COVENTRY HEALTH CARE 2006 Compensation Program for Non-Employee Directors
COVENTRY HEALTH CARE
2006 Compensation Program
for Non-Employee Directors
ANNUAL COMPENSATION: $225,000
| • | Includes services for five regularly scheduled Board meetings per year |
| • | Does not include committee chair retainers or Board/committee meeting fees (whether in-person or telephonic) |
| • | Prorated for Directors hired after January 1st |
| • | New Directors receive a one-time initial grant of 10,000 options vesting 25% over 4 years |
EFFECTIVE DATE: January 1, 2006
TIMING OF ELECTIONS:
Current Directors: Elections must be made prior to the beginning of each calendar year
New Directors: Elections must be made prior to the effective date of becoming a Director
INDIVIDUAL COMPENSATION CHOICES:
| • | Directors may elect the form and the timing of their compensation on an individual basis |
| • | All elections of the “Form” of payment must be made in multiples of 25% |
| Payment “Form” | Maximum Allocation | Payment “Current” | Payment “Deferred” | Vesting |
| Cash | 50%1 | Paid Quarterly | Credited quarterly2 | None |
| Restricted Stock/ | 100% | Granted at beginning of year | Stock Units deferred as outlined below | Quarterly over the year of service |
| Stock Options | 100% | Granted at beginning of year | Exercisable as outlined below | Quarterly over the year of service |
STOCK OPTIONS:
| • | Become exercisable when vested |
| • | Maximum term of 10 years |
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| 1 | Percentage limit may be waived with the approval of the Chairman of the Compensation Committee |
| 2 | Deferred cash will be credited quarterly with interest based on the Company’s borrowing rate set at the beginning of each year (2005 rate is approximately 5%) |
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FINAL 11/7/05
EXCHANGING CASH ALLOCATION FOR STOCK:
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| • | Compensation allocated to stock awards (options or restricted stock/stock units) would be converted to awards of equivalent value |
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| • | Value would be determined using the same method used to expense the awards for financial accounting purposes |
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| • | Restricted stock and Stock options granted under the Program are subject to the terms and conditions of the 2004 Incentive Plan, as amended. |
TIMING OF DEFERRAL PERIOD APPLICABLE TO CASH AND RESTRICTED STOCK UNITS:
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| • | Termination of service as director for any reason |
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| • | Unforeseeable emergency as defined by Internal Revenue Code (IRC) Section 409A |
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| – | Definition is more restrictive than financial hardship distribution under Company 401(k) plan – e.g., does not include purchase of a primary residence or post-secondary educational expenses and fees | |
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| • | In the event of a change in control as defined by IRC Section 409A |
FORM OF DISTRIBUTION:
Cash: Will be distributed as lump-sum payment
Restricted Stock Units: Will be distributed as cash
Restricted Stock: Will be issued as stock shares
TAX SUMMARY:
| • | Deferred stock units/cash are taxable at value when paid |
| • | Stock options taxable on date exercised in amount equal to difference between (i) fair market value of shares acquired on option exercise and (ii) aggregate exercise price |
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