EXHIBIT "2"

EMPLO'YMENT AGREEMENT

f)--// b.o-OCl

THIS AGREEMENT made as of the t2- day of ~ ,~"8, between

the Board of Directors of Tallahassee Memorial HealthCare, Inc., hereinafter referred to as . "Tallahassee Memorial" and Duncan Moore, hereinafter referred to as "·Moore."

WHEREAS, Tallahassee Memorial desires to employ Moore as President and Chief Executive Officer of Tallahassee Memorial HealthCare, Inc. dJb/a Tallahassee - -. Memorial HealthCare, and Moore hereby accepts the employment.

NOW, THEREFORE, in consideration of the mutual promises, the parties agree as follows:

1. Purposes. Moore shall render full time professional .services to

Tallahassee Memorial in the capacity as stated above. He will at all times, faithfully, industrially, and to the best of his ability, perform all duties that may be required of rum by virtue of his position and all duties set forth in Tallahassee Memorial's Bylaws to the reasonable satisfaction of the Board of Directors. His duties shall specifically include the supervision of the affairs of the corporation (TMH, Inc.); the supervision of personnel;

'fef;-~i~-matters; ttendance at meetings of the130ard of Directors and its1f~ecutive Committee; reports to both bodies conceill:!ug .all_phases <2iJh~,.Sl.R.~ation of the

corporation. Including, as well as all services rendered in connection with the operation of the corporation, employment of personnel, and acquisition of machinery and equipment. In addition, Moore shall perform in the same manner any special duties assigned or delegated to him by the Executive Committee of the Board of Directors.

2.

Compensation.

In consideration for these services as stated above,

Tallahassee Memorial shall pay to Moore an amount mutually agreed upon at an annual review of his compensation by the Executive Committee or Compensation Committee of the Board. Said amount not in any event to be less than the previous year's salary and benefits. Moore may, at his option., request and require that such portion of his salary as he may designate be set aside as tax deferred income subj ect to the requirements of the

1

Internal Revenue Service (IRS) as are permitted for a 50l(c)(3) organization.

" .. ''''','~"'"C,_''. ""',. __ .. _ .• __ ._"')

3: Benefits.:.-/" Tallahassee Memorial shall purchase or make available the

~.~,>"...... Ii _n •

following benefi~to Moore:

vA.. 'Life 'Insurance. Tallahassee Memorial shall purchase a

$1 ,000,000 ~ life insurance policy on the life of Moore at standard rates.

~-. Health Insurance.

Moore shall be entitled to such health

insurance as provi~ed to other employees of Tallahassee Memorial.

"' ....

...... -C, General Liability Insurance. Tallahassee Memorial shall insure

Moore under its general liability insurance policy for all acts done in good faith during the

term of his Agreement.

( \,,,,<E(~ Retirement Benefits. Moore shall be entitled to retirement benefits ~ offered to other employees of Tallahassee MemoriaL~uch benefits are outlined in the

.I . 1 ... ...----"

( attachment to this Agreement dated September 9, 1998.

~

For the purpose of figuring Moore's retirement benefits Moore's

salary will be ilie.~~·~fc~~i;~)m'~~~i~~bmitted to the' Federal Government on the

-...-..........- ....... ...,....-..-

required IRS 990 Forms for the component or affiliated organizations of Tallahassee

Memorial HealthCare, Inc., e.g., Tallahassee Memorial HealthCare; TMH Foundation; Southeast Community Health Services; Tallahassee Memorial Health Ventures; and any __ other components or affiliates.

~ vE: Automobile. Tallahassee Memorial shall purchase or lease for

, "

~

,r

Moore every three (3) years a new automobile. In the event that the Internal Revenue Service (IRS) changes its rules concerning automobiles, then an adjustment shall be made in Moore's compensation for such changes to offset additional expense to Moore.

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\

Disability Insurance Policy. Tallahassee Memorial shall purchase

-, a standard disability policy which shall cover sixty percent (60%) of the base pay of

,

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Moore in the event that Moore becomes disabled.

L.e:- Medical Examination.

Tallahassee Memorial shall provide

t/·· one (1) free annual medical examination per year for Moore.

,.H~ Dues. Tallahassee Memorial shall pay dues to professional

,

"C associations and societies and to such service organizations and clubs of which Moore

2

may become a member as approved by the Chairman of the Board or the Executive Committee of the Board of Directors as being in the best interest of Tallahassee Memorial.

4. Vacation and Leave Time. Moore shall be entitled to earned time off

. (ETO) in accordance with Tallahassee Memorial's personnel policies for each year of employment. In addition, Moore will be permitted to be absent from his offices during working days to attend professional meetings in the United States and to attend such

I. outside professional duties in the hospital field which have been mutually agreed upon between Moore and the Chairman of the Board of Directors or the Executive Committee of the Board of Directors. Attendance at such approved meetings and accomplishment of approved professional duties shall be fully compensated service time and shall not be considered ETO. Tallahassee Memorial shall reimburse Moore for all expenses incurred by him incident to attendance at approved professional meetings.

5. Termination. Should Tallahassee Memorial terminate Moore without

' .. , cause, then Tallahassee Memorial shall pay to Moore three years' salary and benefits.

During the severance compensation period Moore shall be credited with service for purposes of calculating length of service under Employer's retirement plan made available to Moore.

A. Termination for Cause. If Moore is terminated for cause by

Tallahassee Memorial, then there shall be no payment to Moore. Cause is hereby defined as being convicted of a felony, habitual absence, and/or gross and flagrant inattention to

v' or execution of duties continuing for more than sixty (60) days after the Board of Tallahassee Memorial notifies Moore in writing that he is subject to such termination based upon activities described herein. Moore's duties may be suspended without a cessation of his full compensation and benefits during the pendency, following indictment, of any felony charge brought against Moore in a court of competent jurisdiction.

The termination of Moore's employment for cause under this section shall not affect his right to be paid out his accumulated vacation (i.e., PLT days) and sick leave.

3

The Board shall notify Moore in writing oftennination for cause by registered mail and termination shall be effective as of the date of receipt by Moore.

B, Termination by Moore. If Moore decides to terminate this

Employment Agreement, then he shall give six (6) months' written notice to the Board of Directors by registered maiL

C. Competition. Upon termination of this Agreement for any reason

for a period of one (1) year following the effective date of this termination, Moore shall not be employed by or work in any capacity for any health care facility in the Tallahassee area without first obtaining the written authorization of the Chairman of the Board of Directors of Tallahassee Memorial. The Tallahassee area is hereby defined as Leon, Jefferson, Taylor and Gadsden Counties, Florida, and Thomas County, Georgia. In the event of a breach of this restrictive covenant, Tallahassee Memorial shall be entitled to injunctive relief, it being agreed by the parties that there would be no adequate remedy at law available to Tallahassee Memorial

D. Involuntmy Terrrlinallon Due to Death or Disability. In the event

of the death of Moore, this Agreement shall terminate and previously agreed upon

/

J/ benefits shall apply. In the event of a long term disability, herein defmed as six (6)

months, then this Agreement shall be terminated and previously agreed upon benefits shall apply. This Agreement shall be terminated by Tallahassee Memorial if it loses its state license or there is a destruction or closing of Tallahassee Memorial.

6. Review of Performance Annually. The Board of Directors shall annually

do a performance review which shan include a comprehensive assessment of \. achievements on the job, measured by the standards criteria and guidelines developed by the Board of Directors. This review process shall include the setting of new goals, standards, and objectives for the future.

7, Term of Agreement. This Agreement shall be for an indefinite term

unless terminated as provided herein.

8. Amendments to Agreement. The terms and conditions of this Agreement

may be amended at any time by written agreement of the parties signed by the Chairman of the Board and Moore.

4

9.

Entire Agreement

This Agreement constitutes the entire agreement

'" ';}

) between the parties. It supersedes any and all other agreements or contracts, either oral

! '

or written, between the parties with respect to the subj ect matter hereof.

10. Invalidity. The invalidity or unenforceability of any particular

provision of this Agreement shall not affect other provisions and this Agreement shall be construed in all respects as if such invalid or unenforceable provision had been omitted.

11. Assi!IDl11ent. Neither party. shall assign this Agreement without the

written consent of the other party.

12. Attorneys' Fees and Costs. In the event that either party to the

Agreement breaches the Agreement, then the prevailing party shall be entitled to attorneys' fees and court costs.

13. Laws of the State of Florida. This Agreement shall be construed and

enforced under and in accordance with the laws of the State of Florida.

TALLAHASSEE MEMORIAL HEAL THeARE, INC.

Duncan Moore

5

TALLAHASSEE MEMORIAL HEALTH CARE , INC.

BOARD OF DIRECTORS

A special meeting of the officers of the Board of Directors of Tallahassee Memorial HealthCare, Inc., was held on Wednesday, September 9, 1998, at 4:30 p.m., in the hospital boardroom. Those present were: John R. Lewis, Ph.D., Chair; Thomas 1. Lawhorn, M.D., Vice Chair; Mr. Brent Pichard, Secretary; and 11r. Charles Mitchell, Treasurer. Also attending was Mr. Paul M. Flood, Chairman of Chattahoochee Health Resources.

Mr. Flood reviewed with the officers the issues surrounding Supplemental Executive Retirement Plans (S;6R-P')"fOr'exe<cut'i:V'Etm:anagement-and referred to the points and explanations detailed in his le~tets ~fM1!Y 18, ~d ,...Septe~~: 4,J2%~;opies of which are attached to these original minutes. Discussicn-ensued-aiid tne folloWIng action was taken:

ACTION: Upon motion by Mr. Charles Mitchell, seconded by Thomas I. Lawhorn, M.D., it was unanimously agreed that:

1. vthe CEO shall have a ""8ERF target of 50% of salary atItl years and

65% at 15 years and would be vested at 10 years.

2. The three Senior Vice Presidents shall have a SERP target of 50 % of salary and would be vested at 10 years.

3. The Vice Presidents shall maintain the same formula of 1.5% per year times number of years times last three years average salary.

The officers asked Mr. Flood to further develop ideas regarding contractual details and funding of the SERP.

Without additional discussion or action the meeting adjourned.

Chattahoochee Health Resources

May 18, 1998

A}t.:~~

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1. Se"~d!£ .!-<p4':;.. ~~ .Il/"..MJ 8iE .r r. Oll$e":;; ,.,p16.,.~

{- f" P" ""if' ~ If tf PII'4fl",""

John Lewis, Ph.D. Chairman

Board of Directors

Tallahassee Memorial HealthCare, Inc. 1300 Miccosukee Road

Tallahassee, FL 32308.:5093

A.

TMH; Inc. EMPLOYEE-RETIREMENT PROGR:AM

Your CEO and senior management team participate in Thffi, Inc.' s regular employee retirement program. This program is designed to pay employees I.SOIo per year (of the-employee' s last three years average salary up to $150,000) times the number of years employed at TMH, Inc. For example, if.§J¥H;~~ tll_st averaged $~ their lastthree years of-employment and-worked for ll;x;:rs, their retirement income would be:

1.5% x 15 years x $50,000 + Social Security ($20,000 estimates= $11,250 + $-20;000":; $-31,250 or 62.5% of salary.

~~,

If an ~w.i-.sL~ .... ~~ger worked ~,J~rs and earned $~2.2 average the last three years, his/her

retirement would be: . .

1.5% x 25 years x $100,000 + Social Security "" $37,500 + $20,000 = $57,500 or

.> ~~,,~ 5 ~ direct compensation .

• fr '

~O~ the other hand, if your CEO r~ed afte~:J5-;:;;:ea~'~ would-be approximatelyoz), hisTMH; Inc. retirement program based upon hIS current compensation would be:

1.5% x 15 years x $150,000 (plan maximum) + Social Security= $33,750 + $20,000 = $53,750 or 11.7% of direct compensation.

)~he stayed until he were~ ye_~.g,~(]J:A.~ru.!>'l assuming current compensation level, his retirement income would be $60,500 or

\. _ 13~~!Io of direct compensation.

'----- - ..

Another example would be your Chief Financial Officer, who earns approximately $~35,000per year. Assume he retires with.25=}!;e:;u.:sor=;e~witli:·T"M"it'Tnc. His retirement income ~tlci'bP "'"- 1.5% x 25years x $150,000 + Social Security = $56,250 + $20,000 = $76,250 or

./ .2?,4~'!5~!)9i!.es.S2mpensation.

1

/YIfIIAI£ t.(/.eU:cEy ~iPr'fJ"S-I,!Iz". ~WI;.tt.5 f7(f;.1#.Af.IN

L€E,/IPF/J &£cr ~$et·$'J~l-$:Yd3

4775 Fowler Drive· Cumming, Georgia 30131 ·7701844-7574· FAX 770/844·7556

As you can see; the ~R.tm#j9lrJrPm;;w:~gg~t~w:eiJqt1h~L~,-'!!!~LfiJ~~P.B~2¥1:~: However, once an .Jl2i~~X~w(~LM1!!9L!!!A!¥lger earns over $150,000 per year, retirement income as a percentage of salary- Of' direct compensation' dreps--sj:gll-ific~tly.

~'i;:'.r~~,::;:·~~~-;~'C=:';. __ ::::;:..r~~,~_,-,

Today the average emplD¥~ retiring has worked at TMH, Inc . .22 y~ and has earned approximately

_j45,00o...~v~overtlle.Iast three years. He/she therefore retires-with an average retirement payof $34,850 per year or .?~~~~f~~ annual salary. (1.5% x 22 years x $45,000 + $20,000 social security.)

Since the Tax- RefoFfll Act of-1986, both- hospitals as well as pu blic- and private- companies have faced the

~~=-~~~~f~~~i~r,bY+=~~~ii.~ornt~~~~t;~~~~

that is comparable with the percentage of salary that regular emp loyees receive.

As at TMH, Inc. most employer sponsored retirement plans qualify for federal tax advantages. However, these plans have strict limits on how much employees and employers can invest in pension and 40 I (K) funds. While rank-and-file employees are generally unaffected by such limits, the ~FRA Act places a

$150,000 limit on "highly paid" executives. .....-.'....,.,..··~~-.-_._"~e.

~.~~~.',~~ .. .,..,~ ... ~,~.,~, .•. "' .. ~_.,.'_~ __ ~.~""_'~ __ '_'_""_"'·""~,_"",_",,,,,,,~,,,,,,,""~'H~"~· "'_i~,

Although I have not analyzed individual benefits of those who have retired recently, it appears the o2jecti~e ofth]"IJvIH. Inc. pension plan is for employees to retire wit.!! a target between 60% and 70% of final pay. It stands to reason that executives should have a similar or higher retirement target as rank:andfile employees.

-------...,.

B. HOSPITALS RESPONSE TO TEFRA

Since the TEFRA caps were put in place, there has been a steady erosion in w~~_and private companies can provide for executives through a qualified employee pension plan. In response, many hospitals and companies -!gtve fashioned "non qualified" executive plans outside traditional retirement plan boundaries, which are subject to less Internal Revenue Servic~lations and try to match or exceed ~e salaryiO'be"nefIt rauo of Oflier eii1ployees. In'!s'~~l~",¥.,t~g)~~~~~~,~~~~~:,~~.

somethmg that they already had before the federal caps. . -

n1ta:.7:.',':'!'~T-~~~;:';~:::::·':'~i~~X':~-::·~:~~·::..-:::..:r:-:""·<~',2:-'':,::-:- ,~,:~-,:,,::::-:-,~:,::=~"::.-.;-:-.~. -,"'-- .• "' --- - -.- "'"'. . . .- -«~~---- .--~ ,--'~~-"'~

72% of the respondents in a 1997 William M. Mercer survey reported that their commitment to a non q.i"ailfi,;cr,;~ecTItlve~'ret'iremenr~p'faiJ.":'orie lliat"do~~s'n'1q;ilifY"for traditional tax advantages - was driven

~~~~~~\t~C.~$~it~~;;;~~ss:~~:in~ol;~~ ~:u:~:i~~!~:~!t~~~::::

place on assembling a cadre of quality executives. Many board members have rna e e comment, 0 -~et a good management team and retain it," j,~ the real ~.! for an effective supplemental executive .-.-

retirement program~ (SERPL 't

Every year I do a survey in Georgia of hospitals and health systems that have in excess of250 operating

beds in the main ho~itaL ~tt!?-~!:'~~!r,,"~~2t~~~e~~!~?,£~i~tS~H,il~),.,h~y'~,.~,,9ID~,.,,£qffi1,efa

~:(t~~I1;f~~~~%~~f~~~~;f~~~~:d~~~~t~r~~~~~~~1~1~!k~¥;rfet¥i~,~)··bave

percentage of final compensation.

2

50% 2

70% J'

Three (3) hospitals have d~~£g.qRigHtjP,RPIans with targets ranging from ~WJ!.lMli2.R,t.Q~l,;~" mi1li()fr-a.tI~em~. Three (3)·others·have varieus-types of defined contribution- plans-. Of the two (2)

~~1!OIj~.h~"""'H'''''O-~-·'~=-~''''''''_'-_

hospitals that have only employee pension plans, one is in the process of implementing a defined benefit

plan with-a target' of 65-% of direct compensation-for the CEO.

Two recent surveys by KPMG Peat Marwick and Arthur Anderson indicated that 90% of the FortuJ;1.e.

1 OOO-eompallWs-·offer- executives- some- degree- of supplemental benefits beyond the~staiictara~;:-enu'-';;r "'"remementoptlons:':-t;ers"p~;:maIso'conauCfe(tan"ffifofii1arsuiVey''of'~upplemental, non qualified retirement plans- Jdetemd-~~;;Penmrtion arrangements-for 5~1 non-profit hospital and health systems. Their study indicated the following:

1.

Number of Executives Covered One (CEO) Two-to-Five-

Six to Ten

More than Ten

34% ')" c(. -~ 22% ,.)' (.o

20%

24%

2.

Plan Structure

Supplemental Defined Benefit or Target Benefit Supplemental Defined Contribution Deferred-Compensation

78% 10% 12%

3.

Defined Benefit Target

Target 50% 55% 60% 65% 70%

7%

11%

52% I

15%) 'It'l~ 15% I c,

4.

Target Retirement Age

~ 55

60 62 65 75

3% 27% 18% ."...., 49% --

3%

The conclusion from the above is that most hospitals and health systems have supplemental defined benefit plans with a target benefit: from 55 % to 70%. They usually cover up to five key executives and

have a retirement target from 60to63'years ·o7igT " . ~ --

-'""--

C. SUPF-LEMENTAL EXECUTIVE RETIREMENT PROGRAMS (SERF)

3

; ~- ... \

3. Contributions to th6 !l-57(tl:~lan become taxable to the executive at the time of vesting or

retirement, which e~e~"comes first. .... -., =.,..... : -- _.' ...

~

Hospitals and Health Systems that vest their key executives after a certain number of years o~~:l". Up" the income tax cQD.§Cjq]JI;ll!Ces. fQfthe individual exec:u.ti ves~tth~Jime of vesting, as~~n~~ in the

~l!iW~~-i!!~~~.f\~'.J::'.~!!-~-;:';';:':.,: - - -,~ .. -,', ~~ •• ~u~.~-~---".:.-.<=~~ •• ~;-' _.,.,-"-_.,-.,_~_"":"', __ " .. _ .. ;,,, .. c , -~.~'.-!~,"":,;j~::.;~-.'-~.~. ---- .. ,",-'::_-'-',-_' ~_.LL_'~ • __ mL'- .. u'''c.,=- .... ~r;:; ~Jftft''''''''.'!''';;.F'~'~~';':';_~i;;

'years a~r vl:l,gWg and 1:>t;:.fo.rlj retirement, The reason for trus IS that If a significant amount of money IS

bemgpfaceci"iii'i-deferrei:rcomp'ensation program each year, it can be difficult for the executive to pay the taxes due each year without withdrawing a significant portion of the dollars that have been deferred in order to pay the taxes.

D. PROPOSED COURSE OF ACTION

Dr. Lewis, I would suggest that we have a meeting with the Executive Committee of the Board to review the overall SERP program and determine:

1. Feasibility of Initiating a SERP Program.

2. What Executives Should Participate.

3. Defined Benefit Targets. • f1, t2 '-*.,./

4. Length of Time for Vesting. IJGIi. .. """

5. Possibility of Income Tax Gross Up. -~- 'te7 ,"

6. Company to Handle the SERP Program.

7. Responsibility of the Tallahassee Memorial HealthCare, Inc. Board Executive Committee in

Overseeing the Program. "t#'..vV'AUy IA/~F'1"7(""e b<l".k.!J .. ~ .

ViE ,

CC"1J, 'E:I/I"-t. p 5V'/· 'l , !Ii" v,,"',.,

Based upon a very brief review of TMH, Inc.' s financial and marketing results, it is obvious that your

CEO and senior management are perfomring in the upper quartile of comparable Hospital and Health

Systems performance. ~13.5 million in ~~,~¥~U}}2§",91~J.J~.2.,.,IViJJj£!1l§,~rx~&2£d, particularly considering that ml>~",r~~b\1!?tJl?.-,~~~1Eiu.Lon. It is ~\\~t_!.o .ill?in~inJmlfjtability.!Yl!:h" ,fJ'7 00,; ~2!Jl1:tP.-f-.luu:eimbuI:.s,!%J~,in.J;Qm~ and J>.91Lq§.!?!_!2(l~,yq~)1~ye. 'When one considers the ~-~,9"",

~&!:~~~~~~~£~;sf~l~fi~~~l:~r:!tl~~~it~~~e::

such as TM'[hic. has Over a 60·% market share in an area comI!..,eting with a ColumbialHCA hospital and

a Health South Rehab facility,meii&.:rOf-profrt facility is do~gextremely well. .. ---

~ g",,-~ WF' --.. _ ._'"PI •. 1IIOlf.

When we meet, I would recommend that we consider the following:

I should also review the CEO contract to determine how any proposed SERP changes should be incorporated into the contract. I can also compare it to other similar CEO contracts that I have reviewed.

After you have reviewed this letter and developed a plan ofacti:on;we should review our findings and recommendations with the Executive Committee of the Board and/or the full Board. The Executive Committee should draw the final conclusions and approve or disapprove the proposed Supplemental

Executive Retirement Program. .

After you have had an opportunity to reviewtbis letter, fwilllaok forward to hearing from you or Duncan Moore.

Warm personal regards,

1Z-o~~

Paul M. Flood, C.M.C., AAH.C. Chairman

Chattahoochee Health Resources

cc: Mr. Duncan Moore, President & CEO

6

1Jl~ti!!P!!YE~~~~S- most hospital boards-provide Supplemental· Executive- Retirement Programs' (SERPs) are to:

Attract-and r_~~lr.igh~U~Q!3r,§"~\9-'t~~~nt byrewarding management performance. ~9,ff.:g.s management' s ~~~t:i.?D onlgn..g~t~!ill.g.9~_~_~J~~xf0rma~ce.

... Provide- SERF partieipimtS with a- significant level of retirement income.

e

There are two types of deferred compensation plans under section 457. Under both types, contributions remain the property of the employer 'until paid to the participant.

1. "Eligible" 457(b) plan

• $7,500 limit per year on contributions.

• Limit is reduced-by contributionsio tax sheltered-annuities.

~~ ... , • .,...,._, •. ~........,..._~'------+-""".-""""'--"---'-'-N-'''''''''-''-'r'.~-.- ... -, •. ~_._ .. ·<,.H_L"'._'. ~- -, - •..•

• Contributions may be vested without adverse tax consequences.

• Contributions and investment income are subject to the claims of the Medical Center's creditors.

• Many hospitals use the "eligible" 457 plan for the first· $7,500 of the deferred bonus plan by placing this portion of the benefit in a "Rabbi Trust".

2. "Ineligib !~~A5.'Z(.f}pJmL

~~_,i!I"""'"._'-" -'.-. __ ... ,.,.

• No limit on contributions.

• N~';dv;~'~'tax c~~;~quences so long as deferred compensation is subject to a "substantial risk of forfeiture" (not vested).

~~~~~-~f\'~Ifl:ft~:l':~:;'·<""'~i·"~·i':'l"(.l'jtl~f.Z\~il:~~:r • ~.I'''''>''~-·-'·-:. •

• Contributions andmvestment income are subj ect to the chums of creditors and to a

"~~~!. of:J)~;Lrt::.Il§k.frQmili~L~NRloyer.

• A "~~.ti~!lE,~!5: .. R.t:gg!f~~e" exists if'paymentof benefits-tc tlre executives is conditioned on the~~~r:&m-!~l!S!~.~t~~~~~~!.~~~ce". (This is typically

greater than two years.) .<,

• Once. y~~ed, then ~~P~~c:;.il?~t is taxed-immediately on the present value of

acc~d benefits. .. ..... "'·~·'·",.,< .. c'··n."

It should be noted that a 457(f) plan participant is required-to maintainservice with the employer until a stipulated date or length of service; otherwise, he forfeits what has been accumulated in the pIan up to that time, should he terminate employment prior to that date. H~1;!!~oft~!! r~9Yir~,",~E:~::~J,Q.!<I:lE-~X~~r.l~~gth .2~,,§!;lr.Yice .. b.~oIeJhecparti~ip@t.is. y~g~4· Th~,Ef~Yi~~~,!._~~!1g .. !r~~~!ty§..J.Qr . .k~YJ~:m.PJQy~~~,.t.<:LI~!!!~.in with the hospital or health system. .: ~'J/ 01/( h'l ""'\ ft' ~)' '"(ri' C; <!H;/ (')U;"'. Ld JI./,A'!f; . " .••. ,; '"''.'''

,- . . .. ' ft::: ff "",. '·:'-<=;>.:f (IIJ~ 'rt¥J~I':".f.; ,f~~~ . ." tlf~t'ljj~p~'.~r.s· 8 f~:/'~!,

"2l~eveT the senior :nanag~ becomes vested, those contributions in the ineligible 457(f) E.@!l c~c,?me @~er the control of the executiv~d are immediately taxab~ as are future .!!Ellual9ontributions by the

Medical Center. The tax consequences to the executive then become: -

rr---"------"

4-

--: /op--

Chattahoochee Health Resources

September 4, 1998

John R. Lewis, Ph.D. The Chesley House

401 East Virginia Street Tallahassee, FL 32301

Dear Dr. Lewis,

A.

BACKGROUND

.. The CEO will have a SERP target of 50% of compensation a!J.Q..years and 65% at 15 y~ars. He would be fully vested in the retirement program at 10 years, although payments would not be

available t'O him uii.til he reached the age of §2. ~, , .=- ~

• 'r'Ii'efuur Senior Vice Presidents will have a gRP target of 50% of compensation and be vested ~ears, although payments would not be available Until aBe 65 if someone retired early.

• You also indicated that the remaining Vice Presidents would stay in the regular employee pension plan with no changes.

You asked that I develop a recommendation on how to fund the approved SERP plan, including any options to "gross up" the benefits, as well as a general outline of the wording to contractually obligate TMHC to the SERP program.

B. ANAL YSIS OF SERP DOLLAR REQUIREMENTS

This analysis assumes, that each executive '2ili wo~ untilJ:e is 65 4~~ old in order to maximize retirement income. I have also used 1998 dollars so the Compensation Co~ee can~compar~the dO~I!.!leed~ t2,E.m9J::!?e SERP I2JoEm ~illLcurreut..QQ!!.ars in the existing employee pension plan and how all of this relates to current annual salary levels.

Current base compensation and age of the senior executives are:

Base
Corrmensation Age
Duncan Moore $400,248 ,- 57
Bill Giudice $251,000 ~' 39
Ron Bradford $160,000 V'/ 46
Ed Carney, M.D, $204,000 55
Jack McDonald, M.D. $204,000 65 4775 Fowler Drive· Cumming, Georgia 30131·770/844·7574· FAX 770/844-7556

The current employee retirement plan pays 1% of the average annual earnings up to $LQ~O and l·§%a of. compensation over $10,000 with a ~ at $150,Oo.O~ times the number of:y5:lars of service atTM!fc. The ~av~ge anne highest 3 Ofilie last 5 y~s of compensition are used in the calculations. Since arr of the 5 executives earn more than $150,000 annually, each are capped at either $2,340 or $2,400 per year (depending if they are on tpe new or oldLlan) times the;;mber of service years"':ln addition to the employee pension plan, each executive would be eligible to draw approximately $22,000 pe~ar in

social security, if married at 65. - -

--

Based upon current earnings the S§..RP '::short full" needed to make up the annual difference between Duncan retiring at 65% of compensation and the Senior Vice Presidents at 50% is:

.....,... .... to=L&±:±::zJU~ ~-- "'ii'_~

Estimated
Current Employee
SERF Pension Plan
Retirement + Soc. Sec. SERP
Executive Target at 65 At Retirement Short Fall
Duncan Moore $260,160 $ 66,460 $193,700 ~.
Bill Giudice $125,500 $115,600 $ 9,900 I""
Ron Bradford $ 80,000 $113,200 V"
Ed Carney, M.D. $102,000 $ 57,100 $ 44,900
Jack McDonald, M.D. $102,000 s 33,700 $ 68,300 If each of the executives retired at the end of the fiscal year in which they became 65, the cash flow requirements from TMHC to fund the SERP short fall based upon 1998 dollars would be:

Fiscal Year 97-98 98-99 06-07 08-09 24-25

SERP Annual Short Fall

Reason for Change

s 68,300 $266,000 $306,900 $316,800

/" /

V

Dr. Jack McDonald Retires Duncan Moore Retires

Dr. Ed Carney Retires

Bill Giudice Retires

You should note that with inflation and compensation increases due to p~rfonnan~>the s~rt fall ~ increase, but relative to today's dollars, these numbers are reasonably accurate.

-=----=--

c. FUNDING OPTIONS

A~ensj'Le.seGgnd won wood bei~'lelQP- a_specific contract 'With those ~ executives who w~.YJdbe inclu~d.jp the SERf.plan ~£..l?ay them a SERP "sh~~' that would provide the CEO ~ a

tar.,get of§.?% of thlUlvera&L9f his last five ye~rs of CEElpensation an..d;1:h.§..otber SenioeVice !Eesidents .... 50o/~qf..:t:hriJs. These short falls are described above in Section B-:---The advantages to this option are:

~ 'Set 9llii!!lli$

•

ft avoids the necessitY 2f investin£ into an e9,uity fim!.t: to have sufficient capital paying dividends or interest to cover the SERF short full at retirement.

TIlls option avoids the tax gross up re9.!!ire~~nts.

There is lle.. exposure on the 990 forms that must be filed each year. This is a ~ :nore simpl~ti~n.

•

•

•

e.ffJ.~ The executives would become Eillgible for vesting afterJen years of service. Full vesting would occur ff when one of the following events occurred: ==>

•

Either retirement at age 65 or early retirement after age 60. Involuntary termination without cause. .ar

Death (with a 50% benefit tothe wife for her lifetime, provided she has been married to the executive since he became eligible for vesting and does not remarry after his death).

Payments would be made to.!i.ll.fh. executive for his lifetime. IfthlLexecutive died t>ZQ!e hi&. wife, 2.QYo payments would be made to her for .her lifetime rovided she re a.ined hi wi w without rema . If e executive died before his wife reached the age of 60, payments woulcLnot be made ..!m-til she reached the age a! 60. If an executive becomes disabled before vesting, the SERF pian would not apply.

D. RECOMJ\1ENDATION

I strongly recommend that the Compensation Committee approve the following resolution: r'Tallahassee Memorial HealthCare, Inc. has approved a Supplemental Executive Retirement Program

(SERP) that has a target of50% of compensation at 10 years of service and a target of65%of .Jf..,

ompensation at 15 years of service for its CEO. He will be eligible to become fully vested at 10 years. In

'TMH£ also has approved a SERP with a target of 50% of compensation for its Senior Vice Presidents

with eligibility for vesting at 10 years. Payments will not be made available until the recipient reaches

age 65.

The SERP calculation for retirement purposes will be comprised of:

+ Retirement amount from regular employee pension plan + Social Security proceeds

+ SERP short fall

= SERP target percentage of the average of the last 5 years of salary before retirement, if fully vested.

1M.tIC -Nill enter into a contract agTeement to pay the CEO and the Senior Vice Presidents the SERP

targeted percentages .oftheir final averagi compensation beginning the first month after their retirement >r-

and continuing thereafter each month until death of the executive. His surviving widow will be paid 50%

of the target until her death, unless she remarries.

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- - - -- -- - ------ ------}

..--~----- .. --

I ATTACHMENT A

f

I

TALLAHASSEE MEMORIAL HEAL THCARE, ]NC.

t CEO CONTRACT

COMMENTS

Cv~71~ af'17cyJ5

r:;!)V&.t/4"J~

'-' A. INCL "'"' ..... -"""""'~AuGREEMENT IN CONTRACT

OTHER POINTS COVERED IN MANY CEO C01ITRACTS

,/

lA 2_A 3.},.

4."

Direct and deferred compensation as well as benefits are generally described in a little more detail than in Duncan Moore's current contract,

Paid Days Off (pDO' s) and sick leave policies are typically more specific. 'Termination without cause severance period, is usually threeto five years. Severance benefits Should be clearer in the contract.

Many CEO's have a "constructive termination" clause that covers that Hospital System's change of ownership or contract as well as a significant change in the CEO's duties. tf1 t. flIt There is generally an arbitration paragraph on how to handle any potential disputes.

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It should be noted, that a key.objective of this pian is to provide a 2i!mificant incentive for key executives to remain at TIvffiC until they reach the age of 65. Since Dr. McDonald will be 65 before this SERP pJ.3D.

becomes effective, the Compensation Committee should consiaernot inc1u~g hiIit in the plan. " IA. (j, f)~J~

After you have had an opportunity to review this letter, I will give you a call. I look forward to helping 1i"~~' you present this information and @.swering any gues?_DnS at your next COIllE.ensation Committee

meeting. We could also discuss how to write this resolution into Duncan's current contract as well as

IlaVeaseparate, specmc contract ~for the Senior Vice Preside~rs.· 1}Jl:w- m~wing,Duncap.' s c~ J

'nave several tfi'oughts ilia! you may 'IiV3Ilt to consider while hiS contract is being updated to include the

sID agreement. - ..... = == ""

m ..... .~ ...........

Wann personal regards,

12rL

Paul M, Flood, C.M.C., A.A.H.C. Chairman

Chattahoochee Health Resources