating substantially to the effect that the right of first refusal provisions contained in this Agreement shall be inapplicable to such issuance; (iii) any Proposed Securities offered in an underwritten public offering; (iv) any Proposed Securities issued pursuant to the acquisition by the Company of another corporation, business entity or assets thereof which has been approved by the Board of Directors; (v) the issuance of Proposed Securities upon a stock split or stock dividend with respect to the Capital Stock; and (vi) any Proposed Securities issued pursuant to employment agreements with executive officers of the Company, so long as such Proposed Securities do not have a value exceeding $50,000. Such right of first refusal shall expire and thereafter be of no force and effect as to any Shareholder which shall not have purchased its pro rata share of the next prior issue of Securities as to which this Section 8 applied. 9. Standstill Agreement No Shareholder shall acquire an amount of Equity -------------------- Securities of the Company which, on an as-converted basis, would result in such Shareholder owning 50% or more of the Series A Common Stock of the Company or any other series of voting common stock of the Company. For purposes of this Section 9, the term Shareholder shall include any equity interest in the Company held by the Shareholder, an Affiliate, spouse and his or her descendants. The term "Equity Securities" shall mean (i) any series of Common Stock, Preferred ----------------- Stock or other equity security of the Company, (ii) any security convertible, with or without consideration, into any series of Common Stock, Preferred Stock or other security (including any option to purchase such a convertible security), (iii) any security carrying any warrant or right to subscribe to or purchase any Common Stock, Preferred Stock or other security or (iv) any such warrant or right. 10. Specific Performance. The parties hereto hereby declare that it is -------------------- impossible to measure in money the damages which will accrue to a party hereto by reason of a failure to perform any of the obligations under this Agreement. Therefore, if any party hereto shall institute any action or proceeding to enforce the provisions hereof, any person (including the Company) against whom such action or proceeding is brought hereby waives all claims or defenses therein that such party has an adequate remedy at law and such person shall not urge in any such action or proceeding the claim or defense that such remedy at law exists. 11. Notices. Any and all notices, designations, consents offers, ------- acceptances, or any other communication provided for herein shall be given in writing by personal delivery to the person entitled to receive said notice, or by certified mail or overnight courier service., and shall be 21

addressed, in the care of the Company, to its office at 7711 Carondelet Avenue, St. Louis, MO 63105; and, in the case of any Shareholder, to such Shareholder's address set forth in the stock records of the Company, or to such other address as may be designated in writing by such Shareholder. Any such notice shall be deemed effective when personally delivered, if delivered personally, or three (3) business days after mailing, if mailed, or one business day after delivery to the courier, if delivered by overnight courier service. 12. Effect of Invalid Provision; Governing Law. The invalidity or ------------------------------------------ unenforceability of any particuiar provision of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision was omitted. This Agreement shall be governed under the internal laws of the State of Delaware regardless of such State's conflict of law provisions or principles. 13. Benefit, Subsequent Shareholders. This Agreement shall be binding upon -------------------------------- and shall operate for the benefit of the parties hereto, and their respective successors, assigns, executors and administrators. The Company shall not hereafter issue any Securities unless the proposed transferee executes a counterpart of this Agreement. Each party hereto agrees and consents to extend the benefits of this Agreement to any person (not presently a party hereto) to whom Securities are proposed to be transferred and who agrees to execute a counterpart of this Agreement. 14. Spouses. This Agreement shall be binding upon the spouse of any ------- Shareholder and any interest in the Securities which said spouse may possess. Such spouse has read this Agreement and consulted with counsel of his or her own choice regarding the effect of this Agreement upon the community or marital property rights of such spouse in the Securities. By executing this Agreement, such spouse agrees that his or her interest in the Securities shall be subject to this Agreement and, further, that no such spouse shall: (i) transfer any interest in the Securities separate or apart from a transfer by his or her spouse of his or her interest in the Securities; or (ii) be entitled to receive any notice required or permitted to be given hereunder separate or apart from such notice given to his or her spouse. Any Shareholder unmarried on the date hereof shall obtain from his or her spouse prior to marriage an executed counterpart of this Agreement. 15. Counterparts. This Agreement may be executed in one or more ------------ Counterparts no one of which need contain the signatures of all parties hereto, and, each of which shall be deemed an original; provided, however, that the total of such counterparts shall contain the signatures of all parties hereto. 16. Termination. This Agreement (except Sections 1.5 and 7 hereof) shall ----------- terminate and thereafter be of no force and effect (i) at such time as there is only one (1) Shareholder, (ii) upon the occurrence of the consummation of a sale to the public pursuant to an effective Registration Statement under the Securities Act covering any of the Company's Capital Stock or (iii) with the approval of (a) the Company and (b) Shareholders owning 80% or more of the outstanding capital stock of the Company; provided, however, that any two or -------- ------- more of SIP, Greylock and Cahill shall determine the approval for such purposes of SIP, Greylock and Cahill with respect to their Series 22

D Preferred Stock. Section 7 shall terminate upon the registration of all Registrable Securities. 17. Amendment. Neither this Agreement nor any provision hereof may be --------- amended, modified, supplemented or waived, except by a written instrument executed by (i) the Company and (ii) Shareholders owning 80% or more of the outstanding capital stock of the Company; provided, however, that any two or -------- ------- more of SIP, Greylock and Cahill shall determine the concurrence for such purposes of SIP, Greylock and Cahill with respect to their Series D Preferred Stock. 18. Series D Class Vote. Any matter that requires a vote of the Series D ------------------- Holders as a class shall be determined as to such Series D Holders' class vote solely by the Series D Holders, and any two or more of SIP, Greylock and Cahill shall determine the vote of SIP, Greylock and Cahill with respect to their Series D Preferred Stock. 19. Conflicting Provisions. Except for Sections 1.5 and 4 hereof, any ---------------------- provision contained in the Company's Articles of Incorporation or By-laws which conflicts with any provisions of this Agreement, shall govern and control. 20. Severability. If any provision of this Agreement is held to be ------------ illegal, invalid or unenforceable under present or future laws effective during the term hereof, such provisions shall be fully severable and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision never comprised a part hereof; and the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance here from. Furthermore, in lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as part of this Agreement, a provision as similar in its terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. 21. Amendment to 1993 Securities Purchase Agreement. The 1993 Securities ----------------------------------------------- Purchase Agreement is hereby amended as follows: Section 7.1, 7.2, 7.5, 7.7, 7.8, 7.9 and 7.10 are hereby deleted in their entirety. 22. Termination of 1993 Shareholder Agreement. The 1993 Shareholder ----------------------------------------- Agreement is hereby terminated and superseded by this Agreement with respect to each party as of the date such party executes this Agreement. 23. Amendment to Certain Subordinated Note Agreements. Each of those Sub ------------------------------------------------- Debt Agreements executed by the Company and the holders of Subordinated Debt is hereby amended by deleting the words "as part of the unit in which they are purchased hereunder and then" from the first sentence of Section 7(a) thereof. [Signature pages follow] 23

AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT SIGNATURE PAGE IN WITNESS WHEREOF, the parties have executed this Agreement as of the date hereinabove set forth. THE COMPANY: CENTENE CORPORATION By: /s/ Michael F. Neidorff -------------------------- Name: Michael F. Neidorff Title: Chief Executive Officer and President [Shareholder signatures appear on subsequent pages]

SHAREHOLDERS: CAHILL, WARNOCK STRATEGIC PARTNERS FUND, L.P. By: CAHILL WARNOCK STRATEGIC PARTNERS, L.P., its General Partner By: /s/ Edward Cahill ----------------------------------- Name: Edward Cahill Title: a General Partner STRATEGIC ASSOCIATES, L.P. By: CAHILL, WARNOCK & COMPANY, LLC, its General Partner By: /s/ Edward Cahill ----------------------------------- Name: Edward Cahill Title: Managing Member STRATEGIC INVESTMENT PARTNERS LTD. By: /s/ Michael Neus ------------------------------------ Name: Michael Neus Title: Attorney-in-Fact GREYLOCK LIMITED PARTNERSHIP By: ____________________________________ Name: Howard E. Cox, Jr. Title: a General Partner

SHAREHOLDERS: CAHILL, WARNOCK STRATEGIC PARTNERS FUND, L.P. By: CAHILL WARNOCK STRATEGIC PARTNERS, L.P., its General Partner By: ___________________________________ Name: Edward Cahill Title: a General Partner STRATEGIC ASSOCIATES, L.P. By: CAHILL, WARNOCK & COMPANY, LLC, its General Partner By: ___________________________________ Name: Edward Cahill Title: Managing Member STRATEGIC INVESTMENT PARTNERS LTD. By: ___________________________________ Name: Michael Neus Title: Attorney-in-Fact GREYLOCK LIMITED PARTNERSHIP By: /s/ Howard E. Cox, Jr. ----------------------------------- Name: Howard E. Cox, Jr. Title: a General Partner

/s/ Samuel E. Bradt /s/ Nancy B. Bradt ---------------------------------- ------------------------------------ Samuel E. Bradt Nancy B. Bradt, his spouse /s/ Raymond C. Brinn /s/ Charlotte Brinn ---------------------------------- ------------------------------------ Raymond C. Brinn Charlotte Brinn, his spouse D.L. ASSOCIATES By: /s/ Illegible ------------------------------ authorized officer /s/ Patrick T. Flanagan /s/ Karen Flanagan ---------------------------------- ------------------------------------ Patrick T. Flanagan Karen Flanagan, his spouse /s/ Jerome M. Fritsch /s/ Jane Ann Fritsch ---------------------------------- ------------------------------------ Jerome M. Fritsch Jane Ann Fritsch, his spouse /s/ Thomas M. Gazzana /s/ Nancy A. Gazzana ---------------------------------- ------------------------------------ Thomas M. Gazzana Nancy A. Gazzana, his spouse /s/ Michael H. Guns ---------------------------------- Michael H. Guns /s/ Dr. Edward Hutt /s/ Diane Hutt ---------------------------------- ------------------------------------ Dr. Edward Hutt Diane Hutt, his spouse /s/ Robert J. Johannes /s/ Christine J. Johannes ---------------------------------- ------------------------------------ Robert J. Johannes Christine J. Johannes his spouse /s/ Claire W. Johnson /s/ Majorie Johnson ---------------------------------- ------------------------------------ Claire W. Johnson Majorie Johnson, his spouse

/s/ William P. Jollie /s/ Joanie Ouellette, ------------------------------------ ------------------------------------ William P. Jollie Joanie Ouellette, his spouse Marshall & Ilsley Trust Company for Michael, Best & Friedrich Retirement Plan, F/B/O Tracey L. Klein By: /s/ Illegible -------------------------------- authorized officer /s/ Elaine E. Laverenz /s/ Mark Laverenz ------------------------------------ ------------------------------------ Elaine E. Laverenz Mark Laverenz, her spouse MANAGED HEALTH SERVICES, INC. By: /s/ Richard Weiderhold, President -------------------------------- authorized officer /s/ Michael F. Neidorff /s/ Noemi K. Neidorff ------------------------------------ ------------------------------------ Michael F. Neidorff Noemi K. Neidorff, his spouse /s/ Thomas 0. Pyle ------------------------------------ Thomas 0. Pyle /s/ Suzanne Ring-Wagner /s/ Leo Wagner ------------------------------------ ------------------------------------ Suzanne Ring-Wagner Leo Wagner, her spouse /s/ Leon K. Rusch /s/ Constance Bliss-Rusch ------------------------------------ ------------------------------------ Leon K. Rusch Constance Bliss-Rusch, his spouse /s/ Kathleen A. Tordik /s/ Christopher J. Tordik ------------------------------------ ------------------------------------ Kathleen A. Tordik Christopher J. Tordik, her spouse

/s/Sandra S. Tunis /s/Ronald E. Tunis, ---------------------------------- --------------------------------------- Sandra S. Tunis Ronald E. Tunis, her spouse /s/ Richard P. Weiderhold /s/ Barbra A. Weiderhold ---------------------------------- --------------------------------------- Richard P. Weiderhold Barbra A. Weiderhold, his spouse

Exhibit 10.1 STOCK PURCHASE AND RECAPITALIZATION AGREEMENT --------------------------------------------- This STOCK PURCHASE AND RECAPITALIZATION AGREEMENT (this "Agreement") is made and entered into as of this l0/th/ day of September, 2001, by and among COMMUNITY HEALTH CENTERS NETWORK, L.P., a Texas limited partnership ("CHCN"), SUPERIOR HEALTHPLAN, INC., a Texas corporation ("Superior"), CENTENE CORPORATION, a Wisconsin corporation ("Centene") and TACHC GP, Inc., a Texas corporation ("TACHC"). WHEREAS, pursuant to Sections 11.802 and 11.809 of the Texas Administrative Code (the "Code"), Superior must maintain a certain statutorily required level of net worth (the "Net Worth Requirement"); and WHEREAS, without the investment of additional capital Superior shall be unable to meet the Net Worth Requirement and lawfully operate while paying its debts as they become due; and WHEREAS, Superior desires to obtain from Centene and Centene desires to contribute to Superior additional capital in an aggregate amount necessary for Superior to meet the Net Worth Requirement not to exceed One Million Three Hundred Thousand Dollars ($1,300,000) (such amount being referred to as the "Required Capital") subject to the terms and conditions set forth herein and all in such form and manner as to satisfy the Net Worth Requirement; and WHEREAS, CHCN desires to sell to Centene and Centene desires to purchase from CHCN such number of shares of the Class A Voting Common Stock of Superior as will result in Centene's ownership of ninety percent (90%) of the total issued and outstanding capital stock of Superior (the "Shares") on the terms and subject to the conditions set forth herein; and WHEREAS, TACHC desires to sell to Centene and Centene desires to purchase from TACHC that certain Amended Term Note (the "Term Note") in the original principal amount of Two Hundred Sixty Thousand Dollars ($260,000) (which such principal amount is currently One Hundred Sixty Thousand Dollars ($160,000)) made by Superior to TACHC, dated February 17, 1997 on the terms and subject to the conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing recitals, the mutual covenants contained herein and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE 1 --------- SUBORDINATED LOAN ----------------- 1.1 Loan Transaction. Simultaneously with the execution hereof, Centene ---------------- shall loan to Superior the Required Capital (the "Second Subordinated Loan"). The Second Subordinated Loan shall be evidenced by a subordinated promissory note (the "Second Subordinated Note"), in the form as attached hereto as Exhibit ------- A, which Superior shall execute and deliver to Centene simultaneously with the - execution hereof.

1.2 Priority. The parties hereto covenant and agree that the -------- obligations of Superior with respect to any payment of principal, interest or other amounts payable with respect to any debts owed by Superior to Centene other than the Second Subordinated Loan (the "Prior Debt") are and shall be subordinate, subject to this Section 1.2, in right of payment and subject to the prior payment or provision for payment in full of all principal, interest or other amounts payable with respect to the Second Subordinated Loan, and all amendments, renewals, extensions and refundings of the Second Subordinated Loan. No payment shall be made by Superior on the Prior Debt until all principal, interest and other amounts due Centene on the Second Subordinated Loan shall first be irrevocably paid in full, or such payment duly provided for in cash or in a manner satisfactory to the holder of the Second Subordinated Loan. This Section 1.2 shall not operate to waive, cancel or amend any of the obligations of Superior under the Prior Debt. 1.3 Loan Deliveries. Simultaneously with the execution hereof, Centene --------------- and CHCN shall execute, cause to be executed by the directors of Superior, and deliver a joint unanimous written consent of the board of directors and shareholders of Superior in the form as attached hereto as Exhibit B (the "Loan --------- Consent"), which, among other things shall approve this Agreement and the Second Subordinated Loan. ARTICLE 2 --------- PURCHASE OF SHARES ------------------ 2.1 Stock Purchase. At the Purchase Closing (as defined in Section 4.1) -------------- ----------- Centene shall purchase from CHCN and CHCN will sell and transfer to Centene the Shares (the "Stock Purchase") the number of which shall be five hundred ten (510) or such other number of shares of capital stock of Superior owned by CHCN as will result in Centene's ownership of ninety percent (90%) of the total issued and outstanding capital stock of Superior. The purchase price for the Shares shall be Two Hundred Ninety Thousand Dollars ($290,000), which amount Centene shall pay in full in immediately available funds in the form of a check or wire transfer payable to the accounts specified by CHCN. 2.2 Delivery Obligation. At the Purchase Closing, CHCN shall deliver to ------------------- Centene certificates evidencing the Shares, duly endorsed or accompanied by properly executed stock powers. 2.3 Representations and Warranties With Respect to Stock Purchase. ------------------------------------------------------------- (a) Upon delivery of the stock certificates evidencing the Shares duly endorsed for transfer or accompanied by stock powers duly executed in blank, Centene will be the record and beneficial owner of the Shares free and clear from any and all charges, claims, liens, options, pledges, security interests or restrictions of any kind, except for those contained in the Pledge Agreement (as defined in Section 6.6) and the Shareholders Agreement (as defined ----------- in Section 6.3). No transfer, documentary or other tax is applicable to the sale ----------- of Shares pursuant to this Agreement. 2

(b) CHCN owns free and clear of all encumbrances, except the lien arising from the Pledge Agreement, six hundred ten (610) shares of Superior's Class A Voting Common Stock and such shares constitute all of the capital stock of Superior owned by CHCN. ARTICLE 3 --------- PURCHASE OF NOTE ---------------- 3.1 Note Purchase. At the Purchase Closing, Centene shall purchase from ------------- TACHC and TACHC will sell and transfer to Centene the Term Note, and all rights it may have under the Term Note ("Note Rights"), including, without limitation, the right to collect any outstanding but unpaid interest (the "Note Purchase"). The purchase price for the Term Note and the Note Rights (the "Note Purchase Price") shall be One Hundred Sixty Thousand Dollars ($160,000) which amount Centene shall pay in full in immediately available funds in the form of a check or wire transfer payable to the accounts specified by CHCN. 3.2 Delivery Obligations; Release. At the Purchase Closing, TACHC shall ----------------------------- deliver to Centene the Term Note, duly endorsed, and Superior and Centene shall thereby be released from further obligation to TACHC with respect to any principal or interest owing on the Term Note. ARTICLE 4 --------- PURCHASE CLOSING ---------------- 4.1 Purchase Closing. The closing (the "Purchase Closing") of the Stock ---------------- Purchase and Note Purchase shall occur at the offices of Greensfelder, Hemker & Gale, P.C., St. Louis, Missouri, at 10:00 a.m., local time on the tenth (10/th/) business day after the earlier of (i) the satisfaction of the conditions precedent as set forth below in Section 4.2(a) or (ii) written notice to -------------- Superior that Centene has waived a condition precedent pursuant to Section ------- 4.2(b). ------- 4.2 Conditions Precedent. -------------------- (a) Centene shall have no obligation to close either the Stock Purchase or the Note Purchase unless: (i) Approval by TDI shall have been granted. For purposes of this Article, "Approval" shall mean notice from TDI of either the waiver of TDI's Form A filing requirements, or the approval by TDI of Superior's Form A application with respect to the Stock Purchase and the amendments to Superior's corporate instruments contemplated in Section 4.3; and ------------ (ii) CHCN delivers the Provider Agreements as required by Section 6.1 and the items specified in Section 4.4. ----------- ----------- (b) At any time, Centene may elect in its sole discretion to waive the condition precedent set forth in Section 4.2(a)(ii) and proceed to the ------------------ close the Stock Purchase and the Note Purchase.

4.3 Purchase Consent. At the Purchase Closing, Centene and CHCN shall ---------------- execute, cause to be executed by the directors of Superior, and deliver a joint unanimous written consent of the board of directors and shareholders of Superior, in the form as attached hereto as Exhibit C (the "Purchase --------- Consent"), which, among other things, shall provide for the following: (a) amending and restating the Articles of Incorporation of Superior in the form as attached hereto as Exhibit D (the "Restated --------- Articles"), which such amendments shall eliminate provisions for the election of Directors of Superior and shall provide that such elections shall be governed by the provisions in the By-Law's of Superior; (b) reconstituting the Board of Directors of Superior so that (i) Ernesto Gomez and Jose Comacho shall be elected as Class A Directors and (ii) Elena Marin, Salvador Balcorta, Michael Niedorff, Robert Packman, Joseph Drozda, Karey Witty, Irene Armendariz shall be elected as Class B Directors; (c) converting the Shares into a like number of shares of the Class B Voting Common Stock of Superior; (d) amending and restating the By-laws of Superior in the form as attached hereto as Exhibit E (the "Restated By-Laws"), which such --------- amendments, among other things, shall (i) eliminate any existing requirements for a "Supermajority Vote" (as such term has been defined in Superior's By-Laws currently in force); provided, however, that Superior may not approve any amendments to any Provider Agreements (as defined in Section 6.1) or the ----------- Products or the Provider Manuals contemplated by such Provider Agreements without the vote of at least (x) a majority of Class A Directors and (y) a majority of Class B Directors (a "Class Majority Vote") and that Superior may not amend the forgoing provision of the Restated By-Laws without a Class Majority Vote; (ii) increase the number of Class B Directors (as defined therein) to seven (7) and decrease the number of Class A Directors (as defined therein) to two (2); (iii) provide that the President of Superior shall be a Class B Director; and (iv) make certain amendments to the structure of committees of the Board of Directors. (e) accepting the resignation of Mr. Jose Camacho as President of Superior and electing Michael Neidorff as President of Superior. 4.4 Closing Deliveries and Filings. At the Purchase Closing, Superior ------------------------------ shall exchange the Shares purchased from CHCN for newly issued shares of Superior's Class B Common Stock and Superior shall cause the Restated By-Laws to be entered into its minute books, and the Restated Articles to be filed with the Secretary of State of Texas, and shall deliver 4

to Centene a copy of the Purchase Consent, certified by Superior's Secretary, and the Model Agreements as required by Section 6.1. ----------- 4.5 Denial of Approval. Upon the receipt by any party of final written ------------------ notice from TDI that Approval for the Purchase Transactions will not be granted, (a) all obligations of the parties with respect to the Purchase Transactions shall immediately terminate and (b) Centene, Superior and CHCN shall take all necessary steps to ensure that the composition of Superior's Board of Directors and Superior's by-laws and articles of incorporation comply with all applicable law and the requirements of TDI. 4.6 Duty to Cooperate. Centene, Superior and CHCN shall each cooperate ----------------- with the others, execute and deliver any and all documents, agreements, and submissions and do such further acts as may be required to obtain Approval, including, without limitation, the filing with TDI of such forms, documents and other information as requested or required by TDI. ARTICLE 5 --------- EXCHANGE OR CONTINGENT PURCHASE OF CHCN INTEREST IN SUPERIOR ------------------------------------------------------------ 5.1 Exchange or Contingent Purchase. Subject to the fulfillment of the ------------------------------- conditions set forth in Section 5.5, in the event of an Initial Public ----------- Offering by Centene, as hereinafter defined, at CHCN's option (x) one hundred (100) shares (the "Exchange Shares") of the capital stock of Superior, which shall be free and clear of all liens and encumbrances except as contemplated hereby, shall be exchanged (the "Exchange") for such number of shares of Centene as shall be determined by the formula in paragraph (a) immediately following (such shares being referred to as the "Centene Shares"), or (y) CHCN may sell to Centene and Centene shall purchase from CHCN the Exchange Shares for One Hundred Thousand Dollars ($l00,000.00) on the terms and conditions set forth in Section 5.4. The Exchange shall be governed by the following terms ----------- and conditions: (a) The number of Centene Shares issued to CHCN pursuant to the Exchange shall equal One Hundred Thousand Dollars ($100,000) divided by the IPO Price. For purposes of the preceding sentence, the IPO Price (i) in the event of an Initial Public Offering as contemplated by Section 5.2(a), shall equal the price to the public of the -------------- shares sold in such Initial Public Offering; and (ii) in the event of an Initial Public Offering as contemplated by Section 5.2(b), shall equal (x) the closing price on a -------------- national securities exchange or in the "national market" segment of NASDAQ of the publicly traded shares of Centene on the first day that such shares of Centene are traded on a national securities exchange or in the "national market" segment of NASDAQ or (y) the average of the bid and ask prices for the publicly traded shares of Centene on the first day that such shares of Centene are tracked other than on a national securities exchange or in the "national market" segment of NASDAQ. (iii) in the event of an Initial Public Offering as contemplated by Section 5.2(c), shall equal (x) the closing price of the publicly traded securities received by the 5

holders of the Centene common stock on the date of issuance of such securities to the holders of Centene common stock or (y) the average of the bid and ask prices for the publicly traded securities issued to the holders of the Centene common stock on the date of issuance of such securities if such securities are traded other than on a national securities exchange or in the "national market" segment of NASDAQ. (b) Within ten (10) days after the closing of the Initial Public Offering, Centene shall inform CHCN in writing of the IPO Price (the "Price Notification"). In the event of a dispute between Centene and CHCN regarding the IPO Price, the written statement of the IPO Price provided by the underwriter of the Initial Public Offering (the "Final Determination") shall constitute the final and conclusive determination of the IPO Price. (c) Within ten (10) days of CHCN's receipt of the Price Notification or the Final Determination, as applicable, CHCN shall deliver to the Secretary of Centene (or other duly elected officer) (i) a duly executed Stock Exchange Agreement, in the form as attached hereto as Exhibit F (the --------- "Stock Exchange Agreement") and (ii) a certificate(s) evidencing the Exchange Shares, duly endorsed. (d) Pursuant to the terms of the Stock Exchange Agreement, Centene shall issue and deliver to CHCN a stock certificate evidencing the Centene Shares. (e) Upon the Exchange, Centene shall grant to CHCN the one time option (the "Put Option"), to be exercised prior to the expiration of the Rule 144 Holding Period, as defined below, to sell all of the Centene Shares to Centene as follows: (i) If CHCN desires to exercise the Put Option, CHCN shall deliver written notice thereof (the "Put Notice") to Centene. The price at which the Centene Shares shall be sold pursuant to the Put Option shall be the closing price on a national securities exchange or in the "national market" segment of NASDAQ of the publicly traded shares of Centene on the last full trading day prior to the receipt by Centene of such notice. The sale and purchase of the Centene Shares pursuant to the Put shall be consummated as provided in clause (ii) immediately following. (ii) The consummation of the sale and purchase pursuant to the Put shall occur within thirty (30) days after the delivery of the Put Notice, but not prior to one hundred eighty (180) days after the closing of the Initial Public Offering, and simultaneously with the execution by and between Centene and CHCN of an agreement containing, among other terms and conditions, terms and conditions substantially similar to those of Articles 2 and 4 hereof, as well as such other terms and conditions as Centene may reasonably require for purposes of complying with all federal and state securities laws, any requirements imposed by TDI and/or any other legal or business requirements. (f) CHCN acknowledges that Centene shall be under no obligation to register shares of its common capital stock for resale and that as a result neither the Exchange Shares nor the Centene Shares may be sold, assigned or transferred unless an exemption is available under the Securities Act of 1933. CHCN understands that in order for the Centene Shares to be sold in reliance upon the exemption provided by Rule 144 under the Securities Act of 1933 the Centene Shares must be held for a period of one year prior to any sale (the "Rule 144 6

Holding Period") and that in the succeeding twelve month period the terms of such rule may limit the volume and manner in which the Centene Shares are sold and require notice of sale to the Securities and Exchange Commission. 5.2 Initial Public Offering. For purposes of the foregoing, "Initial ----------------------- Public Offering" shall mean: (4) The closing of an underwritten public offering of the common capital stock of Centene pursuant to an effective registration statement under the Securities Act of 1933 having an aggregate price to the public of not less than $lO,OOO,OOO; or (b) The date upon which the common capital stock of Centene is registered as a security under Section 12 of the Securities Exchange Act of 1934 and such security is either traded on a national securities exchange or in the "national market" segment of NASDAQ or otherwise publicly traded; or (c) The date upon which the common capital stock of Centene is exchanged for or converted into a security registered under Section 12 of the Securities Exchange Act of 1934 and such security is either traded on a national securities exchange or in the "national market" segment of NASDAQ or otherwise publicly traded. 5.3 Exchange or Contingent Purchase Conducted Pursuant to Securities ---------------------------------------------------------------- Law Exemption. CHCN acknowledges that upon the occurrence of the Exchange or ------------- Contingent Purchase, such issuance and purchase or exchange shall not be registered under the Securities Act of 1933 in the reliance by Centene on one or more exemptions from such act's registration requirements. CHCN agrees to provide such supporting representations as Centene may reasonably request to assure compliance with such exemptions. 5.4 Contingent Purchase. In the event that (a) an Initial Public -------------------- Offering occurs and CHCN elects to sell the Exchange Shares to Centene pursuant to Section 5.1 or (b) an Initial Public Offering fails to have occurred prior ----------- to the fourth anniversary hereof, then, subject to the fulflllment of the conditions in Section 5.5, Centene shall purchase the Exchange Shares for One ----------- Hundred Thousand Dollars ($100,000) (the "Contingent Purchase"). The consummation of the Contingent Purchase shall occur within thirty (30) days after the fourth year anniversary hereof or, at CHCN's election, the Initial Public Offering, as appropriate and, in either case, simultaneously with the execution by and between Centene and CHCN of an agreement containing, among other terms and conditions, terms and conditions substantially similar to those of Articles 2 hereof, as well as such other terms and conditions as Centene may reasonably require for purposes of complying with all federal and state securities laws, any requirements imposed by TDI and/or any other legal requirements. 5.5 Condition Precedent of Exchange and/or Contingent Purchase. ---------------------------------------------------------- Centene shall have no obligation to consummate the Exchange or the Contingent Purchase if CHCN or any of CHCN's affiliated clinics oppose the introduction of managed care into the Valley Region or fail to comply with the provisions of this Agreement or the Provider Agreements, as applicable, in all material respects. 7

5.6 Reorganization of Centene. In the event that Centene participates ------------------------- in any merger, exchange, consolidation, reorganization or similar transaction where the common capital stock of Centene is exchanged or converted into securities of another issuer, the reference herein to Centene Shares shall be deemed to refer to such securities of any successor or parent company of Centene. ARTICLE 6 --------- ADDITIONAL COVENANTS -------------------- 6.1 Model Provider Agreement. Prior to the Purchase Closing, CHCN ------------------------ shall deliver to all of its affiliated clinics a model provider agreement in the form as attached hereto as Exhibit G (the "Provider Agreements"). The Purchase --------- Closing shall be subject to the delivery to Centene of such executed Provider Agreements from the affiliated clinics in the El Paso Region, San Antonio/Austin Region and the Valley Region; provided, however, that: (a) Regions with Mandatory Medicaid Managed Care. Model Provider -------------------------------------------- Agreements executed by CHCN affiliated clinics which operate in regions in which mandatory Medicaid managed care contracts have been approved by the Texas Department of Health and which currently are parties to any agreement or arrangement with a health maintenance organization or medical plan which competes against Superior, including without limitation, affiliated clinics in the San Antonio/Austin Region (as defined in Appendix 1 hereto), shall include Exhibits 4 and 5 in the form as attached hereto as Exhibit H. --------- (b) Regions With No Mandatory Managed Care. Model Provider -------------------------------------- Agreements executed by CHCN affiliated clinics located in regions in which mandatory Medicaid managed care has not currently been approved by the Texas Department of Health, including without limitation the Valley Region (as defined in Appendix 1 hereto), shall include Exhibits 4 and 5 in the form as attached hereto as Exhibit I. --------- (c) All Other Regions. Model Provider Agreements executed by ----------------- CHCN affiliated clinics located in all regions other than those set forth in subsections 6.1(a) and (b) shall include Exhibits 4 and 5 in the form as attached hereto as Exhibit J. --------- 6.2 Master Agreement. That certain Master Agreement, by and among ---------------- TACHC, Centene, Superior, CHCN, et al., (the "Master Agreement") shall be terminated pursuant to Section 7.1 (a) thereof effective at the Purchase --------------- Closing. 6.3 Shareholders Agreement. That certain Shareholders Agreement by ---------------------- and among the parties hereto, dated December 1997, shall be terminated effective at the Purchase Closing at which time the parties shall deliver an executed Amended and Restated Shareholders Agreement in the form as attached hereto as Exhibit K. --------- 6.4 CHCN Exclusivity. ----------------- (a) So long as at all times from the date hereof (i) Centene complies with the provisions of this Agreement in all material respects and (ii) Superior complies with the provisions of the Provider Agreements in all material respects, then from and after the date 8

hereof until the consummation of the Exchange or the Contingent Purchase, as the case may be, CHCN shall not directly or indirectly undertake any activities in the State of Texas, or enter into any arrangement or agreement with any other person, entity or organization that, at the time undertaken or entered into, would compete (or was undertaken or entered into for the purpose of competing) with Superior or any business in which Superior is engaged. Without limiting the generality of the foregoing, this provision expressly prohibits CHCN from: investing in a Texas licensed health maintenance organization ("HMO") that competes with Superior in the Medicaid managed care market or any management company providing management services to such an HMO; by itself or in conjunction with any third party forming, owning, operating, administering, managing and/or controlling any such Texas licensed HMO; and (subject to the terms of the Model Provider Agreements and Centene's waiver of this requirement from time to time as to specific clinic members of CHCN) entering into a provider contract, directly or indirectly, with another Medicaid managed care HMO in the State of Texas. (b) CHCN acknowledges and agrees that the restrictive covenants contained in this Section 6.4, are given in consideration of the Centene's execution of this Agreement and in consideration of, and as a condition to, consummation by Centene of the transactions contemplated hereby. If a court construes any one or more of such provisions to state unreasonable restrictions, then Centene and CHCN request the court to revise such restrictions to make them reasonable and enforceable to the maximum extent permissible. Moreover, if a court construes any one or more of such provisions to state unreasonable restrictions, the validity and enforceability of the remaining provisions shall remain unaffected. (c) CHCN acknowledges that, if CHCN breaches its obligations pursuant to any provisions of this Section 6.4, then Centene will experience ----------- irreparable harm for which money damages will not provide an adequate remedy. Accordingly, Centene shall have the right to injunctive relief to remedy any such breaches. By seeking injunctive relief first, however, Centene shall not make an election of remedies and may pursue an action at law. Centene may seek its legal and equitable remedies either simultaneously or independently, and shall not waive its right to one form of relief by pursuing another. 6.5 Pledge Agreement. At the Purchase Closing, that certain Community ---------------- Health Centers Network, L.P. Security and Pledge Agreement, by and between CHCN and Centene, (the "Pledge Agreement") shall be terminated and any collateral held by Centene under the Pledge Agreement shall be returned to CHCN. 6.6 Further Assurances: Regulatory Compliance. The parties hereto ----------------------------------------- will cooperate with each other and will execute and deliver such further instruments and do such further acts and things as may be required to carry out the intent and purpose of this Agreement, including without limitation (i) the filing with the TDI of such forms, documents and other information and (ii) the taking of any and all other actions as are requested or required by the TDI to obtain the necessary regulatory approval for all of the transactions contemplated hereby. 9

ARTICLE 7 --------- REPRESENTATIONS AND WARRANTIES ------------------------------ Each party hereto represents and warrants that: (a) Such party hereto has full right, power and authority to execute and deliver this Agreement and the documents contemplated hereby, and to perform and comply with all of the terms, covenants and conditions to be performed and complied with by it hereunder. (b) There is no provision in such party's articles of incorporation, bylaws, limited partnership agreement or other governing or organizational document which prohibits or limits such Party's ability to consummate the transactions contemplated hereunder. Such party has the full right, power and authority to enter into this Agreement and to consummate or cause to be consummated all of the transactions and to fulfill all of the obligations contemplated to be consummated or fulfilled by such party hereunder. The execution and delivery of this Agreement by such party and the due consummation by such party of the transactions contemplated to be consummated by such party hereby have been duly authorized by all necessary action of the board of directors, general partner or other governing body or entity of such party. This Agreement constitutes a legal, valid and binding agreement of such party, enforceable against such party in accordance with its terms. (c) There is no litigation or any other legal proceeding pending or, to the knowledge of such party, threatened which challenges the validity of this Agreement or the transactions contemplated hereunder or otherwise seeks to prevent, directly or indirectly, the consummation of such transactions, nor, to the knowledge of such party, is there a valid basis for any such litigation or proceeding. (d) Such party is duly organized, validly existing and in good standing under the laws of its state of organization, with full power and authority to conduct its business as it is now being conducted and to own, lease and operate its properties and assets. ARTICLE 8 --------- GENERAL PROVISIONS ------------------- 8.1 Amendment and Modification. No amendment, modification, supplement, -------------------------- termination, consent or waiver of any provision of this Agreement, nor consent to any departure therefrom, will in any event be effective unless the same is in writing and is signed by the party against whom enforcement of the same is sought. Any waiver of any provision of this Agreement and any consent to any departure from the terms of any provision of this Agreement is to be effective only in the specific instance and for the specific purpose for which given. 8.2 Assignment. No party hereto may assign or transfer any of its rights or ---------- obligations under this Agreement to any other Person without the prior written consent of the other parties and any such assignment shall be null and void. 10

8.3 Captions. Captions or headings contained in this Agreement have been -------- inserted herein only as a matter of convenience and in no way define, limit, extend or describe the scope of this Agreement or the intent of any provision hereof. 8.4 Counterparts. This Agreement may be executed by the parties hereto on ------------ any number of separate counterparts, and all such counterparts so executed constitute one agreement binding on all the parties hereto notwithstauding that all the parties hereto are not signatories to the same counterpart. 8.5 Entire Agreement. This Agreement constitutes the entire agreement among ---------------- the parties hereto pertaining to the subject matter hereof and supersedes all prior agreements, letters of intent, understandings, negotiations and discussions of the parties hereto, whether oral or written. The terms of this Agreement shall govern in the event of any conflict between this Agreement and any prior agreement between the parties hereto. 8.6 Exhibits. All of the Exhibits attached to this Agreement are deemed -------- incorporated herein by reference. 8.7 Failure or Delay. No failure on the part of any party hereto to ---------------- exercise, and no delay in exercising, any right, power or privilege hereunder operates as a waiver thereof; nor does any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof, or the exercise of any other right, power or privilege. No notice to or demand on any party hereto in any case entitles such party to any other or further notice or demand in similar or other circumstances, unless required under this Agreement. 8.8 Governing Law. This Agreement and the rights and obligations of the ------------- parties hereunder are to be governed by and construed and interpreted in accordance with the laws of the State of Texas. 8.9 Notices. All notices, consents, requests, demands and other ------- communications hereunder are to be in writing, and are deemed to have been duly given or made: (i) when delivered in person, (ii) three (3) days after deposited in the United States mail, first class postage prepaid, (iii) in the case of telegraph or overnight courier services, one (1) Business Day after delivery to the telegraph company or overnight courier service with payment provided or (iv) in the case of telex or telecopy or fax, when sent, verification received, in each case addressed as follows: If to Centene: ------------- Centene Corporation 7711 Carondelet, Suite 600 St. Louis, MO 63105 Attn: Mr. Michael F. Neidorff Fax No.: (314) 725-5180 With a copy to: -------------- Greensfelder, Hemker & Gale, P.C. 11

10 South Broadway Suite 2000 St. Louis, Missouri 63102 Attn: Mr. David M. Harris Fax No.: (314) 241-8624 If to CHCN: ---------- Community Health Centers Network, L.P. 2301 South Capital of Texas Highway, Bldg. H Austin, TX 78746 Attn: Mr. Jose Camacho Fax No.: (512) 329-9189 With a copy to: -------------- Akin, Gump, Strauss, Hauer & Feld, L.L.P. 1700 Pacific Avenue, Suite 4100 Dallas, Texas 75201 Attn: Terry M. Schpok, P.C. Fax No.: (214) 969-4343 If to Superior: -------------- 2301 South Capital of Texas Highway, Bldg. H Austin, TX 78746 Attn: President Fax No.: (512) 329-9189 or to such other address or fax number as any party hereto may designate by notice to the other parties in accordance with the terms of this Section. 8.10 Severability. In the event that any provision of this Agreement is ------------ invalid or unenforceable, such invalid or unenforceable provision shall not invalidate or affect the other provisions of this Agreement which shall remain in effect and be construed as if such provision were not a part hereof. 8.11 Successors and Assigns. All provisions of this Agreement are binding ---------------------- upon, inure to the benefit of and are enforceable by or against the Parties hereto and their respective heirs, executors, administrators or other legal representatives and permitted successors and assigns. 8.12 No Third-Party Beneficiary. This Agreement is solely for the benefit -------------------------- of the parties hereto and their respective successors and permitted assigns, and no other Person has any right, benefit, priority or interest under, or because of the existence of, this Agreement. 8.13 Prevailing Party. In any action to enforce this Agreement, the court ---------------- or arbitrator shall award attorneys' fees and costs to the prevailing party. The court or arbitrator shall make a 12

specific finding as to which party is the prevailing party on the basis of the evidence presented and the relief granted. [The remainder of this page has been intentionally left blank.] 13

IN WITNESS WHEREOF, the parties hereto have executed this Recapitalization Agreement as of the date first above written. SUPERIOR HEALTHPLAN, INC. CENTENE CORPORATION By: /s/ Jose Camacho By: /s/ Michael Neidorff --------------------------------------- ------------------------------ Mr. Jose Camacho, President Mr. Michael Neidorff, President & CEO COMMUNITY HEALTH CENTERS TACHC GP, INC., NETWORK, L.P. By: TACHC GP, Inc., its General Partner By: /s/ Jose Camacho ------------------------------ Mr. Jose Camacho, President By: /s/ Jose Camacho --------------------------------------- Mr. Jose Camacho, President Signature Page

================================================================================ EXHIBIT 10.2 JANUARY 2000 - DECEMBER 2001 Contract for Medicaid/BadgerCare HMO Services Between HMO And Wisconsin Department of Health and Family Services ================================================================================

TABLE OF CONTENTS ----------------- Page No. ------- ARTICLE I............................................................................................... 1 I DEFINITIONS................................................................................... 1 ARTICLE II.............................................................................................. 7 II. DELEGATIONS OF AUTHORITY...................................................................... 7 ARTICLE III............................................................................................. 7 III. FUNCTIONS AND DUTIES OF THE HMO............................................................... 7 A. Statutory Requirement........................................................ 7 B. Provision of Contract Services............................................... 8 C. Time Limit for Decision on Certain Referrals................................. 18 D. Emergency Care............................................................... 18 E. 24-Hour Coverage............................................................. 19 F. Thirty Day Payment Requirement............................................... 20 G. HMO Claim Retrieval System................................................... 20 H. Appeals to the Department for HMO Payment/Denial of Providers................ 20 I. Payments for Diagnosis of Whether an Emergency Condition Exists.............. 22 J. Memoranda of Understanding for Emergency Services............................ 22 K. Provision of Services........................................................ 22 L. Open Enrollment.............................................................. 23 M. Pre-Existing Conditions...................................................... 23 N. Hospitalization at the Time of Enrollment or Disenroliment................... 23 0. Non-Discrimination........................................................... 24 P. Affirmative Action Plan...................................................... 24 Q. Cultural Competency.......................................................... 25 R. Health Education and Prevention.............................................. 26 S. Enrollee Handbook and Education and Outreach for Newly Enrolled Recipients................................................................... 27 T. Approval of Marketing Plans and Informing Materials.......................... 29 U. Conversion Privileges........................................................ 31 V. Choice of Health Professional................................................ 31 W. Quality Assessment/Performance Improvement (QAPI)............................ 31 X. Access to Premises........................................................... 52 Y. Subcontracts................................................................. 52 Z.. Compliance with Applicable Laws, Rules or Regulations........................ 52 AA. Use of Providers Certified By Medicaid Program............................... 52 DD. Coordination and Continuation of Care........................................ 54 FE. HMO ID Cards................................................................. 54 FF. Federally Qualified Health Centers and Rural Health Centers (FQHCS and RHCS)............................................................. 54 HMO Contract for January 1, 2000 - December 31, 2001 i

Page No. ------- GG. Coordination with Prenatal Care Services, School-Based Services, Targeted Case Management Services, a Child Welfare Agencies, and Dental Managed Care Organizations............................................ 55 HH. Physician Incentive Plans.................................................... 57 II. Advance Directives........................................................... 57 JJ. Ineligible Organizations..................................................... 58 KK. Clinical Laboratory Improvement Amendments................................... 60 LL. Limitation on Fertility Enhancing Drugs...................................... 60 MM. Reporting of Communicable Diseases........................................... 60 NN. MedicaBadgerCareare HMO Advocate Requirements................................ 61 00. HMO Designation of Staff Person as Contract Representative................... 64 PP. Subcontracts with Local Health Departments................................... 64 QQ. Subcontracts with Community-Based Health Organizations....................... 65 RR. Prescription Drugs........................................................... 65 ARTICLE IV.............................................................................................. 65 IV. FUNCTIONS AND DUTIES OF THE DEPARTMENT................................................. 65 A. Eligibility Determination.................................................... 65 B. Enrollment................................................................... 67 C. Disenroliment................................................................ 67 D. HMO Enrollment Reports....................................................... 67 E. Utilization Review and Control............................................... 68 F. HMO Review................................................................... 68 G. HMO Review of Study or Audit Results......................................... 68 H. Vaccines..................................................................... 68 I. Coordination of Benefits..................................................... 68 J. Wisconsin Medicaid Provider Reports.......................................... 69 ARTICLE V............................................................................................... 69 V. PAYMENT TO THE HMO..................................................................... 69 A. Capitation Rates............................................................. 69 B. Actuarial Basis.............................................................. 69 C. Renegotiation................................................................ 69 D. Reinsurance.................................................................. 69 E. Neonatal Intensive Care Unit Risk-Sharing.................................... 70 F. Payment Schedule............................................................. 71 G. Capitation Payments For Newborns............................................. 71 H. Cordination of Benefits (COB)................................................ 72 I. Recoupments.................................................................. 74 J. HealthCheck Recoupment....................................................... 75 K. Payment for Aids, HIV-Positive, and Ventilator Dependent..................... 76 HMO Contract for January 1, 2000 - December 31, 2001 ii

Page No. -------- ARTICLE VI...................................................................................... 78 VI. REPORTS, DATA, AND COMPUTER/DATA REPORTING SYSTEM..................................... 78 A. Disclosure...................................................................... 78 B. Periodic Reports................................................................ 79 C. Access to and Audit of Contract Records......................................... 80 D. Records Retention............................................................... 80 E. Special Reporting and Compliance Requirements................................... 80 F. Reporting of Corporate and Other Changes........................................ 81 G. Computer/Data Reporting System.................................................. 81 ARTICLE VII...................................................................................... 83 VII. ENROLLMENT AND DISENROLLMENTS......................................................... 83 A. Enrollment...................................................................... 83 B. Third Trimester Pregnancy Disenrollment......................................... 83 C. Ninth Month Pregnancy Disenrollment............................................. 84 D. Exemptions from Enrollment in any HMO and Disenrollment for Patients of Certified Nurse Midwives or Nurse Practitioners..................... 84 F. Exemption from Enrollment in any HMO and Disenrollment For AIDS or HIV-Positive with Anti Retroviral Drug Treatment........................ 84 F. Exemptions from Enrollment in any HMO and Disenrollment for Patients of Federally Qualified Health Centers.................................. 85 G. Native American Disenrollment................................................... 85 H. Special Disenrollments.......................................................... 85 I. Exemptions from Enrollment in any HMO and Disenrollment for Recipients With Commercial HMO Insurance or Commercial Insurance With a Restricted Provider Network.................................... 85 J. Exemption from Enrollment in any HMO and Disenrollment for Families Where One or More Members are receiving SSI benefits................... 86 K. Voluntary Disenrollment......................................................... 86 L. Section 1115(A) Waiver and State Plan Amendment................................. 87 M. Additional Services............................................................. 87 N. Enrollment/Disenrollment Practices.............................................. 87 0. Enrollee Lock-In Period......................................................... 87 ARTICLE VIII. ................................................................................... 88 VIII. GRIEVANCE PROCEDURES.................................................................. 88 A. Procedures...................................................................... 88 B. Recipient Appeals of HMO Formal Grievance Decisions............................. 90 C. Notifications of Denial, Termination, Suspension, or Reduction of Benefits to Enrollees........................................................... 90 D. Notifications of Denial of New Benefits to Enrollees............................ 92 HMO Contract for January 1, 2000 - December 31, 2001 -iii-

Page No. ------- ARTICLE IX............................................................................................. 93 IX. REMEDIES FOR VIOLATION, BREACH, OR NON-PERFORMANCE OF CONTRACT............................... 93 A. Suspension of New Enrollment......................................................... 93 B. Department-Initiated Enrollment Reductions........................................... 93 C. Other Enrollment Reductions.......................................................... 93 D. Withholding of Capitation Payments and Orders to Provide Services.................... 94 E. Inappropriate Payment Denials........................................................ 97 F. Sanctions............................................................................ 97 G. Sanctions and Remedial Actions....................................................... 98 ARTICLE X............................................................................................. 98 X. TERMINATION AND MODIFICATION OF CONTRACT..................................................... 98 A. Mutual Consent....................................................................... 98 B. Unilateral Termination............................................................... 98 C. Obligations of Contracting Parties................................................... 99 D. Modification......................................................................... 100 ARTICLE XI............................................................................................. 101 XI. INTERPRETATION OF CONTRACT LANGUAGE.......................................................... 101 A. Interpretations...................................................................... 101 ARTICLE XII............................................................................................ 101 XIII. CONFIDENTIALITY OF RECORDS................................................................... 101 ARTICLE XIII........................................................................................... 102 XIII. DOCUMENTS CONSTITUTING CONTRACT.............................................................. 102 A. Current Documents.................................................................... 102 B. Future Documents..................................................................... 103 ARTICLE XIV............................................................................................ 103 XIV. MISCELLANEOUS................................................................................ 103 A. Indemnification...................................................................... 103 B. Independent Capacity of Contractor................................................... 104 C. Omissions............................................................................ 104 D. Choice of Law........................................................................ 104 E. Waiver............................................................................... 104 F. Severability......................................................................... 104 G. Force Majeure........................................................................ 105 H. Headings............................................................................. 105 I. Assignability........................................................................ 105 J. Right to Publish..................................................................... 105 K. Year 2000 Compliance................................................................. 105 HMO Contract for January 1, 2000 - December 31, 2001 -iv-

Page No. ------- ARTICLE XV................................................................................................... 107 XV. HMO SPECIFIC CONTRACT TERMS......................................................................... 107 A. Initial Contract Period....................................................................... 107 B. Renewals...................................................................................... 107 C. Specific Terms of the Contract................................................................ 107 ADDENDUM I................................................................................................... 109 SUBCONTRACTS AND MEMORANDA OF UNDERSTANDING............................................................. 109 ADDENDUM II.................................................................................................. 118 POLICY GUIDELINES FOR MENTAL HEALTH/SUBSTANCE ABUSE AND COMMUNITY HUMAN SERVICE PROGRAMS........................................................................ 118 ADDENDUM III................................................................................................. 125 RISK-SHARING FOR INPATIENT HOSPITAL SERVICES............................................................ 125 ADDENDUM IV.................................................................................................. 128 CONTRACT SPECIFIED REPORTING REQUIREMENTS............................................................... 128 PART A. REPORTS AND DUE DATES......................................................................... 128 PART B. WISCONSIN MEDICAID/BADGERCARE HMO SUMMARY AND ENCOUNTER DATA SET............................................................................ 133 PART C. PROVIDER LIST ON TAPE......................................................................... 135 PART D. REPORTS FOR AIDS AND VENTILATOR DEPENDENT..................................................... 137 ADDENDUM V................................................................................................... 139 STANDARD ENROLLEE HANDBOOK LANGUAGE..................................................................... 139 ADDENDUM VI.................................................................................................. 150 ADDENDUM VII................................................................................................. 151 ACTUARIAL BASIS COB REPORT.............................................................................. 152 ADDENDUM VIII................................................................................................ 153 COMPLIANCE AGREEMENT AFFIRMATIVE ACTION/CIVIL RIGHTS.................................................... 153 ADDENDUM IX.................................................................................................. 156 MODEL MEMORANDUM OF UNDERSTANDING HEALTH MAINTENANCE ORGANIZATION AND PRENATAL CARE COORDINATION AGENCY..................................................................................... 156 ADDENDUM X................................................................................................... 157 MEMORANDUM OF UNDERSTANDING BETWEEN MILWAUKEE COUNTY HMOS AND BUREAU OF MILWAUKEE CHILD WELFARE....................................................... 157 HMO Contract for January 1, 2000 - December 31, 2001 -v-

Page No. ------- ADDENDUM XI............................................................................................. 160 HEALTHCHECK WORKSHEET.............................................................................. 160 ADDENDUM XII............................................................................................ 161 COMMON CARRIER TRANSPORTATION MEMORANDUM OF UNDERSTANDING MILWAUKEE COUNTY MEDICAID/BADGERCARE HMOS AND MILWAUKEE COUNTY DEPARTMENT OF HUMAN SERVICES........................................................................................... 161 ADDENDUM XIII........................................................................................... 163 MODEL MEMORANDUM OF UNDERSTANDING BETWEEN.......................................................... 163 HEALTH MAINTENANCE ORGANIZATION AND SCHOOL DISTRICT OR. CESA MEDICAID-CERTIFIED FOR THE SCHOOL BASED SERVICES BENEFIT............................................................................................ 163 ADDENDUM XIV............................................................................................ 164 GUIDELINES FOR THE COORDINATION OF SERVICES BETWEEN HMOS, TARGETED CASE MANAGEMENT (TCMs) AGENCIES, AND CHILD WELFARE AGENCIES............................................................................. 164 ADDENDUM XV............................................................................................. 167 PERFORMANCE IMPROVEMENT PROJECT OUTLINE............................................................ 167 ADDENDUM XVI............................................................................................ 169 TARGETED PERFORMANCE IMPROVEMENT MEASURES DATA SET................................................. 169 ADDENDUM XVII........................................................................................... 183 MEDICAID/BADGERCARE HMO NEWBORN REPORT............................................................. 183 ADDENDUM XVIII.......................................................................................... 185 RECOMMENDED CHILDHOOD IMMUNIZATION SCHEDULE CDC-ACIP RECOMMENDATIONS, JANUARY-DECEMBER 2000............................................................. 185 ADDENDUM XIX............................................................................................ 185 REPORTING REQUIREMENTS FOR NEONATAL INTENSIVE CARE UNIT RISK-SHARING.................................................................................. 186 ADDENDUM XX............................................................................................. 188 SPECIFIC TERMS OF THE MEDICAID/BADGERCARE HMO CONTRACT........................................................................................... 188 ADDENDUM XXI............................................................................................ 195 FORMAL GRIEVANCE EXPERIENCE SUMMARY REPORT......................................................... 195 HMO Contract for January 1, 2000 - December 31, 2001 -vi-

Page No. ------- ADDENDUM XXII............................................................................................ 196 GUIDELINES FOR THE COORDINATION OF SERVICES BETWEEN MEDICAID HMOS AND COUNTY BIRTH TO THREE (B-3) AGENCIES.............................................. 196 ADDENDUM XXIII........................................................................................... 202 WISCONSIN MEDICAID HMO REPORT ON AVERAGE BIRTH COSTS BY COUNTY..................................................................................... 202 ADDENDUM XXIV............................................................................................ 205 LOCAL HEALTH DEPARTMENTS AND COMMUNITY-BASED HEALTH ORGANIZATIONS A RESOURCE FOR HMOs............................................................ 205 ADDENDUM XXV............................................................................................. 208 GENERAL INFORMATION ABOUT THE WIC PROGRAM, SAMPLE HMO-TO-WIC REFERRAL FORM, AND STATEWIDE LIST OF WIC AGENCIES............................................................................................ 208 HMO Contract for January 1, 2000- December 31, 2001 -vii-

CONTRACT FOR SERVICES Between Department of Health and Family Services and HMO The Wisconsin Department of Health and Family Services and HMO, an insurer with a certificate of authority to do business in Wisconsin, and an organization which makes available to enrolled participants, in consideration of periodic fixed payments, comprehensive health care services provided by providers selected by the organization and who are employees or partners of the organization or who have entered into a referral or contractual arrangement with the organization, for the purpose of providing and paying for Medicaid/Badger Care contract services to recipients enrolled in the HMO under the State of Wisconsin Medicaid Plan approved by the Secretary of the United States Department of Health and Human Services pursuant to the provisions of the Social Security Act and for the further specific purpose of promoting coordination and continuity of preventive health services and other medical care including prenatal care, emergency care, and HealthCheck services, do herewith agree: ARTICLE I I. DEFINITIONS The term "CESA" means Cooperative Educational Service Agencies, which are cooperatives that include multiple school districts that work together for purchasing and other coordinated functions. There are 12 CESAs in Wisconsin. The term "children with special health care needs" means children who have or are at increased risk for chronic physical, developmental, behavioral, or emotional conditions and who also require health and related services of a type or amount beyond that required by children generally and who are enrolled in a Children with Special Health Care Needs program operated by a Local Health Department or a local Title V funded Maternal and Child Health Program. The term "Community Based Health Organizations" means non-profit agencies providing community based health services. These organizations provide important health care services such as HealthCheck screenings, nutritional support, and family planning, targeting such services to high risk populations. HMO Contract for January 1, 2000 - December 31, 2001 -1-

The term "continuing care provider" means (as stated in 42 CFR 441.60(a)) a provider who has an agreement with the Medicaid agency to provide: A. any reports that the Department may reasonably require, and B. at least the following services to eligible HealthCheck recipients formally enrolled with the provider as enumerated in 42 CFR 441.60(a) (1)-(5): 1. screening, diagnosis, treatment, and referrals for follow-up services, 2. maintenance of the recipient's consolidated health history, including information received from other providers, 3. physician's services as needed by the recipient for acute, episodic or chronic illnesses or conditions, 4. provide or refer for dental services, and 5. transportation and scheduling assistance. The term "contract" means the agreements executed between HMOs and the Department to accomplish the duties and functions, in accordance with the rules and arrangements specified in this document. The term "contract services" means those services which the HMO is required to provide under this Contract. The term "contractor" means the HMOs awarded the contracts resulting from the HMO Certification process to provide capitated Managed care in accordance with the Contract. The term "cultural competency" means a set of congruent behaviors, attitudes, practices and policies that are formed within an agency, and among professionals that enable the system, agency, and professionals to work respectfully, effectively and responsibly in diverse situations. Essential elements of cultural competence include understanding diversity issues at work, understanding the dynamic of difference, institutionalizing cultural knowledge, and adapting to and encouraging organizational diversity. The term "Department" means the Wisconsin Department of Health and Family Services. HMO Contract for January 1, 2000 - December 31, 2001 -2-

The term "emergency medical condition" means--- A. A medical condition manifesting itself by acute symptoms of sufficient severity (including severe pain) such that a prudent layperson, who possesses an average knowledge of health and medicine, could reasonably expect the absence of immediate medical attention to result in: 1. placing the health of the individual (or, with respect to a pregnant woman, the health of the woman or her unborn child) in serious jeopardy, 2. serious impairment of bodily functions, or 3. serious dysfunction of any bodily organ or part; or B. With respect to a pregnant woman who is in active labor--- 1. that there is inadequate time to effect a safe transfer to another hospital before delivery; or 2. that transfer may pose a threat to the health or safety of the woman or the unborn child. C. A psychiatric emergency involving a significant risk of serious harm to oneself or others. D. A substance abuse emergency exists if there is significant risk of serious harm to an enrollee or others, or there is likelihood of return to substance abuse without immediate treatment. E. Emergency dental care is defined as an immediate service needed to relieve the patient from pain, an acute infection, swelling, trismus, fever, or trauma. In all emergency situations, the HMO must document in the recipient's dental records the nature of the emergency. The term "encounter" shall include the following: 1. A service or item provided to a patient through the health care system. Examples include but are not limited to: a. Office visits b. Surgical procedures c. Radiology, including professional and/or technical components d. Prescribed drugs e. Durable medical equipment f. Emergency transportation to a hospital HMO Contract for January 1, 2000 - December 31, 2001 -3-

g. Institutional stays (inpatient hospital, rehabilitation stays) h. HealthCheck screens 2. A service or item not directly provided by the HMO, but for which the HMO is financially responsible. An example would include an emergency service provided by an out-of-network provider or facility. 3. A service or item not directly provided by the HMO, and one for which no claim is submitted but for which the HMO may supplement its encounter data set. Such services might include HealthCheck screens for which no claims have been received and if no claim is received, the HMO's medical chart. Examples of services or items the HMO may include are: . HealthCheck services . Lead Screening and Testing . Immunizations 4. The terms "services" or "items" as used above include those services and items not covered by the Wisconsin Medicaid Program, but which the HMO chooses to provide as part of its Medicaid managed care product. Examples include educational services, certain over-the-counter drugs, and delivered meals. The terms "enrollee" and "participant" mean a Medicaid/BadgerCare recipient who has been certified by the State as eligible to enroll under this Contract, and whose name appears on the HMO Enrollment Reports which the Department will transmit to the HMO every month in accordance with an established notification schedule. Children who are reported to the certifying agency within 100 days of birth shall be enrolled in the HMO their mother is enrolled in from their date of birth if the mother was an enrollee on the date of birth. Children who are reported to the certifying agency after the 100th day but before their first birthday may be eligible for Medicaid/BadgerCare on a fee-for-service basis. The term "enrollment area" means the geographic area within which recipients must reside in order to enroll, on a mandatory basis, in the HMO under this Contract. The term "experimental surgery and procedures" means experimental services that meet the definition of HFS 107.035(1) and (2) Wis. Adm. Code. as determined by the Department. The term "formally enrolled with a continuing care provider" (as cited in 42 CFR 441.60(d)) means that a recipient (or recipient's guardian) agrees to use one continuing care provider as the regular source of a described set of services for a stated period of time. HMO Contract for January 1, 2000 - December 31, 2001 -4-

The term "HMO" means the health maintenance organization or its parent corporation with a certificate of authority to do business in Wisconsin, that is obligated under this Contract. The term "HMO Encounter Technical Workgroup" means a workgroup composed of HMO technical staff, contract administrators, claims processing, eligibility, and/or other HMO staff, as necessary; Department staff from the Division of Health Care Financing; and staff from the Department's fiscal agent contractor. The term "encounter record" means an electronically formatted list of encounter data elements per encounter as specified in the Wisconsin Medicaid 2000-2001 HMO Encounter Data User Manual. An encounter record may be prepared from a single detail line from a claim such as the HCFA 1500 or UB-92. The term "Local Health Department" (LHD) means an agency of local government established according to Chapter 251, Wis. Stats. Local health departments have statutory obligation to perform certain core functions: which include assessment, assurance, and policy development for the purpose of protecting and promoting the health of their communities. The term "Medicaid" means the Wisconsin Medical Assistance Program operated by the Wisconsin Department of Health and Family Services under Title XIX of the Federal Social Security Act, Ch. 49, Wis. Stats., and related State and Federal rules and regulations. This will be the term used consistently in this Contract. However, other expressions or words equivalent to Medicaid are "MA," "Medical Assistance," and "WMAP." The term "BadgerCare" means part of the Wisconsin Medical Assistance Program operated by the Wisconsin Department of Health and Family Services under Title XIX and Title XXI of the Federal Social Security Act, s. 49.655, Wis. Stats., and related State and Federal rules and regulations. This term will be used throughout this contract. The term "medical status code" means the two digit (alphanumeric) code that the Department uses in its computer system to define the type of Medicaid eligibility a recipient has: the code identifies the basis of eligibility, whether cash assistance is being provided, and other aspects of Medicaid. The medical status code is listed on the HMO enrollment reports. Please refer to Article IV. A. for a list of HMO eligible medical status codes. The term "medically necessary" means a medical service that meets the definition of HFS 101 .03(96m) Wis. Adm. Code. The term "newborn" means an enrollee who is less than 100 days old. HMO Contract for January 1, 2000 - December 31, 2001 -5-

The term "Post Stabilization Services" means medically necessary non- emergency services furnished to an enrollee after he or she is stabilized following an emergency medical condition. The term "provider" means a person who has been certified by the Department to provide health care services to recipients and to be reimbursed by Medicaid for those services. The term "Public Institution" means an institution that is the responsibility of a governmental unit or over which a governmental unit exercises administrative control as defined by federal regulations. The term "recipient" means any individual entitled to benefits under Title XIX and XXI of the Social Security Act, and under the Medicaid State Plan as defined in Chapter 49, Wis. Stats. The term "risk" means the possibility of monetary loss or gain by the HMO resulting from service costs exceeding or being less than payments made to it by the Department. The term "service area" means an area of the State in which the HMO has agreed to provide Medicaid services to Medicaid enrollees. The Department will monitor enrollment levels of HMOs by the service areas of the HMO, and HMO will indicate whether they will provide dental or chiropractic services by service area. A service area may be as small as a zip code, may be a county, a number of counties, or the entire State. The term "State" means the State of Wisconsin. The term "subcontract" means any written agreement between the HMO and another party to fulfill the requirements of this Contract. However, such term does not include insurance purchased by the HMO to limit its loss with respect to an individual enrollee, provided the HMO assumes some portion of the underwriting risk for providing health care services to that enrollee. The term "Wisconsin Tribal Health Directors Association (WTHDA)" means the coalition of all Wisconsin American Indian Tribal Health Departments. Terms that are not defined above shall have their primary meaning identified in the Wisconsin Administrative Code, Chs. HFS 101-108. HMO Contract for January 1, 2000 - December 31, 2001 -6-

ARTICLE II II. DELEGATIONS OF AUTHORITY The HMO shall oversee and remain accountable for any functions and responsibilities that it delegates to any subcontractor. For all subcontracting or delegation of function or authority: A. There shall be a written agreement that specifies the delegated activities and reporting responsibilities of the subcontractor and provides for revocation of the delegation or imposition of other sanctions if the subcontractor's performance is inadequate. B. Before any delegation, the HMO shall evaluate the prospective subcontractor's ability to perform the activities to be delegated. C. The HMO shall monitor the subcontractor's performance on an ongoing basis and subject the subcontractor to formal review at least once a year. D. If the HMO identifies deficiencies or areas for improvement, the HMO and the subcontractor shall take corrective action. E. If the HMO delegates selection of providers to another entity, the HMO retains the right to approve, suspend, or terminate any provider selected by that entity. ARTICLE III III. FUNCTIONS AND DUTIES OF THE HMO In consideration of the functions and duties of the Department contained in this Contract the HMO shall: A. Statutory Requirement Retain at all times during the period of this Contract a valid Certificate of Authority issued by the State of Wisconsin Office of the Commissioner of Insurance. HMO Contract for January 1, 2000 - December 31, 2001 -7-

B. Provision of Contract Services 1. Promptly provide or arrange for the provision of all services required under s. 49.46(2), Wis. Stats., and HFS 107 Wis. Adm. Code; as further clarified in all Wisconsin Medicaid Program Provider Handbooks and Bulletins, and HMO Contract Interpretation Bulletins (CIBs) and as otherwise specified in this Contract except: a. County Transportation by common carrier or private motor vehicle (except as required in Article III. B (10). HealthCheck). HMOs are required to arrange for transportation for HealthCheck visits. When authorized by the Department, the HMO may provide non-emergency transportation by common carrier or private motor vehicle for HealthCheck visits and be reimbursed by the County. HMOs may negotiate arrangements with local county Departments of Health and Social Services for common carrier or private vehicle transportation for HMO services in general and not just for HealthCheck visits. The Department will facilitate the development of such arrangements between the HMO and the county. HMOs interested in developing a transportation arrangement with one or more counties and interested in Department assistance should contact the following office either by mail or phone: Bureau of Managed Health Care Programs P.O. Box 309 Madison, WI 53701- 0309 Phone Number: (608) 266-7894 or 267-2170 Fax Number: (608) 261-7792 b. Milwaukee County HMOs will provide common carrier transportation to enrollees. Transportation services will be limited to: . Transporting Medicaid/BadgerCare HMO members only. . Transportation of Medicaid/BadgerCare HMO members to and from Medicaid covered services. HMO Contract for January 1, 2000 - December 31, 2001 -8-

The HMO is responsible for arranging for the common carrier transportation and providing monthly costs incurred to Milwaukee County Department of Human Services (DHS), of common carrier transportation arranged. HMO agrees to submit costs to the DHS within 15 days following the end of each month to: Milwaukee County DHS Financial Assistant, Division Administrator 1220 W. Vliet Street Milwaukee, WI 53206 The DHS is responsible for reimbursing the HMO for mileage and an administration fee. The State Department of Health and Family Services reserves the right to adjust these rates. The HMO shall maintain adequate records for each enrollee which include all pertinent and sufficient information relating to common carrier transportation, and make this information readily available to the Department of Health and Family Services (DHFS). HMO agrees to report suspected abuse by enrollees or providers to the DHFS. c. Dental, if Article XV and Addendum XX indicates dental is not covered. d. Prenatal Care Coordination. e. Targeted Case Management. f. School-Based Services. g. Milwaukee Childcare Coordination. h. Tuberculosis-related Services. 2. Cover chiropractic services, or in the alternative, enter into a subcontract for chiropractic services with the State as provided in Article XV. State law mandates coverage. 3. Remain liable for provision of care for that period for which capitation payment has been made in cases where medical status code changes occur subsequent to capitation payment. HMO Contract for January 1, 2000 - December 31, 2001 -9-

4. Be liable, where emergencies and HMO referrals to out-of-area or non-affiliated providers occur, for payment only to the extent that Medicaid pays, including Medicare deductibles, or would pay, its fee-for-service providers for services to the AFDC population. For inpatient hospital services, the Department will provide each HMO per diem rates based on the Medicaid fee-for-service equivalent. This condition does not apply to: (1) cases where prior payment arrangements were established; and (2) specific subcontract agreements. 5. Changes to Medicaid covered services mandated by Federal or State law subsequent to the signing of this Contract will not affect the contract services for the term of this Contract, unless (1) agreed to by mutual consent, or (2) unless the change is necessary to continue to receive federal funds or due to action of a court of law. The Department may incorporate any change in covered services mandated by Federal or State law into the Contract effective the date the law goes into effect, if it adjusts the capitation rate accordingly. The Department will give the HMO 30 days notice of any such change that reflects service increases, and the HMO may elect to accept or reject the service increases for the remainder of that contract year; the Department will give the HMO 60 days notice of any such change that reflects service decreases, with a right of the HMO to dispute the amount of the decrease within that 60 days. The HMO has the right to accept or reject service decreases for the remainder of the Contract year. The date of implementation of the change in coverage will coincide with the effective date of the increased or decreased funding. This section does not limit the Department's ability to modify the Medicaid/HMO Contract for changes in the State Budget. 6. Be responsible for payment of all contract services provided to all Medicaid/BadgerCare recipients listed as ADDs or CONTINUEs on either the Initial or Final Enrollment Reports (see Article IV. B and D) generated for the month of coverage. The HMO is also responsible for payment of services to all newborns meeting the criteria described in Article V. G. "Capitation Payments for Newborns." Additionally, the HMO agrees to provide, or authorize provision of, services to all Medicaid enrollees with valid Forward cards indicating HMO enrollment without regard to disputes about enrollment status and without regard to any other identification requirements. Any discrepancies between the cards and the reports will be reported to the Department for resolution. The HMO shall continue to provide and authorize provision of all contract services until the discrepancy is resolved. This includes recipients who were PENDING on the Initial Report and held a valid Forward card indicating HMO enrollment, but did not appear as an ADD on the Final Report. HMO Contract for January 1, 2000 - December 31, 2001 -10-

7. Transplants: As a general principle, Wisconsin Medicaid does not pay for items that it determines to be experimental in nature. a. Procedures that are covered by Medicaid that are no longer considered experimental are cornea transplants and kidney transplants. HMOs shall cover these services. b. There are other procedures that are approved only at particular institutions, including bone marrow transplants, liver, heart, heart-lung, lung, pancreas-kidney, and pancreas transplants. HMOs need not cover the transplantation because there are no funds in the fee-for-service experience data (and thus in the HMO capitation rates) for these services. This relieves the HMO from paying for expensive follow-up care, as when there are permanent, expensive requirements for drugs or equipment. 1) The person to get the transplant will be permanently exempted from HMO enrollment the date of the transplant surgery. 2) In the case of autologous bone marrow transplants, the person will be permanently exempted from HMO enrollment the date the bone marrow was extracted. c. Enrollees who have had one or more transplant surgeries referenced in 7 b, prior to enrollment in an HMO will be ------------------- permanently exempted the first of the month of their HMO enrollment. 8. Dental Care: HMOs that agree to accept the dental capitation rate for the purpose of covering all Medicaid dental services must: a. Cover all dental services as required under HFS 107.07, provider handbooks, bulletins, and periodic updates. b. Provide diagnostic, preventive, and medically necessary follow-up care to treat the dental disease, illness, injury or disability of enrollees while they are enrolled in an HMO, except as required in sub. (c). HMO Contract for January 1, 2000 - December 31, 2001 -11-

c. Complete orthodontic or prosthodontic treatment begun while an enrollee is enrolled in an HMO if the enrollee becomes ineligible or disenrolls from the HMO, no matter how long the treatment takes. Medicaid/BadgerCare covers such continuing services for fee-for-service recipients and the costs of continuing treatment are included in the fee-for-service payment data on which the HMO capitation rates are based. An HMO will not be required to complete orthodontic or prosthodontic treatment on an enrollee who has begun treatment as a fee-for-service recipient and who subsequently has been enrolled in an HMO. [Refer to the chart following this page of the Contract for the specific details of completion of orthodontic or prosthodontic treatment in these situations.] HMO Contract for January 1, 2000 - December 31, 2001 -12-

RESPONSIBILITY FOR PAYMENT OF ORTHODONTIC & PROSTHODONTIC TREATMENT WHEN THERE IS AN ENROLLMENT STATUS CHANGE DURING THE COURSE OF TREATMENT ------------------------------------------------------------------------------------------------------------------------ Who pays for completion of orthodontic and prosthodontic treatment* where there is an enrollment status change --------------------------------------------------------- First HMO Second HMO Fee-for-Service ------------------------------------------------------------------------------------------------------------------------ Person converts from one status to another: 1. Fee-for-service to an HMO covering dental. N/A X ------------------------------------------------------------------------------------------------------------------------ 2a. HMO covering dental to an HMO not covering dental, and person's residence remains within 50 miles of the X person's residence when in the first HMO. ------------------------------------------------------------------------------------------------------------------------ 2b. HMO covering dental to an HMO not covering dental, and person's residence changes to greater than X 50 miles of the person's residence when in the first HMO. ------------------------------------------------------------------------------------------------------------------------ 3a. HMO covering dental to the same or another HMO covering dental and the person's residence remains X within 50 miles of the residence when in the first HMO. ------------------------------------------------------------------------------------------------------------------------ 3b. HMO covering dental to the same or another HMO covering X dental and the person's residence changes to greater than 50 miles of the residence when in the first HMO. ------------------------------------------------------------------------------------------------------------------------ 4. HMO with dental coverage to fee-for-service because: a. Person moves out of the HMO service area but the person's residence remains within 50 miles of the residence when in the HMO. X ------------------------------------------------------------------------------------------------------------------------ b. Person moves out of the HMO service area, but the person's residence changes to greater than 50 miles N/A X of the residence when in the HMO. ------------------------------------------------------------------------------------------------------------------------ c. Person exempted from HMO enrollment. N/A X ------------------------------------------------------------------------------------------------------------------------ d. Person's medical status changes loan ineligible HMO X N/A code and the person's residence remains within 50 miles of the residence when in that HMO. ----------------------------------------------------------------------------------------------------------------------- e. Person's medical status changes to an ineligible HMO N/A X code and the person's residence changes to greater than 50 miles of the residence when in that HMO. ------------------------------------------------------------------------------------------------------------------------ 5a. HMO with dental to ineligible for Medicaid/BC and the X N/A person's residence remains within 50 miles of the residence when in that HMO. ------------------------------------------------------------------------------------------------------------------------ Sb. HMO with dental to ineligible for Medicaid/BC and the N/A X person's residence changes to greater than 50 miles of the residence when in that HMO. ------------------------------------------------------------------------------------------------------------------------ 6. HMO without dental to ineligible for Medicaid/BC. N/A X ------------------------------------------------------------------------------------------------------------------------ HMO Contract for January 1, 2000 - December 31, 2001 -13-

* Orthodontic and prosthodontic treatment are only covered by Medicaid/BadgerCare for children under 21 as a result of a HealthCheck referral (HFS 107,07(3)). 9. The following provision refers to payments made by the HMO. HMO covered primary care and emergency care services provided to a recipient living in a Health Professional Shortage Area (HPSA) or by a provider practicing in a HPSA must be paid at an enhanced rate of 20 percent above the rate the HMO would otherwise pay for those services. Primary care providers are defined as nurse practitioners, nurse midwives, physician assistants, and physicians who are Medicaid-certified with specialties of general practice, OB-GYN, family practice, internal medicine, or pediatrics. Specified HMO-covered obstetric or gynecological services (see the Wisconsin Medicaid and BadgerCare Physicians Services Handbook) provided to a recipient living in a HPSA or by a provider practicing in a HPSA must be paid at an enhanced rate of 25 percent above the rate the HMO would otherwise pay providers in HPSAs for those services. However, this does not require the HMO to pay more than the enhanced Medicaid fee-for-service rate or the actual amount billed for these services. The HMO shall ensure that the moneys for HPSA payments are paid to the physicians and are not used to supplant funds that previously were used for payment to the physicians. The Department will supply a list of the services affected by this provision, their maximum fee-for-service rates, and HPSAs. The HMO must develop written policies and procedures to ensure compliance with this provision. These policies must be available for review by the Department, upon request. 10. HEALTHCHECK----Provide services as a continuing care provider as defined in Article I, and according to policies and procedures in Part D of the Wisconsin Medicaid Provider Handbook related to covered services. Provide HealthCheck screens at a rate equal to or greater than 80 percent of the expected number of screens. The rate of HealthCheck screens will be determined by the calculation in the HealthCheck Worksheet in Addendum XI. The Department will complete the worksheet from data provided by the HMO- from the HMO Utilization Report for calendar year 2000 and, for calendar year 2001, from HealthCheck screens the Department retrieves and identifies from the 2001 encounter data set. The HMO may complete the worksheet on its own, periodically, as a means to monitor its HealthCheck screening performance. HMO Contract for January 1, 2000 - December 31, 2001 -14-

For the 2000 HealthCheck worksheet data calculation, the number of HealthCheck screens reported on the 2000 HMO utilization Report must be substantiated by the number reported on the 2000 encounter data set. If for the year 2000, the encounter data set does not substantiate the HealthCheck screens reported on the HMO Utilization Report within 5 percent, the Department will require HMOs to submit a 2001 HMO Utilization Report. When the Department completes the HealthCheck worksheet using encounter data for calendar year 2001, the Department will identify and retrieve HealthCheck screening data from the encounter data set as of July 1, 2002. For those HMOs required to submit a 2001 HMO Utilization Report, the Department will compare the HealthCheck data submitted on the 2001 HMO Utilization Report with HealthCheck data reported on the encounter data set, and utilize the smaller number when completing the worksheet. If the HMO provides fewer screens in the contract year than 80 percent, the Department will recoup the funds provided to the HMO for the provision of the remaining screens. This formula will be used: (0.80 x A - B) x (C - D), where A = Expected number of screens (Line 6 of Addendum XI: HealthCheck Worksheet) B = Number of screens paid in the contract year as reported in the Encounter Data Set or on the final Utilization Report for the year C = Fee-for-service maximum allowable fee* D = HMO discount * The fee-for-service maximum allowable fee is the average maximum fee for the year. For example, if the maximum allowable fee for HealthCheck is $50 from January through June, and $52 from July through December, then the average maximum allowable fee for the year is $51. For recipients over 1 year of age, if a recipient requests a HealthCheck screen, HMO shall provide such screen within 60 days, if a screen is due according to the periodicity schedule. If the screen is not due within 60 days, then the HMO shall schedule the appointment in accordance with the periodicity schedule. For recipients up to 1 year of age, if a recipient requests a HealthCheck screen, HMO shall provide such screen HMO Contract for January 1, 2000 - December 31, 2001 -15-

within 30 days, if a screen is due according to the periodicity schedule. If the screen is not due within 30 days, then the HMO shall schedule the appointment in accordance with the periodicity schedule. 11. The HMO must adequately fund physician services provided to pregnant women and children under 19, so that they are paid at rates sufficient to ensure that provider participation and services are as available to the Medicaid/BadgerCare population as to the general population in the HMO service area(s). 12. The actual provision of any service is subject to the professional judgment of the HMO providers as to the medical necessity of the service, except that the HMO must provide assessment and evaluation services ordered by a court. Decisions to provide or not to provide or authorize medical services shall be based solely on medical necessity and appropriateness as defined in HFS 101.03(96m). Disputes between HMOs and recipients about medical necessity can be appealed through an HMO grievance system, and ultimately to the Department for a binding determination;the Department's determinations will be based on whether Medicaid would have covered that service on a fee-for-service basis (except for certain experimental procedures discussed in Article III, B. 7). Alternatively, disputes between HMOs and enrollees about medical necessity can be appealed directly to the Department. HMOs are not restricted to providing Wisconsin Medicaid covered services. Sometimes, HMOs find that other treatment methods may be more appropriate than Medicaid covered services, or result in better outcomes. None of the provisions of this contract that are applicable to Wisconsin Medicaid covered services apply to other services that an HMO may choose to provide, except that abortions, hysterectomies and sterilizations must comply with 42 CFR 441 Subpart E and 42 CFR 441 Subpart F. If a service provided is an alternative or replacement to a Wisconsin Medicaid covered service, then the HMO or HMO provider is not allowed to bill the enrollee for the service. 13. HMO and its providers and subcontractors shall not bill a Medicaid BadgerCare enrollee for medically necessary services covered under this Contract and provided during the enrollee's period of HMO enrollment. HMO and its providers and subcontractors shall not bill a Medicaid/BadgerCare enrollee for copayments and/or premiums for medically necessary services covered under this Contract and provided HMO Contract for January 1, 2000 - December 31, 2001 -16-

during the enrollee's period of HMO enrollment. This provision shall continue to be in effect even if the HMO becomes insolvent. However, if an enrollee agrees in advance in writing to pay for a nonMedicaid/BadgerCare covered service, then the HMO, HMO provider, or HMO subcontractor may bill the enrollee. The standard release form signed by the enrollee at the time of services does not relieve the HMO and its providers and subcontractors from the prohibition against billing an enrollee in the absence of a knowing assumption of liability for a nonMedicaid/BadgerCare covered service. The form or other type of acknowledgment relevant to an enrollee's liability must specifically state the admissions, services, or procedures that are not covered by Medicaid/BadgerCare. 14. The HMO must operate a program to promote full immunization of enrollees. The HMO shall be responsible for administration of immunizations including payment of an administration fee for vaccines provided by the Department. For vaccines that are newly approved during the term of the Contract and not yet part of the Vaccine for Children program, the HMO will report usage for reimbursement from the Department. The Department will identify vaccines which meet these criteria to the HMO. The HMO, as a condition of their certification as a Medicaid BadgerCare provider, shall share enrollee immunization status with Local Health Departments and other non-profit HealthCheck providers upon request of those providers without the necessity of enrollee authorization. The Department is also requiring that Local Health Departments and other non-profit HealthCheck providers share that equivalent information with HMOs upon request. This provision is made to ensure proper coordination of immunization services and to prevent duplication of services. 15. Services required under s. 49.46(2). Wis. Stats., and HFS 107 Wis. Adm. Code, include (without limitation due to enumeration) private duty nursing services, nurse-midwife services, and independent nurse practitioner services: physician services, including primary care services, are not only services performed by physicians, but services under the direct, on-premises supervision of a physician performed by other providers such as physician assistants and nurses of various levels of certification. HMO Contract for January 1, 2000 - December 31, 2001 -17-

16. Provision of Family Planning Services and Confidentiality of Family Planning Information: Give enrollees the opportunity to have their own primary physician for the provision of family planning services whether that provider is in-plan or out-of-plan. If the enrollee chooses an out-of-plan provider, those family planning services will be paid fee-for-service. The physician does not replace the primary care provider chosen by or assigned to the enrollee. All such information and medical records relating to family planning shall be kept confidential including those of a minor. C. Time Limit for Decision on Certain Referrals Pay for covered services provided by a non-HMO provider to a disabled participant less than 3 years of age, or to any participant pursuant to a court order (for treatment), effective with the receipt of a written request for referral from the non-HMO provider, and extending until the HMO issues a written denial of referral. This requirement does not apply if the HMO issues a written denial of referral within 7 days of receiving the request for referral. D. Emergency Care Promptly provide or pay for needed contract services for emergency medical conditions and post-stabilization services as defined in Article I. Nothing in this requirement mandates HMOs to reimburse for post-stabilization services that were not authorized by the HMO. 1. Payments for qualifying emergencies (including services at hospitals or urgent care centers within the HMO service area(s)) are to be based on the medical signs and symptoms of the condition upon initial presentation. The retrospective findings of a medical work-up may legitimately be the basis for determining how much additional care may be authorized, but not for payment for dealing with the initial emergency. 2. All HMOs, regardless of whether dental care is included in their contract, are responsible for paying all ancillary charges relating to dental emergencies with the only exception being the dentist's or oral surgeon's direct and office charges. These charges would include, but are not limited to, physician, anesthesia, pharmacy and emergency room in a hospital or freestanding ambulatory care setting. HMO Contract for January 1, 2000 - December 31, 2001 -18-

Ambulance Services 1. HMOs may require submission of a trip ticket with ambulance claims before paying the claim. Claims submitted without a trip ticket need only be paid at the service charge rate. 2. HMOs will pay a service fee for ambulance response to a call in order to determine whether an emergency exists, regardless of the HMO's determination to pay for the call. 3. HMOs will pay for emergency ambulance services based on established Medicaid criteria for claims payment of these services. 4. HMO will either pay or deny payment of a complete claim for ambulance services within 45 days of receipt of the claim. 5. HMOs will respond to appeals from ambulance companies within the time frame described in Article III. H. Failure will constitute HMO agreement to pay the appealed claim in full. E. 24-Hour Coverage Provide all emergency contract services and post-stabilization services as defined in this Contract 24 hours each day, 7 days a week, either by the HMO's own facilities or through arrangements approved by the Department with other providers. The HMO shall have one (1) toll-free phone number that enrollees or individuals acting on behalf of an enrollee can call at any time to obtain authorization for emergency transport, emergency, or urgent care. (Authorization here refers to the requirements defined in Addendum V, in the Standard Enrollee Handbook Language, regarding the conditions under which an enrollee must receive permission from the HMO prior to receiving services from a non-HMO affiliated provider in order for the HMO to reimburse the provider: e.g., for urgent care, for ambulance services for non-emergency care, for extended emergency services, and other situations.) This number must have access to individuals with authority to authorize treatment as appropriate. A response to such call must be provided within 30 minutes (except that response to ambulance calls shall be within 15 minutes) or the HMO will be liable for the cost of subsequent care related to that illness or injury incident whether treatment is in- or out-of-plan and whether the condition is emergency, urgent, or routine. The HMO must be able to communicate with a caller in the language spoken by the caller or the HMO will be liable for the cost of subsequent care related to that illness or injury incident whether treatment is in- or out-of-plan and whether the condition is emergency, urgent, or routine. HMO Contract for January 1, 2000 - December 31, 2001 -19-

These calls must be logged with time, date and any pertinent information related to persons involved, resolution and follow-up instructions. The HMO shall notify the Department of any changes of this one toll- free phone number for emergency calls within 7 working days of change. F. Thirty Day Payment Requirement Pay at least 90 percent of adjudicated (clean) claims from subcontractors for covered medically necessary services within 30 days of receipt of bill, and 99 percent within 90 days and 100% of the claims within 180 days of receipt, except to the extent subcontractors have agreed to later payment. HMO agrees not to delay payment to subcontractors pending subcontractor collection of third party liability unless the HMO has an agreement with their subcontractor to collect third party liability. G. HMO Claim Retrieval System Maintain a claim retrieval system that can on request identify date of receipt, action taken on all provider claims (i.e., paid, denied, other), and when action was taken. HMO shall date stamp all provider claims upon receipt. In addition, maintain a claim retrieval system that can identify, within the individual claim, services provided and diagnoses of enrollees with nationally accepted coding systems: HCPCS including level I CPT codes and level II and level III HCPCS codes with modifiers, ICD-9-CM diagnosis and procedure codes, and other national code sets such as place of service, type of service, and EOB codes. Finally, the claim retrieval system must be capable of identifying the provider of services by the appropriate Wisconsin Medicaid provider ID number assigned to all in-plan providers. Refer to Article III, section AA for use of providers certified by the Medicaid program. H. Appeals to the Department for HMO Payment/Denial of Providers Provide the name of the person and/or function at the HMO to whom provider appeals should be submitted. Provide written notification to providers of HMO payment/denial determinations which includes: 1. A specific explanation of the payment amount or a specific reason for the payment denial. 2. A statement regarding the provider's rights and responsibilities in appealing to the HMO about the HMO's initial determination by submitting a separate letter or form: a. clearly marked "appeal" HMO Contract for January 1, 2000 - December 31, 2001 -20-

b. which contains the provider's name, date of service, date of billing, date of rejection, and reason(s) claim merits reconsideration c. for each appeal d. to the person and/or function at the HMO that handles Provider Appeals within 60 days of the initial denial or partial payment. 3. A statement advising the provider of the provider's right to appeal to the Department if the HMO fails to respond to the appeal within 45 days or if the provider is not satisfied with the HMO response to the request for reconsideration, and that all appeals to the Department must be submitted in writing within 60 days of the HMO's final decision. 4. Accept written appeals from providers who disagree with the HMO's payment/denial determination, if the provider submits the dispute in writing and within 60 days of the initial payment/denial notice. The HMO has 45 days from the date of receipt of the request for reconsideration to respond in writing to the provider. If the HMO fails to respond within that time frame, or if the provider is not satisfied with the HMO's response, the provider may seek a final determination from the Department. 5. Accept the Department's determinations regarding appeals of disputed claims. In cases where there is a dispute about an HMO's payment/denial determination and the provider has requested a reconsideration by the HMO according to the terms described above, the Department will hear appeals and make final determinations. These determinations may include the override of the HMO's time limit for submission of claims in exceptional cases. The Department will not exercise its authority in this regard unreasonably. The Department will accept written comments from all parties to the dispute prior to making the decision. Appeals must be submitted to the Department within 60 days of the date of written notification of the HMO's final decision resulting from a request for reconsideration. The Department has 45 days from the date of receipt of all written comments to respond to these appeals. HMOs will pay provider(s) within 45 days of receipt of the Department's final determination. HMO Contract for January 1, 2000 - December 31, 2001 -21-

I. Payments for Diagnosis of Whether an Emergency Condition Exists Pay for appropriate, medically necessary, and reasonable diagnostic tests utilized to determine if an emergency exists. Payment for emergency services continue until the patient is stabilized and can be safely discharged or transferred. J. Memoranda of Understanding for Emergency Services HMOs may have a contract or an MOU with hospitals or urgent care centers within the HMO's service area(s) to ensure prompt and appropriate payment for emergency services. For situations where a contract or MOU is not possible, HMOs must identify for hospitals and urgent care centers procedures that ensure prompt and appropriate payment for emergency services. 1. Such MOUs shall provide for: a. The process for determining whether an emergency exists. b. The requirements and procedures for contacting the HMO before the provision of urgent or routine care. c. Agreements, if any, between the HMO and the provider regarding indemnification, hold harmless, or any other deviation from malpractice or other legal liability which would attach to the HMO or provider in the absence of such an agreement. d. Payments for appropriate, medically necessary, and reasonable diagnostic tests to determine if an emergency exists. e. Assurance of timely and appropriate provision of and payment for emergency services. 2. Unless a contract or MOU specifies otherwise, HMOs are liable to the extent that fee-for-service would have been liable for the emergency situation. The Department reserves the right to resolve disputes between HMOs, hospitals and urgent care centers regarding emergency situations based on fee-for-service criteria. K. Provision of Services Provide contract services to Medicaid/BadgerCare enrollees under this Contract in the same manner as those services are provided to other members of the HMO. HMO Contract for January 1, 2000 - December 31, 2001 -22-

L. Open Enrollment Conduct a continuous open enrollment period during which the HMO shall accept recipients eligible for coverage under this Contract in the order in which they are enrolled without regard to health status of the recipient or any other factor(s). M. Pre-Existing Conditions Assume responsibility for all covered medical conditions of each enrollee as of the effective date of coverage under the Contract. The aforementioned responsibility shall not apply in the case of persons hospitalized at the time of initial enrollment, as provided for in this article. N. Hospitalization at the Time of Enrollment or Disenrollment 1. The HMO will not assume financial responsibility for enrollees who are hospitalized at the time of enrollment (effective date of coverage) until an appropriate hospital discharge. 2. The Department will be responsible for paying on a fee- for-service basis all Medicaid covered services for such hospitalized enrollees during hospitalization. 3. Enrollees, including newborn enrollees, who are hospitalized at the time of disenroliment from the HMO shall remain the financial responsibility of the HMO. The financial liability of the HMO shall encompass all contract services. The HMO's financial liability shall continue for the duration of the hospitalization, except where (1) loss of Medicaid/BadgerCare eligibility occurs; (2) disenrollment occurs because there is a voluntary disenrollment from the HMO as a result of one of the conditions in Addendum II, in which case HMO liability shall terminate upon disenrollment being effective; and (3) except where disenrollment is due to medical status change to a code indicating SSI, 503 case, or institutionalized eligibility. 503 cases are SSI cases that continue Medicaid eligibility in spite of social security cost of living increases that cause an SSI recipient to lose SSI eligibility. In these three exceptions, the HMO's liability shall not exceed the period for which it is capitated. 4. Discharge from one hospital and admission to another within 24 hours for continued treatment shall not be considered discharge under this section. Discharge is defined here as it is in the UB-92 Manual. HMO Contract for January 1, 2000 - December 31, 2001 -23-

O. Non-Discrimination Comply with all applicable Federal and State laws relating to non-discrimination and equal employment opportunity including s. 16.765, Wis. Stats., Federal Civil Rights Act of 1964, regulations issued pursuant to that Act and the provisions of Federal Executive Order 11246 dated September 26, 1985, and assure physical and program accessibility of all services to persons with physical and sensory disabilities pursuant to Section 504 of the Federal Rehabilitation Act of 1973, as amended (29 U.S.C. 794), all requirements imposed by the applicable Department regulations (45 CFR part 84) and all guidelines and interpretations issued pursuant thereto, and the provisions of the Age Discrimination and Employment Act of 1967 and Age Discrimination Act of 1975. Chapter 16.765, Wis. Stats. requires that in connection with the performance of work under this Contract, the Contractor agrees not to discriminate against any employee or applicant for employment because of age, race, religion, color, handicap, sex, physical condition, developmental disability as defined in s. 51.01(5), sexual orientation or national origin. This provision shall include, but not be limited to, the following: employment, upgrading, demotion or transfer; recruitment or recruitment advertising; layoff or termination; rates of pay or other forms of compensation; and selection for training, including apprenticeship. Except with respect to sexual orientation, the Contractor further agrees to take affirmative action to ensure equal employment opportunities. The Contractor agrees to post in conspicuous places, available for employees and applicants for employment, notices to be provided by the contracting officer setting forth the provisions of the non-discrimination clause. Addendum VIII contains further details on the requirements of nondiscrimination. With respect to provider participation, reimbursement, or indemnification -- HMO will not discriminate against any provider who is acting within the scope of the provider's license or certification under applicable State law, solely on the basis of such license or certification. This shall not be construed to prohibit an HMO from including providers to the extent necessary to meet the needs of the Medicaid population or from establishing any measure designed to maintain quality and control cost consistent with these responsibilities. P. Affirmative Action Plan Comply with State Affirmative Action policies. Contracts estimated to be twenty-five thousand dollars ($25,000) or more require the submission of a written affirmation action plan or have a current plan on file with the State of Wisconsin. Contractors with an annual work force of less than twenty-five employees are exempted from this requirement; however, such contractors shall submit a statement to the Division of Health Affirmative Action/Civil Rights HMO Contract for January 1, 2000 - December 31, 2001 -24-

Compliance Office certifying that its work force is less than twenty-five employees. 1. "Affirmative Action Plan" is a written document that details an affirmative action program. Key parts of an affirmative action plan are: a. a policy statement pledging nondiscrimination and affirmative action in employment; b. internal and external dissemination of the policy; c. assignment of a key employee as the equal opportunity officer; d. a work force analysis that identifies job classification where representation of women, minorities and the disabled is deficient; e. goals and timetables that are specific and measurable, and that are set to correct deficiencies and to reach a balance of work force; f. revision of all employment practices to ensure that they do not have discriminatory effects; and g. establishment of internal monitoring and reporting systems to measure progress regularly. 2. Within fifteen (15) days after the award of a contract, the affirmative action plan shall be submitted to the Department of Health and Family Services Box 7850, Madison, WI 53707-7850. Contractors are encouraged to contact the Department of Health and Family Services, Affirmative Action/Civil Rights Compliance Office at (608) 266-9372 for technical assistance. 3. Addendum VIII contains further details on the requirements of Affirmative Action Plans. Q. Cultural Competency 1. HMO shall address the special health needs of enrollees such as those who are low income or members of specific population groups needing specific culturally competent services. HMO shall incorporate in its policies, administration, and service practice such as (1) recognizing member's beliefs, (2) addressing cultural differences in a competent manner, (3) fostering in staff/providers behaviors and effectively address interpersonal communication styles which respect enrollees' cultural HMO Contract for January 1, 2000 - December 31, 2001 -25-

backgrounds. HMO shall have specific policy statements on these topics and communicate them to subcontractors. 2. HMO shall encourage and foster cultural competency among providers. HMO shall, when appropriate, permit enrollees to choose providers from among the HMO's network based on linguistic/cultural needs. HMO shall permit enrollees to change primary providers based on the provider's ability to provide services in a culturally competent manner. Enrollees may submit grievances to the HMO and/or the Department related to inability to obtain culturally appropriate care, and the Department may, pursuant to such grievance, permit an enrollee to disenroll and enroll into another HMO, or into fee-for-service in a county where HMOs do not enroll all eligibles. R. Health Education and Prevention 1. Inform all enrollees of contributions which they can make to the maintenance of their own health and the proper use of health care services. 2. Have a program of health education and prevention available and within reasonable geographic proximity to its enrollees. The program shall include health education and anticipatory guidance provided as a part of the normal course of office visits, and in discrete programming. 3. The program shall provide: a. An individual responsible for the coordination and delivery of services in the program. b. Information on how to obtain these services (locations, hours, phones, etc.). c. Health-related educational materials in the form of printed, audiovisual, and/or personal communication. d. Information on recommended check-ups and screenings, and prevention and management of disease states which affect the general population. This includes specific information for persons who have or who are at risk of developing such health problems (e.g., hypertension, diabetes, STD, asthma, breast and cervical cancer, osteoporosis and postpartum depression). HMO Contract for January 1, 2000 - December 31, 2001 -26-

e. Health education and prevention programs. Recommended programs include: injury control, family planning, teen pregnancy, sexually transmitted disease prevention, prenatal care, nutrition, childhood immunization, substance abuse prevention, child abuse prevention, parenting skills, stress control, postpartum depression, exercise, smoking cessation, weight gain and healthy birth, postpartum weight loss, and breast-feeding promotion and support. Note that any education and prevention programs for family planning and substance abuse would supplement the required family planning and substance abuse health care services covered in the Medicaid/BadgerCare program. f. Promotion of the health education and prevention program, including use of languages understood by the population served, and use of facilities accessible to the population served. g. Information on and promotion of other available prevention services offered outside of the HMO including child nutrition programs, parenting classes, programs offered by local health departments and other programs. h. Systematic referrals of potentially eligible women, infants, and children to the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) and relevant medical information to the WIC program. General information about recipient eligibility requirements for the WIC program, a statewide list of WIC agencies, as well as a sample WIC Referral Form that can be used by HMOs, can be found in Addendum XXV. 4. Health related educational materials produced by the HMO must be at a sixth grade reading comprehension level and reflect sensitivity to the diverse cultures served. Also, if the HMO uses material produced by other entities, the HMO must review these materials for grade level comprehension level and for sensitivity to the diverse cultures served. Finally, the HMO must make all reasonable efforts to locate and use culturally appropriate health related material. S. Enrollee Handbook and Education and Outreach for Newly Enrolled Recipients 1. Within one week of initial enrollment notification to the HMO, mail to caseheads an enrollee handbook which is at the "sixth grade reading comprehension level" and which at a minimum will include information about: HMO Contract for January 1, 2000 - December 31, 2001 -27-

a. the phone number that can be used for assistance in obtaining emergency care or for prior authorization for urgent care; b. information on contract services offered by the HMO; c. location of facilities; d. hours of service; e. informal and formal grievance procedures, including notification of the enrollee's right to a fair hearing; f. grievance appeal procedures; g. HealthCheck; h. family planning policies; i. policies on the use of emergency and urgent care facilities; j. when you may have to pay for care; and k. changing HMOs. 2. The HMO must provide periodic updates to the handbook as needed explaining changes in the above policies. Such changes must be approved by the Department prior to printing. 3. New standard language for the enrollee handbooks required by this Contract may be included in the handbooks when they are reprinted. 4. Enrollee handbooks (or substitute enrollee information approved by the Department which explains HMO services and how to use the HMO) shall be made available in at least the following languages: Spanish, Lao, and Hmong if the HMO has enrollees who are conversant only in those languages. The handbook should direct enrollees who are not conversant in English to the appropriate resources within the HMO for obtaining a copy of the handbook with the appropriate language. 5. HMOs may create enrollee handbook language that they believe is simpler than the standard language of Addendum V, but this substitute language must be approved by the Department. HMO Contract for January 1, 2000 - December 31, 2001 -28-

6. Enrollee handbooks shall be submitted by contractors during the Certification Application for review and approval during the pre-contract review stage of the HMO Certification process. The specific dates for submittal of enrollee handbooks are prescribed in the HMO Certification Application. 7. Standard language on several subjects, including HealthCheck, family planning, grievance and appeal rights, conversion rights, and emergency and urgent care shall appear in all handbooks and is included in Addendum V. Any exceptions to the standard must be approved in advance by the Department, and will be approved only for exceptional reasons. Standard language may change during the course of the contract period, if there are changes in federal or state laws, rules or regulations, in which case the new language will have to be inserted into the enrollee handbooks as of the effective date of any such change. 8. In addition to the above requirements sections 1 through 7 for the enrollee handbook, HMOs are required to perform other education and outreach activities for newly enrolled recipients. HMOs are to submit to the Department for prior written approval an education and outreach plan targeted towards newly enrolled recipients. This outreach plan will be examined by the Department during pre-contract review. Newly enrolled recipients are those recipients appearing on the enrollment reports described in Article IV. D. and listed as "ADD-NEW." The plan must identify at least 2 educational/outreach activities in addition to the enrollee handbook to be undertaken by the HMO for the purpose of informing new enrollees of pertinent information necessary to access services within the HMO network. The plan must include the frequency (i.e., weekly, monthly, etc.) of the activity, the person within the HMO responsible for the activities, and how activities will be documented and evaluated for effectiveness. T. Approval of Marketing Plans and Informing Materials 1. Submit to Department for prior written approval a marketing plan and all marketing materials and other marketing activities that refer to Medicaid Title XIX, BadgerCare, or Title XXI or are intended for Medicaid/BadgerCare recipients. This requirement includes marketing or informing materials that are produced by providers under subcontract to the HMO or owned by the HMO in whole or in part. The Department will not approve any materials which are deemed to be confusing, fraudulent, misleading, or do not accurately reflect the scope and philosophy of the Medicaid program and/or its covered benefits. HMO Contract for January 1, 2000 - December 31, 2001 -29-

2. The Department will review and either approve, approve with modifications, or deny all informing material within ten working days of receipt of the informing materials. Time-sensitive material must be clearly marked by the HMO and will be approved, approved with modifications or denied by the Department within ten business days. The Department reserves the right to determine whether the material is, indeed, time-sensitive. HMO agrees to engage only in marketing activities and distribute only those marketing materials that are preapproved in writing, except that marketing materials and other marketing activities are deemed approved if there is no response from the Department within 10 working days. However, problems and errors subsequently identified by the Department must be corrected by the HMO when they are identified. HMO agrees to comply with in. 6.07 and 3.27, Wis. Admin. Code, and practices consistent with the Balanced Budget Amendment of 1997 P.L. 105-33 Sec. 4707(a) [42 U.S.C. 1396v(d)(2)]. 3. As used in this section, "marketing materials and other marketing activities" include the production and dissemination of any promotional material by any medium, including but not limited to community events, print media, radio, television, billboards, Yellow Pages, and advertisements that refer to Medicaid, BadgerCare, Title XIX, or Title XXI are intended for Medicaid/BadgerCare recipients. The Department in its sole discretion will determine whether the marketing materials and/or other marketing activities refer to Medicaid, BadgerCare, Title XIX, or Title XXI are intended for Medicaid/BadgerCare recipients. 4. Approval of marketing plans and materials will be reviewed by the Department in a manner that does not unduly restrict or inhibit the HMO's marketing plans. When applying this provision to specific marketing plans, material and/or activity, the entire content and use of the marketing material or activity shall be taken into consideration. 5. HMOs that fail to abide by these marketing requirements may be subject to any and all sanctions available under Article IX. In determining any sanctions, the Department will take into consideration any past unfair marketing practices, the nature of the current problem and the specific implications on the health and well-being of the Medicaid enrollees. In the event that an HMO's affiliated provider fails to abide by these requirements, the Department will evaluate whether the HMO should have had knowledge of the marketing issue and the HMO's ability to adequately monitor ongoing future marketing activities of the subcontractor(s). HMO Contract for January 1, 2000 - December 31, 2001 -30-

Note: This section has been incorporated in Addendum I. U. Conversion Privileges Offer any enrollee covered under this Contract, whose enrollment is subsequently terminated due to loss of Medicaid/BadgerCare eligibility, the opportunity to convert to a private enrollment contract without underwriting. This time period for conversion following Medicaid/BadgerCare termination notice will comply with Wisconsin Stats. 632.897 regarding conversion rights. V. Choice of Health Professional Offer each enrollee covered under this Contract the opportunity to choose a primary health care professional affiliated with the HMO, to the extent possible and appropriate. If the HMO assigns recipients to primary physicians, then the HMO shall notify recipients of the assignment. HMOs must permit Medicaid BadgerCare enrollees to change primary providers at least twice in any calendar year, and to change primary providers more often than that for just cause, just cause being defined as lack of access to quality, culturally appropriate, health care. Such just cause will be handled as a formal grievance. If the HMO has reason to lock-in an enrollee to one primary provider and/or pharmacy in cases of difficult case management. the HMO must submit a written request in advance of such lock-in to the Department. Requests should be submitted to the Contract Monitor. Culturally appropriate care in this section means care by a provider who can relate to the enrollee and who can provide care with sensitivity, understanding, and respect for the enrollee's culture. W. Quality Assessment/Performance Improvement (QAPI) 1. The HMO QAPI program must conform to requirements of 42 CFR, Part 400, Medicaid Managed Care Requirements, Subpart E, Quality Assessment and Performance Improvement. The program must also comply with 42 Code of Federal Regulations (CFR) 434.34 which states that the HMO must have a Quality Assessment/Performance Improvement system that: a. Is consistent with the utilization control requirement of 42 CFR 456; b. Provides for review by appropriate health professionals of the process followed in providing health services; c. Provides for systematic data collection of performance and patient results: HMO Contract for January 1, 2000 - December 31, 2001 -31-

d. Provides for interpretation of this data to the practitioners; and e. Provides for making needed changes. 2. Quality Assessment/Performance Improvement Program a. The HMO must have a comprehensive Quality Assessment/Improvement Program (QAPI) program that protects, maintains, and improves the quality of care provided to Wisconsin Medicaid program recipients. The HMO must evaluate the overall effectiveness of its QAPI program annually to determine whether the program has demonstrated improvement, where needed, in the quality of care and service provided to its Medicaid BadgerCare population. The HMO must have documentation of all aspects of the QAPI program available for Department review upon request. The Department may perform off-site and on-site Quality Assessment/Performance Improvement audits to ensure that the HMO is in compliance with contract requirements. The review and audit may include: on-site visits; staff and enrollee interviews; medical record reviews; review of all QAPI procedures, reports, committee activities, including credentialing activities, corrective actions and follow-up plans; peer review process; review of the results of the member satisfaction surveys, and review of staff and provider qualifications. b. The HMO must have a written QAPI work plan that is ratified by the board of directors and outlines the scope of activity and the goals, objectives, and time lines for the QAPI program. New goals and objectives must be set annually based on findings from quality improvement activities and studies. c. The HMO governing body is ultimately accountable to the Department for the quality of care provided to HMO enrollees. Oversight responsibilities of the governing body are: approval of the overall QAPI program and an annual QAPI plan: designating an accountable entity or entities within the organization to provide oversight of QAPI: review of written reports from the designated entity on a periodic basis which include a description of QAPI activities, progress on objectives, and improvements made: formal review on an annual basis of a written report on the QAPI program; and directing modifications to the QAPI program on an ongoing basis to accommodate review findings and issues of concern within the HMO. HMO Contract for January 1, 2000 - December 31, 2001 -32-

d. The QAPI committee shall be in an organizational location within the HMO such that it can be responsible for all aspects of the QAPI program. The committee membership must be interdisciplinary and be made up of both providers and administrative staff of the HMO, including: 1) a variety of health professions (e.g., pharmacy, physical therapy, nursing, etc.); 2) qualified professionals specializing in mental health or substance abuse and dental care on a consulting basis when an issue related to these areas arises: 3) a variety of medical disciplines (e.g.. medicine, surgery, radiology, etc.); 4) OB/GYN and pediatric representation; and 5) HMO management or governing body. 6) Enrollees of the HMO must be able to contribute input to the QAPI Committee. The HMO must have a system to receive enrollee input on quality improvement, document the input received, document the HMO's response to the input, including a description of any changes or studies it implemented as the result of the input and document feedback to enrollees in response to input received. The HMO response must be timely. e. The committee must meet on a regular basis, but not less frequently than quarterly. The activities of the QAPI Committee must be documented in the form of minutes and reports. The QAPI Committee must be accountable to the governing body. Documentation of Committee minutes and activities must be available to the Department upon request. f. QAPI activities of HMO providers and subcontractors, if separate from HMO QAPI activities, shall be integrated into the overall HMO/QAPI program. Requirements to participate in QAPI activities are incorporated into all provider and subcontractor contracts and employment agreements. The HMO QAPI program shall provide feedback to the providers/subcontractors regarding the integration of, operation of, and corrective actions necessary in provider/subcontractor QAPI efforts. HMO Contract for January 1, 2000 - December 31, 2001 -33-

Other management activities (Utilization Management, Risk Management, Complaints and Grievances, etc.) must be integrated with the QAPI program. Physicians and other health care practitioners and institutional providers must actively cooperate and participate in the HMO's quality activities. The HMO remains accountable for all QAPI functions, even if certain functions are delegated to other entities. If the HMO delegates any activities to contractors the conditions listed in Article 11 of this agreement must be met. g. There is evidence that HMO management representatives and providers participate in the development and implementation of the QAPI plan of the HMO. This provision shall not be construed to require that HMO management representatives and providers participate in every committee or subcommittee of the QAPI program. h. The HMO must designate a senior executive to be responsible for the operation and success of the QAPI program. If this individual is not the HMO Medical Director, the Medical Director must have substantial involvement in the QAPI program. The designated individual shall be accountable for the QAPI activities of the HMO"s own providers, as well as the HMO's subcontracted providers. i The qualifications, staffing level and available resources must be sufficient to meet the goals and objectives of the QAPI program and related QAPI activities. Such activities include, but are not limited to, monitoring and evaluation of important aspects of care and services, facilitating appropriate use of preventive services, monitoring provider performance, provider credentialing, involving members in QAPI initiatives and conducting performance improvement projects in identified priority areas. Written documentation listing the staffing resources that are directly under the organizational control of the person who is responsible for QAPI (including total FTEs, percent of time dedicated to QAPI, background and experience, and role) must be available to the Department upon request. HMO Contract for January 1, 2000 - December 31, 2001 -34-

3. Monitoring and Evaluation a. The QAPI program must monitor and evaluate the quality of clinical care on an ongoing basis. Important aspects of care (i.e., acute, chronic conditions, high volume, high risk preventive care and services) are studied and prioritized for performance improvement and/or development of practice guidelines. Standardized quality indicators must be used to asses improvement, assure achievement of minimum performance levels, monitor adherence to guidelines, and identify patterns of over utilization and under utilization. The measurement of quality indicators must be supported by appropriate data collection methodologies and must be used to analyze and improve clinical care and services. b. Provider performance must be measured against practice guidelines and standards adopted by the QAPI Committee. Areas identified for improvement must be tracked and corrective actions taken when warranted. The effectiveness of corrective actions must be monitored until problem resolution occurs. Reevaluation must occur to assure that the improvement is sustained. c. The HMO must use appropriate clinicians to evaluate the data on clinical performance, and multi disciplinary teams to analyze and address data on systems issues. d. The HMO must also monitor and evaluate care and services in certain priority clinical and non-clinical areas of interest specified by the Department. e. The HMO must make documentation available to the Department upon request regarding quality improvement and assessment studies on plan performance, which relate to the enrolled population. See reporting requirements in Article III. W. Section 13, Priority Areas. f. Practice guidelines: The HMO must develop or adopt practice guidelines that are disseminated to providers and to enrollees as appropriate or upon request. The guidelines should be based on reasonable medical evidence or consensus of health professionals; consider the needs of the enrollees; developed or adopted in consultation with the contracting health professionals, and reviewed and updated periodically. HMO Contract for January 1, 2000 - December 31, 2001 -35-

4. Access a. The HMO must provide medical care to its Medicaid/BadgerCare enrollees that is as accessible to them, in terms of timeliness, amount, duration, and scope, as those services are to nonenrolled Medicaid/BadgerCare recipients within the area served by the HMO. The HMO must have a Medicaid certified primary care provider within a 20 mile distance from any enrollee residing in the HMO service area. A service area for an HMO will be specified down to the zip code. Therefore, all portions of each zip code in the HMO service area must be within 20 miles from a Medicaid certified primary care provider. b. Network Adequacy: The HMO must assure that its delivery network is sufficient to provide adequate access to all services covered under this agreement. In establishing the network, the HMO must consider: 1) The anticipated enrollment with particular attention to pregnant women and children: 2) The expected utilization of services, considering enrollee characteristics and health care needs. 3) The number and types of providers required to furnish the contracted services. 4) The number of network providers not accepting new patients. 5) The geographic location of providers and enrollees, distance, travel time, normal means of transportation used by enrollees and whether provider locations are accessible to enrollees with disabilities. This access standard does not prevent a recipient from choosing and HMO when the recipient resides in zip code that does not meet the 20 mile distance standard. However, the recipient will not be automatically assigned to that HMO. If by some circumstance the recipient has been assigned to the HMO or has chosen the HMO and becomes dissatisfied with access to medical care, the recipient will be allowed to disenroll from the HMO for reason of distance. HMO Contract for January 1, 2000 - December 31, 2001 -36-

Primary care providers are defined to include, but are not limited to, Physicians and Physician Clinics with specialties in general practice, family practice, internal medicine, obstetrics and gynecology, adolescent medicine and pediatrics, FQHCs, RHCs, Nurse Practitioners, Nurse Midwives, Physician Assistants, and Tribal Health Centers. HMOs may define other types of providers as primary care providers. If they do so, the HMOs must define these other types of primary care providers and justify their inclusion as primary care providers during the precontract review phase of the HMO Certification process. c. The HMO must have written protocols to ensure that enrollees have access to screening, diagnosis and referral, and appropriate treatment for those conditions and services covered under the Wisconsin Medicaid program. d. The HMO must also provide medically necessary high risk prenatal care within two weeks of the enrollee's request for an appointment, or within three weeks if the request is for a specific HMO provider. e. The HMO must have written standards for the accessibility of care and services which are communicated to providers and monitored. The standards must include the following: waiting times for care at facilities; waiting times for appointments; specify that providers' hours of operation do not discriminate against Medicaid/ BadgerCare enrollees; and whether or not provider(s) speak member's language. The HMO must take corrective action if its standards are not met. f. The HMO must have a mental health or substance abuse provider within a 35 mile distance from any enrollee residing in the HMO service area or no further than the distance for non-enrolled recipients residing in the service area. g. The HMO must have a dental provider, when appropriate, within a 35 mile distance from any enrollee residing in the HMO service area or no further than the distance for non-enrolled recipients residing in the service area. The HMO must also give consideration to whether the dentist is accepting new patients, and where full or part-time coverage is available. HMO Contract for January 1, 2000 - December 31, 2001 -37-

5. Health Promotion and Prevention Services a. The HMO must identify at-risk populations for preventive services and develop strategies for reaching Medicaid/ BadgerCare members included in this population. Local health departments and community- based health organizations can provide the HMO with special access to vulnerable and low-income population groups, as well as settings that reach at-risk individuals in their communities, schools and homes. Public health resources can be used to enhance the HMO's health promotion and preventive care programs. b. The HMO must have mechanisms for facilitating appropriate use of preventive services and educating enrollees on health promotion. At a minimum, an effective health promotion and prevention program includes: tracking of preventive services, practice guidelines for preventive services, yearly measurement of performance in the delivery of such services, and communication of this information to providers and enrollees. 6. Provider Selection (credentialing) and Periodic Evaluation (recredentialing) a. The HMO must have written policies and procedures for provider selection and qualifications. For each practitioner, including each member of a contracting group that provides services to the HMO's enrollees, initial credentialing must be based on a written application, primary source verification of licensure, disciplinary status, eligibility for payment under Medicaid and certified for Medicaid. The HMO must periodically monitor (no less than every two years) the provider's documented qualifications to assure that the provider still meets the HMO's specific professional requirements. b. The HMO must periodically monitor (no less than every two years) the provider's documented qualifications to assure that the provider still meets the HMO's specific professional requirements. c. The HMO must also have a mechanism for considering the provider's performance. The method must include updating all the information (except medical education) utilized in the initial credentialing process. Performance evaluation must include information from: the QAPI system, reviewing enrollee complaints and enrollee satisfaction surveys, and the utilization management system. HMO Contract for January 1, 2000 - December 31, 2001 -38-

d. The selection process must not discriminate against providers such as those serving high-risk populations, or specialize in conditions that require costly treatment. The HMO must have a process for receiving advice on the selection criteria for credentialing and recredentialing practitioners in the HMO's network. e. If the HMO delegates selection of providers to another entity, the organization retains the right to approve, suspend or terminate any provider selected by that entity. f. The HMO must have a formal process of peer review of care delivered by providers and active participation of the HMO's contracted providers in the peer review process. This process may include internal medical audits, medical evaluation studies, peer review committees, evaluation of outcomes of care, and systems for correcting deficiencies. The HMO must supply documentation of its peer review process upon request. g. The HMO must have written policies that allow it to suspend or terminate any provider for quality deficiencies. There must also be an appeals process available to the provider that conforms to the requirements of the HealthCare Quality Improvement Act of 1986 (42 USC (S)11101 etc. Seq.). h. In addition to the requirements in this section, the names of individual practitioners and institutional providers who have been terminated from the HMO provider network as a result of quality issues must be immediately forwarded to the Department and reported to other entities as required by law (42 USC (S)11101 et. Seq.). i. Institutional Provider Selection--For each provider, other than an individual practitioner, the HMO determines, and verifies at specified intervals, that the provider is: 1) licensed to operate in the State, if licensure is required, and in compliance with any other applicable State or Federal requirements; and HMO Contract for January 1, 2000 - December 31, 2001 -39-

2) the HMO verifies that the provider is reviewed and approved by an approved accrediting body (if the provider claims accreditation), or is determined by the HMO to meet standards established by the HMO itself. 7. Enrollee Feedback on Quality Improvement a. The HMO must have a process to maintain a relationship with its enrollees that promotes two way communication and contributes to quality of care and service. The HMO must show a commitment to treating members with respect and dignity. b. Annually, the HMO must conduct an internal satisfaction of care survey of a representative sample of enrolled Medicaid! BadgerCare recipients. The survey must be designed to identify potential problems and barriers to care, and should cover, at a minimum, the following three areas: 1) care process - attention received as a patient (i.e.. provider sensitivity); 2) structure or delivery of care - assess impediments to care such as waiting times, choice of provider, physical accessibility; and 3) perceived quality of care - thoroughness of exams and results or health status outcomes. The Department must approve the survey instrument and plan. The HMO shall have systems in place for acting on survey results and shall report to the Department the survey results and any quality management projects planned in response to survey results. c. The HMO is encouraged to find additional ways to involve Medicaid/BadgerCare enrollees in quality improvement initiatives and in soliciting enrollee feedback on the quality of care and services the HMO provides. Other ways to bring enrollees into the HMO's efforts to improve the health care delivery system include but are not limited to: focus groups, consumer advisory councils, enrollee participation on the governing board, the QAPI committees or other committees, or task forces related to evaluating services. All efforts to solicit feedback from enrollees must be approved by the Department. HMO Contract for January 1, 2000 - December 31, 2001 -40-

8. Medical Records a. The HMO must have policies and procedures for participating provider medical records content and documentation that have been communicated to providers and a process for evaluating its providers' medical records based on the HMO's policies. These policies must address patient confidentiality, organization and completeness, tracking, and important aspects of documentation such as accuracy, legibility, and safeguards against loss, destruction, or unauthorized use. The HMO must also have confidentiality policies and procedures that are applicable to administrative functions that are concerned with confidential patient information. b. Patient medical records must be maintained in an organized manner (by the HMO, and/or by the HMO's subcontractors) that permits effective patient care, they must reflect all aspects of patient care and be readily available for patient encounters, for administrative purposes, and for Department review. c. Because HMOs are considered contractors of the State and are therefore (only for the limited purpose of obtaining medical records of its enrollees) entitled to obtain medical records according to Wisconsin Administrative Code, HFS 104.01(3), the Department will require Medicaid-certified providers to release relevant record to the HMO to assist in compliance with this section. Where HMOs have not specifically addressed photocopying expenses in their provider contracts or other arrangements, the HMOs are liable for charges for copying records only to the extent that the Department would reimburse on a fee-for-service basis. d. The HMO must have written confidentiality policies and procedures in regard to confidential patient information. Policies and procedures must be communicated to HMO staff, members, and providers. The transfer of medical records to out-of-plan providers or other agencies not affiliated with HMO (except for the Department) are contingent upon the receipt by the HMO of written authorization to release such records signed by the enrollee or, in the case of a minor, by the enrollee's parent, guardian. or authorized representative. HMO Contract for January 1, 2000 - December 31, 2001 -41-

e. The HMO must have written quality standards and performance goals for participating provider medical record documentation and be able to demonstrate, upon request of the DHFS, that the standards and goals have been communicated to providers. The HMO must actively monitor established standards and provide documentation of standards and goals upon request of the Department. f. Medical records must be readily available for HMO-wide Quality Assessment/Performance Improvement (QAPI) and Utilization Management (UM) activities and provide adequate medical and other clinical data required for (QAPI)/UM, and Department use. g. The HMO must have adequate policies in regard to transfer of medical records to ensure continuity of care when enrollees are treated by more than one provider. This may include transfer to local health departments subject to the receipt of a signed authorization form as specified in Article III. W. 8 (d) above (with the exception of immunization status information described in Article III. B. 14., which doesn't require enrollee authorization). h. Requests for completion of residual functional capacity evaluation forms and other impairment assessments, such as queries as to the presence of a listed impairment, shall be provided within 10 working days of request (at the discretion of the individual provider and subject to the provider's medical opinion of its appropriateness) and according to the other requirements listed above; the HMO and its providers and subcontractor may charge the enrollee, authorized representative, or other third party a reasonable rate for the completion of such forms and other impairment assessments. Such rates may be reviev~ed by the Department for reasonableness and may be modified based on this review. i. Minimum medical record documentation per chart entry or encounter must conform to the Wisconsin Administrative Code, Chapter HFS 106.02. (9)(b) Medical record content. HMO Contract for January 1, 2000 - December 31, 2001 -42-

9. Utilization Management (UM) a. The HMO must have documented policies and procedures for all UM activities that involve determining medical necessity, and the approval or denial of medical services. Qualified medical professionals must be involved in any decision-making that requires clinical judgment. Criteria used to determine medical necessity and appropriateness must be communicated to providers. b. If the HMO delegates any part of the TIM program to a third party, the delegation must meet the requirements in Article II Delegations of Authority. c. If the HMO utilizes phone triage, nurse lines or other demand management systems, the HMO must document review and approval of qualification criteria of staff and of clinical protocols or guidelines used in the system. The system's performance will be evaluated annually in terms of clinical appropriateness. d. The policies specify time frames for responding to requests for initial and continued service determinations, specify information required for authorization decisions, provide for consultation with the requesting provider when appropriate, and provide for expedited responses to requests for authorization of urgently needed services, In addition, the HMO must have in effect mechanisms to ensure consistent application of review criteria for authorization decisions (interrater reliability). Within the timeframes specified above, the HMO must give the enrollee and the requesting provider written notice of: 1) the decision to deny, limit, reduce, delay or terminate a service along with the reasons for the decision. 2) the enrollee's right to file a grievance or request a state fair hearing. Authorization decisions must be made within the following time frames and in all cases as expeditiously as the enrollee's condition requires: 1) within 14 days of the receipt of the request, or HMO Contract for January 1, 2000 - December 31, 2001 -43-

2) within 72 hours if the physician indicates or the HMO determines that following the ordinary time frame could jeopardize the enrollee's health or ability to regain maximum function. One extension of up to 14 days may be allowed if the enrollee requests it or if the HMO justifies the need for more information. e. Criteria for decisions on coverage and medical necessity are clearly documented, are based on reasonable medical evidence, current standards of medical practice, or a consensus of relevant health care professionals, and are regularly updated. f. The HMO oversees and is accountable for any functions and responsibilities that it delegates to any subcontractor. (See Article II Delegations of Authority). g. Postpartum discharge policy for mothers and infants must be based on medical necessity determinations. This policy must include all follow-up tests and treatments consistent with currently accepted medical practice and applicable federal law. The policy must allow at least a 48- hour hospital stay for normal spontaneous vaginal delivery, and 96 hours for a cesarean section delivery, unless a shorter stay is agreed to by both the physician and the enrollee. HMOs may not deny coverage, penalize providers, or give incentives or payments to providers or enrollees. Post hospitalization follow-up care must be based on the medical needs and circumstances of the mother and infant. The Department may request documentation demonstrating compliance with this requirement. 10. External Quality Review Contractor a. The HMO must assist the Department and the external quality review organization under contract with the Department in identification of provider and enrollee information required to carry out on-site or off-site medical chart reviews. This includes arranging orientation meetings for physician office staff concerning medical chart review, and encouraging attendance at these meetings by HMO and physician office staff as necessary. The provider of service may elect to have charts reviewed on-site or off-site. HMO Contract for January 1, 2000 - December 31, 2001 -44-

b. When the professional review organization under contract with the Department identifies an adverse health situation in which follow-up is needed to determine whether appropriate care was provided, the HMO will be responsible for the following tasks: 1) Assign a staff person(s) to conduct follow-up with the provider(s) concerning each adverse health situation identified by the Department's professional review organization, including informing the provider(s) of the QAPI finding and monitoring the provider's resolution of the QI finding; 2) Inform the HMO's QAPI Committee of the final QAPI finding and involve the QAPI Committee in the development, monitoring and resolution of the corrective action plan; and 3) Submit a corrective action plan or an opinion in writing to the Department within 60 days that addresses the measures that the HMO and the provider intend to take to resolve the QAPI finding. The HMO's final resolution of all cases must be completed within six (6) months of HMO notification. A case is not considered resolved by the Department until the Department approves the response provided by the HMO and provider. c. The HMO will facilitate training provided by the Department to its providers. 11. Dental Services Quality Improvement a. The HMO QAPI Committee and QAPI coordinator will review subcontracted dental programs quarterly to assure that quality dental care is provided and that the HMO and the contractor comply with the following: 1) The HMO or HMO affiliated dental provider must advise the enrollee within 30 days of effective enrollment of the name of the dental provider and the address of the dental provider's site. The HMO or HMO affiliated dental provider must also inform the enrollee in writing how to contact his/her dentist (or dental office), what dental services are covered, when the coverage is effective, and how to appeal denied services. HMO Contract for January 1, 2000 - December 31, 2001 -45-

2) An HMO or HMO affiliated dental provider who assigns all or some Medicaid/BadgerCare HMO enrollees to specific participating dentists must give enrollees at least 30 days after assignment to choose another dentist. Thereafter, in accordance with Article III. V., the HMO and/or affiliated provider must permit enrollees to change dentists at least twice in any calendar year and more often than that for just cause. 3) HMO-affiliated dentists must provide a routine dental appointment to an assigned enrollee within 90 days after the request. Enrollee requests for emergency treatment must be addressed within 24 hours after the request is received. 4) Dental providers must maintain adequate records of services provided. Records must fully disclose the nature and extent of each procedure performed and should be maintained in a manner consistent with standard dental practice. 5) The HMO affirms by execution of this Contract that the HMO's peer review systems are consistently applied to all dental subcontractors and providers. 6) The HMO must document, evaluate, resolve, and follow up on all verbal and written complaints they receive from Medicaid/BadgerCare enrollees related to dental services. 12. Accreditation a. The Department encourages the HMO to actively pursue accreditation by the National Committee for Quality Assurance (NCQA), the Joint Commission on Accreditation of Healthcare Organizations (JCAHO) or other recognized accrediting body approved by the Department. b. The achievement of full accreditation by one of the above organizations by the HMO may result in: reduction of on-site internal Quality Improvement program audits; fewer requests for periodic documentation to determine compliance with contract requirements: and fewer medical record reviews. Where accreditation standards conflict with the standard set forth in this agreement, the agreement prevails unless the accreditation standard is more stringent. HMO Contract for January 1, 2000 - December 31, 2001 -46-

13. Performance Improvement Priority Areas a. The HMO must develop and ensure implementation of program initiatives to address the specific clinical needs that have a higher prevalence in the HMO's enrolled population served under this agreement. These priority areas must include clinical and non-clinical Performance Improvement projects. The Department strongly advocates the development of collaborative relationships among HMOs, Local Health Departments, community based behavioral health treatment agencies (both public and private), and other community health organizations to achieve improved services in priority areas. Linkages between managed care organizations and public health agencies is an essential element for the achievement of the public health objectives, potentially reducing the quantity and intensity of services the HMO needs to provide. The Department and the HMO are jointly committed to on-going collaboration in the area of service and clinical care improvements by the development and sharing of "best practices." Annually, for the priority areas specified by the Department and listed below, the HMO must monitor and evaluate the quality of care and services through performance improvement projects for at least two of the listed areas in Article III, W. 13 (c) or (d) below, or an HMO may propose alternative performance improvement topics to be addressed by making a request in writing to the Department. The final or on-going status report for each project must be submitted by October 1, 2000, and October 1, 2001. The performance improvement topic must take into account: the prevalence of a condition among. or need for a specific service by, the HMO enrollees served under this agreement, enrollee demographic characteristics and health risks; and the interest of consumers or purchasers in the aspect of care or services to be addressed. The final annual report must include an overview of the performance improvement project that addresses all of the information in the Performance Improvement Project Outline in Addendum XV. b. Performance reporting will utilize standardized indicators appropriate to the performance improvement area. Minimum performance levels must be specified for each performance improvement area, using normative standards derived from regional, national norms, or from norms established by an appropriate practice organization. Goals for improvement for the "Priority Areas" listed in c. of this section, may be set by the organization itself. HMO Contract for January 1, 2000 - December 31, 2001 -47-

The organization must assure that improvements are sustained through periodic audits of relevant data and maintenance of the interventions that resulted in the improvement. The HMO agrees to open at least one new performance improvement project in 2001 with the report on that project to be submitted to the Department by October 1, 2002. In all cases, not less than two performance improvement projects must be reported to the Department in any year and not less than three different projects must be reported to the Department between 2000 and 2002. The organization must implement a performance improvement project in the area if a quality improvement opportunity is identified. The HMO must report to the Department on each study, including those areas where the HMO will not pursue a performance improvement project. c. Clinical Priority Areas: 1) prenatal services; 2) identification of adequate treatment for high-risk pregnancies, including those involving substance abuse; 3) evaluating the need for specialty services; 4) availability of comprehensive, ongoing nutrition education, counseling, and assessments; 5) Family Health Improvement Initiative: Smoking Cessation; 6) children with special health care needs; 7) outpatient management of asthma; 8) the provision of family planning services, 9) early postpartum discharge of mothers and infants; 10) STD screening and treatment; and 11) high volume/high risk services selected by the HMO. Non-Clinical Priority Areas: 1) grievances, appeals and complaints; 2) access to and availability of services. In addition, the HMO may be required to conduct performance improvement projects specific to the HMO and to participate in one annual statewide project that may be specified by the Department. d. Targeted Performance Improvement Measures The HMO must develop and implement programs that address the specific performance improvement initiatives described below. In addition, the HMO must measure and report activity in the six areas using the standardized indicators described. (The data reporting guidelines and specifications for reporting activity are found in Addendum XVI.) HMO Contract for January 1, 2000 - December 31, 2001 -48-

The HMO's activity in these areas must be reported (along with all other required data) to the Department by October 1, 2001, for calendar year 2000. Unless otherwise noted within a specific targeted performance improvement measure. the Department may specify minimum performance levels and require that the HMOs develop action plans to respond to performance levels below the minimum performance levels. In subsequent years that this Contract is in force, the Department may require the same or different Targeted Performance Improvement Measures. 1) Immunization Performance Improvement The objective for the year 2000 is to increase to 90 percent the proportion of children who are two years of age who are fully immunized (Healthy People 2000 goal). Immunization series complete is defined by the most recent Advisory Committee on Immunization Practices (ACIP) schedule found in Addendum XVIII. If the organization's rate on this measure is below the 90 percent objective and the organization did not achieve an improvement in adverse outcomes of at least 10 percent in the current reporting year over the previous reporting year, the organization must report a plan of action to the Department. Such plans may include, but are not limited to, initiation of a performance improvement project, increased outreach to members and providers, provider and member education or any other actions designed to increase delivery of childhood immunization services. The Department may directly monitor the delivery of immunization services to children from birth to age one using encounter data and other resources at its disposal to assess the sufficiency of immunizations in the first year of life. 2) Dental Preventive Care Performance Improvement The objective for calendar year 2000 is that HMO enrollees under this agreement will receive preventive dental services at a rate greater than or equal to 110 percent of the preventive dental services rate for Medicaid fee-for-service (FFS) recipients. The baseline year for determining the FFS rate that will be used for comparison is described in Addendum XVI. This measure applies only in situations where the HMO receives the capitation HMO Contract for January 1, 2000 - December 31, 2001 -49-

payment for total dental care in accordance with the HMO's Medicaid/BadgerCare Contract. 3) Lead Toxicity Screening Performance Improvement The minimum performance level for calendar year 2000 is 65 percent of all enrollees served under this agreement with their first or second birthday during the reporting period. Two rates must be reported, one for one year olds and one for two year olds. The minimum performance level for calendar year 2001 is 85 percent of all Medicaid/BadgerCare enrollees with their first or second birthday during the reporting period (calendar year). Detailed instructions for calculation of these measures are included in Addendum XVI. 4) Mental Health Follow Up Care Performance Improvement The minimum performance level for calendar years 2000 and 2001 is a rate of ambulatory follow-up treatment within 7 and 30 days of discharge after inpatient care for treatment of selected mental health disorders, that represents a reduction of 10 percentage points in adverse outcomes each year from the HMO prior baseline. For example: The 1999 HMO rate for follow-up at 30 days is 80 percent. The adverse outcome is represented by the 20 percent that did not have a follow-up visit within 30 days. The minimum performance level for 2000 would be calculated as a 10 percent improvement on the adverse outcomes as follows: .10 x 20 = 2.0. Thus, the minimum performance level for 2000 would be eighty two percent: 80 + 2.0= 82 percent. 5) Substance Abuse Follow-up Care Performance Improvement. The minimum performance level for calendar year 2000 and 2001 is a rate of ambulatory follow-up treatment within 7 and 30 days of discharge after inpatient care for substance abuse for individuals with specific substance abuse disorders, that represents a reduction of 10 percentage points in adverse outcomes each year from the HMO prior year baseline. See example 4) above in HMO Contract for January 1, 2000 - December 31, 2001 -50-

Mental Health Follow Up Care Performance Improvement for information on calculation of this measure. 6) Outpatient Management of Diabetes This targeted performance improvement project is designed to measure and improve performance of outpatient management services for people with Type 1 or Type 2 diabetes. The goal for 2000 is establishment of baseline data for the provision of the following services to enrollees with diabetes: . Hemoglobin A1c (HbA1c) testing, CPT-4 code 83036; . Lipid profile testing, CPT-4 procedure codes 80061, 83720 or 83721. The goal for 2001 will be for the HMO to improve the above rates of service provision by a 10 percent reduction in adverse outcomes from the baselines established in 2000. 7) Satisfaction with referral for MH/SA services performance improvement: This performance improvement area establishes a baseline measure of enrollee satisfaction with referral for mental health and substance abuse services based on enrollee responses to the following specific questions. These questions will be included in the standardized Consumer Assessment of Health Plan (CAHPS) survey administered by the Department. This measure assesses the number of enrollees indicating they "need help with an alcohol, drug or mental health problem" as the denominator and the number of enrollees that indicate they did or did not actually get counseling or help as the numerator. The results will be aggregated by the Department or its contractor and reported to the respective HMO. The Department will share analysis of the baseline data for the survey questions conducted in 1999 with HMOs. The Department will work closely with HMOs to review or revise if necessary survey questions for 2000 and 2001. Survey questions will be reviewed for reasonableness, validity and reliability. The HMO Contract for January 1, 2000 - December 31, 2001 -51-

Department will work closely with HMOs to set reasonable minimum performance levels once it is determined that the survey questions are reasonable, reliable and valid. X. Access to Premises Allow duly authorized agents or representatives of the State or Federal government, during normal business hours, access to HMO's premises or HMO subcontractor's premises to inspect, audit, monitor or otherwise evaluate the performance of the HMO's or subcontractor's contractual activities and shall within a reasonable time, but not more than 10 working days, produce all records requested as part of such review or audit. In the event right of access is requested under this Section, the HMO or subcontractor shall, upon request, provide and make available staff to assist in the audit or inspection effort, and provide adequate space on the premises to reasonably accommodate the State or Federal personnel conducting the audit or inspection effort. All inspections or audits shall be conducted in a manner as will not unduly interfere with the performance of HMO's or subcontractor's activities. The HMO will be given 15 business days to respond to any findings of an audit before the Department shall finalize its findings. All information so obtained will be accorded confidential treatment as provided under applicable laws, rules or regulations. Y. Subcontracts Assure that all subcontracts shall be in writing, shall comply with the provisions of Addendum I, shall include any general requirements of this Contract that are appropriate to the service or activity identified in Addendum I, and assure that all subcontracts shall not terminate legal liability of the HMO under this Contract. The HMO may subcontract for any function covered by this Contract, subject to the requirements of this Contract. Z. Compliance with Applicable Laws, Rules or Regulations Observe and comply with all Federal and State laws, rules or regulations in effect when the Contract is signed or which may come into effect during the term of the Contract, which in any manner affects HMO's performance under this Contract, except as specified in Article III, Section B. AA. Use of Providers Certified By Medicaid Program Except in emergency situations, use only providers who have been certified by the Medicaid program for those services required under this Contract. The Department reserves the right to withhold retrospectively from the capitation payments the monies related to services provided by non-Medicaid- certified providers, at the Medicaid fee-for-service rate for those services. (See HMO Contract for January 1, 2000 - December 31, 2001 -52-

Wisconsin Administrative Code. Chapter HFS 105, for provider certification requirements.) Every Medicaid HMO will require each physician providing services to enrollees to have a unique physician identifier, as specified in Section 1173(b) of the Social Security Act. BB. Reproduction and Distribution of Materials Reproduce and distribute at HMO expense, according to a reasonable Department timetable, information or documents sent to HMO from Department that contain information the HMO-affiliated providers must have in order to fully implement this Contract. CC. Provision of Interpreters Provide interpreter services for enrollees as necessary to ensure availability of effective communication regarding treatment, medical history or health education and/or any other component of this contract. Furthermore, the HMO must provide for 24 hour a day, 7 day a week access to interpreter services in languages spoken by those individuals otherwise eligible to receive the services provided by the HMO or its provider. Also, upon a recipient or provider request for interpreter services in a specific situation where care is needed, the HMO shall provide an interpreter in time to assist adequately with all necessary care, including urgent and emergency care. The HMO must clearly document all such actions and results. This documentation must be available to the Department at the Department's request. 1. Professional interpreters shall be used, when needed, where technical, medical, or treatment information or other matters, where impartiality is critical, are to be discussed or where use of a family member or friend as interpreter is otherwise inappropriate. Family members, especially children, should not be used as interpreters in assessments, therapy and other situations where impartiality is critical. 2. The HMO will maintain a current list of interpreters who are on "on call" status to provide interpreter services. Provision of interpreter services must be in compliance with Title VI of the Civil Rights Act. 3. The HMO must designate a person responsible for the administration of interpreter/translation services. 4. The HMO must receive Department approval of written policies and procedures for the provision of interpreter services. HMO Contract for January 1, 2000 - December 31, 2001 53

DD. Coordination and Continuation of Care Have systems in place to ensure well managed patient care, including at a minimum: 1. Management and integration of health care through primary provider/gatekeeper/other means. 2. Systems to assure referrals for medically necessary, specialty, secondary and tertiary care. 3. Systems to assure provision of care in emergency situations, including an education process to help assure that enrollees know where and how to obtain medically necessary care in emergency situations. 4. Specific referral requirements. HMO shall clearly specify referral requirements to providers and subcontractors and keep copies of referrals (approved and denied) in a central file or the patient's medical records. 5. Systems to assure provision of a clinical determination, within 10 working days, at the request of the enrollee, of the medical necessity and appropriateness of an enrollee to continue with MH or Substance Abuse providers who are not subcontracted by the HMO. If the HMO determines that the enrollee does not need to continue with the non-contracted provider, it must ensure an orderly transition of care. EE. HMO ID Cards The HMO may issue their own HMO ID cards. The HMO may not deny services to an enrollee solely for failure to present an HMO issued ID card. The Forward ID card will always determine HMO enrollment, even where an HMO issues HMO ID cards. FF. Federally Qualified Health Centers and Rural Health Centers (FQHCS and RHCS) If an HMO contracts with a facility or program, which has been certified as an FQHC or RHC by the Medicaid program, for the provision of services to its enrollees, the HMO must negotiate payment rates for that FQHC or RHC on the same basis as it negotiates with other clinics and primary providers and the HMO must increase the FQHC's or RHC's payment in direct proportion to the annual increase for physicians' services in the capitation rate paid to the HMO. In other words, if an HMO receives a 10 percent increase from the Department for physicians' services, the contracted rates paid to the FQHC or RHC either through capitation or fee-for-service, must be increased by at least 10 percent HMO Contract for January 1, 2000 - December 31, 2001 54

over those that were in effect on the date this Contract is signed. The Department will notify the HMOs of the percentage increase for physician services made in the capitation rates by the Department when such changes occur. An HMO which contracts with an FQHC or RHC must report to the Department within 45 days of the end of each quarter (for example, January 1 - March 31 is due May 15) the total amount paid to each FQHC or RHC, per month and as reported on the 1099 forms prepared by the HMO for each FQHC or RHC. FQHC or RHC payments include direct payments to a medical provider who is employed by the FQHC or RHC. The report should be for the entire HMO, aggregating all service areas if the HMO has more than one service area. GG. Coordination with Prenatal Care Services, School-Based Services, Targeted Case Management Services, a Child Welfare Agencies, and Dental Managed Care Organizations 1. Prenatal Care Services-- The HMO must sign an MOU (Addendum IX) with all agencies in the HMO service area that are Medicaid-certified prenatal care coordination agencies. The MOU will be effective on the effective date of the agency's PNCC certification or when both HMO and PNCC agency have signed it, whichever is later. In addition, if the PNCC wants to negotiate additional provisions into the MOU, the HMO must negotiate in good faith and document those negotiations. Such documentation must be available to the Department for review on request. In addition, the HMO must assign an HMO medical representative to interface with the care coordinator from the prenatal care coordination agency. This HMO representative shall work with the care coordinator to identify what Medicaid covered services, in conjunction with other identified social services, are to be provided to the enrollee. The HMO is not liable for medical services directed outside of their provider network by the care coordinator unless prior authorized by the HMO. In addition, the HMO is not required to pay for services provided directly by the Prenatal Care Coordinating provider: such services are paid on a fee-for-service basis by the Department. The main purpose of the MOU is to assure coordination of care between the HMO, that provides medical services, and the Prenatal Care Coordinating Agency, that provides outreach, risk assessment, care planning, care coordination, and follow-up. 2. School-Based Services-- The HMO must sign an MOU (Addendum XIII) with all School-Based Services (SBS) providers in the HMO service area who are Medicaid-certified (a School-Based Services provider is a school district or Cooperative Educational Service Agency (CESA) and not the individual schools within the school district). The MOU will be effective on the date when both the HMO and the SBS provider have signed it or the date the SBS provider is Medicaid-certified, whichever is HMO Contract for January 1, 2000 - December 31, 2001 -55-

later. As described in Addendum XIII, the purpose of the MOU is to develop policies and procedures to avoid duplication of services and to promote continuity of care between the HMO and SBS provider. There are many situations where schools cannot provide services: after school hours, during school vacations, and during the summer, and these situations may interrupt the course of treatment or otherwise affect the continuity of care. In addition, the fact that HMOs and SBS providers may provide the same services could lead to the duplication of services. Therefore, an MOU is essential for the avoidance of duplication of services and the assurance of continuity of care. School-based services are paid fee-for-service by Medicaid. SBS providers, as a requirement of Medicaid/BadgerCare certification, will be directed to negotiate MOUs with HMOs. 3. Targeted Case Management-- The HMO must assign an HMO medical representative to interface with the case manager from the Targeted Case Management (TCM) agency. This HMO representative shall work with the case manager to identify what Medicaid covered services, in conjunction with other identified social services, are to be provided to the enrollee. The HMO is not required to pay for medical services directed outside of their provider network by the case manager unless prior authorized by the HMO. The Department will distribute a statewide list of Medicaid-certified TCM agencies to the HMOs and periodically update the list. Addendum XIV contains guidelines for how HMOs and TCM agencies should coordinate care. 4. Child Welfare Agencies-- Milwaukee County HMOs must designate at least one individual to serve as a contact person for the Bureau of Milwaukee Child Welfare (BMCW) agency. If the HMO chooses to designate more than one contact person, the HMO should identify the service area for which each contact person is responsible. The HMO must provide all Medicaid covered mental health and substance abuse services to individuals identified as clients of the BMCW agency. Disputes regarding the medical necessity of services identified in the Family Treatment Plan will be adjudicated using the dispute process outlined in Addendum X, except that HMOs will provide court ordered services in accordance with Addendum II. Addendum X contains guidelines for how Milwaukee County HMOs and the Bureau of Milwaukee Child Welfare agency will work together to provide mental health and substance abuse services. HMO Contract for January 1, 2000 - December 31, 2001 -56-

5. Dental Managed Care Pilot Programs-- Once the Department's contract with dental managed care organizations (MCOs) has been finalized, HMOs providing contract services to enrollees residing in Ashland, Bayfield, Douglas and Iron Counties shall sign MOUs with the contracted MCOs to provide Medicaid dental services. The purpose of the MOUs shall be to: . Coordinate dental services provided by MCO dental providers in HMO affiliated hospitals and emergency rooms: and . Ensure necessary and appropriate information is shared between an enrollee's primary dental provider and an enrollee's primary care physician. The MOU shall be signed by both parties. It will be the responsibility of the Department's MCO(s) to initiate contracts with the HMO for implementation. HH. Physician Incentive Plans A physician incentive plan is any compensation arrangement between the HMO and a physician or physician group that may directly or indirectly have the effect of reducing or limiting services provided with respect to individuals enrolled with the HMO. 1. The HMO shall fully comply with the physician incentive plan requirements specified in 42 CFR s. 417.479(d) through (g) and the requirements relating to subcontracts set forth in 42 CFR s. 417.479(i), as those provisions may be amended from time to time, and shall submit to the Department its physician incentive plans as required under 42 CFR s. 434.470 and as requested by the Department. II. Advance Directives Maintain written policies and procedures related to advance directives. An advance directive is a written instruction, such as a living will or durable power of attorney for health care, recognized under Wisconsin law (whether statutory or recognized by the courts of Wisconsin) and relating to the provision of such care when the individual is incapacitated. HMO shall: 1. Provide written information at time of HMO enrollment to all adults receiving medical care through the HMO regarding: (a) the individual's rights under Wisconsin law (whether statutory or recognized by the courts of Wisconsin) to make decisions concerning such medical care, including the right to accept or refuse medical or surgical treatment and HMO Contract for January 1, 2000 - December 31, 2001 -57-

the right to formulate advance directives; and (b) the HMO's written policies respecting the implementation of such rights. 2. Document in the individual's medical record whether or not the individual has executed an advance directive. 3. Shall not discriminate in the provision of care or otherwise discriminate against an individual based on whether or not the individual has executed an advance directive. This provision shall not be construed as requiring the provision of care which conflicts with an advance directive. 4. Ensure compliance with requirements of Wisconsin law (whether statutory or recognized by the courts of Wisconsin) respecting advance directives. 5. Provide education for staff and the community on issues concerning advance directives. The above provisions shall not be construed to prohibit the application of any Wisconsin law which allows for an objection on the basis of conscience for any health care provider or any agent of such provider which as a matter of conscience cannot implement an advance directive. JJ. Ineligible Organizations Upon obtaining information or receiving information from the Department or from another verifiable source, exclude from participation in the HMO all organizations which could be included in any of the following categories (references to the Act in this section refer to the Social Security Act): 1. Entities Which Could Be Excluded Under Section 1128(b)(8) of the Social Security Act.--These are entities in which a person who is an officer, director, agent or managing employee of the entity, or a person who has direct or indirect ownership or control interest of 5 percent or more in the entity has: a. Been convicted of the following crimes: 1) Program related crimes, i.e., any criminal offense related to the delivery of an item or service under Medicare or Medicaid (see Section 1128(a)(1) of the Act); 2) Patient abuse, i.e., criminal offense relating to abuse or neglect of patients in connection with the delivery of health care (see Section 1128(a)(2) of the Act); HMO Contract for January 1, 2000 - December 31, 2001 -58-

3) Fraud, i.e., a State or Federal crime involving fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct in connection with the delivery of health care or involving an act or omission in a program operated by or financed in whole or part by Federal, State or local government (see Section 1128(b)(1) of the Act); 4) Obstruction of an investigation, i.e., conviction under State or Federal law of interference or obstruction of any investigation into any criminal offense described in subsections a, b, or c (see Section 1128(b)(2) of the Act): or 5) Offenses relating to controlled substances, i.e., conviction of a State or Federal crime relating to the manufacture, distribution, prescription or dispensing of a controlled substance (see Section 1128(b)(3) of the Act). b. Been Excluded, Debarred, Suspended or Otherwise Excluded from participating in procurement activities under the Federal Acquisition Regulation or from participating in non procurement activities under regulations issued pursuant to Executive Order No. 12549 or under guideline implementing such order. c. Been Assessed a Civil Monetary Penalty under Section 1128A of the Act. --Civil monetary penalties can be imposed on individual providers, as well as on provider organizations, agencies, or other entities by the DHHS Office of Inspector General. Section 1128A authorizes their use in case of false or fraudulent submittal of claims for payment, and certain other violations of payment practice standards. (See Section 1128(b)(8)(B)(ii) of the Act.) 2. Entities Which Have a Direct or Indirect Substantial Contractual Relationship with an Individual or Entity Listed in subsection A.--A substantial contractual relationship is defined as any contractual relationship which provides for one or more of the following services: a. The administration, management, or provision of medical services; b. The establishment of policies pertaining to the administration, management, or provision of medical services; or c. The provision of operational support for the administration, management, or provision of medical services. HMO Contract for January 1, 2000 - December 31, 2001 -59-

3. Entities Which Employ, Contract With, or Contract Through Any Individual or Entity That is Excluded From Participation in Medicaid under Section 1128 or 1128A, for the Provision (Directly or Indirectly) of Health Care, Utilization Review, Medical Social Work or Administrative Services.--For the services listed, HMO must exclude from contracting any entity which employs, contracts with, or contracts through an entity which has been excluded from participation in Medicaid by the Secretary under the authority of Section 1128 or 1128A of the Act. HMO attests by signing this Contract that it excludes from participation in the HMO all organizations which could be included in any of the above categories. KK. Clinical Laboratory Improvement Amendments Use only certain laboratories. All laboratory testing sites providing services under this Contract must have a valid Clinical Laboratory Improvement Amendments (CLIA) certificate along with a CLIA identification number, and comply with CLIA regulations as specified by 42 CFR Part 493, "Laboratory Requirements." Those laboratories with certificates will provide only the types of tests permitted under the terms of their certification. LL. Limitation on Fertility Enhancing Drugs The HMO must get prior authorization from the Chief Medical Officer in the Division of Health Care Financing before an HMO provider treats an enrollee with any of the following drug products: Chorionic Gonadotropin, Clomiphene, Gonadorelin, Menotropins, Urofollitropin and any other new fertility enhancing drugs. MM. Reporting of Communicable Diseases As required by Wis. Stats. 252.05, 252.15(5)(a)6 and 252.17(7)(9b), Physicians, Physician Assistants, Podiatrists, Nurses, Nurse Midwives, Physical Therapists, and Dietitians affiliated with a Medicaid HMO shall report the appearance, suspicion or diagnosis of a communicable disease or death resulting from a communicable disease to the Local Health Department for any enrollee treated or visited by the provider. Reports of human immunodeficiency virus (HIV) infection shall be made directly to the State Epidemiologist. Such reports shall include the name, sex, age, residence, communicable disease, and any other facts required by the Local Health Department and Wisconsin Division of Public Health. Such reporting shall be made within 24 hours of learning about the communicable disease or death or as specified in Wis. Admin. Code HFS 145.04, Appendix A. Charts and reporting forms on communicable diseases are available from the Local Health Department. Each laboratory subcontracted or otherwise affiliated with the HMO shall report the identification or suspected HMO Contract for January 1, 2000 - December 31, 2001 -60-

identification of any communicable disease listed in Wis. Admin. Rules 145,. Appendix A to the local health department; reports of HIV infections shall be made directly to the State Epidemiologist. NN. MedicaBadgerCareare HMO Advocate Requirements Each HMO must employ a Medicaid/BadgerCare HMO Advocate during the entire contract term. The HMO Advocate is to work with both enrollees and providers to facilitate the provision of Medicaid benefits to enrollees; is responsible for making recommendations to management on any changes needed to improve either the care provided or the way care is delivered; and must be in an organizational location within the HMO which provides the authority needed to carry out these tasks. The detailed requirements of the HMO Advocate are listed below: 1. Functions of the Medicaid/BadgerCare HMO Advocate(s) a. Investigation and resolution of access and cultural sensitivity issues identified by HMO staff, State staff, providers, advocate organizations, and enrollees. b. Monitoring formal and informal grievances with the grievance personnel for purposes of identification of trends or specific problem areas of access and care delivery. An aspect of the monitoring function is the ongoing participation in the HMO grievance committee. c. Recommendation of policy and procedural changes to HMO management including those needed to ensure and/or improve enrollee access to care and enrollee quality of care. Changes can be recommended for both internal administrative policies and for subcontracted providers. d. Act as the primary contact for enrollee advocacy groups. Work with enrollee advocacy groups on an ongoing basis to identify and correct enrollee access barriers. e. Act as the primary contact for local community based organizations (local governmental units, non-profit agencies, etc.). Work with the local community based organizations on an ongoing basis to acquire knowledge and insight regarding the special health care needs of enrollees. f. Participate in the Advocacy Program for Managed Care that is organized by the Department. Such participation includes the following: attendance, on an as needed basis, at the Regional HMO Contract for January 1, 2000 - December 31, 2001 -61-

Forums chaired by a Department staff person, at the semiannual Statewide Forum; work with Division of Health Care Financing Managed Care staff person assigned to the HMO on issues of access to medical care and quality of medical care; work with the Enrollment Contractor staff persons on issues of access to medical care, quality of medical care, and enrollment/disenrollment; attendance, on an as needed basis, at bi-monthly Advocacy Team meetings, which will be attended by the Division of Health Care Financing Managed Care Staff, enrollment contractor staff, community based organizations, recipient service representatives from the Fiscal Agent, and EDS ombuds. g. Ongoing analysis of internal HMO system functions, with HMO staff, as these functions affect enrollee access to medical care and enrollee quality of medical care. h. Organization and provision of ongoing training and educational materials for HMO staff and providers to enhance their understanding of the values and practices of all cultures with which the HMO interacts. i. Provision of ongoing input to HMO management on how changes in the HMO provider network will affect enrollee access to medical care and enrollee quality and continuity of care. Participation in the development and coordination of plans to minimize any potential problems that could be caused by provider network changes. j. Review and approve all HMO informing material to be distributed to enrollees for the purpose of assessing clarity and accuracy. k. Provision of assistance to enrollees and their authorized representatives for the purpose of obtaining medical records. l. The lead advocate position will be responsible for overall evaluation of the HMO's internal advocacy plan and will be required to monitor any contracts the HMO may enter into for external advocacy with culturally diverse associations or agencies. The lead advocate will be responsible for training the associations or agencies and assuring their input into the HMO's advocacy plan. HMO Contract for January 1, 2000 - December 31, 2001 -62-

2. Staff Requirements and Authority of the Medicaid/BadgerCare HMO Advocate a. At a minimum one HMO Advocate must be located in the organizational structure so that the Advocate has the authority to perform the functions and duties listed in (1)(a-l). The HMO Certification Application requires HMOs to state the staffing levels to perform the functions and duties listed in (1)(a-1) in terms of number of full and part time staff and total Full Time Equivalents (FTEs) assigned to these tasks. The Department assumes that an HMO acting as an Administrative Service Organization (ASO) for another HMO will have one Advocate or FTE position for each ASO contract as well as maintaining their own internal advocate. An HMO may employ less than a Full Time Equivalent (FTE) advocate position, but must justify to the satisfaction of the Department why less than one FTE position will suffice the HMO's enrollee population. The HMO must also regularly evaluate the advocate position, workplan, and job duties and allocate an FTE advocate position to meet the duties listed in (1)(a-l) if there is significant increase in the HMO's enrollee population or in the HMO service area. The Department reserves the right to require an HMO to employ an FTE advocate position if the HMO does not demonstrate adequacy of a part-time advocate position. In order to meet the requirement for the Advocate position statewide, the DHFS encourages HMOs to contract or have a formal memorandum of understanding for advocacy and/or translation services with associations or organizations who have culturally diverse populations within the HMO service area. However, the overall or lead responsibility for the advocate position will be within each HMO. HMOs must monitor the effectiveness of the associations and agencies under contract and may alter the contract(s) with written notification to the Department. b. The HMO Advocate shall have authority for facilitating and assuring access to all medically necessary services as stipulated in this Contract for each enrollee. HMO Contract for January 1, 2000 - December 31, 2001 -63-

c. The HMO Advocate staffing levels submitted in the HMO Certification Application shall be maintained, and solely devoted to the functions and duties listed in (1)(a-l) throughout the contract term. Changes in the HMO Advocate staffing levels must be approved by the Department thirty days prior to the effective date of the change. d. The HMO Advocate shall develop prior to contract signing, and shall maintain and modify as necessary, throughout the Contract term, a Medicaid/BadgerCare HMO Advocacy workplan, with time lines and activities specified. OO. HMO Designation of Staff Person as Contract Representative The HMO is required to designate a staff person to act as liaison to the Department on all issues that relate to the contract between the Department and the HMO. The contract representative will be authorized to represent the HMO regarding inquiries pertaining to the Contract, will be available during normal business hours, and will have decision making authority in regard to urgent situations that arise. The Contract representative will be responsible for follow-up on contract inquiries initiated by the Department. PP. Subcontracts with Local Health Departments The Department encourages the HMO to contract with local health departments for the provision of care to Medicaid/BadgerCare enrollees in order to assure continuity and culturally appropriate care and services. Local health departments can provide HealthCheck outreach and screening, immunizations, blood lead screening services, and services to targeted populations within the community for the prevention, investigation, and control of communicable diseases (e.g., tuberculosis, HIV/AIDS, sexually transmitted diseases, hepatitis and others). WIC projects provide nutrition services and supplemental foods, breastfeeding promotion and support; and immunization screening. Many projects screen for blood lead poisoning during the WIC appointment. The Department encourages HMOs to work closely with local health departments as noted in Addendum XXIV - Recommendations for Coordination between HMOs and Local Health Departments and Community-Based Health Organizations. Local health departments have a wide variety of resources that could be coordinated with HMOs to produce more efficient and cost effective care for HMO enrollees. Examples of such resources are ongoing programs of medical services, materials on health education, prevention, and disease states, expertise on outreaching specific subpopulations, communication networks with varieties of medical providers, advocates, community-based health organizations, and HMO Contract for January 1, 2000 - December 31, 2001 -64-

social service agencies, and access to ongoing studies of and information about health status and disease trends and patterns. QQ. Subcontracts with Community-Based Health Organizations The Department encourages the HMO to contract with community-based health organizations for the provision of care to Medicaid/BadgerCare enrollees in order to assure continuity and culturally appropriate care and services. Community-based organizations can provide HealthCheck outreach and screening, immunizations, family-planning services, and other types of services. The Department encourages HMOs to work closely with community-based health organizations as noted in Addendum XXIV - Recommendations for Coordination between HMOs and Local Health Departments and Community-Based Health Organizations. Community-based health organizations may also provide services, such as WIC services, that HMOs are required by Federal law to coordinate with and refer to, as appropriate. RR. Prescription Drugs I. If an HMO elects not to cover dental services, the HMO is liable for the cost of all medically necessary prescription drugs when ordered by a certified Medicaid dental provider. 2. When an enrollee elects to use a family planning provider that is non-HMO affiliated, the HMO is liable for the cost of all medically necessary drugs when ordered by a certified Medicaid family planning provider. ARTICLE IV IV. FUNCTIONS AND DUTIES OF THE DEPARTMENT In consideration of the functions and duties of the HMO contained in this Contract, the Department shall: A. Eligibility Determination Identify Medicaid/BadgerCare recipients who are eligible for enrollment in HMOs as a result of eligibility under the following eligibility status: HMO Contract for January 1, 2000 - December 31, 2001 -65-

=============================================================================================================== Med Stat Cap Rate* Description =============================================================================================================== 31, WN A AFDC-Regular --------------------------------------------------------------------------------------------------------------- 32 A AFDC-Unemployed --------------------------------------------------------------------------------------------------------------- 38,39 A AFDC-Related, No Cash Payment --------------------------------------------------------------------------------------------------------------- CC, CM, GC, PC A Healthy Start Children --------------------------------------------------------------------------------------------------------------- E2 A AFDC-Related, No Cash Payment --------------------------------------------------------------------------------------------------------------- GE A Healthy Start Children Ages 15-18 --------------------------------------------------------------------------------------------------------------- N1, N2 A Medicaid Newborn --------------------------------------------------------------------------------------------------------------- UA, WU A AFDC-Related, Unemployed --------------------------------------------------------------------------------------------------------------- WH A AFDC Employed over 100 Hours a Month --------------------------------------------------------------------------------------------------------------- X1, X2, X3, X4 A AFDC-Related, No Cash Payment --------------------------------------------------------------------------------------------------------------- B1 A BadgerCare -- Income equal or greater than 100% of FPL, and less than or equal to 150% of FPL, Kids. No premium. --------------------------------------------------------------------------------------------------------------- B4 A BadgerCare -- Income equal or greater than 100% of FPL, and less than or equal to 150% of FPL, Adults. No premium. --------------------------------------------------------------------------------------------------------------- B2 A BadgerCare -- Income greater than 150% of FPL, and less than 185% of FPL, Kids, Premium. --------------------------------------------------------------------------------------------------------------- B5 A Income greater than 150% of FPL, and less than 185% of FPL, Adults, Premium. --------------------------------------------------------------------------------------------------------------- B3 A Income equal or greater than 185% of the FPL, and less than 200% of the FPL, Kids, Premium. --------------------------------------------------------------------------------------------------------------- B6 A Income equal or greater than 185% of the FPL, and less than 200% of the FPL, Adults, Premium. --------------------------------------------------------------------------------------------------------------- GP A Income less than 100% of FPL, Adults Parents of OBRA kids (AFDC), No premium. --------------------------------------------------------------------------------------------------------------- 95 B Pregnant Women in Intact Families --------------------------------------------------------------------------------------------------------------- A6, A7, A8, A9 B Pregnant Woman, IRCA Alien --------------------------------------------------------------------------------------------------------------- E3, E4 B Extension for Pregnant Woman --------------------------------------------------------------------------------------------------------------- PW, P1 B Healthy Start Pregnant Women =============================================================================================================== *A = AFDC/Healthy Start Children/BadgerCare capitation rate. *B = Pregnant Women Healthy Start capitation rate. HMO Contract for January 1, 2000 - December 31, 2001 -66-

B. Enrollment Promptly notify the HMO of all Medicaid/BadgerCare recipients enrolled in the HMO under this Contract. Notification shall be effected through the HMO Enrollment Reports. All recipients listed as an ADD or CONTINUE on either the Initial or Final HMO Enrollment Report are members of the HMO during the enrollment month. The reports shall be generated in the sequence specified under HMO ENROLLMENT REPORTS. These reports shall be in both tape and hard copy formats or available through electronic file transfer capability and shall include Medical Status Codes. The Department will make all reasonable efforts to enroll pregnancy cases as soon as possible. C. Disenrollment Promptly notify the HMO of all Medicaid/BadgerCare recipients no longer eligible to receive services through the HMO under this Contract. Notification shall be effected through the HMO Enrollment Reports which the Department will transmit to the HMO for each month of coverage throughout the term of the Contract. The reports shall be generated in the sequence under HMO ENROLLMENT REPORTS. Any recipient who was enrolled in the HMO in the previous enrollment month, but does not appear as an ADD or CONTINUE on either the Initial or Final HMO Enrollment Report for the current enrollment month, is disenrolled from the HMO effective the last day of the previous enrollment month. D. HMO Enrollment Reports For each month of coverage throughout the term of the Contract, the Department shall transmit "HMO Enrollment Reports" to the HMO. These reports will provide the HMO with ongoing information about its Medicaid/ BadgerCare enrollees and disenrollees and will be used as the basis for the monthly capitation claims described in Article V--PAYMENT TO THE HMO. The HMO Enrollment Reports will be generated in the following sequence: 1. The Initial HMO Enrollment Report will list all of the HMO's enrollees and disenrollees for the enrollment month who are known on the date of report generation. The Initial HMO Enrollment Report will be received by the HMO on or before the fifth day of each month covered by the Contract. A capitation claim shall be generated for each enrollee listed as an ADD or CONTINUE on this report. Enrollees who appear as PENDING on the Initial Report and are reinstated into the HMO during the month will appear as a CONTINUE on the Final Report and a capitation claim shall be generated at that time. HMO Contract for January 1, 2000 - December 31, 2001 -67-

2. The final HMO Enrollment Report will list all of the HMO's enrollees for the enrollment month, who were not included in the Initial HMO Enrollment Report. The Final HMO Enrollment Report will be received by the HMO on or before the tenth day of each month subsequent to the coverage month. A capitation claim shall be generated for each enrollee listed as an ADD or CONTINUE on this report. Enrollees in PENDING status will not be included on the final report. E. Utilization Review and Control Waive, to the extent allowed by law, any present Department requirements for prior authorization, second opinions, co-payment, or other Medicaid restrictions for the provision of contract services provided by the HMO to enrollees, except as may be provided in Addendum II. F. HMO Review Submit to HMOs for prior approval materials that describe specific HMOs and that will be distributed by the Department or County to recipients. G. HMO Review of Study or Audit Results Submit to HMOs for a 15 business day review/comment period, any HMO Medicaid/BadgerCare audits, the annual HMO Comparison Report, HMO Consumer Satisfaction Reports, or any other HMO Medicaid studies the Department releases to the public. H. Vaccines Provide certain vaccines to HMO providers for administration to Medicaid/ BadgerCare HMO enrollees according to the policies and procedures in the Wisconsin Medicaid and BadgerCare Physicians Services Handbook. The Department will reimburse the HMO for the cost of vaccines that are newly approved during the contract year and not yet part of the Vaccine for Children program. The cost of the vaccine shall be the same as the cost to the Department of buying the new vaccine through the Vaccine for Children program. The HMO retains liability for the cost of administering the vaccines. I. Coordination of Benefits Maintain a report of recovered money reported by the HMO and its subcontractor. HMO Contract for January 1, 2000 - December 31, 2001 -68-

J. Wisconsin Medicaid Provider Reports Provide a monthly electronic listing of all Wisconsin Medicaid certified providers to include, at a minimum, the name, address, Wisconsin Medicaid provider ID number, and dates of certification in Wisconsin Medicaid. ARTICLE V V. PAYMENT TO THE HMO A. Capitation Rates In full consideration of contract services rendered by the HMO, the Department agrees to pay the HMO monthly payments based on the capitation rate specified in Addendum VII. The capitation rate shall be prospectively designed to be less than the cost of providing the same services covered under this Contract to a comparable Medicaid population on a fee-for-service basis. The capitation rate shall not include any amount for recoupment of losses incurred by the HMO under previous contracts. The Department shall have the right to make separate payments to subcontractors directly on a monthly basis when the Department determines it is necessary to assure continued access to quality care. Such separate payment will be made only to subcontractors that receive more than 90 percent of the contracted monthly capitation rate from the Department to the HMO. B. Actuarial Basis The capitation rate is calculated on an actuarial basis (specified in Addendum VII) recognizing the payment limits set forth in 42 CFR 447.361. C. Renegotiation The monthly capitation rates set forth in this article shall not be subject to renegotiation during the contract term or retroactively after the contract term, unless such renegotiation is required by changes in Federal or State laws, rules or regulations. D. Reinsurance The HMO may obtain a risk-sharing arrangement from an insurer other than the Department for coverage of enrollees under this Contract, provided that the HMO remains substantially at risk for providing services under this Contract. HMO Contract for January 1, 2000 - December 31, 2001 -69-

E. Neonatal Intensive Care Unit Risk-Sharing The Department agrees to reimburse each HMO for a portion of the neonatal intensive care unit (NICU) costs incurred by the HMO if the HMO's average number of NICU days per thousand member year exceeds 75 days per thousand member year during the contract period. This reimbursement shall be provided in the following manner: 1. The Department shall reimburse the HMO for the average number of NICU days per thousand member years that the HMO exceeds 75 NICU days per thousand member years during the contract period. For each day that the HMO's average number of NICU days per thousand member years exceeds 75 NICU days per thousand member years, the Department will reimburse the HMO for ninety percent (90%) of the HMO's NICU cost per day, not to exceed $1,443 per day. 2. The HMO's NICU cost per day shall include the HMO's NICU inpatient payment per day and the HMO's associated physician payments. Associated physician payments refers to total HMO payments made by the HMO to the physician(s) for services provided to the infant during the NICU stay. Associated physician payments will be divided by the number of days reported for the NICU stay to determine the HMO's payment per day of associated physician payments. 3. Neonatal intensive care unit days cover any newborn transferred or directly admitted after birth, to a Level II, Level III or Level IV SCN/NICD for treatment and/or observation under the care of a neonatologist or pediatrician. NICU coverage will continue until the infant is deemed medically stable to be discharged to a newborn nursery, medical floor or home. NICU days will also cover any newborn infant transferred or directly admitted after birth to a Level II, Level III or Level IV SCN/NICD who requires transfer to another institution for a severe, compromised physical status, diagnostic testing or surgical intervention which cannot be provided for at the hospital of initial admission. NICU coverage will continue until the infant is transferred back to the initial hospital and deemed medically stable to be discharged to a newborn nursery, medical floor or home. Level I facilities are those which are designed primarily for the care of neonatal patients who have no complications but which are able to provide competent emergency services when the need arises. Level II facilities provide a full range of services for low birthweight neonates who are not sick, but require frequent feeding, and neonates who require more hours of nursing than do normal neonates. Level III facilities HMO Contract for January 1, 2000 - December 31, 2001 -70-

provide a full range of newborn intensive care services for neonatal patients who do not require intensive care but require 6-12 hours of nursing each day. Level IV facilities provide a full range of services for severely ill neonates who require constant nursing and continuous cardiopulmonary and other support. Note: HMOs cannot claim additional reimbursement under both the NICU risk-sharing policy and the ventilator dependent policy for the same enrollee on the same date of service. 4. HMOs must submit all data requested by the Department for calculating the NICU reimbursement in the format specified by the Department before May 1 of the following calendar year. The data and data format required is defined in Addendum IX. The Department will calculate the NICU reimbursement amount by county. 5. NICU reimbursement shall be made by the Department to the HMO after the end of the contract year, following submittal of all needed NICU data from the HMO. The Department will reimburse the HMO within sixty days of receipt of all necessary data from the HMO. A final adjustment to the NICU reimbursement amount may be made by the Department one year after the initial payment. This adjustment will be based on updated NICU days and eligible months. F. Payment Schedule Payment to the HMO shall be based on the HMO Enrollment Reports which the Department will transmit to the HMO according to the schedule in Article IV. D. Payment for each person listed as an ADD or CONTINUE on the HMO Enrollment Reports shall be made by the Department within 60 days of the date the report is generated. Also, all retroactive capitation payments for newborns shall be paid within 60 days of the child's first appearance on an enrollment report. (See Article V. G.) Any claim that is not paid within these time limits shall be denied by the Department and the recipient shall be disenrolled from the HMO for the capitation month specified on the claim. Notification of all paid and denied claims shall be given through the weekly Remittance Status Report, which is available on both tape and hard copy. G. Capitation Payments For Newborns The HMO shall authorize provision of contract services to the newborn child of an enrolled mother for the first ten days of life. The child's date of birth should be counted as day one. In addition, if the child is reported within 100 days of its date of birth, the HMO shall provide contract services to the child from its date of birth until the child is disenrolled from the HMO. The HMO will receive a separate capitation payment for the month of birth and for all other HMO Contract for January 1, 2000 - December 31, 2001 -71-

months the HMO is responsible for providing contract services to the child. If the child is not reported within 100 days of its date of birth the child will not be retroactively enrolled into the HMO. In this case the HMO is not responsible for payment of services provided prior to the child's enrollment and will receive no capitation payments for that time period and may recoup from providers for any services that were authorized in that 100 day time period. The providers who gave services in this 100 day time period may then bill the Department on a fee-for-service basis. More detailed information for providers on billing the Department on a fee-for- service basis in these situations can be found in Part A, Section IX, of the Wisconsin Medicaid Provider Handbook HMOs, or their providers, must complete an HMO Newborn Report (example and instructions in Addendum XVII) for newborns. The HMO shall report all births to the Department's fiscal agent as soon as possible after the date of birth, but at least monthly. Prompt HMO reporting of newborns will facilitate retroactive enrollment and capitation payments for newborns, since this newborn reporting will ensure the newborn's Medicaid/BadgerCare eligibility for the first 12 months of life contingent upon the newborn continuously residing with the mother. H. Coordination of Benefits (COB) The HMO must actively pursue, collect and retain all monies from all available resources for services to enrollees covered under this Contract except where the amount of reimbursement the HMO can reasonably expect to receive is less than the estimated cost of recovery (this exception does not apply to collections for AIDS and ventilator dependent patients), or except as provided in Addendum II. COB recoveries will be done by post- payment billing (pay and chase) for certain prenatal care and preventive pediatric services. Post-payment billing will also be done in situations where the third party liability is derived from a parent whose obligation to pay is being enforced by the State Child Support Enforcement Agency and the provider has not received payment within 30 days after the date of service. 1. Cost effectiveness of recovery is determined by, but not limited to time, effort, and capital outlay required to perform the activity. The HMO must be able to specify the threshold amount or other guidelines used in determining whether to seek reimbursement from a liable third party, or describe the process by which the HMO determines seeking reimbursement would not be cost effective, upon request of the Department. HMO Contract for January 1, 2000 - December 31, 2001 -72-

2. To assure compliance, records shall be maintained by the HMO of all COB collections and reports shall be made quarterly on the form designated by the Department in Addendum VI. HMOs must be able to demonstrate that appropriate collection efforts and appropriate recovery actions were pursued. The Department has the right to review all billing histories and other data related to COB activities for enrollees. HMOs must seek from all enrollees information on other available resources. HMOs must also seek to coordinate benefits before claiming reimbursement from the Department for the AIDS and ventilator dependent enrollees: a. Other available resources may include, but are not limited to, all other State or Federal medical care programs which are primary to Medicaid, group or individual health insurance, ERISAs, service benefit plans, the insurance of absent parents who may have insurance to pay medical care for spouses or minor enrollees, and subrogation/workers compensation collections. b. Subrogation collections are any recoverable amounts arising out of settlement of personal injury, medical malpractice, product liability, or Worker's Compensation. State subrogation rights have been extended to HMOs under s. 49.89(9), Act 31, Laws of 1989. After attorneys' fees and expenses have been paid, the HMO shall collect the full amount paid on behalf of the enrollee. 3. Section 1912(b) of the Social Security Act must be construed in a beneficiary-specific manner. The purpose of the distribution provision is to permit the beneficiary to retain TPL benefits to which he or she is entitled to except to the extent that Medicaid (or the HMO on behalf of Medicaid) is reimbursed for its costs. The HMO is free, within the constraints of State law and this contract, to make whatever case it can to recover the costs it incurred on behalf of its enrollee. It can use the Medicaid fee schedule, an estimate of what a capitated physician would charge on a fee-for-service basis, the value of the care provided in the market place or some other acceptable proxy as the basis of recovery. However, any excess recovery, over and above the cost of care (however the HMO chooses to define that cost), must be returned to the beneficiary. HMOs may not collect from amounts allotted to the beneficiary in a judgement or court-approved settlement. The HMO is to follow the practices outlined in the DHFS Casualty Recovery Manual. 4. Where the HMO has entered a risk-sharing arrangement with the Department, the COB collection and distribution shall follow the procedures described in Addendum III of this Contract. Act 27, Laws of 1995 extended assignment rights to HMOs under s. 632.72. HMO Contract for January 1, 2000 - December 31, 2001 -73-

5. COB collections are the responsibility of the HMO or its subcontractors. Subcontractors must report COB information to the HMO. HMOs and subcontractors shall not pursue collection from the enrollee, but directly from the third party payer. Access to medical services will not be restricted due to COB collection. 6. The following requirement shall apply if the Contractor (or the Contractor's parent firm and/or any subdivision or subsidiary of either the Contractor's parent firm or of the Contractor) is a health care insurer (including, but not limited to, a group health insurer and/or health maintenance organization) licensed by the Wisconsin Office of the Commissioner of Insurance and/or a third-party administrator for a group or individual health insurer(s), health maintenance organization(s), and/or employer self-insurer health plan(s): a. Throughout the Contract term, these insurers and third-party administrators shall comply in full with the provision of subsection 49.475 of the Wisconsin Statutes. Such compliance shall include the routine provision of information to the Department in a manner and electronic format prescribed by the Department and based on a monthly schedule established by the Department. The type of information provided shall be consistent with the Department's written specifications. b. Throughout the Contract term, these insurers and third-party administrators shall also accept and properly process postpayment billings from the Department's fiscal agent for health care services and items received by Wisconsin Medicaid enrollees. 7. If, at any time during the contract term, any of the insurers or third party administrators fail, in whole or in part, to adhere to the requirements of (Article V. H. subsection 6. (a.) or (6.(b.)) above, the Department may take the remedial measures specified in Article IX. D. 1. and Article X. B. (2). I. Recoupments The Department will not normally recoup HMO per capita payments when the HMO actually provided service. However, in situations where the Medicaid enrollee cannot use HMO facilities, the Department will recoup HMO capitation payments. Such situations are described more fully below: 1. The Department will recoup HMO capitation payments for the following situations where an enrollee's HMO status has changed before the 1st day of a month for which a capitation payment has been made: HMO Contract for January 1, 2000 - December 31, 2001 -74-

a. enrollee moves out of the HMO's service area b. enrollee enters a public institution c. enrollee dies 2. The Department will recoup HMO capitation payments for the following situations where the Department initiates a change in an enrollee's HMO status on a retroactive basis, reflecting the fact that the HMO was not able to provide services. In these situations, recoupments for multiple month's capitation payments are more likely. a. correction of a computer or human error, where the person was never really enrolled in the HMO. b. disenrollments of enrollees for reasons of pregnancy and continuity of care, or for reasons specified in Addendum II. 3. In instances where membership is disputed between two HMOs, the Department shall be the final arbitrator of HMO membership and reserves the right to recoup an inappropriate capitation payment. 4. If an HMO enrollee moves out of the HMO service area, the enrollee will be disenrolled from the HMO on the date the enrollee moved as verified by the eligibility worker. Any capitation payment made for periods of time after disenrollment will be recouped. 5. If a contract is terminated, recoupments will be handled through a payment by the HMO within 30 days of contract termination. J. HealthCheck Recoupment The Department will determine the amount of the HMO's HealthCheck recoupment, by service area, by following the algorithm defined in Article III. B. (10) and by using the number of screens and eligibles reported in the second semi-annual Utilization Report. Data provided by the HMO must agree with medical record documentation. Before completing the recoupment, the Department will inform the HMO of the intended action and allow the HMO thirty days to review and respond to the calculation. The second semi- annual Utilization Report will be considered complete and final. HMO Contract for January 1, 2000 - December 31, 2001 -75-

K. Payment for Aids, HIV-Positive, and Ventilator Dependent The Department will pay the HMO's costs of providing Medicaid-covered services to HMO enrollees who meet the criteria in this section, by HMO service area. These payments will be made based on the data submitted by the HMO to the Department on a quarterly basis. The data submission and payment schedule is included as Addendum IV to this Contract. Reimbursement already provided to the HMO in the form of capitation payments for qualified enrollees will be deducted from 100 percent reimbursement payments. 100 percent reimbursement refers to full reimbursement of HMO costs for providing Medicaid services to the above enrollees. The criteria for enrollees are: 1. Ventilator Assisted Patients----Costs incurred for enrollees who need ventilator treatment services qualify for reimbursement if the enrollee meets the following criteria: a. For the purposes of this reimbursement, a ventilator-assisted patient must have died while on total respiratory support or must meet all of the criteria below: 1) The patient must require equipment that provides total respiratory support. This equipment may be a volume ventilator, a negative pressure ventilator, a continuous positive airway pressure (CPAP) system, or a Bi (inspiratory and expiratory) PAP. The patient may need a combination of these systems. Any equipment used only for the treatment of sleep apnea does not qualify as total respiratory support. 2) The total respiratory support must be required for a total of six or more hours per 24 hours. 3) The patient must have total respiratory support for at least 30 days which need not be continuous. 4) The patient must have absolute need for the respiratory support, as documented by appropriate blood gases. b. The HMO will submit the following written documentation to qualify enrollees for reimbursement at the same time as the quarterly reports identified in Addendum IV: 1) The Department's designated form. HMO Contract for January 1, 2000 - December 31, 2001 -76-

2) A signed statement from the doctor attesting to the need of the patient. 3) Copies of progress notes which show the need for continuation of total ventilatory support, any change in the type of ventilatory support and the removal of the ventilatory support. Copies of lab reports must be submitted if the progress notes do not include blood gas levels. c. Dates of enhanced funding are based on the following methodology: 1) Day one is the day that the patient is placed on the ventilator. If the patient is on the ventilator for less than six hours on the first day, the use must continue into the next day and be more than six total hours. 2) Each day that the patient is on the ventilator for a part of any day, as long as it is part of the six total hours per 24 hours, counts as a day for enhanced funding. 3) The period of enhanced funding starts on the first day of the month that the patient was placed on ventilator support. It ends on the last day of the month after which the patient is removed from the ventilatory support, or at the end of the hospital stay, whichever is later. 2. HMOs cannot claim additional reimbursement under both the NICU risk- sharing policy and the ventilator dependent policy for the same enrollee on the same date of service. 3. AIDS or HIV-Positive with Anti Retroviral Drug Treatment----Costs for services provided to enrollees with a confirmed diagnosis of AIDS, as indicated by an ICD-9-CM diagnosis code or HIV-Positive who are on anti retroviral drug treatment approved by the Food and Drug Administration, qualify for reimbursement. Written requests to qualify enrollees for reimbursement must be submitted by the HMO to the Contract Monitor. These requests should be batched and submitted with the reports identified in Addendum IV. A signed statement from a physician that indicates a diagnosis of AIDS or HIV-Positive and that the patient is on an Anti Retroviral Drug treatment must accompany each request. One hundred percent reimbursement will be effective for services provided on or after the first day of the month in which treatment begins. HMO Contract for January 1, 2000 - December 31, 2001 -77-

a. For AIDS and HIV -- Positive enrollees retroactively disenrolled under Article VII of this Contract, the HMO will have to back out the cost of the care provided during the backdated period from the reports in Addendum IV. Part D. b. Submission of Data -- As required by the Wisconsin Administrative Code HFS 106.03, payment data or adjustment data for AIDS and/or vent enrollees must be received by the Department's fiscal agent within 365 days after the date of the service. If the HMO cannot meet this requirement, the HMO must provide documentation that substantiates the delay. The Department will make the final determination to pay or deny the services. The Department will exercise its discretion reasonably in making the determination to waive the 365-day billing requirement. 4. NICU days for which the HMO will collect 100 percent reimbursement cannot be counted under the NICU risk-sharing policy in this Contract. (HMOs cannot choose between the 100 percent policy and the NICU policy; if a cost qualifies under the 100 percent policy, it must be reported under that policy.) The HMO will manage the care of these enrollees, produce quarterly cost and utilization reports and meet with the Department on a quarterly basis to discuss cost and other issues related to care management for these. 5. The HMO must submit reports (eligibility summary, cost summary, inpatient hospital utilization summary, and detail) to the Department according to the schedule and in the format specified in Addendum IV. ARTICLE VI VI. REPORTS, DATA, AND COMPUTER/DATA REPORTING SYSTEM A. Disclosure The HMO and any subcontractors shall make available to the Department, the Department's authorized agents, and appropriate representatives of the U.S. Department of Health and Family Services any financial records of the HMO or subcontractors which relate to the HMO's capacity to bear the risk of potential financial losses, or to the services performed and amounts paid or payable under this Contract. The HMO shall comply with applicable record keeping requirements specified in HFS 105.02(1)-(7) Wis. Adm. Code, as amended. HMO Contract for January 1, 2000 - December 31, 2001 -78-

B. Periodic Reports The HMO agrees to furnish within the Department's time frame and within the Department's stated form and format, information and/or data from its records to the Department, and to the Department's authorized agents, which the Department may require to administer this Contract, including but not limited to the following: 1. Summaries of amounts recovered from third parties for services rendered to enrollees under this Contract in the format specified in Addendum VI. 2. Enrollee summary utilization data to be submitted semiannually via electronic media and to include the data elements in the format specified in the Wisconsin Medicaid HMO Utilization Reporting User Manual for Reporting Period 2000. The Department will compare the summary data reported in this manner to data extracted from the encounter data set for the same time period using logic from the definitions obtained in the Wisconsin Medicaid HMO Utilization Reporting User Manual to ensure the completeness of the encounter data set. Based on the magnitude of any differences between the two data sets (summary vs. encounter), the Department retains the right to require the HMO to continue submitting summary utilization data during 2001. An encounter record for each service provided to enrollees. The Encounter data set will include at least those data elements specified in Addendum IV. The encounter data set must be submitted monthly via electronic media. Refer to Article I, Definitions, for the definition of an encounter. 3. Information and/or data to support the Department's monitoring and evaluation of the Medicaid/BadgerCare HMO Program to include, at a minimum, a Verification Data File supporting the utilization data from subpart 2, above. 4. Copies of all formal grievances and documentation of actions taken on each grievance, as specified in Article VIII. A. (11). 5. Birth Cost as specified in Addendum XXIII. HMO Contract for January 1, 2000 - December 31, 2001 -79-

C. Access to and Audit of Contract Records Throughout the duration of the Contract, and for a period of five (5) years after termination of the Contract, the HMO shall provide duly authorized representatives of the State or Federal government access to all records and material relating to the Contractor's provision of and reimbursement for activities contemplated under the Contract. Such access shall include the right to inspect, audit and reproduce all such records and material and to verify reports furnished in compliance with the provisions of the Contract. All information so obtained will be accorded confidential treatment as provided under applicable laws, rules or regulations. D. Records Retention The HMO shall retain, preserve and make available upon request all records relating to the performance of its obligations under the Contract, including claim forms, paper and electronic, for a period of not less than five (5) years from the date of termination of the Contract. Records involving matters which are the subject of litigation shall be retained for a period of not less than five (5) years following the termination of litigation. Microfilm copies of the documents contemplated herein may be substituted for the originals with the prior written consent of the Department, provided that the microfilming procedures are approved by the Department as reliable and are supported by an effective retrieval system. Upon expiration of the five (5) year retention period, the subject records shall, upon request, be transferred to the Department's possession. No records shall be destroyed or otherwise disposed of without the prior written consent of the Department. E. Special Reporting and Compliance Requirements The HMO shall comply with the following State and Federal reporting and compliance requirements for the services listed below, for the entire HMO, aggregating all service areas if the HMO has more than one service area: 1. Abortions shall comply with the requirements of Chapter 20.927, Wis. Stats., and with 42 CFR 441 Subpart E--Abortions. 2. Hysterectomies and sterilizations shall comply with 42 CFR 441 Subpart F--Sterilizations. Sanctions in the amount of $10,000.00 may be imposed for non- compliance with the above special reporting and compliance requirements. HMO Contract for January 1, 2000 - December 31, 2001 -80-

F. Reporting of Corporate and Other Changes If corporate restructuring or any other change affects the continuing accuracy of certain information previously reported by the HMO to the Department, the HMO shall report the change in information to the Department. The HMO shall report each such change in information as soon as possible, but not later than 30 days after the effective date of the change. Changes in information covered under this section include all of the following: 1. Any change in information previously provided by the HMO in response to questions posed by the Department in the current HMO Certification Application or any previous RFB for Medicaid/BadgerCare HMO Contracts. This includes any change in information originally provided by the HMO as a "new HMO," within the meaning of the HMO Certification Application or RFB. 2. Any change in information relevant to Article III, Section JJ of this Contract, relating to ineligible organizations. 3. Any change in information relevant to Section 4 of Addendum I of this Contract, relating to ownership and business transactions of the HMO. G. Computer/Data Reporting System The HMO must maintain a computer/data reporting system that meets the Department's following requirements. The HMO is responsible for complying with all of the reporting requirements established by the Department and with assuring the accuracy and completeness of the data as well as the timely submission of data. The data submitted must be supported by records available to the Department or its designee. The Department reserves the right to conduct on-site inspections and/or audits prior to awarding the Contract. The HMO must have a contact person responsible for the computer/data reporting system and in a position to answer questions from the Department and resolve problems identified by the Department in regard to the requirements listed below: 1. The HMO must have a claims processing system that is adequate to meet all claims processing and retrieval requirements specified in this Contract, specifically Article III. G. 2. The HMO must have a computer/data collection, processing, and reporting system sufficient to monitor HMO enrollment/ disenrollment (in order to determine on any specific day which recipients are enrolled or disenrolled from the HMO) and to monitor service utilization for the Utilization Management requirements of Quality Improvement that are specified in Article III. W. (9) of the Contract. HMO Contract for January 1, 2000 - December 31, 2001 -81-

3. The HMO must have a computer/data collection, processing, and reporting system sufficient to support the Quality Improvement (QI) requirements described in Article III. W. The system must be able to support the variety of QI monitoring and evaluation activities, including the monitoring/evaluation of quality of clinical care and service (III. W. (3)); periodic evaluation of HMO providers (III. W.(6)(b)); member feedback on QI (III. W. (7)(b) and (c)); maintenance of and use of medical records in QI (III. W. (8)(f) and (i)); and monitoring and evaluation of priority areas (III. W. (13)(a) - (f)). 4. The HMO must have a computer and data processing system sufficient to accurately produce the data, reports, and encounter data set, in the formats and time lines prescribed by the Department in this contract, that are included in Addendum IV of the Contract. HMOs are required to submit electronic test encounter data files as required by the Department in the format specified in the 2000-2001 HMO encounter data user manual and timelines specified in Addendum IV of the Contract and as may be further specified by the Department. The electronic test encounter data files are subject to Department review and approval before production data is accepted by the Department. Production claims or other documented encounter data must be used for the test data files. 5. The HMO must capture and maintain a claim record of each service or item provided to enrollees, using HCFA 1500, UB-92, NCPDP, or other claim, or claim formats that are adequate to meet all reporting requirements of this contact. The computerized database must be a complete and accurate representation of all services covered by the HMO for the contract period. The HMO is responsible for monitoring the integrity of the data base, and facilitating its appropriate use for such required reports as encounter data, summary utilization data, and targeted performance improvement studies. 6. The HMO must have a computer processing and reporting system that is capable of following or tracing an encounter within its system using a unique encounter record identification number for each encounter. 7. The HMO reporting system must have the ability to identify all denied claims/encounters using national ANSI EOB codes. 8. The HMO system must be capable of reporting original and reversed claim detail records and encounter records. 9. The HMO system must be capable of correcting an error to the encounter record within 90 days of notification by the Department. HMO Contract for January 1, 2000 - December 31, 2001 -82-

10. The HMO must notify the Department of all significant changes to the system that may impact the integrity of the data, including such changes as new claims processing software, new claims processing vendors and significant changes in personnel. ARTICLE VII VII. ENROLLMENT AND DISENROLLMENTS A. Enrollment The HMO shall accept as enrolled all persons who appear as enrollees on the HMO Enrollment Reports and newborns as defined in Article I. Enrollment in the HMO shall be voluntary by the recipient except where limited by Departmental implementation of a State Plan Amendment or a Section 1115(a) waiver. The current State Plan Amendment and 1115(a) waiver requires mandatory enrollment into an HMO for those service areas in which there are two or more HMOs with sufficient slots for the HMO eligible population. The Department reserves the right to assign a Medicaid/BadgerCare recipient to a specific HMO when the recipient fails to choose an HMO during a required enrollment period. The HMO shall designate, in Article XV, and Addendum XX, of this Contract, their maximum enrollment level for the different service areas of the HMO throughout the State. The Department may take up to 60 days, from the date of written notification, to implement maximum enrollment level changes. The HMO shall accept as enrolled all persons who appear as enrollees on the HMO Enrollment Reports and newborns up to the HMO specified enrollment level for a particular service area. The number of enrollees may exceed the maximum enrollment level by 5 percent on a temporary basis. The Department does not guarantee any minimum enrollment level. The maximum enrollment level for a service area may be increased or decreased during the course of the contract period based on mutual acceptance of a different maximum enrollment level. B. Third Trimester Pregnancy Disenrollment Enrollees who are in their third trimester of pregnancy when they are expected to enter an HMO may be eligible for disenrollment. In order for disenrollment to occur, the enrollee must have been automatically assigned or reassigned. In addition, they must be seeking care from a provider (physician and/or hospital) who is either not affiliated with the HMO to which they were assigned or is affiliated but the HMO is closed to new enrollment. Disenrollment requests can only be made by the enrollee and/or casehead. Disenrollment requests must be made before the end of the second month in the HMO or before the birth, HMO Contract for January 1, 2000 - December 31, 2001 -83-

whichever occurs first. Disenrollment requests should be directed to the Enrollment Contractor or the Department's assigned HMO Contract Monitor. C. Ninth Month Pregnancy Disenrollment Enrollees who deliver or are expected to deliver the first month they are assigned to a HMO may be eligible for disenrollment. In order for disenrollment to occur, the enrollee must have been automatically assigned or reassigned and must not have been in the HMO to which they were assigned or reassigned within the last seven months. In addition, they must be seeking care from a provider (physician and/or hospital) not affiliated with the HMO to which they were assigned. Disenrollment requests can be made by the HMO, a provider, or the recipient. Requests for ninth month pregnancy disenrollments should be directed to the Department's assigned HMO Contract Monitor. D. Exemptions from Enrollment in any HMO and Disenrollment for Patients of Certified Nurse Midwives or Nurse Practitioners 1. Enrollees may be eligible for an exemption from enrollment if: a. they reside in a service area of a certified nurse midwife or nurse practitioner; and b. they choose to receive their care from a certified nurse midwife or nurse practitioner; and c. the certified nurse midwife or nurse practitioner is not affiliated with any HMO in the service area; or d. the certified nurse midwife or nurse practitioner is not independently certified as a provider of any HMO within the service area. 2. Exemptions and disenrollment requests may be made by the enrollee and should be directed to the Department's Enrollment Contractor. Exemptions will be processed as soon as possible and will be effective as of the first of the month of request. E. Exemption from Enrollment in any HMO and Disenrollment For AIDS or HIV-Positive with Anti Retroviral Drug Treatment Enrollees with a confirmed diagnosis of AIDS, as indicated by an ICD -9-CM diagnosis code, or HIV-Positive who are on anti retroviral drug treatment approved by the Federal Food and Drug Administration, are eligible for an exemption. The casehead may apply for the exemption. The HMO shall not counsel or otherwise influence an enrollee or potential enrollee in such a way as HMO Contract for January 1, 2000 - December 31, 2001 -84-

to encourage exemption from enrollment or continued enrollment. Exemptions will be processed as soon as possible. Disenrollment will be effective with the first day of the month in which anti retroviral treatment begins or in which the enrollee was diagnosed with AIDS except that disenrollment will not be backdated more than nine (9) months from the date the request is received. F. Exemptions from Enrollment in any HMO and Disenrollment for Patients of Federally Qualified Health Centers 1. Enrollees may be eligible for an exemption from enrollment if: a. they reside in the service area of an FQHC; b. they choose to receive their primary care from the FQHC; and c. the FQHC is not affiliated with any HMO within the service area. 2. Exemption and Disenrollment requests may be made by the casehead and should be directed to the Department's assigned HMO Contract Monitor. Exemptions will be processed as soon as possible and will be effective as of the first of the month of the request. G. Native American Disenrollment Enrollees who are Native American and members of a federally recognized tribe are eligible for disenrollment. Only the enrollee can make disenrollment requests. H. Special Disenrollments The HMO may request and the Department may approve disenrollment for specific cases or persons where there is just cause. Just cause is defined as a situation where enrollment would be harmful to the interests of the recipient or in which the HMO cannot provide the recipient with appropriate medically necessary contract services for reasons beyond its control. I. Exemptions from Enrollment in any HMO and Disenrollment for Recipients With Commercial HMO Insurance or Commercial Insurance With a Restricted Provider Network Enrollees who have commercial HMO insurance may be eligible for exemption from enrollment in any HMO or disenrollment, if the commercial HMO does not participate in Medicaid. In addition, enrollees who have commercial insurance which limits enrollees to a restricted provider network (e.g., PPOs, PHOs, etc.) may be eligible for an exemption from enrollment in any HMO or HMO Contract for January 1, 2000 - December 31, 2001 -85-

disenrollment. Requests for exemption and disenrollment should be directed to the Department's Enrollment Contractor. Exemptions will be processed as soon as possible and will be effective as of the first of the month of the request. J. Exemption from Enrollment in any HMO and Disenrollment for Families Where One or More Members are receiving SSI benefits 1. Families may be eligible for exemption from enrollment if: a. there are one or more members in the family who are receiving SSI benefits, and b. the SSI member receives primary care from a provider who does not accept any Medicaid HMO, and c. other family members receive their primary care from the same provider as the SSI member. 2. Exemption and Disenrollment requests may be made by the SSI member, parent or guardian and should be directed to the Department's Enrollment Contractor. Exemptions will be processed as soon as possible and will be effective as of the first of the month of request. K. Voluntary Disenrollment All enrollees shall have the right to disenroll from the HMO pursuant to 42 CFR 434.27(b)(1) unless otherwise limited by a State Plan Amendment or a Section 1115(a) waiver of federal laws, or pursuant to Addendum II. A voluntary disenrollment shall be effective no later than the first day of the second month after the month in which the enrollee requests termination. The HMO will promptly forward to the Department or its designee all requests from enrollees for disenrollment. Wisconsin currently has a State Plan Amendment and an 1115(a) waiver which allows the Department to "lock-in" enrollees to an HMO for a period of 12 months in mandatory HMO service areas, except that disenrollment is allowed for good cause as described in Sections B. through J. above. The lock-in policy is described more completely in Section O below. Addendum II allows voluntary exemptions and disenrollment from HMOs for a variety of reasons. Because of these two Department policies, voluntary disenrollment is limited to the situations described in Sections B. through K. of Article VII. and Addendum II. HMO Contract for January 1, 2000 - December 31, 2001 -86-

L. Section 1115(A) Waiver and State Plan Amendment Should the Department, at any time during the Contract, obtain a State Plan Amendment, a waiver or revised waiver authority under the Social Security Act (as amended), the conditions of enrollment described in the Contract, including but not limited to voluntary enrollment and the right to voluntary disenrollment, shall be amended by the terms of said waiver and State Plan Amendment. M. Additional Services The HMO shall not obtain enrollment through the offer of any compensation, reward, or benefit to the enrollee except for additional health-related services which have been approved by the Department. N. Enrollment/Disenrollment Practices The HMO shall permit the Department to monitor enrollment and disenrollment practices of the HMO under this Contract. The HMO will not discriminate in enrollment/disenrollment activities between individuals on the basis of health status or requirement for health care services, including those individuals who have AIDS or are HIV- Positive. This section shall not prevent the HMO from assisting in the disenrollment process for individuals who can be in a different medical status code. O. Enrollee Lock-In Period Under the Department's State Plan Amendment and waiver authority of Section 1115(a) of the Social Security Act (as amended), in mandatory HMO service areas, enrollees will be locked in to an HMO for twelve months. The first 90 days of the 12-month lock-in period will be an open enrollment period in which the enrollee may change their HMO. The conditions of disenrollment as specified in VII. B - K still apply during this lock-in period. HMO Contract for January 1, 2000 - December 31, 2001 -87-

ARTICLE VIII VIII. GRIEVANCE PROCEDURES Medicaid/BadgerCare enrollees may grieve regarding any aspect of service delivery provided or arranged by the HMO. A. Procedures The HMO shall: 1. Have written policies and procedures that detail what the grievance system is and how it operates. 2. Identify a contact person in the HMO to receive grievances and be responsible for routing/processing. 3. Operate an informal grievance/complaint process which enrollees can use to get problems resolved without going through the formal, written grievance process. 4. Operate a formal grievance process which enrollees can use to grieve in writing. 5. Inform enrollees about the existence of the formal and informal grievance/complaint processes and how to use the formal and informal grievance process. 6. Attempt to resolve complaints informally. 7. Respond to written complaints (i.e., formal grievances) in writing within 10 business days of receipt of grievance, except that in cases of emergency or urgent (expedited grievances) situations, HMOs must resolve the grievance within 2 business days of receiving the complaint or sooner if possible. This represents the first response. More complete procedures are described in Section B. of this Article. 8. Operate a grievance appeals process within the HMO which enrollees can use to appeal any negative response to their grievance to the Board of Directors of the HMO. The HMO Board of Directors may delegate this authority to review appeals to an HMO grievance appeal committee, but the delegation must be in writing. If a grievance appeal committee is established, the Medicaid HMO Advocate must be a member of the committee. HMO Contract for January 1, 2000 - December 31, 2001 -88-

9. Grant the enrollee the right to appear in person before the grievance committee, to present written and oral information. The enrollee may bring a representative to this meeting. The HMO must inform the enrollee in writing of the time and place of the meeting at least 7 calendar days before the meeting. 10. Maintain a record keeping system for informal grievances in the form of a "log" that includes a short, dated summary of each of the problems, the response, and the resolution. This log shall distinguish Medicaid/BadgerCare from commercial enrollees, if the HMO does not have a separate log for Medicaid. The HMO must submit quarterly reports to the Department of all informal grievances/complaints. The analysis of the log will include the number of informal grievances/complaints divided into two categories, program administration and benefits denials. The first report is due April 10, 2000. 11. Maintain a record keeping system for formal grievances that includes a copy of the original grievance, the response, and the resolution. This system shall distinguish Medicaid/BadgerCare from commercial enrollees. Beginning April 10 of each year and quarterly thereafter, the HMO shall forward copies of all formal grievances and documentation of actions taken on each grievance, for the previous quarter, to the Department, in the format specified under Addendum XXI. 12. Notify the enrollee who grieves, at the time of the initial HMO grievance decision denying the grievance, that the enrollee may appeal to the Division of Hearings and Appeals (DHA) or the Department. 13. Assure that individuals with the authority to require corrective action are involved in the grievance process. 14. Distribute to their gatekeepers* and IPAs the informational flyer on enrollee's grievance rights `(the ombudsman brochure). When a new brochure is available, the HMO shall distribute copies to their gatekeepers and IPAs within three weeks of receipt of the new brochure. 15. Assure that their gatekeepers* and IPAs have written procedures for describing how enrollees are informed of denied services. The HMO will make copies of the gatekeeper's and IPA's grievance procedures available for review upon request by the Department. HMO Contract for January 1, 2000 - December 31, 2001 -89-

*The word "gatekeeper" in this context refers to any entity that performs a management services contract, a behavioral health science IPA, or a dental IPA, and not to individual physicians acting as a gatekeeper to primary care services. B. Recipient Appeals of HMO Formal Grievance Decisions The enrollee may choose to use the HMO's formal grievance process or may appeal to the State instead of using the HMO's formal grievance process. If the enrollee chooses to use the HMO's process, the HMO must provide a first response within 10 business days and a final response within 30 calendar days of receiving the grievance. If the HMO is unable to resolve the grievance within 30 calendar days, the time period may be extended another 30 calendar days from receipt of the grievance if the HMO notifies the enrollee in writing that the HMO has not resolved the grievance, when the resolution may be expected and why the additional time is needed. The total timeline for HMOs to finalize a formal grievance may not exceed 60 calendar days from the date of the receipt of the grievance. Any formal grievance decision by the HMO may be appealed by the enrollee to the Department. The Department shall review such appeals and may affirm, modify, or reject any formal grievance decision of the HMO at any time after the formal appeal is filed by the enrollee. The Department will give final response within 30 days from the date the Department has all information needed for a decision. Also, an enrollee can submit a formal, written grievance directly to the Department. Any formal decision made by the Department under this section is subject to enrollee appeal rights to the extent provided by State and Federal Laws and rules. The Department will receive input from the recipient and the HMO in considering appeals. C. Notifications of Denial, Termination, Suspension, or Reduction of Benefits to Enrollees 1. When an HMO, its gatekeepers,* or its IPAs discontinues, terminates, suspends, limits, or reduces a service (including services authorized by an HMO the enrollee was previously enrolled in or services received by the enrollee on a Medicaid fee-for-service basis), the HMO shall notify the affected enrollee(s) in writing of: a. The nature of the intended action. b. The reasons for the intended action. c. The fact that the enrollee if appealing the action must do so within forty-five (45) days. HMO Contract for January 1, 2000 - December 31, 2001 -90-

d. An explanation of the enrollee's right to appeal the HMO's decision to the Department. e. The fact that the enrollee, if appealing the HMO action, may file a request for a hearing with the Division of Hearings and Appeals (DHA) and the address of the DHA. f. The fact that the enrollee can receive help in filing a grievance by calling either the Enrollment contractor or the Ombudsman. g. The telephone number of both the Enrollment contractor and the Ombudsman. *The word "gatekeeper" in this context refers to any entity that performs a management services contract, a behavioral health science IPA, or a dental IPA, and not to individual physicians acting as a gatekeeper to primary care services. This notice requirement does not apply when an HMO, its gatekeeper or its IPA triages an enrollee to proper health care provider or when an individual health care provider determines that a service is medically unnecessary. The Department must review and approve all notice language prior to its use by the HMO. Department review and approval will occur during the Medicaid certification process of the HMO and prior to any change of the notice language by the HMO. 2. If the recipient files a request for a hearing with the Division of Hearings and Appeals within 10 days of the effective date of the decision to reduce, limit, terminate or suspend benefits, upon notification by the Division of Hearings and Appeals: a. The Department will notify the enrollee they are eligible to continue receiving care but may be liable for care if DHA overturns the decision; and b. The Department will put the enrollee on fee-for-service status effective the first of the month in which the enrollee received the termination, reduction, or suspension notice from the HMO; and: 1) If the Division of Hearings and Appeals reverses the HMO's decision, the Department will recoup from the HMO the amount paid for any benefits provided to the enrollee during the period of the enrollee's fee-for- service status while the decision was pending. The enrollee will HMO Contract for January 1, 2000 - December 31, 2001 -91-

be reenrolled into the HMO following the resolution of the medical condition, the completion of medical, psychological or dental services or the end of medical necessity of the service(s) unless the HMO has reversed its original decisions and agrees to reimburse the provider(s) for services provided to the enrollee during the administrative hearing process. 2) If the Division of Hearings and Appeals upholds the HMO's decision, the Department may pursue reimbursement from the enrollee for all services provided to the enrollee during their fee-for-service period. The enrollee will be reenrolled into the HMO no later than the end of the second month following notification from the DHA. D. Notifications of Denial of New Benefits to Enrollees When an HMO, its gatekeeper, or IPA denies a new service, the HMO shall notify the affected enrollee (s) in writing of: 1. The nature of the intended action. 2. The reasons for the intended action. 3. The fact that the enrollee if appealing the action must do so within forty-five (45) days. 5. An explanation of the enrollee's right to appeal the HMO's decision to the Department. 6. The fact that the enrollee can receive help in filing a grievance by calling either the Enrollment contractor or the Ombudsman. 7. The telephone number of both the Enrollment contractor and the Ombudsman. If the enrollee was not receiving the service prior to the denial, the HMO is not required to provide the benefit while the decision is being appealed. HMO grievance procedures must be reviewed and approved by the Department prior to signing the HMO Contract. All changes to HMO grievance procedures require prior review and approval by the Department. HMO Contract for January 1, 2000 - December 31, 2001 -92-

ARTICLE IX IX. REMEDIES FOR VIOLATION, BREACH, OR NON-PERFORMANCE OF CONTRACT A. Suspension of New Enrollment Whenever the Department determines that the HMO is out of compliance with this Contract, the Department may suspend the HMO's right to receive new enrollment under this Contract. The Department, when exercising this option, must notify the HMO in writing of its intent to suspend new enrollment at least 30 days prior to the beginning of the suspension period. The suspension will take effect if the non-compliance remains uncorrected at the end of this period. The Department may suspend new enrollment sooner than the time period specified in this paragraph if the Department finds that enrollee health or welfare is jeopardized. The suspension period may be for any length of time specified by the Department, or may be indefinite. The suspension period may extend up to the expiration of the Contract as provided under Article XV. The Department may also notify enrollees of HMO non-compliance and provide an opportunity to enroll in another HMO. B. Department-Initiated Enrollment Reductions The Department may reduce the maximum enrollment level and/or number of current enrollees whenever it determines that the HMO has failed to provide one or more of the contract services required under Article III or that the HMO has failed to maintain or make available any records or reports required under this Contract which the Department needs to determine whether the HMO is providing contract services as required under Article III. The HMO shall be given at least 30 days to correct the non-compliance prior to the Department taking any action set forth in this paragraph. The Department may reduce enrollment sooner than the time period specified in this paragraph if the Department finds that enrollee health or welfare is jeopardized. C. Other Enrollment Reductions The Department may also suspend new enrollment or disenroll enrollees in anticipation of the HMO not being able to comply with federal or state law at its current enrollment level. Such suspension shall not be subject to the 30 day notification requirement. HMO Contract for January 1, 2000 - December 31, 2001 -93-

D. Withholding of Capitation Payments and Orders to Provide Services Notwithstanding the provisions of Article V, the Department may withhold portions of capitation payments as liquidated damages or otherwise recover damages from the HMO on the following grounds: 1. Whenever the Department determines that the HMO has failed to provide one or more of the medically necessary Medicaid covered contract services required under Article III, the Department may either order the HMO to provide such service, or withhold a portion of the HMO's capitation payments for the following month or subsequent months, such portion withheld to be equal to the amount of money the Department must pay to provide such services. If the Department orders the HMO to provide services under this section and the HMO fails to provide the services within the timeline specified by the Department, the Department may withhold an amount up to 150 percent of the fee-for-service amount for such services from the HMO's capitation payments. When it withholds payments under this section, the Department must submit to the HMO a list of the participants for whom payments are being withheld, the nature of the service(s) denied, and payments the Department must make to provide medically necessary services. If the Department acts under this section and subsequently determines that the services in question were not covered services: a. In the event the Department withheld payments it shall restore to the HMO the full capitation payment, or b. In the event the Department ordered the HMO to provide services under this section, it shall pay the HMO the actual documented cost of providing the services. 2. If the HMO fails to submit required data and/or information to the Department or the Department's authorized agents, or fails to submit such data or information in the required form or format, by the deadline specified by the Department, the Department may immediately impose liquidated damages in the amount of $1,500 per day for each day beyond the deadline that the HMO fails to submit the data or fails to submit the data in the required form or format, such liquidated damages to be deducted from the HMO's capitation payments. HMO Contract for January 1, 2000 - December 31, 2001 -94-

3. If the HMO fails to submit State and Federal reporting and compliance requirements for abortions, hysterectomies and sterilizations, the Department may impose liquidated damages in the amount of $10,000 per reporting period. 4. If the HMO fails to correct an error to the encounter record within the timeframe specified, the Department may assess liquidated damages of $5 per erred encounter record per month until the error has been corrected. The liquidated damage amount will be deducted from the HMO's capitation payment. When applied, these liquidated damages will be calculated and assessed on a monthly basis. If upon audit or review, the Department finds that the HMO has, without Department approval, removed an erred encounter record, the Department may assess liquidated damages for each day from the date of original error notification until the date of correction. The term "erred encounter record" means an encounter record that has failed an edit when a correction is expected by the Department. The following criteria will be used prior to assessing liquidated damages: . The Department will calculate a percentage rate by dividing the number of erred records not corrected within 90 days (numerator), by the total number of records in error (denominator) and multiply the result by 100. . Records failing non-critical edits, as defined in the Wisconsin Medicaid/BadgerCare HMO 2000-2001 Encounter Data User Manual, will not be included in the numerator. . If this rate is 2 percent or less, liquidated damages will not be assessed. . The Department will calculate this rate each month. 5. Whenever the Department determines that the HMO has failed to perform an administrative function required under this Contract, the Department may withhold a portion of future capitation payments. For the purposes of this section, "administrative function" is defined as any contract obligation other than the actual provision of contract services. The amount withheld by the Department under this section will be an amount that the Department determines in the reasonable exercise of its discretion to approximate the cost to the Department to perform the HMO Contract for January 1, 2000 - December 31, 2001 -95-

function. The Department may increase these amounts by 50 percent for each subsequent non-compliance. Whenever the Department determines that the HMO has failed to perform the administrative functions defined in Article V. H. (1) and (2), the Department may withhold a portion of future capitation payments sufficient to directly compensate the Department for the Medicaid/BadgerCare program's costs of providing health care services and items to individuals insured by said insurers and/or the insurers/employers represented by said third party administrators. 6. In any case under this Contract where the Department has the authority to withhold capitation payments, the Department also has the authority to use all other legal processes for the recovery of damages. 7. Notwithstanding the provisions of this subsection, in any case where the Department deducts a portion of capitation payments under subsection (2) above, the following procedures shall be used: a. The Department will notify the HMO's contract administrator no later than the second business day after Department's deadline that the HMO has failed to submit the required data or the required data cannot be processed. b. The HMO will be subject to liquidated damages without further notification per submission, per data file or report, beginning on the second business day after the Department's deadline. c. If the late submission of data is for encounter data, and the HMO responds with a submission of the data within five (5) business days from the deadline, the Department will rescind liquidated damages if the data can be processed according to the criteria published in the Wisconsin Medicaid/BadgerCare HMO 2000-2001 Encounter Data User Manual. The Department will not edit the data until the process period in the subsequent month. d. If the late submission is for any other required data or report, and the HMO responds with a submission of the data in the required format within five (5) business days from the deadline, the Department will rescind liquidated damages and immediately process the data or report. HMO Contract for January 1, 2000 - December 31, 2001 -96-

e. If the HMO repeatedly fails to submit required data or reports, or data that cannot be processed, the Department will require the HMO to develop an action plan to comply with the contract requirements that must meet Department approval. f. If the HMO, after a corrective action plan has been implemented, continues to submit data beyond the deadline, or continues to submit data that cannot be processed, the Department will invoke the remedies under Article IX, section A (SUSPENSION OF NEW ENROLLMENT), from section B (DEPARTMENT-INITIATED ENROLLMENT REDUCTIONS), or both, in addition to liquidated damages that may have been imposed for a current violation. g. If an HMO notifies the Department it is discontinuing contracting with the Department at the end of a contract period, but reports or data are due for a contract period, the Department retains the right to withhold up to two months of capitation payments otherwise due the HMO which will not be released to the HMO until all required reports or data are submitted and accepted after expiration of the contract. Upon determination by the Department that the reports and data are accepted, the Department will release the monies withheld. E. Inappropriate Payment Denials HMOs that inappropriately fail to provide or deny payments for services may be subject to suspension of new enrollments, withholding, in full or in part, of capitation payments, contract termination, or refusal to contract in a future time period, as determined by the Department. The Department will select among these sanctions based upon the nature of the services in question, whether the failure or denial was an isolated instance or a repeated pattern or practice, and whether the health of an enrollee was injured, threatened or jeopardized by the failure or denial. This applies not only to cases where the Department has ordered payment after appeal, but also to cases where no appeal has been made (i.e., the Department is knowledgeable about the documented abuse from other sources). F. Sanctions Section 1903(m)(5)(B)(ii) of the Social Security Act vests the Secretary of the Department of Health and Human Services with the authority to deny Medicaid payments to an HMO for enrollees who enroll after the date on which the HMO has been found to have committed one of the violations identified in the federal law. State payments for enrollees of the contracting organization are HMO Contract for January 1, 2000 - December 31, 20014 -97-

automatically denied whenever, and for so long as, Federal payment for such enrollees has been denied as a result of the commission of such violations. G. Sanctions and Remedial Actions The Department may pursue all sanctions and remedial actions with HMOs that are taken with Medicaid fee-for-service providers, including any civil penalties not to exceed the amounts specified in the Balanced Budget Amendment of 1997 P.L. 105-33 Sec. 4707(a) [42 U.S.C. 1396v(d)(2)]. ARTICLE X X. TERMINATION AND MODIFICATION OF CONTRACT A. Mutual Consent This Contract may be terminated at any time by mutual written agreement of both the HMO and the Department. B. Unilateral Termination This Contract between the parties may be terminated only as follows: 1. This Contract may be terminated at any time, by either party, due to modifications mandated by changes in Federal or State laws, rules or regulations, that materially affect either party's rights or responsibilities under this Contract. In such case, the party initiating such termination procedures must notify the other party, at least 90 days prior to the proposed date of termination, of its intent to terminate this Contract. Termination by the Department under these circumstances shall impose an obligat