Exhibit 10.1

 

COVENTRY HEALTH CARE, INC.

MID-TERM EXECUTIVE RETENTION PROGRAM

 

ARTICLE I

ESTABLISHMENT AND PURPOSE OF THE PROGRAM

 

1.01       Establishment of the Program. Coventry Health Care, Inc. (the
"Company") desires to adopt and establish an executive retention program for a
select group of its key management and highly compensated employees and their
beneficiaries, to be administered pursuant to the Coventry Health Care Inc. 2004
Incentive Plan (the “2004 Incentive Plan”). The 2004 Incentive Plan has been
approved by the Company’s shareholders. By execution of this document, the
Company shall create a Program known as the "Coventry Health Care, Inc. Mid-Term
Executive Retention Program" which shall be effective as of July 1, 2006 (the
"Effective Date").

 

1.02            Purpose. The purpose of the Program is to attract and retain
senior executive officers possessing outstanding ability and to motivate such
officers to achieve corporate and individual goals by means of long-term
incentives.

 

1.03        Administration. The Program shall be administered by the
Administrative Committee. Awards to Covered Officers will be made pursuant to
the 2004 Incentive Plan. The granting and vesting of Awards to Covered Officers
are governed by the terms of the 2004 Incentive Plan: in the event of any
inconsistency between the terms of this Program with respect to such Awards and
the 2004 Incentive Plan, the terms of the 2004 Incentive Plan shall govern. This
Program sets forth provisions governing the payment of any Award to a Covered
Officer that has vested pursuant to the terms of the 2004 Incentive Plan,
including provisions that permit Covered Officers to elect to defer payment of
an Award.

 

It is the intention of the Company that the Program meet all of the requirements
necessary or appropriate to be an unsecured retention and deferred compensation
program for a select group of management or highly compensated employees within
the meaning of ERISA Sections 201(2), 301(a)(3) and 401(a)(l), which is not a
qualified retirement plan under the Code. It is the further intention of the
Company that all Awards hereunder to Covered Officers shall qualify for the
“performance-based exception” to the deduction limitation imposed by Section
162(m) of the Code, and that all provisions of this Program governing the
payment of Awards shall satisfy the requirements of Section 409A of the Code.
All provisions hereof shall be interpreted accordingly.

 

 

 

ARTICLE II

DEFINITIONS

 

As used in the Program:

 

2.01        "Accounts" shall mean the Company Cash Account and Company Stock
Account maintained by the Administrative Committee under Articles IV and V or
any other section of the Program to reflect a Participant's interest (or the
undistributed interest of a Beneficiary) under the Program to the extent such
Account has been created for a Participant or Beneficiary.

 

2.02        "Administrative Committee" shall mean the committee provided for in
Section 15.01 hereof.

 

2.03        "Award" shall mean the Company Cash Allocation and Company Stock
Allocation credited to a Participant’s Accounts for a Program Year.

 

2.04        "Beneficiary" shall mean any person, persons and/or entity entitled
to receive benefits which are payable pursuant to Article XII hereof upon or
after a Participant's death.

 

2.05        "Bonus" shall mean amounts paid to a Participant under the annual
bonus program of the Employer during the one year period immediately prior to
the Effective Date and for each Program Year thereafter but shall not include
amounts paid under the Program.

 

2.06        "Calendar Year" shall mean January 1 through December 31.

 

2.07       "Change in Control" shall mean a change in the ownership of the
Company, a change in the effective control of the Company, or a change in the
ownership of a substantial portion of the Company’s assets, each as set forth
below.

 

2.07(1)                Change in Ownership of the Company. A change in the
ownership of the Company occurs on the date when any one person, or more than
one person acting as a group, acquires ownership of stock of the Company that,
together with stock held by such person or group, constitutes more than fifty
percent (50%) of the total fair market value or total voting power of the stock
of the Company. If any one person, or more than one person acting as a group, is
considered to own more than fifty percent (50%) of the total fair market value
or total voting power of the stock of the Company, the acquisition of additional
stock by the same person or persons is not considered to cause a Change in
Control. An increase in the percentage of stock owned by any one person, or
persons acting as a group, as a result of a transaction in which the Company
acquires its stock in exchange for property will be treated as an acquisition of
stock for purposes of this section. This paragraph 2.07(1) applies only when
there is a transfer of stock of the Company (or issuance of stock of the
Company) and stock in the Company remains outstanding after the transaction.

 

 

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2.07(2)              Change in Effective Control of the Company. A change in the
effective control of the Company occurs on the date when either (A) any one
person, or more than one person acting as a group, acquires (or has acquired
during the twelve (12) month period ending on the date of the most recent
acquisition by such person or persons) ownership of stock of the Company
possessing thirty five percent (35%) or more of the total voting power of the
stock of the Company; or (B) a majority of members of the Company’s Board of
Directors is replaced during any twelve (12) month period by directors whose
appointment or election is not endorsed by a majority of the members of the
Company’s Board of Directors prior to the date of the appointment or election.
If any one person, or more than one person acting as a group, is considered to
effectively control the Company as described in this paragraph 2.07(2), the
acquisition of additional control of the Company by the same person or persons
is not considered to cause a Change in Control of the Company.

 

2.07(3)               Change in Ownership of a Substantial Portion of the
Company’s Assets. A change in the ownership of a substantial portion of the
Company’s assets occurs on the date when any one person, or more than one person
acting as a group, acquires (or has acquired during the twelve (12) month period
ending on the date of the most recent acquisition by such person or persons)
assets from the Company that have a total gross fair market value equal to or
greater than forty percent (40%) of the total gross fair market value of all of
the assets of the Company immediately prior to such acquisition or acquisitions.
For this purpose, “gross fair market value” means the value of the assets of the
Company, or the value of the assets being disposed of, determined without regard
to any liabilities associated with such assets. There is no Change in Control
under this paragraph when there is a transfer to an entity that is controlled by
the shareholders of the Company immediately after the transfer. A transfer of
assets by the Company is not treated as a change in the ownership of such assets
if the assets are transferred to (A) a shareholder of the Company (immediately
before the asset transfer) in exchange for or with respect to its stock; (B) an
entity, fifty percent (50%) or more of the total value or voting power of which
is owned, directly or indirectly, by the Company; (C) a person, or more than one
person acting as a group, that owns, directly or indirectly, fifty percent (50%)
or more of the total value or voting power of all the outstanding stock of the
Company; or (D) an entity, at least fifty percent (50%) of the total value or
voting power of which is owned, directly or indirectly, by a person described in
clause (C).

 

The definition of “Change in Control” in the Program is intended to conform to
the definition of “change in control” under Code Section 409A, and shall be
interpreted in a manner consistent with that intent. Accordingly, for example,
the principles set forth in regulations or other guidance interpreting Code
Section 409A shall be applied in determining stock ownership, whether persons
are acting as a group, whether multiple events are considered together, and any
other matter relevant to the definition of “Change in Control.”

 

 

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2.08       "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time. References to any Section of the Internal Revenue Code shall
include any successor provisions thereto.

 

2.09       "Company" shall mean Coventry Health Care, Inc. or any company that
is a successor thereto as a result of a merger, consolidation, liquidation,
transfer of assets or other reorganization.

 

2.10       "Company Cash Account" shall mean the Account maintained for each
Participant to record the amounts of the Company Cash Allocation credited to the
Participant pursuant to Section 4.01 hereof, as adjusted in accordance with the
provisions of the Program.

 

2.11       "Company Cash Allocation" shall mean the amounts credited to the
Participant in the Company Cash Account by the Company in accordance with
Section 4.01 hereof.

 

2.12       "Company Stock Account" shall mean the Account established for each
Participant to record the amounts credited to the Participant pursuant to
Section 5.01 hereof.

 

2.13       "Company Stock Allocation" shall mean the stock credits, equal in
value to the price of the Company's common stock, credited to the Participant in
the Company Stock Account by the Company in accordance with Section 5.01 hereof.

 

2.14        "Compensation" shall mean the Salary and Bonus paid to the Employee,
including amounts that are not includible in the gross income of the Participant
under a salary reduction agreement by reason of the application of Sections 125,
402(e)(3), 402(h) or 403(b) of the Code.

 

Compensation shall not include the following:

 

2.14(1)     Amounts credited or paid under the Program or deferred into a
Participant’s Account.

 

2.14(2)   Amounts included in an Employee's income for federal income tax
purposes upon the exercise of a non-qualified stock option or upon receipt or
vesting of any restricted stock or other property.

 

2.14(3)   Amounts included in an Employee's income for federal income tax
purposes upon the sale, exchange or disposition of stock acquired upon exercise
of an incentive stock option.

 

2.14(4)    Any expense allowance, car allowance, fringe benefits (cash and
non-cash), non-cash payments, reimbursed expenses, group-term life insurance or
excess group-term life insurance, contributions by the Company to any
Supplemental Executive Retirement Plan (SERP) or 401(k) plans or other similar
items which are not included in the Participant's Salary (other than bonuses),
whether or not such amounts are includible in the Employee's gross income.

 

 

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2.15        “Covered Officer” shall have the meaning set forth in the 2004
Incentive Plan.

 

2.16      "Deferred Distribution Date" shall mean the date as of which the
Participant has elected to receive a distribution of the deferred portion of the
Participant’s Accounts, as specified in the Participant’s written deferral
election pursuant to Section 7.03.

 

2.17       "Disability" shall mean disability as determined by the
Administrative Committee pursuant to Section 11.02.

 

2.18        "Effective Date" shall mean July 1, 2006.

 

2.19       "Eligible Employee" shall mean those Employees who are selected for
participation in the Program by the Administrative Committee of the Program.

 

2.20       "Employee" shall mean any person who is employed by one or more
Employers, and is on an Employer's payroll.

 

2.21       "Employer" shall mean the Company or any affiliated company or
subsidiary of the Company that adopts the Program with the Company’s consent.

 

2.22      "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time. References to any Section of ERISA shall
include any successor provision thereto.

 

2.23       "Model Portfolio" shall mean the investment vehicles established by
the Company for the purpose of crediting earnings or losses to Company Cash
Accounts.

 

2.24      "Participant" shall mean an Eligible Employee who participates in the
Program as provided in Article III hereof, or a former Eligible Employee whose
Accounts have not yet been forfeited or distributed in full.

 

2.25      "Performance Period" shall mean a period over which performance is to
be measured. Unless otherwise designated by the Administrative Committee, the
Performance Period shall be the Calendar Year.

 

2.26       "Program" shall mean this Coventry Health Care, Inc. Mid-Term
Executive Retention Program as set forth in this document, and as hereafter
amended.

 

2.27       "Program Year" shall mean the twelve (12) consecutive month period
ending on June 30.

 

2.28      "Salary" shall mean the annual base salary paid to a Participant
according to the Company's normal payroll practices computed immediately prior
to the Effective Date and on each June 30 thereafter.

 

 

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2.29      "Separation From Service" shall mean a Participant’s termination of
employment with the Company and its affiliates that is a "separation from
service" for purposes of Section 409A of the Code.

 

2.30      "Service Period" shall mean a period of three (3) consecutive Program
Years during which a Participant must perform substantial services (except as
otherwise provided in Section 6.01 with respect to death, involuntary
termination, and Change in Control or in Article XI with respect to Disability)
for an Employer in order to earn a vested right to an Award. Service Periods
shall overlap, and no more than one Service Period shall begin during any
Calendar Year.

 

2.31      "Specified Employee" shall mean an officer of an Employer with annual
compensation greater than $130,000 (indexed), a five percent (5%) owner of an
Employer, or a one percent (1%) owner of an Employer with annual compensation
greater than $150,000 (indexed), determined in each case in accordance with Code
Section 409A. If the Employers have (in the aggregate) more than 50 officers
whose compensation exceeds $130,000 (indexed), only the 50 highest-paid officers
shall be considered “Specified Employees.” If an individual meets the definition
of “Specified Employee” at any time during a Calendar Year, the individual shall
be a “Specified Employee” during the 12-month period beginning on the following
April 1.

 

2.32       "Termination For-Cause" shall mean termination of employment with an
Employer resulting from (i) a felony conviction of a Participant or the failure
of a Participant to contest prosecution for a felony, or (ii) a Participant's
willful misconduct or dishonesty, which is directly and materially harmful to
the business or reputation of the Company or any Employer.

 

2.33      "Termination Not-for-Cause" shall mean the termination of employment
with an Employer (where the Employee does not remain employed by the Company or
any affiliated company or subsidiary of the Company), whether voluntary or
involuntary, other than by reason of the Participant's Death or Termination
For-Cause as defined herein.

 

2.34       "Unforeseeable Emergency" shall mean (i) a severe financial hardship
to the Participant resulting from an illness or accident of the Participant, the
Participant's spouse, or a dependent (as defined in Code Section 152(a)) of the
Participant, (ii) loss of the Participant's property due to casualty, or (iii)
other similar extraordinary and unforeseeable circumstances arising as a result
of events beyond the control of the Participant that would constitute an
“unforeseeable emergency” within the meaning of Code Section 409A.

 

 

2.35

"Valuation Date" shall mean the last day of the respective month.

 

 

2.36

"Valuation Period" shall mean a calendar month.

 

 

 

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ARTICLE III

REQUIREMENTS FOR ELIGIBILITY AND PARTICIPATION

 

3.01       Eligibility. Each Eligible Employee in the employ of the Company on
the Effective Date shall become a Participant on the Effective Date, subject to
the provisions of Section 3.03. Any Employee who first becomes an Eligible
Employee after the Effective Date shall become a Participant on the date he or
she becomes an Eligible Employee, subject to the provisions of Section 3.03.

 

3.02      Cessation of Eligible Employee Status. If any Participant who does not
incur a Termination of Employment ceases to be an Eligible Employee as defined
in Section 2.19 hereof, then during the period that such Participant is not an
Eligible Employee: (i) such Participant shall not receive any further allocation
of any Company Contributions, if any, under the Program, (ii) such Participant
shall continue to vest in prior Awards as provided in Article VI hereof, and
(iii) such Participant's Account shall continue to be adjusted as provided in
Article X hereof.

 

3.03       Participation in the Program. Each Eligible Employee shall become a
Participant only after receiving a notification letter, which shall define the
Company Cash Allocation credited to the Company Cash Account and the Company
Stock Allocation credited to the Company Stock Account for such Participant, and
the performance goals and targets applicable to each such Award for the
Performance Period.

 

3.04       Participation in Performance Periods. Eligible Employees shall be
selected separately for each Performance Period. The fact that a Participant has
been designated as an Eligible Employee for one Performance Period does not give
the Participant the right to be designated as an Eligible Employee for any
subsequent Performance Period, nor does it preclude the Participant from being
designated as an Eligible Employee for a subsequent Performance Period.

 

 

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ARTICLE IV

COMPANY CASH ALLOCATIONS

 

4.01     Company Cash Allocation. As of the first day of each Program Year, the
Company will make a Company Cash Allocation to the Program for an Eligible
Employee as disclosed in the notification letter. The Company Cash Allocation
for each Participant and the performance targets to which such Awards are
subject will be determined by the Administrative Committee and approved by the
Compensation Committee prior to the beginning of the Program Year and during the
first 90 days of the Performance Period, and a notification letter will be
issued to each Participant evidencing such allocation and performance criteria.
The Company Cash Allocation for the Covered Officers shall be determined by the
Compensation Committee for each Program Year and shall be subject to the
performance goals adopted by the Compensation Committee. Subject to any lower
limitation set forth in the 2004 Incentive Plan, the maximum Company Cash
Allocation for the Chief Executive Officer will be fifty-five percent (55%) of
Compensation for the last Calendar Year ending before the Performance Period and
forty percent (40%) for the President and Executive Vice Presidents. The maximum
Company Cash Allocation for any other Eligible Employee shall be twenty-five
percent (25%) of Compensation for the last Calendar Year ending before the
Performance Period.

 

ARTICLE V

COMPANY STOCK ALLOCATIONS

 

5.01     Company Stock Allocation. On the first day of each Program Year, each
Participant will be eligible to receive additional credits to his or her Company
Stock Account in an amount equal to the number of shares determined by dividing
thirty-five percent (35%) of the Participant’s Company Cash Allocation for that
Program Year by the average closing stock price for the Company’s common stock
as indicated on the NYSE for the ten (10) consecutive trading days prior to the
date of the contribution. Credits to the Company Stock Accounts of Participants
shall be subject to the Company’s attainment of performance goals and targets
set by the Compensation Committee for the Performance Period.

 

 

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ARTICLE VI

VESTING OF ACCOUNTS

 

6.01      Vesting of Participant's Accounts. Except as provided below with
respect to accelerated vesting in the event of death, involuntary termination,
or Change in Control, and as provided in Article XI with respect to Disability,
a Participant’s Company Cash Allocation and Company Stock Allocation for any
Program Year shall become vested only if (i) the Company attains the relevant
performance targets for the Performance Period that includes the first day of
the Program Year, and (ii) the Participant provides substantial services as an
Employee during the entire three-year Service Period beginning on the first day
of the Program Year. A Participant’s Award shall become one hundred percent
(100%) vested at the end of the Service Period if the conditions described in
the preceding sentence are satisfied, provided that the Participant is still an
Employee on the last day of the Service Period. Except as provided below in
Section 6.01(1) and Section 6.01(2), a Participant’s Award shall be forfeited if
the performance targets are not satisfied by the end of the relevant Performance
Period, or if the Participant ceases to be an Employee before the end of the
relevant Service Period. Earlier vesting of an Award shall occur upon the
earliest of the following circumstances, unless such Award has previously been
forfeited on account of the Company’s failure to meet the performance targets
related thereto:

 

6.01(l)      Accelerated Vesting in the Event of a Change in Control. In the
event of a Change in Control, each Participant's Accounts shall vest in full as
of the date of the Change in Control.

 

6.01(2)     Accelerated Vesting in the Event of a Participant's Death or
Involuntary Termination Not-for-Cause. In the event of a Participant's Death,
the Participant's Accounts will vest in full as of the date of Participant's
Death. In the event of a Participant's involuntary Termination Not-for-Cause (as
defined herein) after the end of the Performance Period for an Award but before
the end of the Service Period for the Award, the Participant's Award will vest
in full as of the date of Participant's involuntary Termination Not-for-Cause.
Any Award for which the Performance Period has not yet been completed (or for
which the performance targets have not been satisfied) at the time of the
Participant’s involuntary Termination Not-for-Cause shall be forfeited in its
entirety.

 

6.02       Forfeiture of Participant's Accounts. In the event of a Participant's
voluntary Termination Not-for-Cause, or Termination For-Cause, the portion of
the Participant's Accounts that has not previously vested will be forfeited in
its entirety. Any forfeiture under this Article VI will not be reallocated among
other Program Participants but may be applied to future Company Cash Allocations
and Company Stock Allocations (subject to the maximum limits on those
allocations under the 2004 Incentive Plan and this Program).

 

 

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ARTICLE VII

ELECTION TO DEFER DISTRIBUTION

 

7.01       Deferrals. A Participant may elect to defer up to one hundred percent
(100%) of his or her Company Cash Allocation or Company Stock Allocation (or
both) for any Program Year. The deferred Award will be credited with gains and
losses consistent with the performance of the Account to which it is credited,
as provided in Article X, until the Deferred Distribution Date.

 

7.02       Timing of Deferral Election. A Participant must make a deferral
election before the applicable deadline set forth below.

7.02(1) General Election Deadline. Except as provided in Section 7.02(2) with
respect to a Participant’s first year of eligibility under the Program or in
Section 7.02(3) with respect to an Award made after a Participant has suffered a
Disability, a Participant must make a deferral election with respect to any
Award before the first day of the Program Year for which the Award is made (or
before any earlier election deadline established by the Administrative
Committee).

7.02(2) First Year of Eligibility. If a Participant is designated as an Eligible
Employee after the first day of the Program Year, the Participant may make a
deferral election with respect to any Award for the current Program Year within
thirty (30) days after the date on which he or she is designated an Eligible
Employee.

 

7.02(3) Disability. If a Participant receives an Award after the Participant has
suffered a Disability, the Participant must make any deferral election with
respect to the Award not later than the end of the Calendar Year preceding the
first day of the Program Year for which the Award is made.

 

7.03       Form of Deferral Election. All deferral elections must be in writing,
in a form prescribed by the Administrative Committee; must specify the portion
of the Company Cash Allocation and the Company Stock Allocation that the
Participant wishes to defer; and must designate a Deferred Distribution Date.
The Deferred Distribution Date may be (i) a specific date not more than ten (10)
years after the last day of the Service Period for the Award, (ii) the date of
the Participant’s Separation From Service, or (iii) the earlier of a specific
date described in clause (i) or the date of the Participant’s Separation From
Service. The same Deferred Distribution Date shall apply to all deferred Awards
with respect to Service Periods ending before the Deferred Distribution Date.

 

 

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7.04       Applicability of Deferral Election. If an Award does not vest, the
non-vested Award shall be forfeited and any deferral election with respect to
the Award shall not become effective. If an Award vests for any reason less than
12 months after the date of the Participant’s deferral election, the deferral
election for that Award shall not become effective and the Award shall be paid
pursuant to Section 8.01; but any deferral election made at least 12 months
before the vesting date for an Award (and any deferral election made by a
disabled Employee pursuant to Section 7.02(3)) shall remain in effect.

 

7.05       Payment Upon Change in Control. In the event of a Change in Control
of the Company, all deferral elections shall be canceled automatically and the
Participant’s deferred Accounts shall be distributed in full thirty (30) days
after the Change in Control.

 

7.06       Deferral Elections Irrevocable. Except to the extent that a change in
any aspect of a deferral election is expressly permitted or required under the
Program, a Participant’s deferral election with respect to any Award shall be
irrevocable on and after the deadline for making the deferral election under
Section 7.02.

 

ARTICLE VIII

ACCOUNT DISTRIBUTIONS

 

8.01       Award Distribution. If a Participant does not elect to defer receipt
of his or her Award (or the election becomes ineffective as provided in Section
7.04), the portion of the Participant’s Award that is not deferred will be
distributed in full thirty (30) days after becoming vested. Any Death Benefit
under this Program shall be payable to the Beneficiary most recently designated
by a Participant in accordance with Section 12.02 below.

 

8.02       Distribution of Deferred Accounts. If a Participant makes a valid
election to defer receipt of all or a portion of his or her Accounts in
accordance with Article VII, the Accounts shall be distributed on the
Participant’s Deferred Distribution Date, except as provided in Section 7.05
with respect to a Change in Control, in Section 12.01 with respect to the
Participant’s death, and in Section 13.02 with respect to Specified Employees.

 

8.03       Hardship Distribution. If a Participant incurs a severe financial
hardship as a result of an Unforeseeable Emergency, the Participant may request
a distribution from his deferred Accounts of an amount that does not exceed the
sum of (i) the amount necessary to satisfy the emergency and (ii) the amount
necessary to pay taxes reasonably anticipated as a result of the distribution.
The amount necessary to satisfy the emergency and to pay the related taxes shall
be determined after taking into account the extent to which the financial
hardship is or may be relieved through reimbursement or compensation by
insurance or otherwise or by liquidation of the Participant's assets (to the
extent the liquidation of such assets would not itself cause severe financial
hardship).

 

 

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8.04        Form of Distribution. The Participant's Company Cash Account and
Company Stock Account will be distributed in cash. The value of a Participant's
Company Stock Account shall be determined based on the average closing stock
price for the Company's common stock as indicated on the NYSE for the ten (10)
consecutive trading days prior to the last Valuation Date that falls on or
before the vesting date (in the case of an Award distributed within thirty (30)
days after becoming vested) or that falls before the distribution date (in the
case of a deferred Award).

 

 

ARTICLE IX

SOURCE OF PAYMENTS OF DEFERRED COMPENSATION

 

The Program is a non-qualified, unfunded, unsecured, deferred compensation
program. Therefore, all benefits owing under the Program shall be paid out of
the Company's general corporate funds, which are subject to the claims of
creditors. Neither the Participant nor any Beneficiary shall have any right,
title or interest whatever, or any claim, preferred or otherwise, in or to any
particular asset of the Company as a result of participation in this Program.
Nothing contained in the Program, and no action taken pursuant to its
provisions, shall create or be construed to create a trust or fiduciary
relationship of any kind between the Company and a Participant or any other
person. Neither a Participant nor a Beneficiary of a Participant shall acquire
any interest greater than that of an unsecured creditor in any assets of the
Company.

 

ARTICLE X

VALUATION OF ACCOUNTS

 

10.01     Participants' Accounts. The Administrative Committee shall establish
and maintain a Company Cash Account and Company Stock Account for each
Participant. Each Account shall reflect the credits, charges, and forfeitures
allocable thereto in accordance with the Program. The Administrative Committee
shall maintain records that will adequately disclose at all times the state of
each separate Account hereunder. The books, forms and methods of accounting
shall be entirely subject to the supervision of the Administrative Committee.

 

 

10.02

Periodic Determination of Participants' Accounts.

 

10.02(1)  Allocation of Net Earnings and Adjustments in Value of the Accounts.
The net earnings or losses of the Accounts under the Program for a particular
Valuation Period shall be determined on the basis of the earnings for such
Valuation Period. Participants will be credited with earnings or losses on their
Company Cash Account in amounts equal to the earnings or losses on a Model
Portfolio as established by the Company. To the extent necessary under Section
162(m) of the Code, credits of such earnings shall be deemed to be an additional
grant separate from the original performance-based grant to the Cash Account.
The value of a Participant's Company Stock Account shall be determined based on
the closing stock price for the Company's common stock as indicated on the NYSE
for the last trading day on or immediately prior to the Valuation Date.

 

COVENTRY HEALTH CARE, INC. MID-TERM EXECUTIVE RETENTION
PROGRAM                PAGE 12

 

 

 

10.02(2)   Computations. All of the computations required to be made under the
provisions of Article X, when made, shall be conclusive with respect thereto and
shall be binding upon all the Participants, Beneficiaries, and all other
persons.

 

ARTICLE XI

DISABILITY BENEFITS

 

11.01     Disability Benefits. If a Participant suffers a Disability, such
Participant may remain an Eligible Employee and a Participant for all purposes
under the Program, including receipt of future Company Cash Allocations and
Company Stock Allocations. Payments to a Participant who has suffered a
Disability shall be made at the time and in the manner provided in Article VIII
hereof.

 

11.02     Determination of Disability. The Administrative Committee shall
determine whether a Participant has suffered a Disability based upon proof
thereof which the Participant must provide to the Administrative Committee, and
its determination in that respect is binding upon the Participant.

 

ARTICLE XII

DEATH BENEFITS

 

12.01      Death Benefits. Upon the death of a Participant while in the employ
of an Employer, his or her Beneficiary, determined in accordance with Section
12.02 hereof, shall receive the full amount credited to his or her Company Cash
Account and Company Stock Account valued as of the Valuation Date coinciding
with or immediately preceding the date on which the Participant dies. The
Administrative Committee may require proper proof of death.

 

Payments resulting from the death of a Participant shall be made at the time and
in the manner provided in Article VIII hereof. If a Participant has elected to
defer all or a portion of his or her Accounts, the Deferred Distribution Date
shall not apply in the event of the Participant’s death, and the Participant’s
Accounts shall be distributed to his or her Beneficiary within 30 days after the
Participant’s death.

 

 

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12.02     Designation of Beneficiaries. Each Participant may designate a
Beneficiary or Beneficiaries, and contingent Beneficiary or Beneficiaries, if
desired, to receive his or her interest hereunder in the event of his or her
death, but the designation of a Beneficiary shall not be effective for any
purpose unless and until it has been filed with the Administrative Committee on
the form provided therefor. If the deceased Participant failed to name a
Beneficiary in the manner herein prescribed, or the Beneficiary or Beneficiaries
so named predecease the Participant, the amount, if any, which is payable
hereunder in respect of such deceased Participant shall be paid to the legal
representative or representatives of the estate of the deceased Participant. Any
payment made to any person pursuant to the power and discretion conferred upon
the Administrative Committee by the preceding sentence shall operate as a
complete discharge of all obligations under the Program in respect of such
deceased Participant and shall not be subject to review by anyone, but shall be
final, binding and conclusive on all persons ever interested hereunder. A
Participant may from time to time change any Beneficiary previously designated
by him or her without notice to such Beneficiary, under such rules and
regulations as the Administrative Committee may from time to time promulgate,
but the last Beneficiary designation filed with the Administrative Committee
shall control.

 

ARTICLE XIII

EMPLOYMENT TERMINATION BENEFITS

 

13.01     Unvested Awards. In the event a Participant voluntarily terminates his
or her employment, or experiences a Termination For-Cause by an Employer, at any
time prior to the date he or she becomes vested in his or her Award, no benefits
will be paid to the Participant or any Beneficiary under this Program with
respect to the unvested Award.

 

13.02     Vested Accounts. Upon the Participant’s Separation From Service for
any reason at any time following the date when the Participant became vested in
all of part of his or her Accounts, any portion of the Accounts that is not
subject to a deferral election shall be paid pursuant to Section 8.01. If a
Participant has made a valid election to defer all or a portion of the
Participant’s vested Accounts, the deferred Accounts shall be paid on the
Participant’s Deferred Distribution Date, except as provided in Section 12.01
and in the following sentence. If the date of the Participant’s Separation From
Service is the Participant’s Deferred Distribution Date, and the Participant is
a Specified Employee on the date of his or her Separation From Service, the
Participant’s deferred Accounts shall be paid six (6) months after the date of
the Participant’s Separation From Service. The preceding sentence is designed to
comply with Code Section 409A, and it shall delay the distribution of the
Participant’s Accounts only to the extent necessary to comply with Code Section
409A.

 

ARTICLE XIV

MISCELLANEOUS PROVISIONS RESPECTING PARTICIPANTS

 

 

14.01

Participants to Furnish Required Information.

 

 

 

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14.01(1)  Each Participant shall furnish to the Administrative Committee such
information as the Administrative Committee considers necessary or desirable for
purposes of administering the Program, and the provisions of the Program
respecting any payments hereunder are conditional upon the Participant's
furnishing promptly such true, full and complete information as the
Administrative Committee may reasonably request.

 

14.01(2)  Any notice or information which, according to the terms of the Program
or the rules of the Administrative Committee, must be filed with the
Administrative Committee, shall be deemed so filed if addressed and either
delivered in person or mailed, postage fully prepaid, to the Administrative
Committee. The Administrative Committee may, in its sole discretion, modify or
waive any specified notice requirement; provided, however, that such
modification or waiver must be administratively feasible, must be in the best
interest of the Participant, and must be made on the basis of rules of the
Administrative Committee that are applied uniformly to all Participants.

 

14.02     Restrictions on Assignment. The benefits provided hereunder are
intended for the personal security of persons entitled to payment under the
Program, and are not subject in any manner to the debts or other obligations of
the persons to whom they are payable. The interest of a Participant or such
Participant's Beneficiary or Beneficiaries may not be sold, transferred,
assigned or encumbered in any manner, either voluntarily or involuntarily, and
any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber or
charge the same shall be null and void; neither shall any benefits hereunder be
liable for or subject to the debts, contracts, liabilities, engagements or torts
of any person to whom such benefits or funds are payable, nor shall they be
subject to garnishment, attachment, or other legal or equitable process nor
shall they be an asset in bankruptcy. All of the provisions of this Section
14.02, however, are subject to Article VIII, and to withholding of any
applicable taxes.

 

14.03     Participants' Rights. Establishment of the Program shall not be
construed as giving any Participant the right to be retained in the Employers'
service or employ, and nothing contained herein shall be construed in any way to
limit or restrict the right of any Employer to discharge any employee regardless
of whether such employee is a Participant or to change such employee's position
or the basis or amount of such employee's compensation. Establishment of the
Program shall not give any Participant the right to receive any benefits not
specifically provided by the Program. A Participant shall not have any interest
in the amounts credited to his Accounts until such Accounts are vested in
accordance with the Program. All amounts credited to Accounts for a Participant
under the Program shall remain the sole property of the Employer, subject to the
claims of its general creditors and available for its use. With respect to
amounts credited to an Account of a Participant, the Participant is merely a
general creditor of the Employer; and the obligation of the Employer hereunder
is purely contractual and shall not be secured in any way.

 

 

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14.04     Address for Mailing of Benefits. Each Participant entitled to benefits
hereunder shall file with the Administrative Committee from time to time in
writing such Participant's post office address and each change of address. Any
check representing payment hereunder and any communication addressed to a
Participant, an Employee or Beneficiary, at such person's last address filed
with the Administrative Committee, or if no such address has been filed, then at
such person's last address as indicated on the records of an Employer, shall be
deemed to have been delivered to such person on the date on which such check or
communication is deposited, postage prepaid, in the United States mail.

 

14.05     Unclaimed Account Procedure. The Administrative Committee shall not be
obliged to search for, or ascertain the whereabouts of, any Participant or
Beneficiary. The Administrative Committee, by certified or registered mail
addressed to such Participant's or Beneficiary's last known address, shall
notify the Participant or Beneficiary that such Participant or Beneficiary is
entitled to a distribution under this Program.

 

ARTICLE XV

ADMINISTRATION OF THE PROGRAM

 

15.01     Appointment of Administrative Committee. The administration of the
Program will be the responsibility of the Administrative Committee, which shall
mean the Compensation Committee of the Board of Directors of the Company. For
Participants other than Covered Officers, the Administrative Committee may
delegate the administration of the Program to the Chief Executive Officer of the
Company or such other person(s) as shall be appointed by the Compensation
Committee of the Board of Directors of the Company. The Administrative Committee
shall have the sole power, duty and responsibility for directing the
administration of the Program in accordance with its provisions.

 

15.02    Compensated Expenses of the Administrative Committee. The members of
the Administrative Committee shall serve without compensation for their services
as such, but the reasonable and necessary expenses of the Administrative
Committee shall be reimbursed by the Company.

 

15.03    Secretary and Agents of the Administrative Committee. The
Administrative Committee may appoint a Secretary who may, but need not, be a
member of the Administrative Committee, and may employ such officers and
employees of the Company and such agents and such clerical and other
administrative personnel as reasonably may be required for the purpose of
administering the Program. Such administrative personnel shall carry out the
duties and responsibilities assigned to them by the Administrative Committee.

 

 

15.04

Actions of Administrative Committee.

 

 

 

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15.04(1)    A majority of the members of the Administrative Committee shall
constitute a quorum for the transaction of business, and shall have full power
to act hereunder. Action by the Administrative Committee shall be official if
approved by a vote of a majority of the members present at any official meeting.
The Administrative Committee may, without a meeting, authorize or approve any
action by written instrument signed by a majority of all of the members. Any
written memorandum signed by the Chief Executive Officer of the Company, or any
other member of the Administrative Committee, or by any other person duly
authorized by the Administrative Committee to act, in each case when acting
within the authority granted by the Program, in respect of the subject matter of
the memorandum, shall have the same force and effect as a formal resolution
adopted in open meeting.

 

15.04(2) A member of the Administrative Committee may not vote, in his or her
capacity as an Administrative Committee member, or decide upon any matter
relating solely to him or her or vote on any case in which his or her individual
right or claim to any benefit under the Program is specifically involved.

 

15.04(3) The Administrative Committee shall maintain written records of its
actions, and as long as such written records are maintained, members may
participate and hold a meeting of the Administrative Committee by means of
conference telephone or similar communications equipment which permits all
persons participating in the meeting to hear each other. Participation in such a
meeting constitutes presence in person at such meeting.

 

15.05     Authority of Administrative Committee. The Administrative Committee is
authorized to take such actions as may be necessary to carry out the provisions
and purposes of the Program and shall have the authority to control and manage
the operation and administration of the Program. In order to effectuate the
purposes of the Program, the Administrative Committee shall have the power and
discretion to construe and interpret the Program, to supply any omissions
therein, to reconcile and correct any errors or inconsistencies, to decide any
questions in the administration and application of the Program, and to make
equitable adjustments for any mistakes or errors made in the application of the
Program. All such actions or determinations made by the Administrative
Committee, and the application of rules and regulations to a particular case or
issue by the Administrative Committee shall not be subject to review by anyone,
but shall be final, binding and conclusive on all persons ever interested
hereunder. In construing the Program and in exercising its power under
provisions requiring Administrative Committee approval, the Administrative
Committee shall attempt to ascertain the purpose of the provisions in questions
and when such purpose is known or reasonably ascertainable, such purpose shall
be given effect to the extent feasible. Likewise, the Administrative Committee
is authorized to determine all questions with respect to the individual rights
of all Participants and then Beneficiaries under this Program, including, but
not limited to, all issues with respect to eligibility, valuation of Accounts,
and level of Company contributions subsequent to the first Program Year.

 

15.06     General Administrative Powers. The Administrative Committee shall have
authority to make, and from time to time revise, rules and regulations for the
administration of the Program.

 

 

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ARTICLE XVI

AMENDMENT OF THE PROGRAM

 

The Company reserves the right to amend the Program at any time and from time to
time provided that a copy of any such amendment is delivered to all Participants
and/or Beneficiaries following the adoption of the amendment. However, no
amendment or modification shall, without the consent of a Participant or
Beneficiary, adversely affect such Participant or Beneficiary's rights with
respect to amounts previously credited to his or her Accounts under the Program
at the time of such amendment.

 

ARTICLE XVII

TERMINATION OF PROGRAM

 

The Company reserves the right to terminate the Program at any time; however, no
termination shall, without the consent of a Participant or Beneficiary,
adversely affect such Participant's or Beneficiary's rights with respect to
amounts credited to his or her Accounts under the Program up to the time of
termination. To the extent permitted under Code Section 409A, each Participant’s
vested Accounts shall be distributed to the Participant in the form of a
lump-sum payment as soon as administratively practicable following the
termination of the Plan. If the lump-sum payments described in the preceding
sentence are not permitted under Code Section 409A, each Participant’s account
shall be distributed as rapidly as permitted under Code Section 409A.

 

ARTICLE XVIII

MISCELLANEOUS

 

18.01     Withholding. The Administrative Committee shall determine whether or
not federal and state income tax withholding is required with respect to any
distribution hereunder. The Company may withhold from any distribution under the
Program any federal, state, or local income or employment tax that the Company
reasonably determines to be due with respect to the distribution. The Company
may deduct from the undistributed portion of a Participant’s Accounts any
employment tax that the Company reasonably determines to be due with respect to
the account under the Federal Insurance Contributions Act (FICA), and to pay the
income tax withholding related to such FICA tax. Alternatively, the Company may
require the Participant or Beneficiary to remit to the Company or its designee
an amount sufficient to satisfy any applicable federal, state, and local income
and employment tax with respect to the Participant’s Accounts. The Participant
or Beneficiary shall remain responsible at all times for paying any federal,
state, or local income or employment tax with respect to the Accounts. In no
event shall any Employer or the Committee be liable be liable for any interest
or penalty that a Participant or Beneficiary incurs by failing to make timely
payments of tax.

 

18.02    Article and Section Headings. The titles or headings of the respective
Articles and Sections in this Program are inserted merely for convenience and
shall be given no legal effect.

 

 

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18.03     Unfunded Status of the Program. Any and all payments made to the
Participant pursuant to the Program shall be made only from the general assets
of the Company. All Accounts under the Program shall be for bookkeeping purposes
only and shall not represent a claim against specific assets of the Company.

 

18.04     Compliance With Tax Deferral Requirements. The Program is intended,
and shall be construed, to comply with the requirements of Code Section 409A.
The Company does not warrant that the Program will comply with Code Section 409A
with respect to any Participant or with respect to any payment, however. In no
event shall any Employer or the Administrative Committee be liable for any
additional tax, interest, or penalty incurred by a Participant or Beneficiary as
a result of the Program’s failure to satisfy the requirements of Code Section
409A, or as a result of the Program’s failure to satisfy any other applicable
requirements for the deferral of tax.

 

18.05     Applicable Law. THIS PROGRAM SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF MARYLAND TO THE EXTENT NOT PREEMPTED BY APPLICABLE FEDERAL LAW.

 

IN WITNESS WHEREOF, the Company has caused this Program to be executed by its
duly authorized officers as of this 25th day of May, 2006.

 

COVENTRY HEALTH CARE, INC.

 

 

 

By:

          /s/ Dale Wolf          

 

 

Title:

          Chief Executive Officer          

 

 

COVENTRY HEALTH CARE, INC. MID-TERM EXECUTIVE RETENTION PROGRAM

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