Coventry Health Care 2006 Compensation Program for Non-Employee Directors
Coventry Health Care's 2006 Compensation Program outlines how non-employee directors are paid for their board service. Directors receive an annual compensation of $225,000, with options to choose the form and timing of their payment, including cash, restricted stock, or stock options. New directors get a one-time grant of 10,000 stock options. Compensation can be deferred, and the program specifies vesting schedules, tax treatment, and conditions for payout, such as termination or emergencies. The plan is effective January 1, 2006, and is governed by the company's 2004 Incentive Plan.
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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