FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT of 1934
For the quarterly period ended June 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT of 1934
Commission File Number 0-15003
GRENADA SUNBURST SYSTEM CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 64-0723929
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2000 Gateway, Grenada, Mississippi 38902-0947
(Address of principal executive offices) (ZIP Code)
(601) 226-1100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
-------- --------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Grenada Sunburst System Corporation has only one class of common stock
authorized. At July 30, 1994, there were 15,000,000 shares of $1 par value
common stock authorized, and 9,492,975 shares issued and outstanding.
</PAGE>
XXX BEGIN PAGE 2 HERE XXX
GRENADA SUNBURST SYSTEM CORPORATION
INDEX
------
PART I. Financial Information
----------------------
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets, June 30, 1994,
December 31, 1993 and June 30, 1993........................3
Consolidated Statements of Income, quarters and
six months ended June 30, 1994 and 1993....................4
Consolidated Statements of Changes in Stockholders'
Equity, six months ended June 30, 1994 and 1993............5
Consolidated Statements of Cash Flows, six months
ended June 30, 1994 and 1993...............................6
Notes to Consolidated Financial Statements.................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................8
PART II. Other Information
------------------
Item 1. Litigation.................................................28
Item 6. Exhibits and Reports on Form 8-K...........................28
Exhibit Index..............................................29
</PAGE>
XXX BEGIN PAGE 3 HERE XXX
PART I
FINANCIAL INFORMATION
GRENADA SUNBURST SYSTEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
June 30, Dec.31, June 30,
1994 1993 1993
--------- --------- ---------
<S> <C> <C> <C>
ASSETS
Cash and demand balances with banks $ 119,705 133,889 143,768
Interest bearing deposits with banks 1,143 28 28
Trading account securities 0 0 4,138
Securities available for sale 127,417 120,101 29,700
Investment securities (Market value of
approximately $283,356, $301,240
and $373,318) 277,716 287,945 359,276
Mortgage-backed securities (Market
value of approximately $179,332,
$170,815 and $275,488) 183,505 167,532 270,696
Mortgages held for resale 30,963 73,956 66,476
Federal funds sold and securities
purchased under agreements to resell 0 25,000 126
Loans 1,666,436 1,569,547 1,500,439
Less:
Unearned income 8,680 9,007 9,111
Allowance for credit losses 33,132 32,749 31,849
---------- --------- ----------
Net loans 1,624,624 1,527,791 1,459,478
Premises and equipment, net 49,544 48,738 48,442
Other real estate 4,212 5,185 8,352
Accrued interest receivable 19,402 18,262 19,125
Other assets 27,978 27,771 24,990
--------- ---------- ---------
Total Assets $2,466,209 2,436,198 2,434,596
========= ========== ==========
LIABILITIES
Deposits
Demand:
Non-interest bearing $ 397,065 419,641 378,797
Interest bearing 625,448 607,472 604,497
Savings 173,817 165,814 148,048
Time, $100,000 and over 247,129 247,538 251,324
Other time 767,246 759,342 798,341
--------- --------- ---------
Total deposits 2,210,705 2,199,807 2,181,007
Federal funds purchased and securities
sold under agreements to repurchase 27,585 30,542 55,400
Other borrowed funds 25,071 12,941 13,347
Accrued interest payable 9,943 8,939 9,319
Other liabilities 9,859 9,897 11,154
--------- --------- ---------
Total Liabilities 2,283,163 2,262,126 2,270,227
STOCKHOLDERS' EQUITY
Common stock, $1.00 par value, 15,000,000
authorized, 9,492,975 shares issued at
June 30, 1994, December 31, 1993 and
June 30, 1993 9,493 9,493 9,493
Paid in capital 31,842 31,842 31,842
Net unrealized loss-securities
available for sale (469) (75) (166)
Retained earnings 142,180 132,812 123,200
-------- -------- --------
Total Stockholders' Equity 183,046 174,072 164,369
-------- -------- --------
Commitments and contingent liabilities
Total Liabilities and
Stockholders' Equity $2,466,209 2,436,198 2,434,596
========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
</PAGE>
XXX BEGIN PAGE 4 HERE XXX
GRENADA SUNBURST SYSTEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data)
(Unaudited)
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
Quarter Ended Six Months Ended
---------------------------------------
June 30, June 30, June 30, June 30,
1994 1993 1994 1993
-------- ------- -------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans including fees $ 34,283 31,377 66,050 58,555
Deposits with banks 6 4 11 108
Mortgages held for resale 815 877 1,760 1,877
Federal funds sold and securities
purchased under agreements to resell 48 81 263 275
Securities:
Taxable 6,558 7,486 12,406 14,320
Exempt from federal taxes 1,265 1,419 2,538 2,808
Dividends 431 412 863 822
------- ------- ------- -------
Total Interest Income 43,406 41,656 83,891 78,765
INTEREST EXPENSE
Deposits:
Demand 3,643 3,477 7,239 6,885
Time, $100,000 and over 2,134 1,923 4,089 3,738
Other time and savings 8,911 9,831 17,599 18,549
Federal funds purchased and securities
sold under agreements to repurchase 311 237 522 467
Other borrowed funds 426 268 684 382
------- ------- ------- -------
Total Interest Expense 15,425 15,736 30,133 30,021
------- ------- ------- -------
Net interest income 27,981 25,920 53,758 48,744
Provision for credit losses 975 1,855 1,775 3,940
------- ------- ------- -------
Net interest income after
provision for credit losses 27,006 24,065 51,983 44,804
NON-INTEREST INCOME
Service charges on deposit accounts 4,333 4,462 8,594 8,225
Other service charges,
commissions, and fees 2,689 2,504 5,245 5,028
Investment securities, net (15) (81) (101) (302)
Fees from fiduciary activities 513 538 996 1,014
Other 157 273 350 1,172
------- ------- ------- -------
Total Non-Interest Income 7,677 7,696 15,084 15,137
NON-INTEREST EXPENSE
Salaries 10,917 10,255 21,552 19,427
Employee benefits 2,099 1,990 4,362 3,791
Net occupancy expense 1,825 1,786 3,615 3,315
Furniture and equipment expense 2,015 1,923 3,890 3,588
FDIC deposit insurance expense 1,213 1,278 2,425 2,354
Other 6,416 5,764 12,251 11,436
------- ------- ------- -------
Total Non-Interest Expense 24,485 22,996 48,095 43,911
------- ------- ------- -------
Income before income taxes and
cumulative effect of a change
in accounting principle 10,198 8,765 18,972 16,030
Income taxes 3,069 2,678 5,821 4,813
------- ------- ------- -------
Income before cumulative effect of
a change in accounting principle 7,129 6,087 13,151 11,217
Cumulative effect on prior years of
a change to a different method of
accounting for income taxes 0 0 0 781
------- ------- ------- -------
Net Income $ 7,129 6,087 13,151 11,998
======= ======= ======= =======
EARNINGS PER SHARE:
Income before cumulative effect
of a change in accounting principle $0.75 0.64 1.38 1.20
Cumulative effect of a change
in accounting principle $0.00 0.00 0.00 .08
Net Income $0.75 0.64 1.38 1.28
DIVIDENDS PER SHARE $0.20 0.17 0.40 .32
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
</PAGE>
XXX BEGIN PAGE 5 HERE XXX
GRENADA SUNBURST SYSTEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1993
(In thousands)
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
Net
Common Paid in Unrealized Retained
Stock Capital Loss Earnings Total
------- -------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Balances January 1, 1993 $9,047 22,953 (459) 114,197 145,738
Net income 11,998 11,998
Net unrealized gain on
securities available
for sale, net of tax 293 293
Cash dividend declared (3,038) (3,038)
Stock issued in exchange
for net assets of Eastover
Bank for Savings 439 8,734 9,173
Stock issued under
compensation plan 7 155 162
Unearned compensation 43 43
------ ------ ------ ------- -------
Balances June 30, 1993 $9,493 31,842 (166) 123,200 164,369
====== ====== ====== ======= =======
Balances January 1, 1994 $9,493 31,842 (75) 132,812 174,072
Net income 13,151 13,151
Net unrealized loss on
securities available
for sale, net of tax (394) (394)
Cash dividend declared (3,797) (3,797)
Unearned compensation 14 14
------ ------ ------ ------- -------
Balances June 30, 1994 $9,493 31,842 (469) 142,180 183,046
====== ====== ====== ======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
</PAGE>
XXX BEGIN PAGE 6 HERE XXX
GRENADA SUNBURST SYSTEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
(In thousands)
(Unaudited)
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
1994 1993
-------- -------
<S> <C> <C>
Net cash flows from operating activities:
Net income $ 13,151 11,998
Adjustments to reconcile net income
to net cash provided by operating activities:
Amortization of goodwill and intangible assets 426 457
Depreciation and amortization of premises and equipment 2,558 2,452
Net accretion of investment securities (295) (660)
Accretion of loan fees and discounts (327) (1,875)
Provision for possible credit losses 1,775 3,940
Net (increase) decrease in mortgages held for resale 42,993 (3,404)
Other real estate provision 260 472
Gains on sales of other real estate (79) (144)
(Gains) losses from sales of premises and equipment (122) 13
(Increase) decrease in interest receivable (1,140) 295
Increase (decrease) in interest payable 1,004 (259)
Losses on sales of securities, net 101 302
Net increase in trading account securities 0 (4,138)
Other, net (657) (3,364)
------- ------
Net cash provided by operating activities 59,648 6,085
Cash flows from investing activities:
Net (increase) decrease in interest-bearing
deposits with banks (1,115) 20,002
Net (increase) decrease in federal funds sold and
securities purchased under agreements to resell 25,000 (126)
Purchases of securities available for sale (33,813) 0
Principal prepayments on securities available for sale 38,370 0
Purchases of securities held to maturity (53,168) (72,207)
Maturities of securities held to maturity 42,564 31,454
Principal prepayments on securities held to maturity 9,079 5,305
Purchases of mortgage-backed securities held to maturity (64,409) (70,621)
Sales of mortgage-backed securities 0 16,749
Principal prepayments of mortgage-backed securities 48,117 53,481
Net increase in loans (98,970) (43,935)
Net increase in premises and equipment (3,420) (1,530)
Proceeds from sale of premises and equipment 194 3
Proceeds from sales of other real estate 1,465 2,033
Net cash received from Eastover acquisition 0 35,922
-------- --------
Net cash used by investing activities (90,106) (23,470)
Cash flows from financing activities:
Net increase in demand and savings accounts 3,403 40,441
Net increase (decrease) in other deposits 7,495 (32,213)
Net increase (decrease) in federal funds purchased
and securities sold under agreements to repurchase (2,957) 29,736
Net increase (decrease) in other borrowed money 12,130 (570)
Cash dividends paid (3,797) (3,038)
-------- --------
Net cash provided by financing activities 16,274 34,356
-------- --------
Net increase (decrease) in cash and due from banks (14,184) 16,971
Cash and due from banks at the beginning of the period 133,889 126,797
-------- --------
Cash and due from banks at the end of the period $119,705 143,768
======== ========
Unrealized gain (loss) on securities
available for sale $ (393) 293
Securities transferred to the available
for sale category from the held to
maturity category 12,266 0
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
</PAGE>
XXX BEGIN PAGE 7 HERE XXX
GRENADA SUNBURST SYSTEM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 1994 and 1993
(Unaudited)
1. The accompanying unaudited consolidated financial statements have been
prepared in accordance with the accounting policies in effect as of December
31, 1993, as set forth in the annual consolidated financial statements of
Grenada Sunburst System Corporation and subsidiaries ("GSSC", or the
"Company"). In the opinion of management, all adjustments necessary for a
fair presentation of the condensed consolidated financial statements have
been included and are of a normal recurring nature.
2. The results of operations for the six-month period ended June 30, 1994
are not necessarily indicative of the results to be expected for the full
year.
3. Per share data is based on weighted average shares of common stock
outstanding of 9,492,975 for the quarter and six months ended June 30, 1994
and for the quarter ended June 30, 1993. Per share data is based on weighted
average common shares outstanding of 9,348,072 for the six months ended June
30, 1993. The Company had outstanding 14,478 options on common stock at June
30, 1994 and 1993. Each option entitles the holder to purchase one share of
the Company's common stock at an exercise price of $22.375. These options are
exercisable beginning in 1995. The weighted average number of shares
outstanding at June 30, 1994 and 1993 adjusted for the assumed exercise of
all outstanding stock options using the treasury stock method would be
9,493,979 and 9,348,667, respectively for the calculation of primary earnings
per share and 9,495,112 and 9,348,765, respectively for the calculation of
fully diluted earnings per share. The assumed exercise of these options would
have a less than one-half of $.01 dilution of earnings per share.
4. On July 1, 1994 a definitive agreement was entered into between Union
Planters Corporation (UPC) and Grenada Sunburst System Corporation in which
UPC will acquire all of the outstanding stock of GSSC in a transaction valued
at approximately $361 million based on UPC's June 30, 1994 closing stock
price of $26.75. Under the terms of the definitive agreement, UPC will
exchange 1.4206 shares of UPC common stock for each common share of GSSC, if
the price of UPC common stock is within certain trading ranges. The exchange
ratio adjusts outside the trading ranges. The acquisition, which is to be
accounted for as a pooling of interests, is expected to be completed by year-
end 1994, pending approval by both companies' shareholders and regulatory
authorities and the completion of other closing conditions.
Effective March 1, 1993, GSSC, through its wholly owned Mississippi
banking subsidiary, Sunburst Bank, acquired selected net assets of Eastover
Bank for Savings ("Eastover") in a transaction accounted for as a purchase.
Had the acquisition occurred on January 1, 1993, for the three months ended
March 31, 1993, net interest income for the Company would have increased by
approximately $3,140,000, net income would have increased by approximately
$897,000, and earnings per share would have increased by approximately $.08
per share.
5. Effective January 1, 1994, GSSC adopted Financial Accounting Standards
Board ("FASB") SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". This statement requires investments to be classified in
three categories and to be accounted for as follows: (i) debt securities
which the Company has the positive intent and ability to hold to maturity are
classified as held-to-maturity and reported at amortized cost; (ii) debt and
equity securities that are bought and held principally for the purpose of
selling them in the near term are classified as trading securities and
reported at fair value, with unrealized gains and losses included in
earnings; and (iii) debt and equity securities not classified as either held-
to-maturity securities or trading securities are classified as available-for-
sale securities and reported at fair value, with unrealized gains and losses
excluded from earnings and reported as an addition to or a deduction from
stockholders' equity.
</PAGE>
XXX BEGIN PAGE 8 HERE XXX
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GSSC reported net income of $7,129,006 for the quarter ended June 30,
1994, an increase of $1,042,485 from the $6,086,521 reported for the
quarter ended June 30, 1993. Income for the first six months of 1994 was
$13,151,082 or $1.38 per share compared to $11,997,693 or $1.28 per share for
the first six months of 1993. The effect of the adoption of SFAS No. 109,
"Accounting for Income Taxes" in 1993 accounted for $.08 of the first six
months 1993 earnings per share. During the first quarter of 1993, the Company
acquired approximately $400 million in selected assets and liabilities from
Eastover in a transaction accounted for as a purchase. Accordingly, the
results of operations of this acquisition are included in the consolidated
financial statements only from the acquisition date (March 1, 1993), which
affects the comparability of the consolidated financial statements. Net
interest income before provision for credit losses was up $5,013,960 or
10.29% for the six months ended June 30, 1994, when compared to the same
period in 1993. Net interest income for the second quarter of 1994 was
$27,981,277 compared to $25,919,989 for the same period in 1993. The
provision for credit losses decreased $2,165,000 for the six months ended
June 30, 1994, compared to the six months ended June 30, 1993 and $880,000
for the quarter ended June 30, 1994 compared to the quarter ended June 30,
1993. Non-interest income increased $491,162 for the six months ended June
30, 1994 compared to the six months ended June 30, 1993 while non-interest
expense increased $4,728,087 for the same period. For the second quarter of
1994, non-interest income decreased $18,799 from the same period in 1993 and
non-interest expense increased $1,488,924 from the $22,995,978 reported for
the second quarter of 1993 to $24,484,902 for the second quarter of 1994.
The return on average assets (ROA) for the first six months of 1994 was
1.08% compared to 1.03% for the same period in 1993. The return on average
equity (ROE) was 14.82% for the first six months of 1994 compared to 14.94%
for the first six months of 1993.
The following provides management's discussion of the consolidated
financial condition and results of operations of GSSC, focusing on those
factors that have had the most significant impact for the first six months of
1994. This commentary should be read in conjunction with the accompanying
financial statements.
</PAGE>
XXX BEGIN PAGE 9 HERE XXX
RESULTS OF OPERATIONS
Contribution to Earnings Per Share
(Fully Taxable Equivalent)
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
Quarter Six Months
ended June 30, ended June 30,
1994 1993 1994 1993
------ ------ ------- ------
<S> <C> <C> <C> <C>
Net interest income - FTE $ 3.03 2.82 5.84 5.40
Provision for credit losses 0.10 0.20 0.19 0.42
------ ------ ------ ------
Net interest income after provision
for credit losses - FTE 2.93 2.62 5.65 4.98
Service charges on deposit accounts 0.46 0.48 0.91 0.88
Other service charges, commissions and fees 0.28 0.26 0.55 0.54
Investment securities gains (losses), net 0.00 (0.01) (0.01) (0.03)
Fees from fiduciary services 0.05 0.06 0.11 0.11
Other 0.02 0.03 0.04 0.12
------ ------ ------ ------
Total non-interest income 0.81 0.82 1.60 1.62
Adjusted gross income after provision
for credit losses - FTE 3.74 3.44 7.25 6.60
Salaries 1.15 1.08 2.27 2.08
Employee benefits 0.22 0.21 0.46 0.41
Occupancy expense, net of rental income 0.19 0.19 0.38 0.35
Furniture and equipment expense 0.21 0.20 0.41 0.38
Other 0.81 0.75 1.55 1.48
------ ------ ------ ------
Total non-interest expense 2.58 2.43 5.07 4.70
Income before income taxes (FTE) and
cumulative effect of a change in accounting
principle 1.16 1.01 2.18 1.90
Applicable income taxes - FTE 0.41 0.37 0.80 0.70
------ ------ ------ ------
Income before cumulative effect of a change
in accounting principle 0.75 0.64 1.38 1.20
Cumulative effect of a change in method
of accounting for income taxes 0.00 0.00 0.00 0.08
------ ------ ------ ------
Net income $ 0.75 0.64 1.38 1.28
======= ====== ====== ======
Assumed tax rate of 35% for 1994 and 1993.
</TABLE>
</PAGE>
XXX BEGIN PAGE 10 HERE XXX
NET INTEREST INCOME
Net interest income (NII) is the largest component of the Company's
income and represents the amount by which interest and fee income on earning
assets exceeds the cost of deposits and other borrowed funds. The Company's
long-term objective is to manage those earning assets and interest-bearing
liabilities to provide the largest possible amount of income while balancing
interest rate, credit, liquidity and capital risk.
Net interest income was up $5.0 million or 10.29% for the first six
months of 1994 compared to the same period in 1993 due principally to a 8.53%
increase in average earning assets. For the second quarter of 1994, net
interest income was up $2.1 million or 7.95% from the second quarter of 1993.
The net interest spread increased 1 basis point to 4.39% for the six months
ended June 30, 1994, from 4.38% for the six months ended June 30, 1993. The
prime lending rate for bank loans declined periodically to 6.00% early in
1993 from 6.50% early in 1992. The prime lending rate increased on April 15,
1994 to 6.75% and again on May 17, 1994 to 7.25%. However, the repricing of
loans during 1993 and the first quarter of 1994 at the lower rates in effect
during this period was the primary factor causing the decrease in yield on
the loan portfolio to 7.86% for the six months ended June 30, 1994, from
8.56% for the six months ended June 30, 1993. Approximately 38% of the
Company's loans earn interest that fluctuates with the prime lending rate in
effect at their repricing interval. At June 30, 1994, $631.7 million in
loans or 37% of the bank subsidiaries' loan portfolios are subject to reprice
during the next quarter. This decline in yield on the largest component of
earning assets for the banks was more than offset by a decline in the cost
of funds.
Average deposits increased by $162.7 million or 7.95% from the first six
months of 1993 to the first six months of 1994. The cost of interest-
bearing deposits increased 3 basis points from the first six months of 1993
to the first six months of 1994. Average other borrowings were up by $8.0
million to $58 million for the six months ended June 30, 1994, from $50
million for the same period in 1993, and the rate paid for this source of
funds increased to 5.52% in 1994 from 4.80% in 1993. Federal Home Loan Bank
(FHLB) term advances increased an average of $8.5 million for the six months
ended June 30, 1994 compared to the six months ended June 30, 1993. The
advances are at fixed rates of interest with maturities from October 1996 to
November 2003. These term advances are used to support fixed rate loans made
by the Company's subsidiary banks. The average cost of the FHLB borrowings
was 7.33% for the six months ended June 30, 1994 compared to 7.17% for the
same period ended June 30, 1993. The remainder of the increase in the rate
paid for other borrowings was due to the increase in the cost of short-term
borrowings (i.e. federal funds purchased and securities sold under agreements
to repurchase) even though the average balance of these borrowings fell
approximately $1.5 million. The increase in the rates for these type funds
was caused by the increase in the Federal Reserve's discount rate charged to
member banks.
The emphasis in management of the investment portfolio for 1994
continues to be to improve the liquidity and quality of the portfolio,
provide a relatively stable source of income and balance interest rate and
credit risk. As loan demand has improved, funds have been redeployed, and
securities as a percentage of earning assets at June 30, 1994, were 22.61%
compared to 24.21% a year earlier.
</PAGE>
XXX BEGIN PAGE 11 HERE XXX
Net Interest Income Summary
(dollars in thousands)
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
Quarter Six Months
ended June 30, ended June 30,
1994 1993 1994 1993
------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Interest income $ 43,406 41,656 83,891 78,765
Taxable equivalent adjustments:
State, county and municipal:
Notes 43 39 93 81
Bonds 649 732 1,303 1,472
Dividends 134 132 273 271
------- ------- ------- -------
Total adjustments 826 903 1,669 1,824
Interest income - FTE 44,232 42,559 85,560 80,589
Interest expense 15,424 15,736 30,133 30,021
------- ------- ------- -------
Net interest income - FTE $ 28,808 26,823 55,427 50,568
======= ======= ======= =======
Net interest margin - FTE 5.09% 4.87% 4.95% 4.89%
======= ======= ======= =======
Average earning
assets (millions) $ 2,268.6 2,204.2 2,249.7 2,072.8
======= ======= ======= =======
Assumed tax rate of 35% for 1994 and 1993.
</TABLE>
</PAGE>
XXX BEGIN PAGE 12 HERE XXX
The taxable equivalent net interest margin (NIM) is net interest income
plus an adjustment for tax exempt income expressed as a percentage of average
earning assets. The NIM is affected by the net interest spread, level of
interest rates, amount of non-performing assets and the amounts of non-
interest bearing funds supporting earning assets. For the six months ended
June 30, 1994, the NIM was 4.95%, up 6 basis points from the 4.89% reported
for the same period a year earlier. Average earning assets increased 8.53%
or $176.9 million for the first six months of 1994 when compared to the first
six months of 1993. The tax equivalent yield on average earning assets for
the first six months of 1994 was 7.65%, down 16 basis points from the 7.81%
yield for the first six months of 1993. Average interest-bearing liabilities
increased $103.2 million or 5.86% for the first six months of 1994 when
compared to the first six months of 1993. The cost of funds for the six
months ended June 30, 1994 was 3.26% down 17 basis points from the 3.43% for
the six months ended June 30, 1993.
PROVISION FOR CREDIT LOSSES
In evaluating the adequacy of the allowance for credit losses, among the
issues the Company examines are current economic conditions, results of
quantitative analysis of the quality of commercial loans and commercial real
estate loans, and the historical rate of charge-offs on all loan types.
Various regulatory agencies, as a part of their examination process,
periodically review each of the Company's subsidiary banks' allowances for
losses on loans and real estate owned. Such agencies may require the banks
to adjust the allowances based on their judgments of information available to
them at the time of their examination.
The provision for credit losses is the amount charged against current
earnings which management believes is necessary to maintain such allowance at
an adequate level at a point in time, after giving consideration to potential
problem credits, the collateral adequacy of loans, net charge-offs, asset
quality measures, size of the loan portfolio and general economic conditions
and trends. The provision for credit losses for the first six months of 1994
was $1,775,000, compared to $3,940,000 for the first six months of 1993. The
provision for the first half of 1994 reflected a decrease of $2,165,000 from
the provision for the first half of 1993. This provision reflects
improvement in the quality of the loan portfolio while still providing for
continued growth. Loans increased an average of 15.6% or $215.1 million from
the first six months of 1993 to the first six months of 1994. The percentage
of net charge-offs to average loans net of unearned income annualized for the
first six months of 1994 was .17% compared to .21% for the first six months
of 1993. This trend of lower provisions for losses on loans is expected to
continue for the remainder of 1994.
</PAGE>
XXX BEGIN PAGE 13 HERE XXX
NON-INTEREST INCOME
One of the Company's key long-term strategies has been to seek
additional sources of non-interest revenue. The growth in non-interest
income has become an increasingly important component of the Company's
profitability, given the uncertainty of future loan demand and increased
competition from non-traditional sources.
Non-interest income includes fees for trust services, mortgage loan
servicing fees, income from broker/dealer services, service charges on
deposit accounts, and many other retail products. Non-interest income for
the first six months of 1994 increased 3.37% or $491,000 compared to the
first six months of 1993. Non-interest income for the quarter ended June 30,
1994 decreased $19,000 from the $7,696,000 reported for the quarter ended
June 30, 1993.
The rising interest rate environment has slowed the earnings growth in
non-interest income through subsidiaries' earnings. The mortgage company is
a significant contributor to non-interest income, with gross revenue of
$1,879,000 for the six months ended June 30, 1994. This compares to gross
revenue of $2,053,000 for the six months ended June 30, 1993. The mortgage
servicing portfolio increased to $878.6 million at June 30, 1994, from $532.0
million at June 30, 1993. A portion of the increase in the servicing
portfolio was due to the bulk purchase of servicing in August of 1993. This
contributed $118.3 million to the increase. The remainder of the increase was
due to loan closings and purchases of individual loans by the mortgage
company. The broker/dealer operations also contributed to non-interest
income, with gross revenue of $1,001,000 for the six months ended June 30,
1994 compared to $1,472,000 for the six months ended June 30, 1993. Service
charges on deposit accounts was one area of increased earnings. Revenue from
deposit accounts increased to $8,594,000 for the six months ended June 30,
1994, compared to $8,225,000 for the six months ended June 30, 1993.
NON-INTEREST EXPENSE
During recent years, the banking industry has put an increasing emphasis
on expense control to improve its efficiency and, ultimately, its
profitability. The Company has responded to the need for improved efficiency
by emphasizing its commitment to expense control. The Company's efficiency
ratio for the six months ended June 30, 1994 was 68.21%. The efficiency
ratio is non-interest expenses divided by tax-equivalent net interest income
plus non-interest income. This compares to an efficiency ratio of 66.55% for
the six months ended June 30, 1993. The predominant reason for the decline
in efficiency is a decrease in net income from the non-bank subsidiaries
which is largely a function of the current interest rate environment. Non-
interest expense increased 10.9% or $4,728,000 for the first six months of
1994 compared to the first six months of 1993 and $1,489,000 for the quarter
ended June 30, 1994 compared to the quarter ended June 30, 1993. Salaries
and benefits, the single largest component of non-interest expense, increased
11.61% or $2,696,000, compared to the first six months of 1993. Of this
increase, $1,984,000 is at Sunburst Bank, Mississippi and is largely
attributable to the addition of the Eastover personnel and normal merit
increases throughout the Company. The number of full time equivalent
employees for the Company has increased to 1,746 at June 30, 1994, from 1,628
at June 30, 1993. Occupancy expense and furniture and equipment expense are
up primarily due to the addition of 29 banking facilities acquired with the
Eastover acquisition. The following table provides the detail of non-
interest expense for the six months ended June 30, 1994 and 1993.
</PAGE>
XXX BEGIN PAGE 14 HERE XXX
Other Non-interest Expense
For the Six Months Ended June 30,
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Stationary and office supplies $ 1,005,054 905,035
Professional fees 1,054,826 1,028,239
Dues and subscriptions 435,601 406,199
Freight and express 434,490 359,277
Postage and box rent 873,283 917,051
Telephone and telegraph 946,868 765,312
Employee education 400,536 353,365
Core deposit premium amortization 488,959 452,659
Amortization of purchased mortgage
servicing rights 383,365 36,006
Other taxes 1,048,826 918,165
Advertising 1,515,748 1,496,742
Other 3,662,843 3,253,970
--------- ---------
Total $12,250,399 10,892,020
========== ==========
</TABLE>
TAXES
Income tax expense consists of provisions for Federal and state income
taxes. Applicable income taxes were $5,821,000 for the six months ended June
30, 1994, compared to $4,814,000 for the six months ended June 30, 1993. The
statutory Federal income tax rates for 1994 and 1993 were 35%. The Company's
income tax expense as a percentage of pretax income is different from these
statutory tax rates because of the effect of tax-exempt income, various non-
deductible expenses and the impact of alternative minimum taxes, including
carry forward credits. The Company's effective tax rate was 30.68% for the
six months ended June 30, 1994, and 30.03% for the six months ended June 30,
1993.
The FASB issued SFAS No. 109, "Accounting for Income Taxes," that
superseded SFAS No. 96 and changed the criteria for recognition and
measurement of deferred taxes. The emphasis in accounting for deferred income
taxes changed from an income statement approach to a balance sheet approach,
thereby ensuring the proper accrual of the appropriate asset or liability for
deferred taxes. The Company adopted SFAS No. 109 on January 1, 1993, and
subsequently recorded previously unrecognized tax benefits of $781,000 or
$.08 per share. On August 10, 1993 the 1993 Tax Act was signed into law.
This law involves a change in the Corporate income tax rate structure.
Management has revised its SFAS No. 109 calculation to incorporate the
changes required as a result of the 1993 Tax Act. Management believes the
effect of these changes is not material to the Company's financial condition.
EARNINGS CONSIDERATIONS FOR THE LAST QUARTER OF 1994
In connection with the pending sale of the Company to UPC, management
anticipates that possible significant expenses (e.g. elimination of duplicate
facilities, staff reductions, elimination of duplicate functions, write-off
of impaired assets, etc.) may be incurred in the fourth quarter of 1994 upon
completion of ongoing financial, due diligence, and strategic reviews and
assessments of the post-merger operating environment of the combined
corporations. Charges which may be incurred in the fourth quarter as a result
of completion of the studies cannot be estimated at this time. Management
expects significant future cost savings from the combined operations of the
Company and UPC once the acquisition is consummated. Preliminary studies
indicate that there are significant savings opportunities and management
expects that they will be realized once the recommendations are implemented;
however, the final savings which may actually be realized cannot be estimated
at this time.
</PAGE>
XXX BEGIN PAGE 15 HERE XXX
FINANCIAL CONDITION
LOANS
The subsidiary banks' loan portfolios represent the largest single
component of the Company's earning asset base. Average loans outstanding
increased 15.59% from the June 30, 1993 level. The majority of this growth
occurred in the real estate secured and commercial and industrial categories.
In addition, modest growth was experienced in the consumer sector. As a
general practice, floating rate mortgages are held within the loan portfolio
and fixed rate loans are packaged for sale and are hedged to guard against
interest rate swings.
CREDIT QUALITY AND CREDIT RISK MANAGEMENT
The risks involved in extending credit are inherent in the business of
providing financing alternatives to our customers. Management believes that
strong credit policies and guidelines, good underwriting, and constant
supervision and servicing are needed to insure a sound and profitable loan
portfolio. These are the primary factors that control risk and thereby
insure safety and profitability for our depositors and stockholders. Risk
reduction is achieved through diversity in the portfolio as to type,
geographic location, industry and borrower. Policies are determined by
carefully evaluating current economic, financial, regulatory and market
factors based on the objectives and strategies of the Company. The Company
has in place a structured policy that quickly identifies problem credits,
monitors their performance, and provides reasonable estimates of the possible
credit loss, if any, relating to the loans. The Company's Asset Quality
Group continuously monitors the entire loan portfolio, classifying problem
credits, estimating loss exposure, and determining systematically the level
of risks and necessary level of provision for credit losses.
In order to manage the credit risk of the commercial, single family
mortgage and installment loan portfolios, loans and blocks of loans are
internally assigned a grade ranging from A to F, depending on the financial
condition, the status of payments or collateral on the loans. Grades are
assigned at the inception of the loans and are reviewed regularly by the
assigned loan officer and Asset Quality personnel. The preponderance of the
subsidiary banks' loans are rated C, denoting standard and acceptable risk.
The allowance for credit losses reflects management's judgment as to the
level considered appropriate to absorb potential losses in the portfolio
based on a review of factors that include individual loans, historical loss
experience, economic conditions, trends, and other factors. The adequacy of
the allowance is reviewed frequently. Since the first half of 1993, the
allowance for credit losses has increased $1.3 million or 4.03% to $33.1
million. Following its commitment to sound, conservative banking practices,
management believed that it was prudent to continue to increase the
allowance, given the significant increase in loans and the uncertainty
surrounding national and state economics. The allowance currently
approximates 2.00% of total loans outstanding compared to 2.14% a year
earlier.
</PAGE>
XXX BEGIN PAGE 16 HERE XXX
Credit Experience Summary
(dollars in thousands)
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
Six Months Quarter
ended June 30, ended June 30,
1994 1993 1994 1993
------ ------ ------- ------
<S> <C> <C> <C> <C>
Allowance for credit losses:
Beginning balance $ 32,749 24,412 33,094 30,845
Reserves of acquired banks 0 4,934 0 0
Provision for loan losses 1,775 3,940 975 1,855
Net charge-offs 1,392 1,437 937 851
------ ------ ------ ------
Ending Balance $ 33,132 31,849 33,132 31,849
====== ====== ====== ======
Allowance to loans
(net of unearned) 2.00% 2.14%
Net charge-offs to average
loans (net of unearned)
annualized 0.23% 0.23%
</TABLE>
A measure of asset quality is the level of non-performing assets in the
portfolio. Non-performing assets consist of loans or securities on which
interest is no longer accruing (non-accrual), certain restructured loans
where the interest rate or other terms have been renegotiated, and other real
estate that includes in-substance foreclosures. The following table sets
forth information concerning the non-performing assets of the Company.
</PAGE>
XXX BEGIN PAGE 17 HERE XXX
Non-Performing Assets
(dollars in thousands)
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
June 30, June 30,
1994 1993
-------- --------
<S> <C> <C>
Non-accrual loans $ 3,529 4,569
Past due loans * 3,959 3,248
Restructured loans 465 2,504
-------- --------
Total non-performing loans 7,953 10,321
Foreclosed real estate 4,139 8,269
Other assets 368 199
-------- --------
Total non-performing assets $ 12,460 18,789
======== ========
Allowance for credit losses $ 33,132 31,849
======== ========
Non-performing loans to total loans
(net of unearned) 0.48% 0.69%
Non-performing loans plus foreclosed
real estate and other assets to
total loans (net of unearned) 0.73% 1.25%
Non-performing loans plus foreclosed
real estate and other assets
excluding past due loans to
total loans (net of unearned) 0.51% 1.04%
Non-performing loans to allowance 24.00% 32.41%
* Loans that are 90 days or more past due as to principal and/or
interest and not yet on non-accrual status.
</TABLE>
</PAGE>
XXX BEGIN PAGE 18 HERE XXX
INTEREST RATE SENSITIVITY
Interest rate sensitivity is a function of the repricing characteristics
of the Company's portfolio of earning assets and liabilities. The Company's
Asset Liability Management Committee ("Asset Liability Committee"), manages
interest rate sensitivity of the Company's portfolio to control exposure of
net interest income to risks associated with interest rate movements and
maturities of interest-earning assets and interest-bearing liabilities, and
to achieve consistent growth in net interest income. The Company attempts to
maximize earnings by managing the one-year "gap," the difference between
interest-earning assets and interest-bearing liabilities maturing or
repricing in one year or less. As of June 30, 1994, the Company had a one-
year liability sensitive gap (i.e., an excess of liabilities over assets
maturing or repricing within one year) of $252 million or 10.2%. Management
believes that this range can be effectively managed against interest rate
movements while allowing sufficient flexibility to take advantage of
opportunities presented by varying interest rate environments. To maximize
and maintain consistency of earnings, the Company endeavors to monitor and
control interest rate risk. Assuming the current mix and sensitivities of
interest-bearing assets and liabilities remain constant and historical
relationships between rates on different products and investments reoccur, a
1% rise in short-term interest rates would cause the Company's NIM to decline
7 basis points for the succeeding 12 months. A 3% rise would result in a 25
basis point decline. Conversely, a 1% decline in short-term rates would
result in a 4 basis point increase in the Company's NIM. The following table
summarizes the Company's gap position at June 30, 1994.
</PAGE>
XXX BEGIN PAGE 19 HERE XXX
INTEREST RATE SENSITIVITY
(dollars in thousands)
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
3 Months 3 to 12 1 to 5 5 to 10 10 Years
or Less Months Years Years and over Total
-------- -------- -------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Deposits with banks $ 1,143 0 0 0 0 1,143
Fed. funds sold 0 0 0 0 0 0
Sec. purchased under 0 0 0 0 0 0
agreement to resell
Securities:
Available for sale 127,417 0 0 0 0 127,417
Mortgage-backed 20,433 23,387 130,382 9,303 0 183,505
Investment 13,936 45,396 165,264 30,041 23,079 277,716
Mortgages held
for resale 30,963 0 0 0 0 30,963
Loans 600,688 470,043 452,362 86,885 56,458 1,666,436
-------- -------- -------- -------- -------- ---------
Total Interest-Earning
Assets $ 794,580 538,826 748,008 126,229 79,537 2,287,180
======== ======== ======== ======== ======== =========
Interest-Bearing Liabilities :
Deposits:
Demand $ 62,545 562,903 0 0 0 625,448
Savings 0 173,817 0 0 0 173,817
Time < $100,000 281,388 271,868 212,430 1,560 0 767,246
Time > $100,000 125,798 79,048 41,805 478 0 247,129
Fed. funds purchased 3,225 0 0 0 0 3,225
Securities sold under
repurchase agreements 24,360 0 0 0 0 24,360
Other borrowed funds 0 0 17,170 7,901 0 25,071
-------- -------- -------- -------- -------- ---------
Total Interest-Bearing
Liabilities $ 497,316 1,087,636 271,405 9,939 0 1,866,296
======== ========= ======== ======== ======== =========
Net Repricing Gap 297,263 (548,810) 476,604 116,290 79,537 420,884
Net Repricing Gap/
Total Assets 12.05% (22.25%) 19.33% 4.72% 3.23% 17.07%
Cumulative Gap 297,263 (251,547) 225,057 341,347 420,884 0
Cumulative Gap/
Total Assets 12.05% (10.20%) 9.13% 13.84% 17.07% 0.00%
</TABLE>
</PAGE>
XXX BEGIN PAGE 20 HERE XXX
LIQUIDITY
Liquidity is the ability to raise cash quickly when funds are needed.
The needs for liquidity are best met by a strong customer base, the ability
to purchase funds readily from reliable sources, and the ability to liquidate
short-term marketable securities. GSSC has historically funded its liquidity
requirements with funds generated from operations, including new deposits and
proceeds from the repayments of loans and investments. The Company also
enhances liquidity by the retention of earnings and adequate capital. The
Asset Liability Committee sets minimum liquidity requirements and monitors
the Company's adherence to these goals on a monthly basis.
Core deposits expressed as a percentage of total assets were 79.62% at
June 30, 1994, and 79.26% at June 30, 1993. Volatile liabilities (defined as
the sum of time deposits over $100,000, foreign deposits, federal funds
purchased and securities sold under agreements to repurchase, interest-
bearing demand notes issued to the US Treasury, and other liabilities for
borrowed money) as a percentage of total assets were 11.14% at June 30, 1994,
compared to 12.60% at June 30, 1993. Temporary investments as a percentage
of total assets decreased to 4.71% at June 30, 1994, compared to 7.63% at
June 30, 1993. The Company's volatile liability dependence ratio (which
compares volatile liabilities less temporary investments to net loans, plus
lease-financing receivable and investment securities with remaining
maturities or earliest repricing opportunities of less than one year,
including equity securities) was 7.45% at June 30, 1994, compared to 6.02% at
June 30, 1993.
SECURITIES
The securities portfolio is the second largest component of the
Company's earning asset base. When securities are purchased, primarily debt
securities, they are classified as investment securities and are carried at
cost adjusted for amortization of premiums and accretion of discounts, if the
Company has the intention to hold such securities until maturity. If it is
the Company's intention at the time of purchase to sell securities prior to
maturity, such securities are classified as trading securities and are
carried at fair value with unrealized gains or losses included in earnings.
At June 30, 1994, the Company held no securities in its trading portfolio.
Debt and equity securities not classified as either held-to-maturity or
trading securities are classified as available for sale and reported at fair
value, with unrealized gains and losses excluded from earnings and reported
as an addition to or a deduction from stockholders' equity. Also, from time
to time, the Company may identify securities that it intends to use as a part
of its asset/liability strategy to respond to changes in interest rate and/or
prepayment risk or to increase liquidity or regulatory capital. At
identification date, such securities are transferred to available-for-sale
and subsequently carried at fair value. At June 30, 1994, the Company had
$127 million in the available-for-sale category with an unrealized loss of
$469,000, net of taxes, which has been deducted from stockholders' equity.
</PAGE>
XXX BEGIN PAGE 21 HERE XXX
Securities decreased 11.32% or $75 million from June 30, 1993, to June
30, 1994. This decrease was due to the increased demand for loans, which
caused a redeployment of funds. Management takes a conservative approach in
the investment portfolio by changing the mix and maturity as it reinvests
maturing securities. This has been done by increasing the percentage of U.
S. government agency securities and by decreasing holdings of other
securities while shortening average maturities. Investments in collateralized
mortgage obligations (CMOs) issued by U. S. government agencies were $149.8
million at June 30, 1994 and $180.9 million at June 30, 1993. The company
also had investments in certain privately-issued CMOs which were
collateralized by mortgage-backed securities issued or guaranteed by U. S.
government agencies totaling $5.9 million at June 30, 1994 and $17.9 million
at June 30, 1993. In addition, the average balance of the investment in
corporate securities has increased from the first half of 1993. These
investments consist principally of adjustable rate money market preferred
instruments. The following table reflects the mix of the investment
portfolio, including securities available for sale, for the quarters ended
June 30, 1994, and 1993, in thousands.
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
1994 1993
Average Average
Balance % Balance %
------- ------ -------- -------
<S> <C> <C> <C> <C>
US Treasuries $ 118,193 20.14% 141,424 23.03%
Securities of other US
government agencies and corp. 320,230 54.57% 293,168 47.73%
Obligations of states and
political subdivisions 72,896 12.42% 82,953 13.51%
Other securities 33,406 5.69% 54,670 8.90%
Corporate securities 42,123 7.18% 41,943 6.83%
------- ------- ------- -------
Total investment securities $ 586,848 100.00% 614,158 100.00%
======= ======= ======= =======
</TABLE>
</PAGE>
XXX BEGIN PAGE 22 HERE XXX
DEPOSITS
Managing the mix and repricing alternatives of invested funds is an
important factor affecting the NIM. Strategies for managing the cost and
source of funds have to be flexible enough to meet needs in a changing
interest rate environment. Management's strategy has been to increase core
deposits as a percentage of total funds sources and to reduce the Company's
dependence on more volatile short-term borrowings. Average interest-bearing
deposit liabilities as a percentage of average funds sources were 82.83% for
the six months ended June 30, 1994, compared to 84.92% for the six months
ended June 30, 1993. Average non-interest bearing deposits increased $66.2
million or 20.1% for the same period.
Average certificates of deposit increased by $24.9 million for the six
months ended June 30, 1994, compared to the same period in 1993. The average
rate paid on these certificates of deposit decreased to 3.69% for the six
months ended June 30, 1994, from 3.92% for the six months ended June 30,
1993. The total cost of interest-bearing liabilities has averaged 3.26% and
3.43% for the six months ending June 30, 1994, and 1993, respectively.
Interest-free funds supported 17.61% of average earning assets for the first
half of 1994 compared to 15.91% for the first half months of 1993.
CAPITAL ADEQUACY
Strong capitalization is fundamental to the successful operation of a
banking organization. The Company seeks to maintain a level of capital
flexible enough for profitable growth opportunities, consistent with
management's goal of building stockholder value, and to provide stability in
uncertain economic conditions. Indicators of adequate capital are
represented by average equity to assets, average equity to net loans, risk-
based capital ratios and leverage ratios. The Company's equity to asset
ratio at June 30, 1994 was 7.28%, up from the 6.91% reported at June 30,
1993, and the equity to loan ratio was 11.22% and 11.36% for June 30, 1994
and 1993, respectively. The Company's total risk-based capital ratio as of
June 30, 1994 was 12.01% and the leverage ratio was 7.31%. These capital
ratios were in excess of the required 8.00% total risk-based capital ratio
and the 3.00% required leverage ratio.
</PAGE>
BEGIN PAGE 23 HERE XXX
Selected Capital Information
For the six months ended June 30,
(dollars in thousands)
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Capital:
Common stock $ 9,493 9,493
Surplus 102,965 102,965
Undivided profits 70,588 51,911
Allowance for credit losses 33,132 31,849
Market valuation adjustment on
securities available for sale 469 166
--------- ---------
Total primary capital 216,647 196,384
========= =========
Total assets $ 2,466,209 2,434,596
========= =========
Ratio of primary capital to adjusted assets * 8.657% 7.962%
*Adjusted assets are total assets gross of allowance for credit
losses and market valuation of securities available for sale.
1994 1993
--------- ---------
Tier I:
Common stockholders' equity $ 112,458 112,458
Undivided profits and capital reserves 71,058 52,077
Less:
Goodwill (1,774) (2,090)
Net unrealized loss on securities
available for sale (469) (166)
--------- ---------
Total Tier I capital 181,273 162,279
--------- ---------
Tier II:
Allowance for credit losses 21,350 19,864
--------- ---------
Total Tier II capital 21,350 19,864
--------- ---------
Total qualifying capital 202,623 182,143
========= =========
Risk-weighted assets 1,673,845 1,557,757
Risk-weighted off-balance sheet exposure 22,381 19,398
--------- ---------
Total risk-weighted assets and
off-balance sheet exposure $ 1,696,226 1,577,155
========= =========
Ratios:
Tier I capital ratio 10.69% 10.29%
Minimum Tier I capital ratio 4.00% 4.00%
Total capital ratio 11.95% 11.55%
Minimum total capital ratio 8.00% 8.00%
Leverage ratio 7.31% 6.76%
Minimum leverage ratio 3.00% 3.00%
</TABLE>
</PAGE>
XXX BEGIN PAGE 24 HERE XXX
OFF-BALANCE-SHEET ITEMS
At June 30, 1994 and June 30, 1993 the Company had entered into two
interest rate swap agreements to reduce the impact of changes in interest
rates on its cost of funds. These swaps had a notional principal amount of
$16,000,000. Also outstanding at June 30, 1994 and 1993 was one interest rate
cap with a total contract or notional value of $6,000,000. The Company is
exposed to essentially the same credit risk in these contracts as in any
other extension of credit and attempts to manage this through credit
approvals, limits and other monitoring procedures.
RECENT DEVELOPMENTS
In May of 1993, the FASB issued SFAS No. 114, "Accounting by Creditors
for Impairment of a Loan". This statement requires that impaired loans that
are within the scope of SFAS No. 114 be measured on the present value of
expected future cash flows, discounted at the loan's effective interest rate
or at the loan's observable market price or the fair value of the collateral
if the loan is collateral dependent. This statement amends FASB SFAS No. 5,
"Accounting for Contingencies" and FASB SFAS No. 15, "Accounting by Debtors
and Creditors for Troubled Debt Restructurings". SFAS No. 114 applies to
financial statements for fiscal years beginning after December 15, 1994. The
Company has not made a determination as to the effect of the adoption of
this statement on the financial condition of the Company.
</PAGE>
XXX BEGIN PAGE 25 HERE XXX
GRENADA SUNBURST SYSTEM CORPORATION AND SUBSIDIARIES
DISTRIBUTION OF ASSETS,
LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
FOR THE SIX MONTHS ENDING JUNE 30, 1994
(dollars in thousands)
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
Average Yield/
Balance Interest Rate
--------- -------- ------
<S> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans (1) (2) $1,595,034 133,183 8.35%
Mortgage loans held for sale 50,814 3,519 6.93
U.S. Treasury securities 118,193 5,457 4.62
Securities of other U.S. Government
agencies & corporations 320,230 16,915 5.28
Obligations of state and political
subdivisions (3) 72,896 7,803 10.70
Other securities 33,406 2,362 7.07
Corporate securities 42,123 2,378 5.65
Interest-bearing deposits with banks 583 22 3.77
Federal funds sold and securities
purchased with resell agreements 16,455 524 3.18
-------- ------ -----
Total interest-earning assets/
interest income (3) 2,249,734 172,163 7.65
Cash and due from banks 139,925
Other assets 100,411
Allowance for credit losses (33,083)
Market value adjustment on
securities available for sale (63)
---------
Total $2,456,924
=========
Average Yield/
Balance Interest Rate
LIABILITIES AND --------- -------- ------
STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Demand deposits $ 627,178 14,597 2.33%
Savings 172,281 4,162 2.42
IRA/KEOGH 143,526 7,434 5.18
Certificates of deposit 870,459 32,078 3.69
Federal funds purchased & securities
sold under agreements to repurchase 31,132 1,039 3.34
Other borrowings 18,859 1,360 7.21
--------- ------- -----
Total interest-bearing liabilities
/interest expense 1,863,435 60,670 3.26
Non-interest bearing demand 396,097
Other liabilities 18,430
---------
Total liabilities 2,277,962
Stockholders' equity 178,962
---------
Total $2,456,924
=========
Net interest income (3) 111,493
-------
Net yield on interest-earning assets (3) 4.96
Tax equivalent adjustments:
Loans 186
Obligations of state & political subdivisions 2,605
Corporate securities 651
-------
Total tax equivalent adjustment 3,442
-------
Net interest income $108,051
=======
(1) Non-accruing loans are included in average loans; however, no income is
recognized on these loans.
(2) Includes loan fees in both interest income and the calculation of the
yield on loans.
(3) Tax equivalent adjustments are calculated assuming a 35% tax rate for
1994 and 1993.
</TABLE>
</PAGE>
XXX BEGIN PAGE 26 HERE XXX
GRENADA SUNBURST SYSTEM CORPORATION AND SUBSIDIARIES
DISTRIBUTION OF ASSETS,
LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
FOR THE SIX MONTHS ENDING JUNE 30, 1993
(dollars in thousands)
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
Average Yield/
Balance Interest Rate
--------- -------- ------
<S> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans (1) (2) $1,378,725 118,057 8.56%
Mortgage loans held for sale 54,459 3,755 6.90
U.S. Treasury securities 141,424 7,291 5.16
Securities of other U.S. Government
agencies & corporations 293,168 17,149 5.85
Obligations of state and political
subdivisions (3) 82,953 8,877 10.70
Other securities 54,670 3,842 7.03
Corporate securities 41,943 2,265 5.40
Trading account 1,394 102 7.32
Interest-bearing deposits with banks 4,752 216 4.55
Federal funds sold and securities
purchased with resell agreements 19,265 548 2.84
--------- ------ -----
Total interest-earning assets/
interest income (3) 2,072,753 162,102 7.82
Cash and due from banks 127,978
Other assets 94,506
Allowance for credit losses (29,055)
Market value adjustment on
securities available for sale (348)
---------
Total $2,265,834
=========
Average Yield/
Balance Interest Rate
LIABILITIES AND --------- -------- ------
STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Demand deposits $ 589,095 13,883 2.36%
Savings 144,856 3,959 2.73
IRA/KEOGH 137,467 7,786 5.66
Certificates of deposit 845,561 33,135 3.92
Federal funds purchased & securities
sold under agreements to repurchase 32,831 934 2.84
Other borrowings 10,406 756 7.27
--------- ------- -----
Total interest-bearing liabilities
/interest expense 1,760,216 60,453 3.43
Non-interest bearing demand 329,871
Other liabilities 19,152
---------
Total liabilities 2,109,239
Stockholders' equity 156,595
---------
Total $2,265,834
=========
Net interest income (3) 101,649
--------
Net yield on interest-earning assets (3) 4.90
Tax equivalent adjustments:
Loans 160
Obligations of state & political subdivisions 2,760
Corporate securities 518
-------
Total tax equivalent adjustment 3,438
-------
Net interest income $98,211
=======
(1) Non-accruing loans are included in average loans; however, no income is
recognized on these loans.
(2) Includes loan fees in both interest income and the calculation of the
yield on loans.
(3) Tax equivalent adjustments are calculated assuming a 35% tax rate for
1994 and 1993.
</TABLE>
</PAGE>
XXX BEGIN PAGE 27 HERE XXX
Summary of Changes in Effective Interest Differential
The following table presents the changes in interest earned and interest
paid resulting from changes in volume and changes in rates (in thousands).
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
June 30,
1994 vs. 1993
Increase (decrease)
Due to:
------------------------------
Volume Rate Total
------------------------------
<S> <C> <C> <C>
Interest earned on:
Loans $18,088 (2,962) 15,126
Mortgages loans warehoused (252) 16 (236)
U. S. Treasury securities (1,120) (714) (1,834)
Securities of other U. S.
government agencies & corporations 1,512 (1,746) (234)
Obligations of states and political
subdivisions (1,074) 0 (1,074)
Other securities (1,502) 22 (1,480)
Corporate securities 10 103 113
Trading account (51) (51) (102)
Interest-bearing deposits with banks (162) (32) (194)
Federal funds sold (85) 61 (24)
-------- -------- --------
Total interest income 15,364 (5,303) 10,061
Interest paid on:
Demand deposits 892 (178) 714
Savings deposits 688 (485) 203
IRA/Keogh 331 (683) (352)
Time deposits 947 (2,004) (1,057)
Federal funds purchased and securities
sold under repurchase agreements (50) 155 105
Other borrowings 610 (6) 604
-------- -------- --------
Total interest expense 3,418 (3,201) 217
-------- -------- --------
Increase (decrease) in net interest income $11,946 (2,102) 9,844
======== ======== ========
Increases (decreases) are attributed to volume changes and rate changes on
the following basis: Volume Change equals change in volume times old rate.
Rate Change equals change in rate times old volume. The Rate/Volume Change
equals change in volume times change in rate, and it is allocated between
Volume Change and Rate Change at the ratio that the absolute value of each of
those components bears to the absolute value to their total.
</TABLE>
</PAGE>
XXX BEGIN PAGE 28 HERE XXX
PART II
OTHER INFORMATION
Item 1. Litigation
Doris Lockhart et al. v. J. L. Lovett et al.,
---------------------------------------------
Circuit Court, First Judicial District, Hinds County, Mississippi.
Plaintiffs originally filed a lawsuit against Lovett based upon
alleged violations of the Truth In Lending Act and the Mississippi
Home Solicitation Sales Act in connection with contracts and deeds
of trust solicited by Lovett that were later assigned to Sunburst
Financial Services, Inc. ("Rapid"), a wholly owned subsidiary of
the Company. On July 1, 1994, the jury returned verdicts against
Rapid totaling approximately $1,872,000. Rapid is also liable for
attorneys' fees relating to the Truth In Lending claims. The
Company believes that grounds exist for reversal of the judgment
and Rapid has filed post-trial motions for judgment notwithstanding
the verdict or a new trial. The Company also believes that grounds
grounds exist for the recovery of a portion of the judgment from
an insurance company. Depending upon, among other things, the
status of Rapid's post-trial motions, the Company will establish
a reserve during the third quarter of 1994 to reflect management's
assessment of any potential loss in connection with this matter,
if the Company so determines that a reserve is required.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on page 34 hereof
(b) Reports on Form 8-K
A report on Form 8-K dated July 1, 1994, was filed on July 11, 1994.
Such report was filed to report the execution by GSSC of that certain
Agreement and Plan of Reorganization (the "Reorganization Agreement") dated
July 1, 1994 with Union Planters Corporation ("UPC"), whereby UPC will
acquire GSSC through the merger of GSSC Acquisition Company, Inc., a wholly
owned subsidiary of UPC, with and into GSSC.
A report on Form 8-K/A dated July 1, 1994, was filed on August 2,
1994. Such report was filed to amend the report on Form 8-K filed July 11,
1994, and included as Exhibit 2.1 thereto the Reorganization Agreement.
</PAGE>
XXX BEGIN PAGE 29 HERE XXX
EXHIBIT INDEX
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
2.1 Agreement and Plan of Reorganization dated July 1, 1994 by and
among Union Planters Corporation, GSSC Acquisition Company,
Inc., Grenada Sunburst System Corporation, Sunburst Bank,
Mississippi and Sunburst Bank, Louisiana (filed as Exhibit 2.1
to the Company's Report on Form 8-K/A filed August 2, 1994, and
incorporated herein by reference)
10.1 Equity Share Bonus Plan and Participation Agreement, as amended
(filed as Exhibit 10.1 to the Company's Annual Report on Form
10-K for the year ended December 31, 1991, and incorporated
herein by reference)
10.2 Deferred Compensation Agreement (filed as Exhibit 10.2 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1991, and incorporated herein by reference
10.3 Management Incentive Compensation Plans (filed as Exhibit 10.3
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1991, and incorporated herein by reference)
10.4 Form of Executive Employment Contracts
10.5 Purchase and Assumption Agreement among Eastover Bank for
Savings and Grenada Sunburst System Corporation and Sunburst
Bank, Mississippi dated July 22, 1992, (filed as Appendix H of
the Company's Registration Statement on Form S-4 (Reg. No. 33-
53170) and incorporated herein by reference)
</PAGE>
XXX BEGIN PAGE 30 HERE XXX
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GRENADA SUNBURST SYSTEM CORPORATION
(Registrant)
Date: August 15, 1994
----------------
/s/ D. L. Holland
--------------------------------------------
D. L. Holland, Treasurer and Chief Financial
Officer (Principal Financial and Accounting
Officer and Officer Duly Authorized to sign
on Behalf of Registrant)
GRENADA SUNBURST SYSTEM CORPORATION
EMPLOYMENT AGREEMENT
This agreement ("Agreement") has been entered into this 18th day of
April, 1994, by and between Grenada Sunburst System Corporation ("Company"),
and ____________________, an individual ("Executive").
RECITALS
The Board of Directors of the Company ("Board") has determined that it
is in the best interests of the Company and its stockholders to reinforce and
encourage the continued attention and dedication of the Executive to the
Company as a member of management of the Company or as a member of management
of a subsidiary of the Company, and to assure that the Company will have the
continued dedication of the Executive, notwithstanding the possibility,
threat, or occurrence of a Change in Control (as defined below) of the
Company. The Board believes that it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and
risks created by a pending or threatened Change in Control and to encourage
the Executive's full attention and dedication to the Company or a subsidiary
currently and in the event of any threatened or pending Change in Control
which ensures that the compensation and benefits expectations of the Execu
tive will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board
has caused the Company to enter into this Agreement.
</PAGE>
XXX BEGIN PAGE 2 HERE XXX
IT IS AGREED AS FOLLOWS:
Section 1: Definitions and Construction
1.1 Definitions. For purposes of this Agreement, the following words
and phrases, whether or not capitalized, shall have the meanings specified
below unless the context plainly requires a different meaning.
(a) "Board" means the Board of Directors of the Company.
(b) "Change in Control" means a change in control of the Company of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Exchange Act; provided
that, for purposes of this Agreement, a Change in Control shall be deemed to
have occurred if (i) any Person (other than the Company) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company which represent 20% or
more of the combined voting power of the Company's then outstanding
securities; (ii) during any period of two (2) consecutive years, individuals
who at the beginning of such period constitute the Board cease for any reason
to constitute the majority thereof, unless the election, or the nomination
for election, by the Company's stockholders, of each new director is approved
by a vote of at least two-thirds (2/3) of the directors then still in office
who were directors at the beginning of the period but excluding any
individual whose initial assumption of office occurs as a result of either an
actual or threatened election contest (as such term is used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a person
other than the Board; (iii) there is consummated any consolidation or merger
of the Company in which the Company is not the continuing or surviving
corporation or pursuant to which shares of the Company's common stock is
converted into cash, securities, or other property, other than a merger of
the Company in which the holders of the Company's Common stock immediately
prior to the merger have the same proportionate owner- ship of common stock
of the surviving corporation immediately after the merger; (iv) there is
consummated any consolidation or merger of the Company in which the Company
is the continuing or surviving corporation in which the holders of the
Company's Common Stock immediately prior to the merger do not own seventy
percent (70%) or more of the stock of the surviving corporation immediately
after the merger; (v) there is consummated any sale, lease, exchange, or
other transfer (in one transaction or a series of related transactions) of
all, or substantially all, of the assets of the Company, or (vi) the
stockholders of the Company approve any plan or proposal for the liquidation
or dissolution of the Company.
(c) "Change in Control" shall mean the date of the Change in Control.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(e) "Company" means Grenada Sunburst System Corporation, a Delaware
Corporation, for the purpose of determining if a Change in Control has
occurred. For the purpose of an employment relationship, it includes any
subsidiary of Grenada Sunburst System Corporation.
(f) "Effective Date" shall mean April 18, 1994.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(h) "Person" means any "person" within the meaning of 13(d) and
14(d) of the Exchange Act.
(i) "Term" means the period that begins on the Effective Date and
ends on January 31, 1997, unless prior thereto a Change in Control shall have
occurred.
</PAGE>
XXX BEGIN PAGE 3 HERE XXX
1.2 Gender and Number. When appropriate, pronouns herein used in the
masculine gender include the feminine gender, words in the singular include
the plural, and words in the plural include the singular.
1.3 Headings. All headings herein are included solely for ease of
reference and do not bear on the interpretation of the text. Accordingly, as
used herein, the terms "Article" and "Section" mean the text that accompanies
the specified Article or Section hereof.
1.4 Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, without reference to
its conflicts of law principles.
Section 2: Terms and Conditions of Employment.
2.1 Severance Benefits. In order to induce the Executive to remain in
the employ of the Company and in consideration of Executive's agreeing to
remain in the employ of the Company subject to the terms and conditions set
forth herein, this Agreement sets forth the severance benefits which the
Company agrees will be provided to the Executive in the event the Executive's
employment with the Company is terminated subsequent to a Change in Control
under the circumstances described herein.
2.2 Positions and Duties. Prior to the receipt of benefits under this
Agreement, the Executive shall serve as an officer of the Company or of a
subsidiary thereof, subject to the reasonable directions of the Board and the
immediate superior of the Executive. During the term of this Agreement,
Executive agrees that Executive will not voluntarily leave the employ of the
Company except as may be permitted hereunder. Any violation of this Section
2.2 by the Executive prior to a Change in Control shall result in a
termination hereof and the Executive shall have no other liability hereunder
for such action. Notwithstanding the foregoing, the Company may terminate
Executive's employment at any time, subject to providing the benefits
hereinafter specified in accordance with the terms hereof. Following a
Change in Control, the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities
shall be at least commensurate in all material respects with those assigned
to, or held and exercised by, the Executive immediately preceding the date on
which a Change in Control occurs.
2.3 Situs of Employment. Following a Change in Control, the
Executive's services shall be performed at the location where the Executive
was employed immediately prior to the Change in Control by the Company or any
subsidiary.
2.4 Compensation.
(a) Annual Base Salary. The annual base salary ("Annual Base
Salary") shall be an amount equal to the salary the Executive was receiving
during the month immediately preceding a Change in Control computed on an
annualized basis.
(b) Incentive Bonuses. Incentive bonuses ("Incentive Bonus") shall
mean any bonuses provided through any incentive compensation plan, subject to
the provisions of such plan.
(c) Welfare Benefit Plans. Welfare benefit plans shall mean
practices, policies and programs provided by the Company (including, without
limitation, medical, prescription, dental, disability, salary continuance,
employee life, group life, accidental death and travel accident insurance
plans and programs), subject to the provisions of such welfare benefit plans.
</PAGE>
XXX BEGIN PAGE 4 HERE XXX
Section 3: Termination of Employment.
3.1 Death. The Executive's employment shall terminate automatically
upon the Executive's death during the Term of this Agreement.
3.2 Disability. Following a Change in Control, if the Company
determines in good faith that the Disability of the Executive has occurred
(pursuant to the definition of Disability set forth below), the Company may
give to the Executive written notice in accordance with Section 7.1 of the
intention of the Company to terminate the Executive's employment. In such
event, the Executive's employment with the Company shall terminate effective
on the thirtieth (30th) day after receipt of such notice by the Executive
(the "Disability Effective Date"), provided that, within the thirty (30) days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean that the Executive has been unable to perform the
services required of the Executive hereunder on a full-time basis for a
period of one hundred eighty (180) consecutive business days by reason of a
physical and/or mental condition. "Disability" shall be deemed to exist when
certified by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative (such
agreement as to acceptability not to be withheld unreasonably). The
Executive will submit to such medical or psychiatric examinations and tests
as such physician deems necessary to make any such Disability determination.
3.3 Termination for Cause. Following a Change in Control, the Company
may terminate the Executive's employment for "Cause," which shall mean
termination based upon: (a) the Executive's willful and continued failure to
perform the Executive's duties with the Company (other than as a result of
incapacity due to physical or mental condition), after a demand for
substantial performance is delivered to the Executive by the Chief Executive
Officer of the Company or the Chairman of the Compensation Committee of the
Board, which specifically identifies the manner in which the Executive has
not substantially performed the Executive's duties, (b) the Executive's
willful commission of misconduct which is materially injurious to the
Company, monetarily or otherwise, or (c) the Executive's material breach of
any provision of this Agreement. For purposes of this paragraphs, no act, or
failure to act on the Executive's part shall be considered "willful" unless
done, or omitted to be done, without good faith and without reasonable belief
that the act or omission was in the best interests of the Company.
Notwithstanding the foregoing, the Executive shall not be deemed to have been
terminated for Cause unless and until (a) the Executive receives a Notice of
Termination (as defined in Section 3.5) from the Chief Executive Officer of
the Company or the Chairman of the Compensation Committee of the board, (b)
the Executive is given the opportunity, with counsel, to be heard before the
Board, and (c) the Board finds, in its good faith opinion, that the Executive
was guilty of the conduct set forth in the Notice of Termination.
3.4 Good Reason. Following a Change in Control, the Executive may
terminate employment with the Company for "Good Reason," which shall mean
termination based upon:
(a) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as
contemplated by Section 2.2 or any other action by the Company which results
in a material diminution in such position, authority, duties or
responsibilities, excluding for this purpose any action not taken in bad
faith and which is remedied by the Company promptly after notice thereof
given by the Executive;
(b)(i) the failure by the Company to continue in effect any benefit
or compensation plan, stock ownership plan, life insurance plan, health and
accident plan or disability plan in which the Executive is participating as
specified in Section 2.4(b) or 2.4(c) or (ii) the taking of any action by the
Company which would adversely affect the Executive's participation in, or
materially reduce the Executive's benefits under, any plans described in
Section 2.4(b) or 2.4(c), or deprive the Executive of any material fringe
benefit enjoyed by the Executive as described in Section 2.4(b) or 2.4(c);
(c) the Company's requiring the Executive to be based at any office
or location other than that described in Section 2.3;
</PAGE>
XXX BEGIN PAGE 5 HERE XXX
(d) a material breach by the Company of any provision hereof;
(e) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement;
(f) within a period ending at the close of business on the date two
(2) years after the Change in Control Date, any failure by the Company to
comply with and satisfy Section 6.2 on or after the Change in Control Date;
or
For purposes of this Section any good faith determination of "Good Reason"
made by the Executive shall be conclusive.
3.5 Notice of Termination. Any termination by the Company for Cause or
Disability, or by the Executive for Good Reason, shall be communicated by
Notice of Termination to the other party, given in accordance with Section
7.1. For purposes of this Agreement, a "Notice of Termination" means a
written notice which (a) indicates the specific termination provision herein
relied upon, (b) to the extent applicable, sets forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated, and (c) if the Date
of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than
fifteen [15] days after the giving of such notice). The failure by the
Executive or the Company to set forth in the Notice of Termination any fact
or circumstance which contributes to a showing of Good Reason or Cause shall
not waive any right of the Executive or the Company hereunder or preclude the
Executive or the Company from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
3.6 Date of Termination. "Date of Termination" means (a) if the
Executive's employment is terminated by the Company with or without Cause, or
by the Executive for Good Reason, the date of Termination shall be the date
of receipt of the Notice of Termination or any later date specified therein,
as the case may be, or (b) if the Executive's employment is terminated by
reason of death or Disability, the Date of Termination shall be the date of
death of the Executive or the Disability Effective Date, as the case may be.
Section 4: Certain Benefits Upon Termination of Employment.
4.1 Termination after a Change in Control. If a Change in Control
occurs during the Term of this Agreement and within two (2) years after such
Change in Control, either the Company shall terminate the Executive's
employment without Cause, or the Executive shall terminate employment with
the Company for Good Reason, then the Executive shall be entitled to the
benefits provided below:
(a) "Accrued Obligations": On the tenth (10th) business day
following the Date of Termination, the Company shall pay to the Executive the
sum of (i) the Executive's Annual Base Salary prorated through the Date of
Termination to the extent not previously paid, and (ii) any accrued vacation
pay to the extent not previously paid.
(b) "Severance Amount": On the tenth (10th) business day following
the Date of Termination, the Company shall pay to the Executive as severance
pay a lump sum cash payment in an amount equal to ___ (_) times the
Executive's Annual Base Salary in effect on the Date of Termination.
</PAGE>
XXX BEGIN PAGE 6 HERE XXX
(c) "Stock Options": To the extent not otherwise provided for under
the terms of any of the Company's stock option agreements, all such stock
options granted by the Company shall be fully exercisable as of the Date of
Termination and, except for "incentive stock options" within the meaning of
Code 422, shall remain fully exercisable for six months following the Date
of Termination.
(d) "Other Benefits": To the extent not previously paid or provided,
the Company shall timely pay or provide to the Executive and/or the
Executive's family any other amounts or benefits required to be paid or
provided for which the Executive and/or the Executive's family is eligible to
receive pursuant hereto and under any plan, program, policy or practice or
contract or agreement of the Company as those provided generally to other
peer executives and their families during the ninety (90) day period immedi
ately preceding the Effective Date or, if more favorable to the Executive, as
those provided generally after the Effective Date to other peer executives of
the Company and their families.
(e) "Excess Parachute Payment": Anything herein to the contrary
notwithstanding, in the event that an independent accountant shall determine
that any payment or distribution by the Company to or for the benefit of
Executive (whether paid or payable or distributed or distributable pursuant
to the terms hereof or otherwise) (a "Payment") would be nondeductible by the
Company for Federal income tax purposes because of Code 280G or would
constitute an "excess parachute payment" (as defined in Code 280G), then the
aggregate present value of amounts payment or distributable to or for the
benefit of the Executive pursuant hereto or pursuant to any other agreement
with the company because of the occurrence of a Change in Control (such
payments or distributions are hereinafter referred to as "Agreement
Payments") shall be reduced (but not below zero) to the Reduced Amount. For
purposes of this paragraph, the "Reduced Amount" shall be an amount expressed
in present value which maximizes the aggregate present value of Agreement
Payments without causing any payment to be nondeductible by the Company
because of Code 280G or without causing any portion of the Payment to be
subject to the excise tax imposed by Code 4999.
If the independent accountant determines that any Payment would be
nondeductible by the Company because of Code 280G or that any portion of the
Payment would be subject to the excise tax imposed by Code 4999, the Company
shall promptly give Executive notice to that effect and a copy of the
detailed calculation thereof and of the Reduced Amount. The Executive may
then elect, in the Executive's sole discretion, which and how much of the
Agreement Payments shall be eliminated or reduced (as long as after such elec
tion the aggregate present value of the Agreement Payments equals the Reduced
Amount), and shall advise the Company in writing of the Executive's election
within ten (10) days after the Executive's receipt of such notice. If no
such election is made by the Executive within such ten-day period, the
Company may elect which and how much of the Agreement Payments shall be
eliminated or reduced (as long as after such election the aggregate present
value of the Agreement Payments equals the Reduced Amount) and shall notify
the Executive promptly of such election. For purposes of this paragraph,
present value shall be determined in accordance with Code 280G(d)(4). All
determinations made by the independent accountant under this paragraph shall
be binding upon the Company and the Executive and shall be made within sixty
(60) days of a termination of employment of the Executive. As promptly as
practicable following such determination and the elections hereunder, the
Company shall pay to or distribute to or for the benefit of the Executive
such amounts as are then due to the Executive hereunder and shall promptly
pay to or distribute for the benefit of the Executive in the future such
amounts as become due to the Executive hereunder.
</PAGE>
XXX BEGIN PAGE 7 HERE XXX
As a result of the uncertainty in the application of Code 280G and 4999 at
the time of the initial determination by the independent accountant
hereunder, it is possible that Agreement Payments will be made by the Company
which should not have been made ("Overpayment") or that additional Agreement
Payments which have not been made by the Company should have been made
("Underpayment"), in each case, consistent with the calculation of the
Reduced Amount hereunder. In the event that the independent accountant,
based upon the assertion of a deficiency by the Internal Revenue Service
against the Company or the Executive which the independent accountant
believes has a high probability of success, determines that an Overpayment
has been made, any such Overpayment shall be treated for all purposes as a
loan to the Executive which the Executive shall repay to the Company,
together with interest at the applicable Federal rate provided for in Code
7872(f)(2); provided, however, that no amount shall be payable by the
Executive to the Company if and to the extent such payment would not reduce
the amount which is subject to taxation under Code 4999 or if the period of
limitations for assessment of tax under Code 4999 against the Executive
shall have expired. If the Executive is required to repay an amount under
this Section, the Executive shall repay such amount over a period of time not
to exceed one (1) year for each twenty-five thousand dollars ($25,000) which
the Executive must repay to the Company. In the event that the independent
accountant, based upon controlling precedent, determines that an Underpayment
has occurred, any such Underpayment shall be promptly paid by the Company to
or for the benefit of the Executive together with interest at the applicable
Federal rate provided for in Code 7872(f)(2)(A).
4.2 Death. If the Executive's employment is terminated by reason of
the Executive's death during the Term hereof (either prior or subsequent to a
Change in Control), this Agreement shall terminate without further obligation
to the Executive's legal representatives hereunder.
4.3 Disability. If the Executive's employment is terminated by reason
of the Executive's Disability during the Term hereof subsequent to a Change
in Control, this Agreement shall terminate without further obligations to the
Executive.
4.4 Termination for Cause; Executive's Termination Other Than For Good
Reason After a Change in Control. If the Executive's employment shall be
terminated for Cause during the Term hereof (either prior to or subsequent to
a Change in Control), this Agreement shall terminate without further
obligations to the Executive. If the Executive terminates employment with
the Company during the Term hereof (other than for Good Reason after a Change
in Control), this Agreement shall terminate without further obligations to
the Executive.
4.5 Non-Exclusivity of Rights. Nothing herein shall prevent or limit
the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company and for which the Executive may
qualify, nor shall anything herein limit or otherwise affect such rights as
the Executive may have under any contract or agreement with the Company.
Amounts which are vested benefits of which the Executive is otherwise
entitled to receive under any plan, policy, practice or program of, or any
contract or agreement with, the Company at or subsequent to the Date of
Termination, shall be payable in accordance with such plan, policy, practice
or program or contract or agreement except as explicitly modified by this
Agreement.
4.6 Full Settlement. The Company's obligation to make the payments
provided for herein and otherwise to perform its obligations hereunder shall
not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which the Company may have against the Executive or
others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions hereof and such amounts
shall not be reduced whether or not the Executive obtains other employment.
The company agrees, only on and after a Change in Control Date to pay
promptly as incurred, to the full extent permitted by law, all legal fees and
expenses which the Executive may reasonably incur as a result of any contest
(regardless of the outcome thereof) by the Company, the Executive or others
of the validity or enforceability of, or liability under, any provision
hereof or any guarantee of performance thereof (including as a result of any
contest by the Executive regarding the amount of any payment pursuant
hereto), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Code 7872(f)(2)(A).
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XXX BEGIN PAGE 8 HERE XXX
4.7 Resolution of Disputes. If there shall be any dispute between the
Company and the Executive (a) in the event of any termination of the
Executive's employment by the Company, whether or not such termination was
for Cause, or (b) in the event of any termination of employment by the
Executive, whether Good Reason existed, then, unless and until there is a
final nonappealable judgment by a court of competent jurisdiction declaring
that such termination was for Cause or that the determination by the
Executive of the existence of Good Reason was not made in good faith, the
Company shall, only on and after a Change in Control Date pay all amounts,
and provide all benefits, to the Executive and/or the Executive's family or
other beneficiaries, as the case may be, that the Company would be required
to pay or provide pursuant to Section 4.1 or 4.2 as though such termination
were by the Company without Cause or by the Executive with Good Reason;
provided, however, that the Company shall not be required to pay any disputed
amounts pursuant to this paragraph except upon receipt of an undertaking by
or on behalf of the Executive to repay all such amounts to which the
Executive is ultimately adjudged by such court not to be entitled.
Section 5: Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company and its or their
respective businesses, which shall have been obtained by the Executive during
the Executive's employment by the Company and which shall not be or become
public knowledge (other than by acts of the Executive or representatives of
the Executive in violation of this Agreement). After termination of the
Executive's employment with the Company, the Executive shall not, without the
prior written consent of the Company, or as may otherwise be required by law
or legal process, communicate or divulge any such information, knowledge or
data to anyone other than the Company and those designated by it. In no
event shall an asserted violation of the provisions of this Section
constitute a basis for deferring or withholding any amounts otherwise payable
to the Executive under this Agreement.
Section 6: Successors.
6.1 Successors of Executive. This Agreement is personal to the
Executive and, without the prior written consent of the Company, shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
6.2 Successors of Company. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of the Company to
assume expressly and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform it if no
such succession had taken place. Failure of the Company to obtain such
agreement upon the effectiveness of any such succession shall be a breach
hereof and shall entitle the Executive to terminate the Agreement at the
Executive's option on or after the Change in Control for Good Reason. As
used herein, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets which assumes and agrees to perform
this Agreement by operation of law, or otherwise.
</PAGE>
XXX BEGIN PAGE 9 HERE XXX
Section 7: Miscellaneous.
7.1 Notice. For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when delivered or mailed by certified or registered
mail, return receipt requested, postage prepaid, addressed to the respective
addresses as set forth below; provided that all notices to the Company shall
be directed to the attention of the Chairman of the Board of the Company with
a copy to the Secretary of the Company, or to such other address as one party
may have furnished to the other in writing in accordance herewith, except
that notice of change of address shall be effective only upon receipt.
Notice to Executive
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Notice to Company:
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Grenada Sunburst System Corporation
2000 Gateway
Grenada, Mississippi 38902-0947
7.2 Validity. The invalidity or unenforceability of any provision
hereof shall not affect the validity or enforceability of any other portion
of this Agreement.
7.3 Withholding. The Company may withhold from any amounts payable
hereunder such Federal, state, or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
7.4 Waiver. The Executive's or the Company's failure to insist upon a
strict compliance with any provision hereof or any other provision hereof or
the failure to assert any right the Executive or the Company may have
hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 3.4 shall not be
deemed to be a waiver of such provision or right or any other provision or
right hereof.
7.5 Effect on Other Employment Agreements. The terms hereof shall
supersede all other employment or other agreements with respect to severance
entered into by and between the Executive and the Company, or the Executive
and any other employer, and this Agreement shall constitute the governing
agreement pursuant to which the Company shall have obligations to the
Executive upon the termination of the Executive's relationship with the
Company or any subsidiary.
IN WITNESS WHEREOF, the Executive and the Company, pursuant to the
authorization from its Board, have caused this Agreement to be executed in
its name on its behalf, all as of the day and year first above written.
EXECUTIVE
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GRENADA SUNBURST SYSTEM CORPORATION
By:
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Edwin T. Cofer, General Counsel and Secretary
