COVENANT HEALTH AND COMMUNITY SERVICES, INC. ANNUAL PERFORMANCE INCENTIVE PLAN

Transcription

1 1. Background and Purpose. COVENANT HEALTH AND COMMUNITY SERVICES, INC. ANNUAL PERFORMANCE INCENTIVE PLAN 1.1 Purpose. The purpose of the Annual Performance Incentive Plan ( APIP ) of Covenant Health and Community Services, Inc. d/b/a Covenant Care ( the Company ) is to provide an effective means to motivate and compensate leaders and key individuals on an annual basis through cash incentives based on the achievement of organizational, departmental, and individual performance objectives during each Performance Year. 1.2 Effective Date. The Plan is effective as of January 1, 2018 (the Effective Date ), and shall remain in effect until it has been terminated pursuant to Section Definitions. The following terms shall have the following meanings: 2.1 Affiliate means any corporation or other entity controlled by the Company. 2.2 Award means an award granted pursuant to the Plan, the payment of which shall be contingent on the attainment of Performance Goals with respect to a Performance Period, as determined by the Committee pursuant to Section Base Salary means the Participant s annualized rate of base salary on the last day of the Performance Period before (a) deductions for taxes or benefits and (b) deferrals of compensation pursuant to any Company or Affiliate-sponsored plans. 2.4 Board means the Board of Directors of the Company, as constituted from time to time. 2.5 Cause means: (a) If the Participant is a party to an employment agreement with the Company or an Affiliate and such agreement provides for a definition of Cause (or For Cause ), the definition contained therein; or (b) If no such agreement exists, or if such agreement does not define Cause: (i) The Participant s willful failure to perform his or her duties (other than any such failure resulting from incapacity due to physical or mental illness); (ii) The Participant s engagement in dishonesty, illegal conduct or gross misconduct, which is, in each case, materially injurious to the Company or its Affiliates; (iii) The Participant s embezzlement, misappropriation, or fraud, whether or not related to the Participant s employment with the Company; (iv) The Participant s conviction of or plea of guilty or nolo contendere to a crime that constitutes a felony or a crime that constitutes a misdemeanor involving moral turpitude; or (v) The Participant s violation of any restrictive covenants entered into between

2 the Participant and the Company or the Company s Standards and Code of Conduct. 2.6 Change in Control means: (a) The direct or indirect sale, transfer, conveyance, or other disposition (including a merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of the Company and its Affiliates, taken as a whole, to any person that is not an Affiliate of the Company; Board; (b) The Incumbent Directors cease for any reason to constitute at least a majority of the (c) The date that is 10 business days prior to the consummation of a complete liquidation or dissolution of the Company; 2.7 Code means the U.S. Internal Revenue Code of 1986 (Title 26, United States Code), as amended from time to time, including any regulations or authoritative guidance promulgated thereunder and successor provisions thereto. 2.8 Committee means the Compensation Committee appointed by the Board to administer the Plan pursuant to Section Company means Covenant Health and Community Services, Inc. d/b/a Covenant Care, a Florida not for profit corporation, and any successor thereto Covered Employee has the meaning set forth in Section 4960 of the Code, including any Treasury Regulations issued thereunder Determination Date for determining and establishing Performance Goals means the 90th day of the Performance Period Disability means, unless otherwise defined in an employment agreement between the Participant and the Company, total and permanent disability in accordance with the Company s long-term disability plan, as determined by the Committee Incumbent Directors means the individuals who, as of the date the Plan is adopted, are 1 Currently, under the recently adopted Section 4960, covered employee is defined as: (2) Covered employee. For purposes of this section, the term covered employee means any employee (including any former employee) of an applicable tax-exempt organization if the employee (A) is one of the 5 highest compensated employees of the organization for the taxable year, or (B) was a covered employee of the organization (or any predecessor) for any preceding taxable year beginning after December 31, U.S.C. 4960(c)(2). -2-

3 directors of the Company and any individual who becomes a director subsequent to such date whose election was approved by a vote the then-incumbent Directors in accordance with the Bylaws of the Company Maximum Award means as to any Participant for any Plan Year the maximum award opportunity percentage established and set annually for the Plan Year by the Committee for the Participant multiplied by the Participant s annualized base salary for the Plan Year Negative Discretion means the discretion of the Committee to reduce or eliminate the size of an Award in accordance with Section 6.1(c) of the Plan Participant means as to any Performance Period, the executive officers at the Vice President or higher management level of the Company or an Affiliate, including those who are deemed likely to be Covered Employees, and other key leaders and employees of the Company or an Affiliate who are designated by the Committee to participate in the Plan for that Performance Period Performance Criteria means the performance criteria upon which the Performance Goals for a particular Performance Period are based, which, unless and until the Committee or Board approves a change in Performance Criteria, may also include and address any of the following subjects, matters, or goals: Net earnings or net income (before or after taxes) Net revenues or net revenue growth Gross revenue Gross profit, gross profit growth, or achieving enterprise profitability Increasing consolidated operating income (EBIT) performance Net operating profit (before or after taxes) Return on assets, capital, invested capital, equity or sales/services Cash flow (including, but not limited to, operating cash flow, free cash flow, and cash flow return on capital) Earnings before or after taxes, interest, depreciation and/or amortization Gross or operating margins Budget and expense management Productivity ratios Improving overall staff engagement; Economic value added or other value added measurements Expense targets Foundation and annual gift growth Operating efficiency Performance improvements Safety record Completion of acquisitions or business expansion and achieving enterprise growth. Such Performance Criteria may relate to the performance of the Company as a whole, a business unit, division, department, individual, or any combination of these and may be applied on an absolute basis and/or relative to one or more peer group companies or indices, or any combination thereof, as the Committee shall determine Performance Goals means the goals selected by the Committee, in its discretion, to be applicable to a Participant for any Performance Period. (a) Performance Goals shall be based upon one or more Performance Criteria. -3-

4 (b) Performance Goals may include a threshold level of performance below which no Award will be paid and levels of performance at which specified percentages of the Target Award will be paid and may also include a maximum level of performance above which no additional Award amount will be paid. (c) Performance at the specified levels must be achieved to the level indicated; there will not be any proration or interpolation of award opportunity calculated for achievement in-between specified levels. In other words, a Participant in the Plan must reach the designated performance threshold to attain the related award determination, or else be considered to have only scored at the level just below. To avoid ambiguities and to achieve definite calculations and award determinations, the measures for each target will specify a range, but some goals or targets may have a simple pass/fail type measurement or thresholds for minimum attainment only 2.19 Performance Period means the period for which performance is calculated, which unless otherwise indicated by the Committee, shall be the Plan Year Plan means the Annual Performance Incentive Plan ( APIP ) of Covenant Health and Community Services, Inc. d/b/a Covenant Care, as hereafter amended from time to time Plan Year means the Company s fiscal year, which commences on January 1 and ends on December Pro-Rated Award means an amount equal to the Award otherwise payable to the Participant for a Performance Period in which the Participant was actively employed by the Company or an Affiliate for only a portion thereof, multiplied by a fraction, the numerator of which is the number of days the Participant was actively employed by the Company or an Affiliate during the Performance Period and the denominator of which is the number of days in the Performance Period Target Award means the target award payable under the Plan to a Participant for a particular Performance Period, expressed as a percentage of the Participant s Base Salary. 3. Administration. 3.1 Administration by the Committee. (a) The Plan shall be administered by the Committee, which shall consist of not less than three (3) directors of the Board. (b) Members of the Committee shall be elected and appointed by the Board, with the total number of directors elected and appointed by the Board to the Committee annually being an odd number. (c) Each member of the Committee must qualify as an outside director with these qualifications: (1) The director will not be a current employee of the Corporation or its Affiliates. (2) The director will not be a former employee who receives compensation for prior services for the Company or its Affiliates -4-

5 (3) The director will not be a former officer of the Company or its Affiliates. (4) The director will not receive and has not received remuneration directly or indirectly from the Company, except reimbursement of reasonable expenses as permitted under Section 3.13 of Article III of the Company s Bylaws. 3.2 Authority of the Committee. Subject to the provisions of the Plan and applicable law, the Committee shall have the power, in addition to other express powers and authorizations conferred on the Committee by the Plan, to: (a) Designate Participants; (b) Determine the terms and conditions of any Award; (c) Determine whether, to what extent, and under what circumstances Awards may be forfeited or suspended; (d) Interpret, administer, reconcile any inconsistency, correct any defect and/or supply any omission in the Plan, any instrument or agreement relating to, or an Award granted under the Plan; (e) Establish, amend, suspend, or waive any rules for the administration, interpretation and application of the Plan; and (f) Make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan. 3.3 Decisions Binding. All determinations and decisions made by the Committee, the Board, and any delegate of the Committee pursuant to the provisions of the Plan shall be final, conclusive, and binding on all persons, and shall be given the maximum deference permitted by law. 3.4 Delegation by the Committee. The Committee, in its sole discretion, may delegate all or part of its authority and powers under the Plan to one or more directors and/or officers of the Company; provided, however, that the Committee may not delegate its responsibility to: (a) Make Awards to executive officers and members of the senior management team; or (b) Certify the satisfaction of the Performance Goals pursuant to Section Agents; Limitation of Liability. The Committee may appoint agents to assist in administering the Plan. The Committee and each member thereof shall be entitled to, in good faith, rely or act upon any report or other information furnished to it or the member of the Committee by any officer or employee of the Company, the Company s certified public accountants, consultants, or any other agent assisting in the administration of the Plan. Members of the Committee and any officer or employee of the Company acting at the direction or on behalf of the Committee shall not be personally liable for any action or determination taken or made in good faith with respect to the Plan, and shall, to the extent permitted by law, be fully indemnified and protected by the Company with respect to any such action or determination. -5-

6 4. Eligibility and Participation. 4.1 Eligibility. Executive level (CEO, Senior Vice Presidents, and Vice Presidents) and any other key employees of the Company and its participating Affiliates, including those who are deemed likely to be Covered Employees, are eligible to be selected and designated by the Committee to be Participants in the Plan. Additional lower management level employees and other key employees of the Company and its Affiliates may be considered and designated by the Committee upon request and recommendation of the Company s Chief Executive Officer. 4.2 Participation. The Committee, in its discretion, shall select, no later than the Determination Date, the persons who shall be Participants for the Performance Period. Only eligible individuals who are designated by the Committee to participate in the Plan with respect to a particular Performance Period may participate in the Plan for that Performance Period. An individual who is designated as a Participant for a given Performance Period is not guaranteed or assured of being selected for participation in any subsequent Performance Period. 4.3 New Hires; Newly Eligible Participants. A newly hired or newly eligible Participant will be eligible to receive a Pro-Rated Award. The amount of any Award paid to such Participant shall not exceed that proportionate amount of the Maximum Award set forth in Section Leaves of Absence. If a Participant is on a leave of absence for a portion of a Performance Period that is less than or equal to thirty (30) leave of absence days, the Participant shall be eligible to an Award that is calculated based on a full Performance Period. If a Participant is on a leave of absence for a portion of a Performance Period that exceeds thirty (30) leave of absence days, the Participant will be eligible to receive a Pro-Rated Award reflecting participation for the days or period during which he or she was actively employed and not for any days or period when he or she was on leave of absence. For purposes of this Section 4.4, leave of absence days do not include leave days taken as authorized paid Personal Time Off (PTO) accrued and earned by the Participant under applicable PTO policies of the Company and its Affiliates. 4.5 Change of Participant Tier. If a Participant changes tiers during the Performance Year, the target award opportunity will be pro-rated based on the participant s length of time in each tier as a percentage of each portion of the Performance Year. 5. Terms of Awards. 5.1 Determination of Target Awards. Prior to or reasonably promptly following the commencement of each Performance Period, but no later than the Determination Date, the Committee, in its sole discretion, shall establish the Target Award for each Participant, the payment of which shall be conditioned on the achievement of the Performance Goals for the Performance Period. 5.2 Determination of Performance Goals and Performance Formula. Prior to, or reasonably promptly following the commencement of each Performance Period, but no later than the Determination Date, the Committee, in its sole discretion, shall establish in writing the Performance Goals for the Performance Period and shall prescribe a formula for determining the percentage of the Target Award that may be payable based upon the level of attainment of the Performance Goals for the Performance Period. The Performance Goals shall be based on one or more Performance Criteria, each of which may carry a different weight and may differ from Participant to Participant. -6-

7 5.3 Adjustments. The Committee is authorized, in its sole discretion, to adjust or modify the calculation of a Performance Goal for a Performance Period in connection with any one or more of the following events: (a) Asset write-downs; (b) Significant litigation or claim judgments or settlements; (c) The effect of changes in tax laws, accounting standards or principles, or other laws or regulatory rules affecting reporting results; (d) Any reorganization and restructuring programs; (e) Extraordinary nonrecurring items as described in Accounting Principles Board Opinion No. 30 (or any successor pronouncement thereto) and/or in management s discussion and analysis of financial condition and results of operations appearing in the Company s annual report or financial statements for the applicable year or period; (f) Acquisitions or divestitures; (g) Any other specific unusual or nonrecurring events or objectively determinable category thereof; (h) Foreign exchange gains and losses; and (i) A change in the Company s fiscal year. No adjustment shall be made if the effect would be to cause a violation of Section 4960 of the Code, including any Treasury Regulations issued thereunder. 6. Payment of Awards. 6.1 Determination of Awards; Certification. (a) Following the completion of each Performance Period, the Committee shall determine the extent to which the Performance Goals have been achieved or exceeded. If the minimum Performance Goals established by the Committee are not achieved, then no payment will be made. (b) To the extent that the Performance Goals are achieved, the Committee shall certify in writing the extent to which the Performance Goals applicable to each Participant have been achieved and shall then determine, in accordance with the prescribed formula, the amount of each Participant s Award. (c) In determining the amount of each Award, the Committee may reduce or eliminate the amount of an Award by applying Negative Discretion if, in its sole discretion, such reduction or elimination is appropriate; provided, however, the exercise of Negative Discretion for one individual does not result in an increase in the amount payable to another individual. -7-

8 Award. (d) In no event shall the amount of an Award for any Plan Year exceed the Maximum 6.2 Form and Timing of Payment. Except as otherwise provided herein, as soon as practicable following the Committee s certification pursuant to Section 6.1 for the applicable Performance Period, each Participant shall receive a cash lump sum payment of his or her Award, less required withholding. In no event shall such payment be made later than March 15 following the end of the Performance Period (i.e., the 15th day of the third month following December 31 of the immediately prior fiscal year). 6.3 Employment Requirement. Except as otherwise provided in Section 7, no Award shall be paid to any Participant who is not actively employed by the Company or an Affiliate on the date that Awards are paid. 6.4 Deferral of Awards. The Committee, in its sole discretion, may permit a Participant to defer the payment of an Award that would otherwise be paid under the Plan. Any deferral election shall be subject to such rules and procedures as shall be determined by the Committee in its sole discretion and must comply with Section 409A of the Code (26 U.S.C. 409A). 7. Termination of Employment. 7.1 Employment Requirement. Except as otherwise provided in Section 7.2, if a Participant s employment terminates for any reason prior to the date that Awards are paid, all of the Participant s rights to an Award for the Performance Period shall be forfeited. However, the Committee, in its sole discretion may approve and authorize a Pro-Rated Award, subject to the Committee s certification that the Performance Goals for the Performance Period have been met. Such Pro-Rated Award will be paid at the same time and in the same manner as Awards are paid to other Participants. Notwithstanding the foregoing, however, if a Participant s employment is terminated for Cause or for willful unsatisfactory performance, the Participant shall in all cases forfeit any Award not already paid. 7.2 Termination of Employment Due to Death or Disability. If a Participant s employment is terminated by reason of his or her death or Disability during a Performance Period or following a Performance Period but before the date that Awards are paid, the Participant or his or her beneficiary will be paid the Award that would otherwise be payable (that is, a Pro-Rated Award, if applicable) if the Participant had remained employed through the date that Awards are paid. In the case of a Participant s Disability, the employment termination shall be deemed to have occurred on the date that the Committee determines that the Participant is Disabled. Payment of such Award, or Pro-Rated Award as applicable, will be made at the same time and in the same manner as Awards are paid to other Participants. 8. Change in Control. If a Change in Control occurs during a Performance Period, Awards under the Plan will be calculated based on the Company s performance as of the date of the Change in Control. Awards paid in connection with a Change in Control will be paid no later than the 15th day of the third month following the date of the Change in Control. 9. General Provisions. 9.1 Compliance with Legal Requirements. The Plan and the granting of Awards shall be subject to all applicable federal and state laws, rules, and regulations, and to such approvals by any regulatory or governmental agency as may be required. -8-

9 9.2 Non-Transferability. A person s rights and interests under the Plan, including any Award previously made to such person or any amounts payable under the Plan may not be assigned, pledged, or transferred, except in the event of the Participant s death, to a designated beneficiary in accordance with the Plan, or in the absence of such designation, by will or the laws of descent or distribution. 9.3 No Right to Employment. Nothing in the Plan or in any notice of Award shall confer upon any person the right to continue in the employment of the Company or any Affiliate or to affect the right of the Company or any Affiliate to terminate the employment of any Participant. 9.4 No Right to Award. Unless otherwise expressly set forth in an employment agreement signed by the Company and a Participant, a Participant shall not have any right to any Award under the Plan until such Award has been paid to such Participant. Furthermore, participation in the Plan in one Performance Period Year does not connote and does not create any right to become a Participant in the Plan in any future Performance Period. 9.5 Withholding. The Company shall have the right to withhold from any Award any federal, state or local income and/or payroll taxes required by law to be withheld and to take such other action, as the Committee may deem advisable, to enable the Company and Participants to satisfy obligations for the payment of withholding taxes and other tax obligations relating to an Award. 9.6 Amendment or Termination of the Plan. The Board may, at any time, amend, suspend, or terminate the Plan in whole or in part; provided, that, no amendment shall be effective unless approved by the requisite majority vote of the directors of the Board pursuant to the Company s Bylaws. Notwithstanding the foregoing, no amendment shall adversely affect the rights of any Participant to Awards determined and allocated prior to such amendment, suspension, or termination. 9.7 Unfunded Status. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind or a fiduciary relationship between the Company and any Participant, beneficiary, legal representative, or any other person. To the extent that a person acquires a right to receive payments under the Plan, such right shall be no greater than the right of an unsecured general creditor of the Company. All payments to be made hereunder shall be paid from the general funds of the Company and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of such amounts except as expressly set forth in the Plan. The Plan is not intended to be subject to the Employee Retirement Income Security Act of 1974, as amended (ERISA). 9.8 Governing Law and Venue. The Plan shall be construed, administered, and enforced in accordance with the laws of Florida without regard to conflicts of law, and the venue of any legal proceedings pertaining or related in any way to the Plan, disputes under the Plan, or its interpretation or enforcement shall be in Pensacola, Escambia County, Florida. 9.9 Beneficiaries. To the extent that the Committee permits beneficiary designations, any payment of Awards due under the Plan to a deceased Participant shall be paid to the beneficiary duly designated by the Participant in accordance with the Company s practices. If no such beneficiary has been designated or survives the Participant, payment shall be made by will or the laws of descent or distribution. -9-

10 9.10 Section 409A of the Code. It is intended that payments under the Plan qualify as short-term deferrals exempt from the requirements of Section 409A of the Code. In the event that any Award does not qualify for treatment as an exempt short-term deferral, it is intended that such amount will be paid in a manner that satisfies the requirements of Section 409A of the Code. The Plan shall be interpreted and construed accordingly. The Company reserves the right to amend the Plan at any time to comply with Code 409A, Treas. Reg A, and other applicable guidance or for any other purpose, provided that such amendment will not result in taxation to any Participant under Code 409A. Except as the Plan and applicable guidance otherwise may require, the Company may make any such amendments effective immediately Expenses. All costs and expenses in connection with the administration of the Plan shall be paid by the Company Section Headings. The headings of the Plan have been inserted for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such headings, shall control Severability. In the event that any provision of the Plan shall be considered illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining provisions of the Plan, but shall be fully severable, and the Plan shall be construed and enforced as if such illegal or invalid provision had never been contained therein Gender and Number. Except where otherwise indicated by the context, wherever used, the masculine pronoun includes the feminine pronoun; the plural shall include the singular, and the singular shall include the plural Non-exclusive. Nothing in the Plan shall limit the authority of the Company, the Board, or the Committee to adopt such other compensation arrangements, as it may deem desirable for any Participant Notice. Any notice to be given to the Company or the Committee pursuant to the provisions of the Plan shall be in writing and directed to the Chair of the Board of Directors of the Company at Covenant Care, 5041 North 12th Avenue, Pensacola, Florida Successors. All obligations of the Company under the Plan with respect to Awards granted hereunder shall be binding upon any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation or otherwise, of all or substantially all of the assets of the Company Clawback or Reimbursement. (a) The Board, in its sole discretion, may, to the extent permitted by law, and to the extent it determines in its sole judgment that it is in the best interests of the Company to do so, require repayment of a portion or all of any Award to a Participant if it is determined by the Board that: (1) gross negligence, intentional misconduct, or fraud by a Participant caused or partially caused the Company to have to restate all or a portion of its financial statements for the Performance Year; -10-

11 (2) the amount of the Award received by the Participant was calculated based upon, or contingent on, the achievement of certain financial results that were subsequently the subject of or affected by a material restatement of all or a portion of the Company s financial statements for the Performance Year; or (3) the Award payment received by the Participant would have been lower had the financial results for the Performance Year been properly reported. (b) The Board of Directors may seek and require such a clawback or reimbursement from a Participant up to an amount by which the originally received Award exceeds the amount of the Award that the Participant would have received based on the material restatement of the financial statements or had the financial results been properly reported. (c) The action permitted to be taken by the Board under this Section 9.18 is in addition to, and not in lieu of, any and all other rights of the Board and/or the Company under applicable law and that can apply notwithstanding anything to the contrary in the Plan No Contract of Employment. Nothing contained herein shall be construed to be a contract of employment for any term of years, nor as conferring upon the Participant the right to continue to be employed by the Company in his or her present capacity or in any capacity. It is expressly understood that this Plan relates to the payment of deferred compensation for the Participant's services, payable after termination of his or her employment with the Company, and is not intended to be an employment contract Benefits Not Transferable. No Participant or beneficiary under this Plan shall have any power or right to transfer, assign, anticipate, hypothecate, or otherwise encumber any part of all of the amounts payable hereunder. No such amounts shall be subject to seizure by any creditor of any such Participant or beneficiary, by a proceeding at law or in equity, nor shall such amounts be transferable by operation of law in the event of bankruptcy, insolvency or death of the Participant or beneficiary. Any such attempted assignment shall be void Successors. The provisions of this Plan shall bind and inure to the benefit of the Participant's employer and its successors and assigns and the Participant Spouse's Interest. The interest in the benefits hereunder of a spouse of a Participant who predeceases the Participant shall automatically pass to the Participant and shall not be transferable by such spouse in any manner, including but not limited to such spouse's will, nor shall such interest pass under the laws of intestate succession Facility of Payment. If a distribution is to be made to a minor, or to a person who is otherwise incompetent, then the Company may, in its discretion, make such distribution (i) to the legal guardian, or if none, to a parent of a minor payee with whom the payee maintains his or her residence, or (ii) to the conservator or committee or, if none, to the person having custody of an incompetent payee. Any such distribution shall fully discharge the Company and Plan from further liability on account thereof No Guarantee of Tax Consequences. Neither the Company, the Board, nor the Committee makes any commitment or guarantee that any federal, state, or local tax treatment will apply or be -11-

12 available to any person participating or eligible to participate hereunder. This Annual Performance Incentive Plan ( APIP ) of Covenant Health and Community Services, Inc. d/b/a Covenant Care was adopted by a duly approved resolution of its Board on, Attest: Carey King Secretary -12-

13 2018 POLICY AND SUMMARY OF ANNUAL PERFORMANCE INCENTIVE PLAN (APIP) PURPOSE This document is the 2018 Policy and Summary ( the Policy ) of the Annual Performance Incentive Plan ( Plan ) of Covenant Care ( the organization ) that provides the procedures and methodologies for implementing the Plan. The Policy is summary of the Plan and therefore, is governed by the more specific terms and conditions in the Plan s provisions. Participants under the Plan should also read and become familiar with the provisions of the Plan, because if there is a conflict or any inconsistency between the terms of the Policy and the Plan, the terms and conditions of the Plan shall govern and prevail. The Plan is to be the primary vehicle for the granting of performance based monetary awards; however, in certain limited circumstances, other types of discretionary, non performance based bonuses may be granted outside of the Plan at the sole discretion of the Compensation Committee ( the Compensation Committee ) of Covenant Care s Board of Directors. The Plan is designed to provide an effective means to motivate and compensate leaders and key individuals who have been designated as Plan Participants by the Compensation Committee, on an annual basis, through cash incentives based on the achievement of organizational, departmental, and individual performance objectives during each Performance Year. The Performance Year is the 12 month period coinciding with the organization s fiscal year. The compensation contemplated under this Plan is considered payment for success in that any payout under the Plan is subject to the achievement of specific and/or broader performance outcomes by the organization, department, and by each Participant during the Performance Year. This may include certain circuit breakers that are restrictions or requirements that may be imposed and included in a Performance Year s plan and that will disallow or will not trigger Key Performance Indicator (KPI) award opportunities. The circuit breakers are designed to ensure individual performance and business objectives are sufficiently aligned for overall success. Circuit breaker measures typically relate to the overall financial health of the organization, but may also pertain to other critical performance indicators. Such indicators often include, but are not limited to such things as regulatory compliance, accreditation status, and publicly reported measures of patient quality. All terms contained in the Plan and in this Policy are subject to change at the discretion and by approval of the Compensation Committee (based on proposals and recommendations of the Chief Executive Officer [CEO] and the executive management team) to avoid incongruences and to achieve the goals of the payment for success policies including provisions for individual performance measures, award payment frequency, program duration, and circuit breaker contingencies. The overarching goal of this plan is to enhance employer employee relationships Page 1 of 10

14 and to provide short term incentive compensation that motivates and increases the leader retention to enhance the long term value of the collective enterprise. WHO IS ELIGIBLE? Attachment A to this policy delineates (1) the Participants who are eligible in 2018 to participate in the Plan and may be determined entitled to receive a bonus under the Plan and (2) the Participants respective 2018 target award opportunity tiers. These designated Participants, tiers, and respective target and maximum award opportunities are applicable for the 2018 performance period, unless the Participant is rendered ineligible because the Participant is not actively working at the time of the payout of the bonus; provided, however, the Participant will remain eligible if the employment of the Participant was involuntarily terminated after the end of the Performance Year, but before the bonus awards were paid, and the reason for the involuntary termination of employment was not for cause or was not for a willful failure of the Participant to perform his or her duties (other than any such failure resulting from incapacity due to physical or mental illness). The determination of the Participant s eligibility and any entitlement for a bonus award will be made at the discretion of the Compensation Committee based upon documented or other objective substantiation provided by the CEO and, as applicable, the executive management team. If extenuating circumstances warrant consideration due to business circumstances or factors impacting individual equity, the Compensation Committee may grant waivers or exceptions to the designated eligibility and performance criteria. The eligibility requirements and performance criteria will be reviewed annually by the Compensation Committee, and the Compensation Committee may consider and modify the eligibility requirements and performance criteria for the next Performance Year. PLAN MECHANICS Each Participant is assigned a target award opportunity, which equates to a designated percentage of the Participant s annual base salary, in effect as of the end of the Performance Year. Target award opportunities are considered to be part of the overall compensation philosophy of the organization, and individual amounts are determined utilizing an extensive market analysis for which performance pay is a component of total cash compensation. If the Plan participant achieves certain results, and the organization likewise achieves a desired level of success, the Participant will receive pay for performance. Business performance results will be measured based on the organization s annual Key Performance Indicators (KPI) that have been approved for the Performance Year by the Compensation Committee. However individual annual performance criteria for certain levels of management may be based on additional or alternative objectives as determined by the Compensation Committee. The Compensation Committee is permitted, under certain financial and business circumstances described in the Plan, to make adjustments or modifications of the calculation of a performance goal for the Page 2 of 10

15 Performance Year. The approved KPI dashboard for 2018 is included in Attachment B to this Policy. The form of the calculation worksheet to be used for calculating the APIP awards included in this Policy as Attachment C. The enterprise Key Performance Indicators (KPI) are developed and recommended by the CEO and are reviewed and approved by the Compensation Committee. Business performance objectives, generally related to annual KPI s and for the purposes of Plan structure, are approved by the Compensation Committee and communicated to all Participants during the first quarter of each Performance Year. The terms of the CEO s employment contract will provide a guide for the development, preparation, and approval by the Compensation Committee of the annual Plan design components and functionality for the CEO and its implementation and oversight by the Compensation Committee. The assessment of individual performance goals will typically be accomplished through the Participant s annual performance evaluation, but may also include factors or accomplishments that have occurred and are reflected beyond the performance appraisal as circumstances may warrant and as approved by the Compensation Committee, for the good of the Participant or organization. The business and individual performance goals are stratified according to varying levels and intensity of performance, ranging from minimum to target to maximum (or stretch ) performance. The impact of actual business or individual performance during the Performance Year on the actual award amount that may be paid varies between positions, with the award for the executive leadership team being more dependent on the organization s overall KPI performance. Awards for other Participants may be weighted more towards targeted departmental and individual performance objectives. The relative weights given to the business and individual performance goals have been established in consideration of an assessment of the Participant s ability, based on the Participant s position within the organization and the Participant s accountability for his or her achievements in relation to desired departmental or organizational outcomes. The tables below describe the target award opportunities (TAO) for 2018 for the tier of all Participants, who are executives and senior management employed as Vice Presidents or higher, and the relative weighting of TAO distribution for this tier. A separate description of the CEO s target award opportunity and distribution will be included in the specific CEO Plan document as an attachment. Table A Target Award Opportunity Tiers Minimum Award Opportunity (% Base) Target Award Opportunity (% Base) Tier Tier A: SVP s/officers & VP s 7.5% 15% 30% Maximum Award Opportunity (% Base) *Minimum, Target, and Maximum award opportunities as a percentage of base compensation generally follow a distribution principle distribution of 50%, 100%, and 200% of the target opportunity respectively Page 3 of 10

16 Table B Distribution of TAO Performance Weightings Tier % TAO Related to Organizational Performance % TAO Related to Departmental or Team Performance % TAO Related to Individual Performance Tier A: Senior Officers & VPs 100% 0% 0% * TAO = Target Award Opportunity If a participant changes tiers during the Performance Year, the target award opportunity will be prorated based on the participant s length of time at each tier as a percentage of each portion of the Performance Year. In each Performance Year, the distribution of the weights of the TAO performance may change or be adjusted by the Compensation Committee from the weights set in this 2018 APIP Policy based on changing factors and performance related to financial or business matters. Such an adjustment may be reallocated across organizational, departmental/team, or individual domains of performance contribution, or any combination of these domains. TARGET AWARD OPPORTUNITY DETERMINATIONS As described above, the award opportunity consists of multiple components: performance attributable to organizational, departmental/team, and individual measures of success. While these weightings contemplate the projected level of impact a Participant, according to his or her tier, on business objectives at all levels these are estimations for the purposes of goal setting. Actual award payment will be calculated based on specific and measureable goals. Each Participant will have his or her own individualized program that is included in his or her individualized 2018 APIP Award Calculation Worksheet (see, Attachment C), which will describe the goals, measures, targets, and weights given for each goal, and the weighted scores leading to a total award determination. Both the target award opportunities (as a percentage of base compensation) and the individual goals and measures, follow a common distribution methodology for characterizing levels of performance and subsequent achievement for the purposes of rating and scoring: Table C Performance to Goal Methodology Performance Levels Performance Rating Below Minimum Performance to Goal 0% Minimum Performance to Goal 50% Target Performance to Goal 100% Maximum or Stretch Performance to Goal 200% Page 4 of 10

17 Performance at the specified levels must be achieved to the level indicated; there is no proration or interpolation of award opportunity calculated for achievement in between specified levels. In other words, a Participant in the Plan must reach the designated performance threshold to attain the related award determination, or else be considered to have only scored at the level just below. Typically, measures for each target will specify a range as to ease the calculation and determination burden, but some goals may have a simple pass/fail type measurement or thresholds for minimum attainment only. The Compensation Committee is responsible for determining and approving participants levels of performance goals: whether it be enterprise Key Performance Indicators, departmental/team outcomes, or individual results. The KPI outcomes and related goal performance results are presented by the CEO and the executive management team to the Compensation Committee for its review and approval. The Compensation Committee also has the discretion to determine that a business goal has been substantially met, or has been met to a degree warranting a higher or lower pay out than would otherwise be calculable under this Plan, depending on extenuating financial or business circumstances. The discretionary authority and oversight for all such interpretations, calculations, and final determinations rest with Compensation Committee. AWARD PAYMENTS APIP awards will normally be paid according to the Plan between February 1 and March 15, but no later than March 15, of the year following the Performance Year. EXAMPLE CALCULATION OF AWARD Assume a Participant is a Vice President, who earns a base salary of $100,000 annually and is employed in this position for the full Performance Year (2018). The Participant is in the Executive Leadership Team tier, and therefore has an incentive target award opportunity of 15% base salary ($15,000) and a maximum award opportunity of 30% base salary ($30,000). Following the distribution of the weights for the goals across organizational, departmental/team, and individual, this Participant would be 100% dependent on organizational results by way of KPI results. Therefore, the 15% target is based on the 5 KPI s and their respective weights and ratings. In the example worksheet below, the participant s total award is 23.25% of the total max opportunity of 30%, or $23,250, and has been determined as follows: The Weighted Score for each goal ( Pillar KPI ) is the product of: [Goal Weight %] X [Performance %] X [Target Award of 15%) Goal S 1= 15% X 200% X 15% = 4.50% Goal Q 1= 15% X 200% X 15% = 4.50% Goal P 1 = 15% X 0.0% X 15% = 0.00% Goal F 1 = 40% X 200% X 15% = 12.00% Goal G 1 = 15% X 100% X 15% = 2.25% Total Weighted Score 23.25% Page 5 of 10

18 This award equates to 77.5% of the maximum opportunity (30% of base), or 155% of the target opportunity (15% of base). The sample worksheet below provides greater detail on the discrete aspects of the formulas, results, ratings, calculation, and final payout determination for this example: Sample Annual Performance Incentive Program (APIP): Award Calculation Worksheet Employee: [NAME] Executive Leadership Team (SVP and VP) Tier Pillar KPI Result Weight (%) Min % Target % Max % Rating Performance (%) Weighted Score S 1 Service Q 1 Quality P 1 People 96% LTR Referral Source Satisfaction 4.2% Improvement Public Quality Measures 4.02 Grand Mean Score Staff Engagement 15.00% 7.50% 15% 30% 3 200% 4.50% 15.00% 7.50% 15% 30% 3 200% 4.50% 15.00% 7.50% 15% 30% 0 0% 0.00% F 1 Finance G 1 Growth >150% FY17 Budget Financial Operating Results 70% capture rate Growth from Internal Capture 40.00% 7.50% 15% 30% 3 200% 12.00% 15.00% 7.50% 15% 30% 2 100% 2.25% Grand Total 100% 23.25% Minimum Goal: 7.50% Award as a percentage of the target goal amount (15%): Target Goal: 15% % Max Goal: 30% Award as a percentage of the maximum goal amount (30%): Base Comp: $100, % Performance Rating Legend Award Amount $ [Base X Weighted Score= APIP Award]: 0=0%; 1=50%, 2=100%; 3=200% $23, MISCELLANEOUS The establishment of the Plan and this Policy and Summary, any of their provisions, and any actions with respect to the Plan taken by the Board of Directors, the Compensation Committee, the CEO, executive management leadership, and any other manager or employee assisting in the management or implementation of the Plan do not confer upon any employee or Participants the right to continued employment. The organization reserves the right to dismiss any employee or Participant at will (at any time, with or without prior notice, with or without cause) and/or Page 6 of 10

19 pursuant to a written employment contract, or otherwise deal with an employee or Participant to the same extent as though the Plan had not been adopted. The organization will comply with all federal, state or local income tax withholding requirements, and Social Security or other tax requirements applicable to the accrual of payment of benefits under the Plan, and all such decisions and actions taken by the organization to comply with those laws and regulations shall be final and conclusive. Participants that have questions/concerns regarding the potential taxes associated with their participation in the Plan should seek independent professional tax advice. The resolution of any questions or grievances with respect to payments and entitlements pursuant to the provisions of the Plan and this Policy shall be determined initially by the CEO, in his sole discretion, and all such determinations shall be final and conclusive, unless the Participant seeks review and reconsideration of the CEO s resolution and determination to the Compensation Committee within five (5) business after the CEO s determination is given to the Participant. The determination and resolution by the Compensation Committee of a timely request for reconsideration of the CEO s determination shall be deemed final and conclusive. Questions or grievances by the CEO with respect to the CEO s individual APIP payments and entitlements pursuant to the Plan will be resolved and determined by the Compensation Committee, which determination shall be final and conclusive. If any terms and provisions of this Policy and Summary are inconsistent with or contrary to the terms and provisions of the Plan, the terms and provisions of the Plan shall prevail and supersede the inconsistent or contrary terms and provisions of the Policy and Summary. The Plan and this Policy and Summary may be terminated, revoked, or amended by the Compensation Committee from time to time in accordance with the adjustment, modification, and amendment provisions of the Plan and applicable laws, and without the approval of any individual employee or Participant. Page 7 of 10

20 Attachment A: Schedule of Leader Tiers for 2018 APIP Award EXECUTIVE LEADERSHIP TEAM (maximum award opportunity of 30% of base annual salary) Chief Operating Officer Chief Financial Officer Chief Medical Officer Chief Integration Officer VP, Foundation VP, Finance VP, Organizational Development & Engagement Page 8 of 10

21 Attachment B: 2018 Key Performance Indicator (KPI) Dashboard Page 9 of 10