<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the three months ended September 30, 1995 Commission File No. 0-8841
The Pioneer Group, Inc.
-----------------------
(exact name of registrant as specified in its charter)
Delaware 13-5657669
- --------------------------------------------------------------------------------
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
60 State Street, Boston, Massachusetts 02109
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 742-7825
--------------
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changes since last
report.
Indicate by checkmark 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 twelve 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 at least the past 90 days.
X Yes No
--- ---
As of September 30, 1995, there were 24,814,938 shares of the Registrant's
Common Stock, $.10 par value per share, issued and outstanding.
<PAGE> 2
<TABLE>
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
THE PIONEER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands Except Per Share Amounts)
<CAPTION>
9/30/95 12/31/94
------- --------
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents, at cost which approximates market value........................ $ 24,205 $ 23,118
Investment in marketable securities, at value............................................. 9,514 6,458
Receivables:
From securities brokers and dealers
for sales of mutual fund shares.................................................... 7,692 7,406
For gold shipments................................................................... 3,841 4,393
Other................................................................................ 12,270 10,168
Mining inventory.......................................................................... 16,071 11,881
Other current assets...................................................................... 7,529 4,695
-------- --------
Total current assets.............................................................. 81,122 68,119
-------- --------
NONCURRENT ASSETS:
Mining operations:
Mining equipment and facilities (net of accumulated
depreciation of $39,266 in 1995 and $29,793 in 1994).......................... 45,075 44,337
Deferred mining development costs (net of accumulated
amortization of $10,805 in 1995 and $9,022 in 1994)........................... 9,934 11,061
Cost in excess of net assets of minority interest acquired (net of accumulated
amortization of $1,686 in 1995 and $1,405 in 1994)............................. 2,060 2,341
Cost of acquisition in excess of net assets (net of accumulated amortization
of $4,045 in 1995 and $2,458 in 1994)............................................... 21,298 22,789
Long-term venture capital investments, at value
(cost $16,951 in 1995 and $18,181 in 1994)........................................... 22,737 19,835
Long-term investments..................................................................... 16,369 ------
Timber project in development:
Deferred timber development costs.................................................... 15,220 6,765
Timber equipment and facilities....................................................... 11,518 5,384
Furniture, equipment, and leasehold improvements (net of accumulated
depreciation and amortization of $9,576 in 1995 and $9,724 in 1994).................. 22,532 9,837
Dealer advances........................................................................... 12,951 4,399
Cost in excess of net assets of majority interest acquired (net of accumulated
amortization of $77 in 1995)................................................... 1,770 ------
Other assets (including federal and state deferred income taxes, net)..................... 12,346 7,642
-------- --------
Total noncurrent assets........................................................... 193,810 134,390
-------- --------
$274,932 $202,509
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Payable to funds for shares sold.......................................................... $7,674 $7,075
Accrued expenses and accounts payable..................................................... 22,827 13,675
Accrued employees' compensation........................................................... 5,495 1,547
Accrued income taxes...................................................................... 332 748
Deferred revenues......................................................................... 705 ------
Current portion of notes payable.......................................................... 38,053 13,597
-------- --------
Total current liabilities......................................................... 75,086 36,642
-------- --------
NONCURRENT LIABILITIES:
Notes payable, net of current portion..................................................... 13,263 9,101
Deferred income taxes, net................................................................ 16,264 17,331
-------- --------
Total noncurrent liabilities...................................................... 29,527 26,432
-------- --------
Total liabilities................................................................. 104,613 63,074
-------- --------
Minority interest......................................................................... 22,596 5,013
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.10 par value; authorized 60,000,000 shares;
issued 24,816,628 shares in 1995 and 24,697,960 shares in 1994 .................... 2,482 2,470
Paid-in capital...................................................................... 6,358 3,599
Retained earnings.................................................................... 142,672 130,715
Treasury stock at cost, 1,690 shares in 1995 and 28,772 shares in 1994............... (18) (167)
-------- --------
151,494 136,617
Less - Deferred cost of restricted common stock issued............................... (3,771) (2,195)
-------- --------
Total stockholders' equity........................................................ 147,723 134,422
-------- --------
$274,932 $202,509
======== ========
</TABLE>
The Company's annual report on Form 10-K should be read in conjunction with
these financial statements.
<PAGE> 3
<TABLE>
THE PIONEER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues and sales:
Investment management fees.............................. $16,835 $16,566 $47,248 $48,456
Underwriting commissions and other fees................. 2,457 1,592 6,132 11,352
Shareholder services fees............................... 5,603 4,961 16,708 14,743
Trustee fees and other income........................... 3,977 1,984 7,677 5,392
---------- ---------- ---------- ----------
Revenues from financial services businesses........... 28,872 25,103 77,765 79,943
Gold sales.............................................. 22,368 20,210 65,707 47,744
---------- ---------- ---------- ----------
Total revenues and sales............................... 51,240 45,313 143,472 127,687
---------- ---------- ---------- ----------
Costs and expenses:
Management, distribution, shareholder service
and administrative expenses............................ 24,084 19,291 66,827 56,527
Gold mining operating costs and expenses................ 17,071 11,407 47,726 30,311
---------- ---------- ---------- ----------
Total costs and expenses............................... 41,155 30,698 114,553 86,838
---------- ---------- ---------- ----------
Other (income) expense:
Unrealized and realized gains on venture capital
and marketable securities investments, net............. (2,473) (227) (7,132) (99)
Interest expense........................................ 26 254 557 686
Minority interest....................................... 1,083 531 1,921 1,611
Other, net.............................................. 195 377 549 898
---------- ---------- ---------- ----------
Total other (income) expense........................... (1,169) 935 (4,105) 3,096
---------- ---------- ---------- ----------
Income before provision for federal, state and
foreign income taxes.................................... 11,254 13,680 33,024 37,753
---------- ---------- ---------- ----------
Federal, state and foreign income taxes:
Provision for federal, state and foreign income taxes... 4,981 5,400 13,625 15,166
Cumulative deferred foreign income tax adjustment....... --- --- --- (4,431)
---------- ---------- ---------- ----------
Net provision for federal, state and foreign income taxes.. 4,981 5,400 13,625 10,735
---------- ---------- ---------- ----------
Net income................................................. $6,273 $8,280 $19,399 $27,018
========== ========== ========== ==========
Earnings per share ........................................ $0.25 $0.33 $0.77 $1.07
========== ========== ========== ==========
Dividends per share........................................ $0.10 $0.08 $0.30 $0.215
========== ========== ========== ==========
Weighted average common and
common equivalent shares outstanding ...................... 25,371,000 25,374,000 25,297,000 25,338,000
========== ========== ========== ==========
</TABLE>
The Company's annual report on Form 10-K should be read in conjunction with
these financial statements.
<PAGE> 4
<TABLE>
THE PIONEER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS) NINE MONTHS ENDED
(UNAUDITED) SEPTEMBER 30,
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................................................ $19,399 $27,018
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization....................................................................... 17,095 12,756
Unrealized and realized (gains) losses on venture capital and marketable securities,net............. (7,132) (99)
(Equity in earnings of) other investments........................................................... (481) (558)
Restricted stock plan expense....................................................................... 987 761
Deferred income taxes............................................................................... (643) (3,256)
Deferred revenues................................................................................... 705 882
Minority interest................................................................................... 17,944 1,611
Changes in operating assets and liabilities:
Receivable from securities brokers and dealers for sales of mutual fund shares...................... (286) 638
Receivables for gold shipments...................................................................... 552 (1,732)
Other receivables................................................................................... (2,102) (3,342)
Mining inventory.................................................................................... (4,190) (6,538)
Other current assets ............................................................................... (2,834) (301)
Dealer advances..................................................................................... (9,946) (2,530)
Other assets ....................................................................................... (627) (311)
Payable to funds for shares sold.................................................................... 599 (631)
Accrued expenses and accounts payable............................................................... 9,152 4,791
Accrued employees' compensation..................................................................... 3,948 3,193
Accrued income taxes................................................................................ (225) 3,206
------- -------
TOTAL ADJUSTMENTS................................................................................. 22,516 8,540
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES......................................................... 41,915 35,558
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to furniture, equipment and leasehold improvements.......................................... (15,100) (4,081)
Investments in marketable securities.................................................................. (5,273) (14,287)
Proceeds from sale of marketable securities........................................................... 2,804 20,822
Long-term venture capital investments................................................................. (2,517) (2,864)
Proceeds from sale of venture capital investments..................................................... 4,461 3,477
Deferred timber development costs..................................................................... (8,455) (4,259)
Timber equipment and facilities....................................................................... (6,134) (2,260)
Other investments..................................................................................... (4,020) (2,938)
Cost of acquisition in excess of net assets........................................................... (1,943) (89)
Purchase of mining equipment and facilities........................................................... (10,306) (7,566)
Deferred mining development costs, net................................................................ (656) (2,126)
Long-term investments................................................................................. (17,269) ---
Proceeds from sale of long-term investments........................................................... 2,599 ---
------- -------
NET CASH USED IN INVESTING ACTIVITIES............................................................ . (61,809) (16,171)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid........................................................................................ (7,442) (5,303)
Distributions to minority interest holder of gold mining subsidiary................................... (350) ---
Distributions to limited partners of venture capital subsidiary......................................... (11) (53)
Exercise of stock options............................................................................. 151 100
Restricted stock plan award........................................................................... 15 5
Repayments of notes payable........................................................................... (14,382) (2,839)
Borrowings............................................................................................ 43,000 ---
Reclassification of restricted cash................................................................... --- 398
------- -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES............................................... 20,981 (7,692)
------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS.................................................... 1,087 11,695
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........................................................ 23,118 19,242
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.............................................................. $24,205 $30,937
======= =======
</TABLE>
THE COMPANY'S ANNUAL REPORT ON FORM 10-K SHOULD BE READ IN CONJUNCTION WITH
THESE FINANCIAL STATEMENTS.
<PAGE> 5
THE PIONEER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of The Pioneer Group, Inc. and its
subsidiaries (the "Company") conform to generally accepted accounting
principles. The Company has not changed any of its principal accounting
policies from those stated in the Annual Report on Form 10-K for the year ended
December 31, 1994. The footnotes to the financial statements reported in the
1994 Annual Report on Form 10-K are incorporated herein by reference, except to
the extent that any such footnote is updated by the following:
Certain reclassifications have been made to the accompanying 1994 consolidated
financial statements to conform with the 1995 presentation.
Income taxes paid were $14,238,000 and $10,100,000 for the nine months ended
September 30, 1995, and September 30, 1994, respectively. In addition,
interest paid was $1,793,000 for the nine months ended September 30, 1995, and
$751,000 for the nine months ended September 30, 1994.
NOTE 2 - MINING INVENTORY
Mining inventories consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
---- ----
(Dollars in Thousands)
<S> <C> <C>
Gold-in-process $ 1,125 $ 1,125
Materials and supplies 14,946 10,756
--------- --------
$ 16,071 $ 11,881
========= ========
</TABLE>
<PAGE> 6
NOTE 3 - MINING EQUIPMENT
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
---- ----
(Dollars in Thousands)
<S> <C> <C>
Processing plant and equipment $ 23,058 $ 22,485
Mining equipment (rolling stock) 30,933 26,958
Buildings and housing units 4,404 3,718
Leach pads and ponds 14,175 10,026
Construction in progress 1,517 1,010
All other equipment 10,254 9,933
-------- --------
84,341 74,130
Less: accumulated depreciation (39,266) (29,793)
-------- --------
Total mining equipment $ 45,075 $ 44,337
======== ========
</TABLE>
NOTE 4 - INCOME TAXES
The Company adopted the accounting and disclosure rules specified by Statement
of Financial Accounting Standards ("SFAS No. 109") "Accounting for Income
Taxes" as of January 1, 1993. Under SFAS No. 109, deferred tax assets and
liabilities are recognized for the expected future tax consequences of events
that have been included in the financial statements or tax returns. The
amounts of deferred tax assets or liabilities are based on the difference
between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the years in which the differences are expected
to reverse. Deferred tax assets consist principally of deferred interest on
debt paid to the Company by Teberebie Goldfields Limited, deferred rent
expense, foreign tax credits and restricted stock plans' temporary differences.
Deferred tax liabilities include principally deferred foreign income taxes,
dealer advances and cumulative unrealized gains related to the Company's
venture capital investment portfolio.
NOTE 5 -- RESTRICTED STOCK PLANS AND STOCK OPTION PLAN
The Company has a Restricted Stock Plan (the "1995 Plan") to provide incentives
to certain employees who have contributed and are expected to contribute
materially to the success of the Company and its subsidiaries. An aggregate
total of 600,000 shares of the Company's stock may be awarded to participants
under the 1995 Plan at a price to be determined by the Board of Directors,
generally $.10 per share. The 1995 Plan expires in January 2000. The
Company's 1990 Restricted Stock Plan (the "1990 Plan") expired in January 1995.
The Company's 1981 Restricted Stock Plan (the "1981 Plan") expired in January
1990. The 1995 Plan, the 1990 Plan and the 1981 Plan are collectively referred
to as the "Plans."
<PAGE> 7
<TABLE>
The following tables summarize restricted stock plan activity for the Plans during the first nine months of 1995.
Unvested Shares
---------------
<CAPTION>
1995 Plan 1990 Plan 1981 Plan Total
--------- --------- --------- -----
<S> <C> <C> <C> <C>
Balance at 12/31/94 ----- 419,264 15,684 434,948
Awarded 600 123,400 --------- 124,000
Vested ----- (134,450) (15,684) (150,134)
Forfeited ----- (3,250) --------- (3,250)
--------- -------- --------- ---------
Balance at 9/30/95 600 404,964 --------- 405,564
========= ======== ========= =========
Vested Shares
-------------
1995 Plan 1990 Plan 1981 Plan Total
--------- --------- --------- -----
Balance at 12/31/94 ----- 219,000 1,489,648 1,708,648
Vested ----- 134,450 15,684 150,134
--------- -------- --------- ---------
Balance at 9/30/95 ----- 353,450 1,505,332 1,858,782
========= ======== ========= =========
</TABLE>
The Company awarded 101,460 shares in 1994 and 164,800 shares in 1993 under the
1990 Plan.
The participant's right to resell the awarded stock, under the Plans, is
generally restricted as to 100% of the shares awarded during the first two
years following the award, 60% during the third year and 20% less each year
thereafter. The Company may repurchase unvested restricted shares at $.10 per
share upon termination of employment.
Awards under the Plans are compensatory, and, accordingly, the difference
between the award price and the market value of the shares under the Plans at
the award date, less the applicable tax benefit, is being amortized on a
straight-line basis over a five year period.
The Company also maintains the 1988 Stock Option Plan (the "Option Plan"),
pursuant to which options on the Company's stock may be granted to key
employees of the Company. The Company has reserved an aggregate of 2,400,000
shares for issuance under the Option Plan. Both incentive stock options
intended to qualify under Section 422A of the Internal Revenue Code of 1986 and
non-statutory options not intended to qualify for incentive stock option
treatment ("non-statutory options") may be granted under the Option Plan. The
Option Plan is administered by the Board of Directors or a committee of
disinterested directors designated by the Board (the "Committee") and unless
the Option Plan is earlier terminated, no option may be granted after August 1,
1998. The option price per share is determined by the Board
<PAGE> 8
of Directors or the Committee, but (i) in the case of incentive stock options,
may not be less than 100% of the fair market value of such shares on the date
of option grant, and (ii) in the case of non-statutory options, may not be less
than 90% of the fair market value on the date of option grant. Options
issuable under the Option Plan become exercisable as determined by the Board of
Directors or the Committee not to exceed ten years from the date of grant.
Options granted to date vest over five years at an annual rate of 20% on each
anniversary date of the date of the grant.
<TABLE>
The following table summarizes all stock option activity since December 31, 1992.
<CAPTION>
Number of Exercise
shares price per share
------------------------ ----------------------
<S> <C> <C>
Outstanding at December 31, 1992 1,570,800 $4.188 - $ 7.063
Granted 139,000 $ 12.00
Terminated (12,000) $ 4.188
Exercised (62,800) $ 4.188
------------------------ ----------------------
Outstanding at December 31, 1993 1,635,000 $4.188 - $ 12.00
Granted 191,500 15.875 - $ 21.25
Exercised (32,000) $ 4.188
------------------------ ----------------------
Outstanding at December 31, 1994 1,794,500 $4.188 - $ 21.25
Exercised (25,000) $6.00 - $ 6.125
------------------------ ----------------------
Outstanding at September 30, 1995 1,769,500 $4.188 - $ 21.25
======================== ======================
</TABLE>
At September 30, 1995, options to purchase 1,122,800 shares of common stock had
vested under the Option Plan.
NOTE 6 - NET CAPITAL
As a broker-dealer, Pioneer Funds Distributor, Inc. ("PFD"), is subject to the
Securities and Exchange Commission's regulations and operating guidelines
which, among other things, require PFD to maintain a specified amount of net
capital, as defined, and a ratio of aggregate indebtedness to net capital, as
defined, not exceeding 15 to 1. Net capital and the related ratio of aggregate
indebtedness to net capital may fluctuate on a daily basis. PFD's net capital,
as computed under Rule 15c3-1, was $2,202,257 at September 30, 1995, which
exceeded required net capital of $741,715 by $1,460,542. The ratio of
aggregate indebtedness to net capital at September 30, 1995, was 5.05 to 1.
PFD is exempt from the reserve requirements of Rule 15c3-3, since its
broker-dealer transactions are limited to the purchase, sale and redemption of
redeemable securities of registered investment companies. All customer funds
are promptly transmitted and all securities received in connection with
activities as a broker-dealer are promptly delivered. PFD does not otherwise
hold funds or securities for, or owe money or securities to, customers.
NOTE 7 - BENEFIT PLANS
The Company and its subsidiaries have two defined contribution benefit plans
for eligible employees: a retirement benefit plan and a savings and investment
plan qualified under section 401(k) of the Internal Revenue Code of 1986. The
Company makes contributions to a trustee, on behalf of eligible employees, to
fund both the retirement benefit and the savings and investment plans. The
Company's expenses under these plans were $1,610,000 for the nine months ended
September 30, 1995, and $1,339,000 for the nine
<PAGE> 9
months ended September 30, 1994.
Both of the Company's qualified plans described above cover all full-time
employees who have met certain age and length of service requirements.
Regarding the retirement benefit plan, the Company contributes an amount which
would purchase a certain targeted monthly pension benefit at the participant's
normal retirement date. In connection with the savings and investment plan,
participants can voluntarily contribute up to 8% of their compensation to the
plan, and the Company will match this contribution up to 2%.
NOTE 8 - RELATED PARTY TRANSACTIONS
Certain officers and/or directors of the Company and its subsidiaries are
officers and/or trustees of the Pioneer mutual funds. Investment management
fees earned from the mutual funds were approximately $46,479,000 for the nine
months ended September 30, 1995, and $46,939,000 for the nine months ended
September 30, 1994. Underwriting commissions and other fees earned from the
sale of mutual funds shares were approximately $6,132,000 for the nine months
ended September 30, 1995, and $11,352,000 for the nine months ended September
30, 1994, respectively. Shareholder services fees earned from the mutual funds
were approximately $16,708,000 for the nine months ended September 30, 1995,
and $14,743,000 for the nine months ended September 30, 1994.
Within the Pioneer mutual funds, revenues from Pioneer II were approximately
$23,941,000 for the nine months ended September 30, 1995, and $23,538,000 for
the nine months ended September 30, 1994. Revenues from Pioneer Fund were
$12,110,000 for the nine months ended September 30, 1995, and $11,502,000 for
the nine months ended September 30, 1994.
Certain partners of Hale and Dorr, the Company's legal counsel, are officers
and/or directors of the Company and its subsidiaries. Amounts paid to Hale and
Dorr for legal services were $1,940,000 for the nine months ended September 30,
1995, and $1,086,000 for the nine months ended September 30, 1994.
At December 31, 1994, the Company had a receivable from an officer in the
amount of $109,000. This receivable was fully paid in the second quarter of
1995.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Rental expense was $3,265,000 for the nine months ended September 30, 1995, and
$2,409,000 for the nine months ended September 30, 1994. Future minimum
payments amount to approximately $735,000 for the last three months of 1995,
$3,051,000 in 1996, $3,129,000 in 1997, $3,220,000 in 1998, $3,342,000 in 1999,
$3,197,000 in 2000 and $5,393,000 thereafter. These future minimum payments
include estimated annual operating expenses of approximately $334,000 in the
last three months of 1995, and $1,330,000 thereafter.
In September 1993, TGL executed a commitment letter with the Overseas Private
Investment Corporation ("OPIC") pursuant to which OPIC will provide loan
guarantees for up to $5.0 million. The commitment terminates in December 1995
and carries commitment fees of 0.5% per year on the undisbursed and uncanceled
amount of the guarantee commitment. At September 30, 1995, the full amount of
the guarantee commitment remained undisbursed.
<PAGE> 10
The Company is contingently liable to the Investment Company Institute Mutual
Insurance Company for unanticipated expenses or losses in an amount not to
exceed $500,000. Two thirds of this amount is secured by an irrevocable
standby letter of credit with a bank.
NOTE 10- NOTES PAYABLE
<TABLE>
Notes payable of the Company consists of the following:
<CAPTION>
September 30, December 31,
1995 1994
---- ----
<S> <C> <C>
(Dollars in Thousands)
Line of Credit................................................. $ 36,000 $ 10,000
Preferred option financing for acquisition of
management company of Russian Voucher Fund,
principal payable in three annual installments of
$2,000,000 through 1998, interest payable at 5% ............... 6,000 ---
Small Business Administration ("SBA")
financing, notes payable to a bank,
interest payable semi-annually at
rates ranging from 6.12% to 9.8%,
due in 1998 through 2003....................................... 4,950 4,950
Note payable to a bank guaranteed by the Swedish
Exports Credits Guarantee Board, principal payable in
nine semi-annual installments of $812,000 through
March 31, 1997, interest payable at 5.77%, secured by
equipment...................................................... 2,435 4,059
Notes payable to a bank, guaranteed by the Overseas
Private Investment Corporation ("OPIC")........................ -0- 1,544
Notes payable to a bank, guaranteed by the
Company, principal payable in semi-annual
installments, of $214,000 through November 30, 1999,
no interest payable, secured by equipment...................... 1,931 2,145
-------- --------
51,316 22,698
Less: Current portion......................................... (38,053) (13,597)
-------- --------
$ 13,263 $ 9,101
======== ========
</TABLE>
In December 1991, OPIC certified that all conditions of a Project Completion
Agreement had been satisfied pursuant to which the Company would no longer be
required to guarantee TGL's loan guaranteed by OPIC. Among the conditions was
the establishment of an escrow account covering nine months of all third party
debt service payments. OPIC waived the condition of the Project Completion
Agreement at December 31, 1994, which had previously required that TGL maintain
the escrow account balance. The balance of such escrow account was $1.8
million at September 30, 1994.
<PAGE> 11
In 1994, TGL prepaid a note payable to a supplier and a note payable to a bank
with a remaining principal balance of approximately $761,000.
Maturities of notes payable at September 30, 1995 for each of the next five
years and thereafter are as follows (dollars in thousands):
<TABLE>
<S> <C>
1995 $38,053
1996 3,241
1997 2,429
1998 3,629
1999 214
Thereafter 3,750
-------
$51,316
=======
</TABLE>
On February 28, 1995, the Company entered into an agreement with a commercial
bank providing for a $30 million unsecured line of credit. Advances under the
line bear interest at the Company's option at the higher of the bank's base
lending rate or the federal funds rate plus 0.50%, the London Interbank Offered
Rate plus 1.10% or at a money market rate set by the bank. The Company is
required to pay additional interest to the bank at the rate of 0.25% per year
of the unused portion of the line. The line expires February 27, 1996. On
October 20, 1995, the Company entered into a second agreement with the
commercial bank providing for an additional $15 million unsecured line of
credit with substantially the same terms as the first agreement. This
additional facility also expires on February 27, 1996. At September 30, 1995,
the Company had $36,000,000 outstanding on the lines.
NOTE 11 - MAJOR CUSTOMERS AND EXPORT SALES
During the nine months ended September 30, 1995, gold sales aggregated $65.7
million. During this period, gold shipments from TGL in Ghana to two
unaffiliated European refiners accounted for $37.1 million and $28.6 million of
total gold sales, respectively, representing 100% of such total gold sales.
During the nine months ended September 30, 1994, gold sales aggregated $47.7
million. During this period, gold shipments from TGL in Ghana to two
unaffiliated European refiners accounted for $31.8 million and $15.9 million of
total gold sales, respectively, representing 100% of such total gold sales.
NOTE 12 - ACQUISITION OF MUTUAL OF OMAHA FUND MANAGEMENT
COMPANY
On December 1, 1993, the Company completed its acquisition of Mutual of Omaha
Fund Management Company ("FMC"). The Company financed this acquisition through
working capital in the amount of $23,500,000. The Company also incurred
additional costs associated with the acquisition in the amount of $1,854,000.
The Company has allocated cost in excess of net assets acquired in the amount
of $25,343,000, as set forth below. This cost is being amortized on a
straight-line basis beginning December 1, 1993, over the following periods:
<PAGE> 12
<TABLE>
<CAPTION>
Amount at Estimated
September 30, 1995 Useful Life
------------------ -----------
(Dollars in Thousands)
<S> <C> <C>
Goodwill $21,843 15 years
Non-compete agreement 3,300 5 years
Consulting 200 7 months
-------
$25,343
Less: accumulated amortization 4,045
-------
Cost of acquisition in excess of
net assets, net $21,298
=======
</TABLE>
The Company also agreed to pay up to an additional $3 million in three years if
certain conditions, as defined in the purchase agreement, are met.
NOTE 13 - DEALER ADVANCES
During 1994, certain of the Pioneer Family of Mutual Funds introduced a
multi-class share structure, whereby the participant funds offer both the
traditional front-end load shares and back-end load shares (B-shares).
B-shares do not require the investor to pay any sales charge unless there is a
redemption before the expiration of the minimum holding period which ranges
from three to six years. However, the Company pays upfront sales commissions
(dealer advances) to broker-dealers ranging from 2% to 4%. The Company
capitalizes and amortizes dealer advances for book purposes over periods which
range from three to six years depending on the participating fund. The Company
deducts the dealer advances in full for tax purposes in the year such advances
are paid. In the first nine months of 1995, the Company paid dealer advances
in the amount of $9.9 million. Dealer advances, net of amortization, were
$13.0 million at September 30, 1995.
NOTE 14 - FINANCIAL INFORMATION BY BUSINESS SEGMENT
Total revenues and income (loss) by business segment, excluding intersegment
transactions, were as follows:
<PAGE> 13
<TABLE>
NOTE 14 - FINANCIAL INFORMATION
BY BUSINESS SEGMENT
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<CAPTION>
MUTUAL FUND
INVESTMENT UNDERWRITING VENTURE CAPITAL SHAREHOLDER
MANAGEMENT AND OTHER INVESTMENTS SERVICES
---------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NINE MONTHS
ENDED 9/30/95 9/30/94 9/30/95 9/30/94 9/30/95 9/30/94 9/30/95 9/30/94
------- ------- ------- ------- ------- ------- ------- -------
REVENUES &
OTHER INCOME $49,431 $48,803 $10,895 $15,921 $680 $421 $16,759 $14,798
======= ======= ======= ======= ======= ======= ======= =======
INCOME (LOSS)
BEFORE INCOME (1) (1) (2) (2) (3) (3)
TAXES $32,008 $33,915 ($19,023) ($11,933) $ 3,093 ($934) $1,437 $2,545
======= ======= ======= ======= ======= ======= ======= =======
DEPRECIATION &
AMORTIZATION $1,006 $661 $4,100 $2,507 $81 $64 $1,251 $651
======= ======= ======= ======= ======= ======= ======= =======
CAPITAL
EXPENDITURES $9,871 $113 $2,638 $1,472 $55 $7 $2,470 $1,959
======= ======= ======= ======= ======= ======= ======= =======
IDENTIFIABLE
ASSETS AT
QUARTER END $72,265 $40,362 $53,762 $44,628 $32,555 $26,116 $7,532 $7,710
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
[CAPTION]
<TABLE>
GOLD MINING OTHER CONSOLIDATED
----------- ----- ------------
<S> <C> <C> <C> <C> <C> <C>
NINE MONTHS
ENDED 9/30/95 9/30/94 9/30/95 9/30/94 9/30/95 9/30/94
------- ------- ------- ------- -------- --------
REVENUES &
OTHER INCOME $65,707 $47,744 $0 $0 $143,472 $127,687
======= ======= ======= ======= ======== ========
INCOME (LOSS)
BEFORE INCOME (4) (4) (5) (5)
TAXES $16,058 $15,058 ($549) ($898) $33,024 $37,753
======= ======= ======= ======= ======== ========
DEPRECIATION &
AMORTIZATION $11,644 $9,487 $0 $0 $18,082 $13,370
======= ======= ======= ======= ======== ========
CAPITAL
EXPENDITURES $10,372 $7,587 $6,134 $530 $31,540 $11,668
======= ======= ======= ======= ======== ========
IDENTIFIABLE
ASSETS AT
QUARTER END $77,923 $69,455 $30,895 $13,003 $274,932 $201,274
======= ======= ======= ======= ======== ========
<FN>
(1) Net of minority interest of approximately $777,000 for the nine months ended September 30, 1995
and $0 for the nine months ended September 30, 1994.
(2) Net of interest expense related to third parties of approximately $20,000 for the nine months ended September 30, 1995 and
$0 for the nine months ended September 30, 1994.
(3) Net of minority interest and interest expense related to third parties of approximately ($37,000) and $301,000 respectively,
for the nine months ended September 30, 1995, and ($11,000) and $300,000 for the nine months ended September 30, 1994.
(4) Net of minority interest and interest expense related to third parties of approximately $1,181,000 and $236,000 for the nine
months ended September 30, 1995 and $1,622,000 and $386,000 for the nine months ended September 30, 1994.
(5) Net of interest expense related to third parties of approximately $0 and expense related to the Company of $0 for the nine
months ended September 30, 1995 and $0 and $744,000 for the nine months ended September 30, 1994.
</TABLE>
<PAGE> 14
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SUMMARY OF OPERATIONS
The Pioneer Group, Inc. (the "Company") reported third quarter 1995 earnings of
25 cents per share, a decrease of 8 cents per share compared to earnings in the
third quarter of 1994. Current year third quarter results included decreased
earnings from worldwide investment management businesses of 1 cent per share.
The Company's new Russian investment management operations, however, contributed
4 cents per share to third quarter 1995 earnings of the worldwide investment
management businesses. The Company's gold mining operations, which consist of
its indirect wholly-owned subsidiary, Pioneer Goldfields Limited ("PGL"), and
PGL's 90% owned subsidiary, Teberebie Goldfields Limited ("TGL"), earned 9
cents per share less in the third quarter of 1995 than in the third quarter of
1994. Earnings per share have been adjusted to reflect the 2-for-1 stock split
effected by the payment of a 100% stock dividend in December 1994.
For the nine months ended September 30, 1995, earnings were 77 cents per share,
30 cents lower than earnings during the comparable 1994 period. Earnings for the
first nine months of 1994 included a favorable one-time deferred income tax rate
adjustment of 16 cents per share relating to the Company's gold mining
operations. During the first nine months of 1995, higher earnings from venture
capital operations of 8 cents per share and higher earnings from gold mining
operations of 1 cent per share (exclusive of the one-time deferred income tax
rate adjustment) only partially offset a 24 cents per share decline in earnings
from worldwide investment management businesses. Almost all of this decline
related to a 23 cents per share decrease in earnings from the Company's Polish
operations.
FINANCIAL SERVICES BUSINESSES
REVENUES. Revenues from the financial services businesses of $28.9 million in
the third quarter of 1995 were $3.8 million higher than revenues in the
comparable 1994 period, $2.4 million of which resulted from revenues from the
Company's new Russian investment management operations. Revenues of $77.8
million for the nine months ended September 30, 1995, were $2.2 million lower
than revenues in the comparable 1994 period, as significantly lower Polish
mutual fund sales resulted in lower underwriting commissions.
Management fees of $16.8 million in the third quarter of 1995 were $0.3 million,
or 2%, higher than management fees in the third quarter of 1994. The $2.3
million increase in management fees earned from the U.S. registered mutual
funds was offset by an equal decrease in management fees earned from the
Company's two Polish mutual funds. Assets in the Company's Polish equity mutual
fund decreased to approximately $300 million at the end of the third quarter.
The Company also introduced a new fixed income Polish mutual fund in the second
quarter of 1995. The Company earned $0.3 million in management fees in the third
quarter of 1995 from its U.S. and Polish venture capital funds.
<PAGE> 15
For the nine months ended September 30, 1995, management fees of $47.2
million were $1.2 million, or 2%, lower than management fees in the comparable
1994 period. The $3.9 million increase in management fees earned from the U.S.
registered mutual funds was more than offset by a $5.9 million decrease in
management fees earned from the Company's Polish mutual funds. Assets under
management of $13.3 billion at September 30, 1995, increased by $2.2 billion
since the beginning of the year. The increase was principally attributable to
strong stock market performance. During the first nine months of 1995, the
Company earned $0.8 million in management fees from its U.S. and Polish venture
capital funds.
Underwriting commissions and other fees of $2.5 million in the third quarter of
1995 were $0.9 million higher than underwriting commissions and other fees in
the third quarter of 1994. Almost three quarters of this increase was derived
from higher asset based sales charges resulting from significant increases in
the assets of the Company's back-end load funds. The Company's U.S. registered
mutual fund sales (including reinvested dividends) of $409 million in the third
quarter of 1995 were 25% higher than sales during the prior year's comparable
period, while redemptions of $268 million increased by 26%. The Company had net
sales of $141 million in the third quarter of 1995 compared to $114 million in
the third quarter of 1994.
For the first nine months of 1995, underwriting commissions and other fees of
$6.1 million were $5.2 million lower than underwriting commissions and other
fees in the same period in 1994 as a result of significantly lower sales of the
Company's Polish equity mutual fund. Sales of units of the Polish mutual funds
were $17 million in the first nine months of 1995 and redemptions were $346
million as compared to sales of $724 million in the first nine months of 1994
and redemptions of $352 million. U.S. registered mutual fund sales of $1.2
billion in the nine months ended September 30, 1995 were 8% higher than sales
during the comparable period in the prior year, while redemptions of $786
million increased by 19%. The Company had net sales of $404 million in the nine
months ended September 30, 1995, compared to $444 million in the nine months
ended September 30, 1994.
Shareholder services fees of $5.6 million and $16.7 million for the third
quarter of 1995 and the nine months ended September 30, 1995, respectively,
increased by $0.6 million and $2.0 million, respectively, over the comparable
1994 periods as a result of an increase in the number of shareholder accounts
and a fee increase effective January 1, 1995.
All other income of $4.0 million and $7.7 million for the third quarter of 1995
and the nine months ended September 30, 1995, respectively, increased by $2.0
million and $2.3 million, respectively, over the comparable 1994 periods
principally from interest and dividend income from the Company's new Russian
investment management operations.
COSTS AND EXPENSES. Worldwide financial services businesses costs and expenses
of $24.1 million and $66.8 million for the third quarter of 1995 and the nine
months ended September 30, 1995, respectively, increased by $4.8 million and
$10.3 million, respectively, over the comparable 1994 periods. Virtually all of
the increase resulted from higher payroll costs related to increased staffing in
the investment management, marketing
<PAGE> 16
and shareholder servicing groups, higher costs related to additional office
space, higher costs related to mutual fund distribution (including printing
and mailing of sales literature, paying commissions earned by the sales force
and mutual fund advertising and public relations), higher expenses from the
amortization of dealer advances and the costs associated with the Company's new
Russian investment management operations.
OTHER INCOME AND EXPENSE. The Company reported net venture capital investment
portfolio gains (excluding operating expenses) of $0.7 million and $4.9 million
for the third quarter of 1995 and the nine months ended September 30, 1995,
respectively, compared to net gains of $0.1 million and $0.6 million for the
comparable 1994 periods. These gains were all generated from investments in the
Company's U.S. venture capital portfolios. The Company's investments in its
own mutual funds during their startup phase contributed net gains of $0.1
million and $0.6 million, respectively, for the third quarter and nine months
ended September 30, 1995, respectively, compared to net gains of $0.2 million
and net losses of $0.5 million, respectively, during the same periods in 1994.
The Company had realized gains of $1.7 million from investments held by the
First Voucher Fund, the Russian investment fund in which the Company has a 51%
interest.
TAXES. The Company's effective tax rate for the financial services businesses of
45% for the first nine months of 1995 was slightly higher (1%) than the rate for
the comparable 1994 period, resulting principally from the non-deductible
minority interest expense associated with the Company's new Russian investment
management operations.
GOLD MINING OPERATIONS
EARNINGS. Earnings for the gold mining operations of 11 cents per share in the
third quarter of 1995 were 9 cents per share less than earnings in the third
quarter of 1994. In 1994, gold mining operations benefited from a reduction
in the Ghanaian income tax rate levied on mining companies from 45% to 35%
which contributed, in part, to earnings of 55 cents per share in the first
nine months of 1994. Excluding a related 16 cents per share reduction in
deferred taxes recorded in prior years, earnings of 40 cents per share for the
nine months ended September 30, 1995 were 1 cent per share over the
corresponding nine month period in 1994.
REVENUES. Revenues increased by 11% from the third quarter of 1994 to $22.4
million as gold sales increased by 12% to 58,500 ounces while the average
realized price of gold decreased by 1% to $383 per ounce. Revenues increased by
38% to $65.7 million over the nine months ended September 30, 1994 as gold sales
increased by 38% to 171,800 ounces while the average realized price of gold was
essentially flat at $382 per ounce.
COSTS AND EXPENSES. Based on TGL's estimated production of 235,000 ounces for
the year ending December 31, 1995, cash costs are estimated at approximately
$200 per ounce for 1995. The following table compares the cash and total cost
per ounce for the three and nine months ended September 30, 1995 with the
corresponding periods in 1994:
<PAGE> 17
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash Costs:
Production Costs $168 $106 $161 $113
Royalties 12 15 11 15
---- ---- ---- ----
180 121 172 128
General and administrative 29 25 28 32
---- ---- ---- ----
CASH COST PER OUNCE 209 146 200 160
Non Cash Costs:
Depreciation and Amortization 70 70 68 76
Other 6 2 5 2
---- ---- ---- ----
COST OF PRODUCTION PER OUNCE 285 218 273 238
Interest and other costs 10 12 9 13
---- ---- ---- ----
TOTAL COST PER OUNCE $295 $230 $282 $251
==== ==== ==== ====
</TABLE>
Production costs represent costs attributable to mining ore and waste and
processing the ore through crushing, leaching, and processing facilities. These
costs increased by $62 per ounce and $48 per ounce compared with the respective
three and nine months ended September 30, 1994 principally because of higher
stripping ratios and the mining and processing of lower grade ore. Material
hauled increased during the three and nine months ended September 30, 1995 by
88% and 106%, respectively, and ore processed increased by 33% and 62%,
respectively, over the corresponding periods in 1994. The production cost per
ounce was also affected adversely by the normal time lag inherent in developing
new heap leach pads at TGL's West Plant and salary increases associated with
the June 30, 1995 collective bargaining agreement. TGL also experienced cost
increases in several mining and processing categories, including salaries and
benefits, drilling and blasting costs, fuel, cement, equipment maintenance, and
crushing costs.
Royalty payments are linked to operating profits and tax depreciation and were
estimated at 4% of revenue during the nine months ended September 30, 1994.
Actual royalty payments were 3% of revenue in 1994 and are estimated at 3% of
revenue for 1995. The decrease in the royalty estimate had the effect of
decreasing the cost per ounce during the three and nine months ended September
30, 1995 by $3 and $4 per ounce, respectively.
General and administrative costs consist principally of administrative salaries
and related benefits, travel expenses, insurance, utilities, legal costs,
employee meals, rents and vehicle expenditures. Since these costs are relatively
fixed and unrelated to production levels, the cost per ounce decrease for the
nine months ended September 30, 1995 compared with the corresponding 1994 period
was attributable to higher production levels. During the third quarter of 1995,
however, increases in salaries and benefits associated with the June 30, 1995
collective bargaining agreement, commercial insurance premiums, and customs
duties and clearing costs contributed to a $4 increase in the cost per ounce
over the third quarter of 1994.
<PAGE> 18
Depreciation and amortization is calculated using units of production and
straight-line methods designed to fully depreciate property, plant and equipment
over the lesser of their estimated useful lives or ten years. Development cost
amortization for the nine months ended September 30, 1995 decreased by $8 per
ounce compared with the corresponding 1994 period principally because
incremental development costs for the West Plant expansion were significantly
lower than the East Plant resulting in lower overall amortization. Development
costs are amortized by plant over 950,000 ounces.
Other costs increased during the three and nine months ended September 30, 1995
by $4 per and $3 per ounce, respectively, compared with the corresponding
periods in 1994 principally because of increases in core drilling costs.
Interest expense and other costs decreased by $2 per ounce and $4 per ounce
during the third quarter of 1995 and the nine months ended September 30, 1995,
respectively, compared with the same periods in 1994 principally because of
decreases in interest expense and premiums for a gold price floor program. This
decrease was partially offset by increases in foreign exchange losses. In
addition to interest expense, political risk insurance premiums, goodwill
amortization, foreign exchange gains and losses, and premiums for a gold price
floor program are included in this category.
TAXES. Exclusive of the $4.4 million first quarter 1994 adjustment to deferred
taxes recorded in prior years, accrued income taxes for the first nine months of
1995 and 1994 were $6.0 million and $5.4 million, respectively. During these
periods, the effective tax rates were 37% and 36%, respectively, slightly above
the statutory rate of 35% because of non-deductible expenses such as minority
interest and goodwill amortization.
PRODUCTION. TGL's production target for 1995 has decreased by 30,000 ounces to
approximately 235,000 ounces primarily because the mine has experienced higher
grade dilution from waste material, decreasing the grade of ore processed by the
crusher, and lower recoveries at the West Plant associated with the normal time
lag in gold processing inherent in developing new heap leach pads. In addition,
it has taken more time to locate and train equipment operators and mine
supervisors than was originally anticipated. TGL produced 176,400 ounces in
1994.
LIQUIDITY AND CAPITAL RESOURCES
FINANCIAL SERVICES BUSINESSES
Internal Revenue Service regulations require that, in order to serve as trustee,
the Company must maintain a net worth of at least 2% of the assets of Individual
Retirement Accounts and other qualified retirement plans accounts at year end.
At September 30, 1995, the Company served as trustee for $4.3 billion of
qualified plan assets and the ratio of net worth to qualified assets was 3.5%.
The Company's stockholders' equity of $147.7 million at September 30, 1995,
would permit it to serve as trustee for up to an additional $3.1 billion of
qualified plan assets.
The Company completed the acquisition of Mutual of Omaha Fund Management Company
("FMC") on December 1, 1993. If certain asset targets are reached, the
<PAGE> 19
Company would be obligated to pay up to $3 million of additional consideration
to FMC's former owner in 1996.
For certain funds in the Pioneer Family of Mutual Funds, the Company has
introduced a multi-class share structure. Under the multi-class share structure,
which was first introduced in April 1994, the participating funds offer both
traditional front-end load shares and back-end load shares. On back-end load
shares, the investor does not pay any sales charge unless there is a redemption
before the expiration of the minimum holding period which ranges from three to
six years. The Company, however, pays "up front" commissions to broker-dealers
related to sales and service of the back-end load shares ranging from 2% to 4%
of the sales transaction amount. The participating funds pay the Company
distribution fees of 0.75%, and service fees of 0.25%, per annum of their
respective net assets, subject to annual renewal by the trustees of the funds.
Sales of back-end load shares were $280 million in the first nine months of 1995
and new dealer advances totaled $9.9 million. Dealer advances, net of
amortization, were $13.0 million at September 30, 1995. The Company intends to
finance this program through working capital and the line of credit described
below.
In April 1995, the Company acquired approximately 51% of the shares of First
Voucher Fund (the "Voucher Fund"), one of the largest investment funds
established in Russia in connection with that country's privatization program.
The shares were issued by the Voucher Fund to two newly-formed subsidiaries of
Pioneer Omega, Inc. ("Pioneer Omega"), a Delaware corporation in which the
Company holds an approximate 70% direct interest. In addition to acquiring
shares in the Voucher Fund, Pioneer Omega, acting through its subsidiary Pioneer
First Russia, Inc. ("PFR"), acquired a Russian company that holds rights to
manage the Voucher Fund's investments under a management agreement. Through its
ownership of controlling interests in the Voucher Fund and the management
company, Pioneer Omega will also effectively acquire the rights to carry out
share distribution, investment and brokerage activities under the Voucher Fund
umbrella. Pioneer Omega paid $2.0 million in cash and issued shares (the "Omega
shares") valued at $6 million as consideration for the acquisition of the
management company and related rights. The Omega shares represent the
approximate 30% of the shares of Pioneer Omega not currently owned by the
Company. The holder of the Omega shares has the right to cause the Company to
purchase such shares (the "put option") and the Company has a corresponding
right to purchase such shares from the holder (the "call option"). The put and
call options are each exercisable with respect to one-third of the Omega shares
on the first, second and third anniversaries of the closing of the transaction.
The put and call option exercise price is $2 million per tranche, plus a 5% per
annum premium on the option exercise price. If the put and/or call option is
exercised in full, the Company will pay a total of $6.6 million for the Omega
shares over a three-year period.
GOLD MINING OPERATIONS
TGL's cash balances decreased by $3.0 million to $0.5 million during the nine
months ended September 30, 1995. Cash generated from operating activities
aggregated
<PAGE> 20
$14.9 million while capital expenditures and loan principal payments were $11.0
million and $3.4 million, respectively. TGL declared and paid its first dividend
of $3.5 million during the first quarter of 1995 and generated sufficient
operating cash flow to fund all of its scheduled third party debt service
payments and short-term cash commitments.
At the end of the third quarter of 1995, direct investment in TGL aggregated
$6.3 million, comprised of $4.4 million of third party debt and $1.9 million of
direct equity investment by the Company. Of such third party debt, $1.9 million
was guaranteed by the Company. Scheduled third party debt service for the
remainder of 1995 is expected to aggregate $0.2 million, all of which is
expected to be funded from mining operations revenues.
In August 1995, TGL received an additional certification from an independent
technical consultant regarding the Teberebie mine's gold reserves. Proven and
probable reserves were established based on mapping, sampling, drilling,
assaying, and evaluation techniques typical of those that are generally employed
in the mining industry. At August 31, 1995, remaining in-situ proven and
probable reserves were approximately 9.2 million ounces, consisting of
approximately 8.2 million ounces of heap leach ("crushed") ore and 1.0 million
ounces of run-of-mine ("ROM") material. The minimum cut-off grade (based on a
gold price of $385 per ounce) for crushed ore and ROM material was approximately
0.765 and 0.25 grams per tonne, respectively. Reported gold reserves and the
distinction between crushed ore and ROM material differ from those previously
reported because the previously reported gold reserves were based on an earlier
assessment by the technical consultant and on an earlier mine plan.
The following table shows certified proven and probable reserves at
August 31, 1995:
<TABLE>
<CAPTION>
Teberebie Mine
Proven and Probable In-Situ Mineable Reserves
August 31, 1995
Crushed ore
more than 0.765 g/t ROM ore more than 0.25
& less than 0.765 g/t
-------------------------- -----------------------------
000's Grade 000's Grade
tonnes g/t 000's oz tonnes g/t 000's oz
------ ----- -------- ------ ----- --------
<S> <C> <C> <C> <C> <C> <C>
MINEABLE RESERVES
Total Proven 151,559 1.46 7,132 52,535 0.54 917
Total Probable 22,740 1.41 1,030 8,625 0.56 154
- -----------------------------------------------------------------------------------------
TOTAL RESERVES 174,299 1.46 8,162 61,160 0.54 1,071
- -----------------------------------------------------------------------------------------
</TABLE>
TBL is continuing its development drilling program to further increase proven
and probable reserves and to gain additional information for future mine
planing.
<PAGE> 21
The Company maintains $67.1 million of "political risk" insurance, principally
from the Overseas Private Investment Corporation ("OPIC"), covering 90% of its
equity and loan guarantees. The political risk insurance contract also covers
90% of the Company's proportionate share of cumulative retained earnings and
provides up to $11.1 million in stand-by insurance, subject to semiannual
coverage elections, to cover increases in retained earnings. TGL maintained a
gold price floor program to limit its exposure to a decline in market prices to
$310 per ounce. TGL also secured business interruption insurance coverage of
up to $19.0 million for losses associated with machinery breakdown and property
damage and continuing infrastructure and interest costs.
On July 26, 1995, the Company's Board of Directors approved a mine expansion
plan for TGL pursuant to which TGL would seek to increase gold production to a
rate of at least 400,000 ounces per annum in 1998. The Company will replicate
existing mining and processing technology while utilizing an in-pit gyratory
crusher. Capital expenditures in 1996 are estimated at approximately $65
million, including approximately $46 million related to the proposed expansion.
On September 29, 1995, TGL secured a conditional commitment from OPIC to provide
a loan guarantee for up to $54 million in connection with the expansion project.
On November 7, 1995, the Company reported that it had decided to postpone the
proposed global offering of shares (the "Shares") (and global depository
securities representing such Shares) of PGL pursuant to which the Company had
intended to sell 14,812,500 Shares of PGL, or approximately 20% of its interest
in PGL.
OTHER NATURAL RESOURCE BUSINESS
The Company's Russian venture, Forest Starma, in which the Company has a 63%
direct interest (recently increased from 55%) and a 3% indirect interest is
pursuing the development of timber production under two long-term leases
comprising 88,800 hectares (approximately 219,500 acres) in the aggregate with
annual cutting rights of 210,000 cubic meters awarded to the venture in the
Khabarovsk Territory of Russia. Forest Starma has developed a site, including a
jetty, from which it exports timber primarily to the Japanese market. Timber
production commenced in the first quarter of 1995 and the first three shipments
totaling approximately 10,000 cubic meters occurred in the third quarter of
1995. Forest Starma has reduced its estimated 1995 timber shipments from
approximately 70,000 cubic meters to approximately 25,000 cubic meters
principally as a result of delays in production.
Capital required by this venture is now projected at approximately $26.0 million
(net of an assumed Value Added Tax ("VAT") recovery on imports) of which $9.3
million would be financed pursuant to a conditional loan commitment already in
place. The loan, which initially would be guaranteed by the Company, would cease
to be guaranteed when the project meets certain production and cash flows tests.
The Company expects to provide financing of $16.7 million in the form of equity
and subordinated debt. Investments by the Company in the venture totaled $25.3
million (net of an assumed VAT recovery on
<PAGE> 22
imports) at September 30, 1995, some of which is considered bridge financing by
the Company.
The Company has secured OPIC political risk insurance in amount of up to $47
million which would protect 90% of the Company's equity investment and loans
and a proportionate share of cumulative retained earnings. The Company is
engaged in two additional ventures in the Khabarovsk Territory of Russia each
of which is independently negotiating a lease in a large tract of forest land.
The Company has a majority interest in each of these ventures.
GENERAL
The Company's liquid assets consisting of cash and marketable securities
(exclusive of gold mining operations) increased by $7.1 million in the first
nine months of 1995 to $33.7 million, principally as the result of the financing
of the First Investment Voucher Fund acquisition.
On February 28, 1995, the Company entered into an agreement with a commercial
bank providing for a $30 million unsecured line of credit. Advances under the
line bear interest, at the Company's option, at (a) the higher of the bank's
base lending rate or the federal funds rate plus 0.50%, (b) the London Interbank
Offered Rate plus 1.10%, or (c) at a money market rate set by the bank. The
line, which expires on February 27, 1996, provides that the Company must pay
additional interest to the bank at the rate of 0.25% per annum of the unused
portion of the line. On October 20, 1995, the Company entered into a second
agreement with the commercial bank providing for a $15 million unsecured line of
credit with substantially the same terms as the first agreement including
applicable interest rates and expiration date. At October 31, 1995, the Company
had $39 million outstanding under the lines.
THE COMPANY BELIEVES THAT IT IS IN SOUND FINANCIAL CONDITION, THAT IT HAS
SUFFICIENT LIQUIDITY FROM OPERATIONS AND FINANCING FACILITIES TO COVER
SHORT-TERM COMMITMENTS AND CONTINGENCIES AND THAT IT HAS ADEQUATE CAPITAL
RESOURCES TO PROVIDE FOR LONG-TERM COMMITMENTS.
<PAGE> 23
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits.
10.1 Contract of Insurance Against Inconvertibility,
Expropriation, and Political Violence dated
September 29, 1995 between the Overseas Private
Investment Corporation ("OPIC") and the Company.
10.2 Commitment letter dated September 29, 1995 between
OPIC, the Company and Teberebie Goldfields Limited.
10.3 Letter Agreement dated October 20, 1995 between
the Company and the First National Bank of Boston.
11 Computation of earnings per share.
27 Financial Data Schedule.
(b) Reports filed on Form 8-K. During the fiscal quarter ended
September 30, 1995, the Company filed a Current Report on Form
8-K, dated August 3, 1995, reporting that it has engaged an
international securities house to underwrite the sale, in a
global offering, of a minority interest in Pioneer Goldfields
Limited, currently a wholly-owned subsidiary of the Company.
SIGNATURES
----------
It is the opinion of management that the financial information contained in
this report reflects all adjustments necessary to a fair statement of results
for the period report, but such results are not necessarily indicative of
results to be expected for the year due to the effect that stock market
fluctuations may have on assets under management. All accounting policies have
been applied consistently with those of prior periods. Such financial
information is subject to year-end adjustments and annual audit by independent
public accountants.
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.
THE PIONEER GROUP, INC.
/s/ William H. Keough
William H. Keough
Senior Vice President
Chief Financial Officer
and Treasurer
<PAGE> 24
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
10.1 Contract of Insurance Against Inconvertibility,
Expropriation, and Political Violence dated
September 29, 1995 between the Overseas Private
Investment Corporation ("OPIC") and the Company.
10.2 Commitment letter dated September 29, 1995 between
OPIC, the Company and Teberebie Goldfields Limited.
10.3 Letter Agreement dated October 20, 1995 between
the Company and the First National Bank of Boston.
11 Computation of earnings per share.
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.1
Form 234 KGT 12-85 (Second Revised) NS
OPIC Contract of Insurance No. E136
OVERSEAS PRIVATE INVESTMENT CORPORATION
CONTRACT OF INSURANCE
Against
Inconvertibility
Expropriation
Political Violence
as defined below,
between the Overseas Private Investment Corporation ("OPIC") and
The Pioneer Group, Inc.
60 State Street, 19th Floor
Boston, Massachusetts 02109-1975
a corporation organized and existing under the
laws of the State of Delaware
(the "Investor").
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Title Page
----- ----
<S> <C> <C>
Article I - Subject of Insurance and Exchange of Promises
1.01 Subject ............................................ I-1
1.02 Promises ........................................... I-2
1.03 Maximum Aggregate Compensation ..................... I-2
1.04 Full Faith and Credit .............................. I-3
1.05 Term ............................................... I-3
1.06 Premiums and Active Amount Elections ............... I-3
1.07 Administrative Fee ................................. I-3
Article II - Inconvertibility - Scope of Coverage*
2.01 Inconvertibility of Local Currency ................. II-1
2.02 Exclusions ......................................... II-1
Article III - Inconvertibility - Amount of Compensation*
3.01 Rate of Compensation for Inconvertibility ..........III-1
3.02 Limitation .........................................III-1
Article IV - Expropriation - Scope of Coverage*
4.01 Total Expropriation ................................ IV-1
4.02 Expropriation of Funds ............................. IV-1
4.03 Provocation Exclusion .............................. IV-1
Article V - Expropriation - Amount of Compensation*
5.01 Total Expropriation ................................ V-1
5.02 Expropriation of Funds ............................. V-1
5.03 Adjustments ........................................ V-1
5.04 Limitations ........................................ V-2
Article VI - Political Violence - Scope of Coverage*
6.01 Loss Due to Political Violence ..................... VI-1
6.02 Exclusions ......................................... VI-1
</TABLE>
______________
*This Table of Contents applies to all coverages offered by OPIC whether or not
all of those coverages are provided in this contract.
<PAGE> 3
Title Page
----- ----
Article VII - Political Violence - Amount of Compensation*
7.01 Basis of Compensation .............................. VII-1
7.02 Limitations ........................................ VII-1
7.03 Investor's Share ................................... VII-2
7.04 Book Value of Insured Investment ................... VII-2
7.05 Appraisal .......................................... VII-3
7.06 Estimated Compensation ............................. VII-3
Article VIII - Procedures
8.01 Application for Compensation .......................VIII-1
8.02 Assignment of OPIC .................................VIII-1
8.03 Security ...........................................VIII-2
8.04 Excess Salvage Value ...............................VIII-2
8.05 Arbitration ........................................VIII-2
8.06 Election of Active Amounts and Coverage Ceilings ...VIII-3
8.07 Termination ........................................VIII-3
8.08 Legal and Miscellaneous ............................VIII-3
8.09 Notices ............................................VIII-3
8.10 Refund of Premiums .................................VIII-3
Article IX - Investor's Duties
9.01 Duties ............................................. IX-1
9.02 Default ............................................ IX-3
9.03 Non-Waiver ......................................... IX-3
9.04 Cure ............................................... IX-3
Article X - Amendments ................................................. X-1
-ii-
<PAGE> 4
I-1
Article I - Subject of Insurance and Exchange of Promises.
1.01 Subject
1. Investment. The Investor promises that the Investor contributed
or will contribute up to $22,800,750 in United States dollars
consisting of
(a) $22,000,750 in United States dollars consisting of
(i) $750 in United States dollars in the form of an
equity investment; and
(ii) $22,000,000 in United States dollars in the form of
100 percent participation in a loan made or to be
made by State Street Bank and Trust Company
("State Street Bank")
to
Forest-Starma Joint Stock Company
ul. Koprovaya 4, Komsomolsk-on-Amur
Khabarovsk 681005, Russia
a joint stock company of the closed type organizaed under the
laws of Russia
(the "foreign enterprise")
and
(b) $800,000 in United States dollars
to Starma-Holding
ul. Koprovaya 4, Komsomolsk-on-Amur
Khabarovsk 681005, Russia
for which the Investor has acquired or will acquire up to
(c) 750 shares of common stock for the investment identified in
paragraph (a)(i) above, representing 50 percent equity interest
in the foreign enterprise; and
(d) 100 percent participation interest in a loan made by State
Street Bank to Forest-Starma under the terms of the Master
Short-Term Credit Agreement dated June 9, 1995, as evidenced by
the participation certificates purchased by the Investor from
State Street Bank pursuant to the Participation Agreement
between the Investor and State Street Bank dated June 9, 1995,
for the investment identified in paragraph (a)(ii) above; and
<PAGE> 5
I-2
(e) 195 shares of common stock for the investment identified in
paragraph (b) above, representing 13 percent equity interest in
the foreign enterprise
(together, the "investment").
Ninety percent of each of these interests acquired by the Investor is insured
under this contract (the "insured investment").
2. Project. The investment will be applied to
timber harvesting, reforestation, and wood processing in
Khabarovsk Krai in Russia
(the "project").
3. "Foreign governing authority" means the governmental
authority(ies) in effective control in all or part of Russia. The term "foreign
governing authority" includes not only the federal government of the project
country and its agencies and instrumentalities exercising governmental (as
distinguished from commercial) functions but also subordinate levels of
government, local and municipal governments, and agencies and instrumentalities
through which they exercise such governmental functions. The term "foreign
governing authority" does not include any entity in which the foreign governing
authority has an ownership interest if the entity performs commercial functions
directly related to the project.
1.02 Promises.
OPIC promises that if acts occur during the term of this contract which
satisfy the requirements for coverage in Article II, IV or VI, OPIC will pay
the Investor the amount of compensation provided in Article III, V or VII, in
accordance with the procedures in Article VIII.
The Investor promises to comply with the duties in Article IX. If the
Investor violates any of those duties, the Investor may lose rights, including
the right to compensation.
Amendments to Articles I through IX may be contained in Article X.
1.03 Maximum Aggregate Compensation
OPIC will not pay compensation under this contract in an aggregate
amount that exceeds $47,000,000.
<PAGE> 6
I-3
1.04 Full Faith and Credit.
The full faith and credit of the United States of America is pledged to
secure the full payment by OPIC of its obligations under this contract.
1.05 Term
This contract shall enter into force on the date it has been signed by
OPIC and the Investor and shall terminate 20 years afterward unless terminated
earlier (Sec. 807; Sec. 9.02).
1.06 Premiums and Active Amount Elections.
The Investor shall elect amounts of coverage (Sec. 8.06) and pay
premiums on or before each annual anniversary of the effective date of the
contract.
The coverages and premiums for the first period shall be as follows:
<TABLE>
<CAPTION>
Inconvertibility Expropriation Political Violence
---------------- ------------- ------------------
<S> <C> <C> <C>
Coverage Ceiling $1,800,000 $47,000,000 $47,000,000
Active Amount $1,800,000 $16,400,000 $16,400,000
Premium Rate is x 0.40000% x 0.72000% x 0.63000%
---------- ----------- -----------
Total premium is: $ 7,200.00 +$118,080.00 +$103,320.00 = $228,600.00
-----------
</TABLE>
1.07 Administrative Fee. The Investor will pay an annual fee for contract
administration of 0.25% of the Investment amount (Sec. 1.01.1) on or before the
contract effective date and on or before each annual anniversary of the
contract effective date, but only if the administrative fee exceeds the premium
due for the contract for that period. If the administrative fee exceeds the
premium due for that period, the premium will be waived.
<PAGE> 7
II-1
Article II - Inconvertibility - Scope of Coverage.
2.01 Inconvertibility of Local Currency. Local currency shall be deemed
inconvertible and compensation shall be payable, subject to the exclusions
(section 2.02) and limitation (section 3.02), if neither the Investor nor the
foreign enterprise is able legally
(a) to convert earnings from or returns of the insured investment into
United States dollars through any channel during the 180 days
immediately prior to a claim to OPIC, except at an exchange rate that is
less favorable than the then-prevailing exchange rate described under
section 3.01.2, or
(b) to transfer such converted earnings to the United States during such
period.
2.02 Exclusions. No compensation for inconvertibility shall be payable if
(a) Pre-existing Restrictions.
(1) An investor in comparable circumstances would have been unable
legally (a) to convert local currency into United States dollars
on the date of this contract or (b) to transfer such dollars to
the United States on the date of this contract; and
(2) The Investor knew or should have known about the restriction;
or
(b) Investor Diligence. The Investor has not made all reasonable
efforts to convert the local currency into United States dollars or to
transfer such dollars to the United States through all direct and
indirect legal mechanisms reasonably available; or
(c) Reconversions. The local currency represents funds which were
previously converted into another currency; or
(d) Provocation. The preponderant cause is unreasonable action
attributable to the Investor, including corrupt practices.
(e) Use Restricted by Expropriation. The use of such local currency is
restricted by an expropriatory action (section 4.02).
<PAGE> 8
III-1
Article III - Inconvertibility - Amount of Compensation
3.01 Rate of Compensation for Inconvertibility.
1. Date. If the requirements of inconvertibility are satisfied
(Article II), subject to the limitation (Sec. 3.02), OPIC shall pay compensation
(a) against prior delivery of the inconvertible local currency, or
(b) if the Investor is unable legally to deliver the local currency
or if OPIC so requests, against prior assignment of the Investor's
right to receive the payment that is the subject of the claim.
If the Investor delivers local currency or an assignment of rights denominated
in local currency, compensation shall be the United States dollar equivalent of
the local currency at the exchange rate in effect 0 days before OPIC receives
the completed application for compensation.
If the Investor delivers an assignment of rights denominated in United States
dollars, compensation shall be the United States dollar amount of the rights
so assigned.
2. Exchange Rate.
(a) The exchange rate shall be the official exchange rate applicable
to the type of remittance involved.
(b) If, however,
(1) United States dollars were not generally available at the
applicable official exchange rate; and
(2) exchanges of local currency for United States dollars were
effected legally and customarily through another channel;
then the exchange rate shall be the effective rate obtained through
that channel.
(c) In either case, the exchange rate shall be net of all deductions
for governmentally imposed charges, such as taxes and commissions.
3.02 Limitation. Compensation shall not exceed the Active Amount (Sec. 8.06)
in effect 180 days before OPIC receives the application for
compensation.
<PAGE> 9
IV-1
Article IV - Expropriation - Scope of Coverage.
4.01 Total Expropriation. Compensation is payable for total expropriation
(Sec. 5.01), subject to the exclusions (Sec. 4.04) and limitations (Sec. 5.04),
if an act or series of acts satisfies all of the following requirements:
(a) the acts are attributable to a foreign governing authority which is
in de facto control of the part of the country in which the project is
located;
(b) the acts are violations of international law (without regard to the
availability of local remedies) or material breaches of local law;
(c) the acts directly deprive the Investor of fundamental rights in the
insured investment (Rights are "fundamental" if without them the
Investor is substantially deprived of the benefits of the investment);
and
(d) the violations of law are not remedied (Sec. 9.01.9) and the
expropriatory effect continues for six months.
4.02 Expropriation of Funds. Compensation is payable for an expropriation
of funds that constitute a return of the insured investment or earnings on the
insured investment (Sec. 5.02) if an act or series of acts
(a) satisfies the governmental action, illegality and duration
requirements (Sec. 4.01(a), (b) and (d)); and
(b) directly results in preventing the Investor from
(1) repatriating the funds; and
(2) effectively controlling the funds in the country in which the
project is located.
4.03 Exclusions. No compensation for expropriation shall be payable if
(a) Provocation. The preponderant cause is unreasonable action
attributable to the Investor, including corrupt practices.
(b) Government Action. The action is taken by the foreign governing
authority in its capacity or through its powers as a purchaser,
supplier, creditor, shareholder, director or manager of the foreign
enterprise.
<PAGE> 10
V-1
Article V - Expropriation - Amount of Compensation.
5.01 Total Expropriation. For total expropriation (section 4.01), OPIC shall
pay compensation in United States dollars in the amount of the book value of the
insured investment, subject to adjustments (section 5.03) and limitations
(section 5.04).
Compensation is computed as of the date the expropriatory effect
commences (section 4.01(c)) and is based on financial statements maintained in
accordance with section 9.01.6 for the foreign enterprise. However, OPIC may
(1) conform the financial statements to principles of accounting
generally accepted in the United States; and
(2) make adjustments (section 5.03).
OPIC shall be bound by the Investor's choice among generally accepted
accounting principles, if the choice is consistent with the Investor's own
accounting, unless such choice results in a substantial overstatement of the
fair market value of the insured investment or the foreign enterprise as an
independent entity.
5.02 Expropriation of Funds. For expropriation of funds (section 4.02), OPIC
shall pay compensation in the amount of the United States dollar equivalent of
the expropriated funds at the exchange rate determined in accordance with
section 3.01.2, computed as of the date the expropriation begins. Compensation
for expropriation of funds shall be subject to the adjustments and limitations
(section 5.03 and section 5.04).
5.03 Adjustments.
1. Investments of Property. Non-cash items contributed as part of the
investment shall be adjusted if necessary to reflect the fair market value of
the items furnished at the time of contribution to the project, plus freight,
installation and other reasonable direct costs incurred in furnishing the items
to the project.
2. Non-Insured Contribution. Any direct or indirect contribution (and
retained earnings thereon) by the Investor after the insured investment is made
shall be deducted from the book value of the foreign enterprise.
3. Special Accounting Rules. Dealings among related parties shall be
adjusted if necessary to reflect transactions as they would have occurred had
they been at arm's length, and forgiveness of obligations shall be disregarded.
Each entity shall be accounted for as if it were a separate person for income
tax purposes, and the effect of tax shifting arrangements shall be disregarded.
Obsolescence or
<PAGE> 11
V-2
permanent reduction in recoverable values shall be recognized by adjusting the
book value of assets to realizable value. OPIC may adjust financial statements
to reflect the effect of events that occur before the expropriatory effect
commences, such as events of loss which are later confirmed.
4. Other Compensation and Retained Property. OPIC may reduce
compensation by the amount of
(a) compensation received from other sources on account of the loss
(excluding compensation payable under other insurance policies, except
to the extent necessary to prevent the Investor from recovering more
than the amount of the loss as recognized under any of the policies
under which compensation is due, without regard to policy limits); and
(b) the book value of commercially viable property which remains
subject to the Investor's effective disposition and control after the
expropriatory effect commences (unless OPIC requires the Investor to
assign the property (Section 8.02)); and
(c) any obligation the Investor is relieved of by the expropriation.
The reduction shall be proportionate to the extent that these items are
attributable to the insured investment.
5. Start-up Expenses. If the book value of the insured investment
of a new foreign enterprise in the development stage is less than the insured
amount originally contributed, the accumulated loss will be disregarded if
(a) the foreign enterprise is newly formed for the principal purpose of
undertaking the project.
(b) the foreign enterprise is a going concern as of the date the
expropriatory effect commences.
(c) that date is within three years of the date this contract is issued,
and
(d) it is clear that no adjustment to book value is necessary by reason
of obsolescence or permanent reduction in recoverable values of
productive facilities or assets.
5.04 Limitations. Compensation shall not exceed any of the
following limitations:
(a) Active Amount. The Active Amount (Section 8.06) on the date the
expropriatory effect commences;
<PAGE> 12
V-3
(b) Insolvency. If the liabilities of the foreign enterprise exceed
its assets as of the date the expropriatory effect commences, the amount
that the Investor would have been entitled to receive in insolvency
proceedings with respect to the insured investment if assets had been
liquidated at book value on that date:
(c) Self-Insurance. The maximum amount which could be received by the
Investor from OPIC without breaching Section 9.01.3.
<PAGE> 13
VI-1
Article VI -- Political Violence -- Scope of Coverage.
6.01 Loss Due to Political Violence. Compensation is payable, subject to
the exclusions (Section 6.02) and limitations (Section 7.02), if political
violence is the direct and immediate cause of the permanent loss (including
loss of value by damage or destruction) of tangible property of the foreign
enterprise used for the project.
"Political violence" means a violent act undertaken with the primary
intent of achieving a political objective, such as declared or
undeclared war, hostile action by national or international armed
forces, civil war, revolution, insurrection, civil strife, terrorism or
sabotage. However, acts undertaken primarily to achieve labor or student
objectives are not covered.
6.02 Exclusions. No compensation for political violence shall be payable
(a) Excluded Property. For loss of precious metals, gems, works of
art, money or documents;
(b) Minimum Loss. If the amount of compensation payable would be less
than $5,000;
(c) Reasonable Protective Measures. If the loss results from the
failure to take reasonable measures to protect or preserve the property;
or
(d) Provocation. If the preponderant cause of the loss is unreasonable
action attributable to the Investor, including corrupt practices.
<PAGE> 14
VII-1
Article VII - Political Violence - Amount of Compensation
7.01 Basis of Compensation. If the requirements of Article VI are
satisfied, and subject to the limitations (Sec. 7.02), OPIC shall pay
compensation for a loss in United States dollars in the amount of
(a) Adjusted Cost. Adjusted cost is the Investor's share (Sec. 7.03) of
the lowest of
(1) the original cost;
(2) fair market value; or
(3) the reasonable cost of repair;
less anything of value received by the Investor on account of the
property lost and less the Investor's share of any such receipts by the
foreign enterprise; or
(b) Replacement Cost. If the Investor so elects, OPIC will pay the
reasonable cost to repair any item of lost property or to replace it
with equivalent new property, less anything of value received by the
Investor or the foreign enterprise on account of the property lost. Such
compensation shall not exceed 200% of the original cost of the item. To
receive such compensation, the Investor must repair or replace the lost
property to the project within three years of the loss.
OPIC shall not reduce the compensation payable under subsections (a) or (b)
above by the amount of compensation payable under other insurance policies on
account of the property lost, except to the extent necessary to prevent the
Investor from recovering more than the amount of the loss as recognized under
any of the policies under which compensation is due, without regard to policy
limits.
7.02 Limitations. Compensation shall not exceed any of the following
limitations:
(a) Active Amount. The Active Amount (Sec. 8.06) on the date of the
loss.
(b) Self-insurance. The maximum amount which could be recovered by the
Investor from OPIC without breaching Sec. 9.01.3.
(c) Aggregate Adjusted Cost Compensation. Aggregate compensation for
property compensated at adjusted cost shall not exceed the book value of
the insured investment (Sec. 7.04) at the time of loss.
<PAGE> 15
VII-2
7.03 Investor's Share. "Investor's share" means the ratio that the equity
owned by the Investor bears to the total equity of the foreign enterprise.
7.04 Book Value of Insured Investment.
(a) Book Value. Book value is based on financial statements maintained
by the Investor in accordance with Section 9.01.6 for the foreign
enterprise. However, OPIC may
(1) conform the financial statements to principles of accounting
generally accepted in the United States; and
(2) make adjustments (Section 7.04(b)).
OPIC shall be bound by the Investor's choice among generally accepted
accounting principles, if the choice is consistent with the Investor's
own accounting, unless such choice results in a substantial
overstatement of the fair market value of the insured investment or the
foreign enterprise as an independent entity.
(b) Adjustments.
(1) Investments of Property. Non-cash items contributed to the
investment shall be adjusted if necessary to reflect the fair
market value of the items furnished at the time of contribution to
the project, plus freight, installation and other reasonable direct
costs incurred in furnishing the items to the project.
(2) Non-Insured Contribution. Any direct or indirect contribution
(and retained earnings thereon) by the Investor after the insured
investment is made shall be deducted from book value of the foreign
enterprise.
(3) Special Accounting Rules. Dealings among related parties
shall be adjusted if necessary to reflect transactions as they
would have occurred had they been at arm's length, and forgiveness
of obligations shall be disregarded. Each entity shall be accounted
for as if it were a separate person for income tax purposes, and
the effect of tax shifting arrangements shall be disregarded.
Obsolescence or permanent reduction in recoverable values shall be
recognized by adjusting the book value of assets to realizable
value. OPIC may adjust financial statements to reflect the effect
of events that occur before the loss of property, such as events of
loss which are later confirmed.
<PAGE> 16
VII-3
(4) Start-up Expenses. If the book value of the insured investment
of a new foreign enterprise in the development stage is less than
the insured amount originally contributed, the accumulated loss will
be disregarded if
(a) the foreign enterprise is newly formed for the principal
purpose of undertaking the project.
(b) the foreign enterprise is a going concern as of the date of
the loss.
(c) that date is within three years of the date this contract is
issued, and
(d) it is clear that not adjustment to book value is necessary
by reason of obsolescence or permanent reduction in recoverable
values of productive facilities or assets.
(c) Insolvency. If the labilities of the enterprise exceed its assets as
of the date of the loss, book value of the insured investment shall not
exceed the amount that the Investor would have been entitled to receive
in insolvency proceedings with respect to the insured investment if
assets had been liquidated at book value on the day prior to the loss.
7.05 Appraisal. If OPIC determines that compensation is payable but OPIC
and the Investor are unable to agree on a question of valuation, either may
demand the appointment of an impartial appraiser. If the parties are unable to
agree on the appraiser, the appointment shall be made by the American
Arbitration Association. The appraiser's itemized appraisal shall be binding.
Appraisal costs shall be borne equally by OPIC and the Investor.
7.06 Estimated Compensation. If OPIC determines that compensation is
payable but conditions in the project country preclude reasonable efforts by
OPIC to determine the precise amount due, OPIC may pay estimated compensation
based on the information then available. OPIC may revise its estimate and
recover any excess or pay any additional amount due upon receipt of additional
information.
<PAGE> 17
VIII-1
Article VIII - Procedures.
8.01 Application for Compensation. An application for compensation shall
demonstrate the Investor's right to compensation in the amount claimed. The
Investor shall provide such additional information as OPIC may reasonably
require to evaluate the application. The Investor may amend or withdraw an
application for compensation at any time, but the right to recover compensation
will be lost for any acts covered by a withdrawn application.
(a) There is no time limit on application for inconvertibility
compensation (Article III); however, compensation shall not exceed the
Active Amount applicable in accordance with Section 3.02.
(b) An application for expropriation compensation (Article V) must be
filed within six months after the Investor has reason to believe that
all requirements of Article IV have been satisfied.
(c) A notice demonstrating the Investor's entitlement to political
violence compensation for loss of assets (Article VI) must be filed
within six months of the loss. The notice together with proof of the
amount of compensation due will be considered a completed application,
which must be filed within three years of the loss. The Investor may
request adjusted cost compensation (Sec. 7.01(a)) and later amend the
application within three years of the loss to elect replacement cost
compensation (Sec. 7.01(b)).
(d) OPIC shall have a reasonable time in which to complete processing of
any application for compensation.
8.02 Assignment to OPIC. Within sixty days after OPIC notifies the Investor
of the amount of compensation OPIC will pay under expropriation or political
violence coverage, and concurrent with payment, the Investor shall transfer to
OPIC (a) for expropriation, all interests attributable to the insured investment
(Sec. 4.01) or funds (Sec.4.02) as of the date the expropriatory effect
commences, including claims arising out of the expropriation, or (b) for
political violence, claims arising out of the loss due to political violence
(Sec. 6.01). The Investor shall transfer the interests and claims free and clear
of, and shall agree to indemnify OPIC against, claims, defenses, counterclaims,
rights of setoff and other encumbrances (except defenses relating to the
expropriation).
<PAGE> 18
VIII-2
In connection with an inconvertibility claim, immediately upon receipt
of instructions from OPIC together with notification that it intends to pay
such claim, the Investor shall deliver the local currency to OPIC by draft
subject to collection (or, at OPIC's option, in cash), or, if the Investor is
unable legally to deliver the local currency or if OPIC so requests, shall
instead deliver an assignment of the Investor's rights with respect to the
payment that is the subject of the claim.
OPIC may decline all or any portion of the Investor's interests or
claims; if so, the Investor's right to compensation shall be affected only as
provided in Sec. 5.03.4(b).
8.03 Security. As a condition for paying compensation (including estimated
compensation (Sec. 7.06)) prior to a final determination of its liability, OPIC
may require the Investor to provide security, satisfactory to OPIC in its
reasonable judgment, for repayment pursuant to section 9.02(b).
8.04 Excess Salvage Value. With respect to compensated expropriation and
political violence claims, OPIC shall pay to the Investor any amounts OPIC
realizes in United States dollars from the rights transferred (Sec. 8.02) in
excess of
(a) the compensation paid by OPIC; plus
(b) reasonable interest; plus
(c) OPIC's out-of-pocket expenses in maintaining and realizing funds
from the transferred property.
However, this provision shall not in any way restrict OPIC's discretion to deal
with the rights transferred. OPIC shall have no obligation to take action with
respect to the rights transferred and shall incur no liability to the Investor
for any actions taken or not taken after the transfer.
8.05 Arbitration. Any controversy relating to this contract shall be settled
by arbitration in Washington, D.C. according to the then prevailing Commercial
Arbitration Rules of the American Arbitration Association. Unless the Investor
initiates arbitration, OPIC's liability shall expire one year after OPIC
notifies the Investor of its determination concerning an application for
compensation. A decision by arbitrators shall be final and binding, and any
court having jurisdiction may enter judgment on it.
<PAGE> 19
VIII-3
8.06 Election of Active Amounts and Coverage Ceilings. By prior notice to
OPIC effective as of the next due date for premiums (Sec. 1.06), the Investor
may increase or decrease the Active Amount for any coverage for the remainder
of the contract term, subject to the following limitations:
(a) Active Amount shall not exceed the Coverage Ceiling (Sec. 1.06);
(b) The Coverage Ceiling shall be reduced automatically by compensation
paid by OPIC; Active Amount shall also be reduced for the remainder of
the annual election period to which the claim relates (Sec. 3.02, Sec.
5.04(a), or Sec. 7.02(a));
(c) For inconvertibility, expropriation, and political violence
coverages, Active Amount shall not be less that the lesser of book value
(Sec. 5.01) or the Coverage Ceiling for that coverage.
8.07 Termination. The Investor may terminate this contract effective as of
any premium due date unless the premium is already paid. However, termination
shall not affect any rights or obligations of either party relating to prior
periods.
8.08 Legal and Miscellaneous. This contract shall be governed by the law of
the District of Columbia, its conflict of law rules excepted. This contract
constitutes the complete agreement between the parties, superseding any prior
understandings. This contract may be modified, or its terms waived, only in
writing.
8.09 Notices. Notices must be in writing and shall be effective when
received. Notices may be given to the Investor at the address on the title page
(unless changed in writing), and to OPIC at
Overseas Private Investment Corporation
Washington, D.C. 20527
Attention: Vice-President, Insurance.
8.10 Refund of Premiums. Upon timely written request, OPIC will refund
premiums pro rata if
(a) excess coverage is elected while a valid claim for compensation is
pending; or
(b) the Investor becomes ineligible for coverage or ceases to hold all
or a portion of the insured investment, in which case any refund shall
be calculated from the later of (i) the date the Investor becomes
ineligible or ceases to hold the insured investment, or (ii) the date
OPIC receives such written request.
<PAGE> 20
IX-1
Article IX - Investor's Duties.
9.01 Duties.
1. Representations and Project Execution. The Investor understands
that OPIC has issued this contract based on statutory policy goals (22 U.S.C.
Sec. 2191) as well as underwriting considerations. All statements made by the
Investor to OPIC in connection with this contract are true and complete, and
the investment and the project shall be carried out as described.
2. Ownership and Eligibility. The Investor shall at all times
remain the beneficial owner of the insured investment and shall remain eligible
for OPIC insurance as
(a) a citizen of the United States; or
(b) a corporation or other association created under the laws of the
United States, its states or territories, or which more than 50% of both
the total interest and of each class of shares is beneficially owned by
citizens of the United States; or
(c) an entity created under foreign law in which a 95% interest is owned
by entities eligible under (a) or (b).
3. Self-Insurance. The Investor shall continue to bear the risk of
loss of at least 10% of the book value of its interest in the foreign
enterprise.
4. Assignment. The Investor shall not assign this contract, or any
of its rights, without OPIC's written consent, which shall not be withheld
unreasonably.
5. Premiums. The Investor shall pay the premiums for this contract
in accordance with Article I. In the event that premiums are not paid when due,
the Investor shall be in default but may cure this default within sixty days by
paying the premiums plus interest at a rate of 12% per annum.
6. Accounting Records.
(a) The Investor shall maintain in the United States true and complete
copies of the records, books or account and current financial statements
for the foreign enterprise necessary to compute and substantiate
compensation, including
(1) records documenting the investment;
(2) annual balance sheets;
<PAGE> 21
IX-2
(3) annual statements of income, retained earnings, cash flow
and related footnotes.
(b) Accounting records shall be maintained and financial statements
prepared in United States dollars in accordance with principles of
accounting generally accepted in the United States (including
principles of accounting generally accepted in the United States
(including principles of currency translation), as modified by the
special accounting rules (Section 5.03.3 and Section 7.04(b)(3)).
(c) Subject to the obligations of the Investor under Section 9.01.6,
the Investor or the foreign enterprise shall retain all accounting
records until
(1) the deadline for filing an application for compensation has
expired (Section 8.01); or
(2) final action has been taken on an application for
compensation (including arbitration and judicial appeals).
However, if compensation has been paid, the accounting records shall be
retained for three years after the Investor receives the compensation.
7. Reports and Access to Information. In order that OPIC may
perform its statutory duties, including settling claims and reporting to the
Congress (22 U.S.C. Section 2200a), the Investor shall furnish OPIC with such
information as OPIC may reasonably request, including
(a) making available for interviews any persons subject to the
Investor's practical control (including employees of the project and
independent accountants);
(b) making available for inspection and copying all documents and
accounting records relating to the project (including workpapers of
independent accountants if available);
(c) permitting OPIC to inspect the project; and
(d) furnishing available information concerning the effects of the
project on the economy of the United States, the environment, and the
economic and social development of the country in which the project
is located.
The Investor's duties under this paragraph shall continue for the
periods specified for retention of accounting records (Section 9.01.6(c)).
8. Compulsory Notice. The Investor shall notify OPIC promptly if
it has reason to believe that the Investor or the foreign enterprise will not
be able to convert or transfer local currency during the waiting period (Article
II). The Investor shall notify OPIC promptly of any acts or threats to act in a
manner which may come within the scope of the expropriation or political
violence coverage (Articles IV and VI) and shall keep OPIC informed as to all
relevant developments.
<PAGE> 22
IX-3
9. Preservation, Transfer and Continuing Cooperation. At OPIC's
request, the Investor shall promptly assign rights with respect to the
investment, as required by Section 8.02. Prior to the assignment of rights
required by Section 8.02, the Investor shall, in consultation with OPIC, take
all reasonable measures to preserve property, to pursue available
administrative and judicial remedies, and to negotiate in good faith with the
governing authority of the country in which the project is located and other
potential sources of compensation. After a transfer of rights or delivery of
local currency, in exchange for reimbursement of reasonable out-of-pocket
expenses, the Investor shall take all actions reasonably requested by OPIC to
assist OPIC in preserving the property and rights transferred to OPIC and in
prosecuting related claims.
10. Other Agreements. The Investor shall not enter into any
agreement with any foreign governing authority with respect to compensation for
ay acts within the scope of coverage (Article II, IV or VI) without OPIC's
prior written consent.
9.02 Default. Material breach or misrepresentation by the Investor shall
constitute default, and OPIC may:
(a) refuse to make payments to the Investor.
(b) recover payments made; and
(c) terminate this contract effective as of the date of the breach by
giving notice to the Investor.
9.03 Non-Waiver. Neither OPIC's failure to invoke its rights, nor its
acceptance of premiums, shall constitute waiver of any of its rights, even
though OPIC knows of the Investor's breach.
9.04 Cure. OPIC may permit the Investor to cure a breach in a manner
satisfactory to OPIC, but shall have no obligation to allow breaches to
be cured.
<PAGE> 23
X-1
ARTICLE X - AMENDMENTS
The following amendments are hereby incorporated as part of this Contract of
Insurance No. E136:
10.01 The issuance by OPIC of this Contract of Insurance shall not constitute
an acknowledgment or assurance by OPIC of the validity of any agreement or
arrangement constituting or relating to the investment under the laws of
Russia.
10.02 Anything in the contract to the contrary notwithstanding, the book
value of the portion of the issued investment described in Section
1.01.1(a)(ii) and Section 1.01.1(d) shall be the lesser of (a) the aggregate
unpaid balance of the amount thereof actually received by the recorded as a
liability on the books of the foreign enterprise, as evidenced by promissory
notes or other documentation satisfactory to OPIC in the reasonable exercise of
its discretion, together with unpaid interest accrued thereon, (the
"Liability") reduced by the amount of any provision for uncollectibility of the
Liability on the books of the Investor, and (b) the amount of the Liability
that would be recoverable by the Investor as a liability of the foreign
enterprise, in accordance with the priority of the Liability among the
creditors of the foreign enterprise, if the assets of the foreign enterprise
were liquidated at book value on the relevant date.
10.03 Section 1.05, "Term", is amended in its entirety to read as follows:
"1.05 Term.
This contract shall enter into force on the date it has been
signed by OPIC and the Investor and shall terminate as follows:
(a) 20 years afterward unless terminated earlier (Section
8.07; Section 9.02), with respect to the individual investment
component identified in subparagraph 1.01.1(a) above and the
corresponding shares of common stock identified in subparagraph
1.01.1(c) above; and
(b) April 30, 1996, with respect to the individual investment
component identified in subparagraph 1.01.1(b) above and the
corresponding participation interest identified in subparagraph
1.0.1(d) above unless otherwise agreed in writing by OPIC
prior to such date."
10.04 Notwithstanding any other provision of this contract to the contrary,
the Investor shall not file applications for compensation under, and OPIC shall
have no liability for claims under, inconvertibility coverage (Articles II and
III) in excess of $450,000 in any 91-day period.
10.05 Subsection 4.01(b) is amended by deleting the words "or material breach
of local law".
10.06 Notwithstanding any other provision of this contract to the contrary,
any amount of value-added tax under the laws of the Russian Federation imposed
on the loan shall be deducted from compensation paid by OPIC shall have no
liability for such value-added tax.
<PAGE> 24
X-2
10.07 Section 9.01. "Duties", is amended by adding the following new
subsections 11, 12, 13 and 14 at the end thereof:
"11. Legality. The Investor has implemented and shall implement the
investment and the project in compliance in all material respects with
all applicable laws, decrees, regulations, administrative determinations
and procedures of the foreign governing authority.
"12. Workers Rights. The Investor agrees not to take actions to prevent
employees of the foreign enterprise from lawfully exercising their right
of free association and their right to organize and bargain
collectively. The Investor further agrees to observe applicable laws
relating to a minimum age for employment of children, acceptable
conditions of work with respect to minimum wages, hours of work, and
occupational health and safety, and not to use forced labor. The
Investor agrees not to interfere with or coerce an employee of the
foreign enterprise on the basis of trade union activities or membership.
The Investor further agrees not to take any action on the basis of such
activities or membership which may result in the termination,
suspension, demotion, or transfer of said employee by the foreign
enterprise, or by an officer, agent or other representative thereof. The
Investor is not responsible under this paragraph for the actions of a
foreign government.
"13. Environmental Covenants. The Investor covenants that with respect
to the project.
(a) The foreign enterprise will comply with in all material
respects, and shall conduct its business, operations, assets,
equipment, property, leaseholds, and other facilities materially
in compliance with, the provisions of all applicable
environmental, health and safety laws, codes and ordinances, and
all rules and regulations promulgated thereunder. The foreign
enterprise shall maintain all material required permits, licenses,
certificates and approvals relating to: (i) air emissions, (ii)
discharges to surface water or ground water, (iii) noise
emissions, (iv) solid or liquid waste disposal, (v) the use,
generation, storage, transportation or disposal of toxic or
hazardous substances or wastes, or (vi) other environmental,
health or safety matters, to the extent applicable.
(b) The foreign enterprise will annually obtain a logging ticket
and duly comply with the provisions of the environmental
guidelines set forth in Annex A hereto (the "environmental
guidelines"). The foreign enterprise shall appoint an independent
environmental advisory committee (the "oversight group"), to be
composed of three members chosen by the foreign enterprise, with
OPIC's prior approval (such approval not to be unreasonably
withheld) and one representative of the foreign enterprise. The
oversight group will (i) review the foreign enterprise's
harvesting plan submitted to the Khabarovsk Kray Forest Natural
Resources Authority for approval (the "harvesting plan"), and (ii)
annually monitor the foreign enterprise's compliance with the
harvesting plan and Annex A.
<PAGE> 25
"14. Modifications. The Investor shall not terminate, amend or
grant any waiver of, or assign any of the respective duties or
obligations under, the Participation Agreement dated June 9,
1995, between State Street Bank and the Investor (other than
amendments or waivers, either to correct manifest error or which
are of a formal, minor, or technical nature and do not change
materially any party's rights or obligations) without OPIC's
prior written consent, which consent shall not be withheld
unreasonably. The Investor shall not permit State Street Bank
and Trust Company to terminate, amend or grant any waiver of, or
assign any of the respective duties or obligations under, the
Master Short-Term Credit Agreement dated June 9, 1995, between
State Street Bank and Trust Company and the foreign enterprise
(other than amendments or waivers, either to correct manifest
error or which are of a formal, minor, or technical nature and
do not change materially any party's rights or obligations)
without OPIC's prior written consent, which consent shall not be
withheld unreasonably."
10.08 Notwithstanding any other provision of this contract, neither the
non-renewal of the licenses and land leases granted by the foreign governing
authority related to the project nor cancellation of the licenses and leases by
the foreign governing authority due to non-fulfillment by the Investor of its
obligations under the licenses and leases shall constitute compensable acts
under Articles IV and V of this contract.
THE PIONEER GROUP, INC.
By: /s/ JOHN F. LAWLOR Date: 9/29/95
---------------------------- ----------------------------
Effective September 29, 1995
John F. Lawlor, Vice-President
- -----------------------------------------------------------------------------
Print Name and Title
OVERSEAS PRIVATE INVESTMENT CORPORATION
By: /s/ DANIEL W. RIORDAN Date: 10/2/95
---------------------------- ----------------------------
Effective September 29, 1995
Daniel W. Riordan,
Vice President for Insurance
- --------------------------------------------
Print Name and Title
<PAGE> 26
ANNEX A -- ENVIRONMENTAL GUIDELINES
The foreign enterprise will conduct its operations in accordance with the
"Environmental Impact Assessment of the Siziman Timber Project" prepared by
Jaakko Poyry Consulting Oy dated September 15, 1994 and revised on November 14,
1994, and attached hereto as Annex B, as amended by this Annex A. The foreign
enterprise shall do so in compliance in all material respects with all
applicable laws, decrees, regulations, administrative determinations and
procedures of the foreign governing authority.
- - Harvesting of timber in the "coastal protection forest" will use selective
logging techniques only. No clearcutting will take place in the coastal
protection forest.
- - In the "Siziman Production Forest," clearcutting will be conducted in a
manner consistent with the June, 1992 U.S.F.S. Policy Guidelines, unless
application of the U.S.F.S. Policy Guidelines (attached hereto as Annex C)
clearly support a different approach.
- - Consistent with effective fire prevention policy and Russian law, the
foreign enterprise will seek to leave as much slash as possible in harvested
areas, so as to maximize conditions for regeneration and soil protection.
- - No clearcutting of timber or road building will take place on slopes greater
than 17 degrees. Any selective harvesting of timber on slopes of between 17 and
27 degrees will make use of cables rather than heavy machinery wherever
feasible.
- - Any exceptions to the clearcutting or slope standards noted above will be
reviewed by a committee of experts appointed jointly by OPIC, the Investor, and
Starma-Holding, a shareholder in Forest-Starma (together, the "sponsors").
- - Natural reforestation will be favored wherever feasible and will be
supplemented by artificial reforestation as necessary to attain maximum
regeneration of harvested areas in a manner approximating natural forest
conditions.
- - The sponsors will fund a local study of possible internationally protected
species' habitats in the Project area and will take effective measures to
protect such habitats.
- - As part of its monitoring requirements, OPIC will have the right to review
timber management plans for consistency with the above representations, in
advance of their submission to regional or federal authorities for final
approval.
<PAGE> 1
EXHIBIT 10.2
OVERSEAS PRIVATE INVESTMENT CORPORATION
WASHINGTON, D.C. 20527, U.S.A.
[Seal] OFFICE OF THE
PRESIDENT
September 29, 1995
Teberebie Goldfields Limited
c/o The Pioneer Group, Inc.
60 State Street
Boston, Massachusetts 02109
Attention: Lucien Girard
The Pioneer Group, Inc.
60 State Street
Boston, Massachusetts 02109
Attention: Donald Hunter
Re: Overseas Private Investment Corporation ("OPIC")
Commitment to Guarantee Loans to Teberebie Goldfields
Limited (the "Company")
Ladies and Gentlemen:
This letter (the "Commitment Letter") constitutes and sets forth the terms
and conditions of OPIC's commitment to guarantee, pursuant to Section 234(b) of
the Foreign Assistance Act of 1961, as amended, a loan or loans to the Company,
which is a corporation organized and existing under the laws of the Republic of
Ghana and directly ninety percent (90%) owner by Pioneer Goldfields Limited,
which is a company limited by shares organized and existing under the laws of
Guernsey, the Channel Islands ("PGL"), and wholly-owned by the Pioneer Group,
Inc., a Delaware corporation (the "Sponsor"). OPIC is willing to guarantee,
and, by its acceptance of this Commitment Letter, the Company confirms that it
is willing to borrow, a loan or loans (the "Loan") to be applied to the Project
(as defined below) on the following terms and conditions:
1. Parties: (a) The Company, which will be the
borrower of the Loan; and
(b) the Sponsor.
1100 NEW YORK AVE., N.W. - WASHINGTON, D.C. 20527 - FAX (202) 408-9859 -
(202) 336-8400
<PAGE> 2
2. Project: An expansion of the Company's existing gold mine
operations located southwest of the town of Tarkwa in
western Ghana (the "Teberebie Mine"), intended to
increase the Teberebie Mine's output from approximately
270,000 to approximately 427,000 troy ounces of gold per
year, as more fully described in the following documents
that the Sponsor has submitted to OPIC: the U.S. Sponsor
Disclosure Report, dated August 11, 1995; the draft
report of Pincock, Allen & Holt, dated August 8, 1995,
captioned "Due Diligence Review, Pioneer Goldfields
Limited, Teberebie Gold Mine, Ghana, West Africa"; and
the draft "Five-Year Business Plan (1996-2000) of TGL
and PGL".
3. Amount: The outstanding principal amount of the Loan shall not
exceed $54,000,000 (the "Guaranty Commitment"). As used
herein the symbol "$" indicates United States dollars.
4. Financial Plan: The Project's total cost is estimated to be $74,000,000,
to be funded as follows (the "Financial Plan"):
Senior Debt: Amount
----------- -----------
The Loan $54,000,000
Equity:
------
Company funds
from operations 20,000,000
-----------
Total Funding: $74,000,000
------------- -----------
5. Term: The Loan shall be repaid in 12
approximately equal semi-annual
installments, commencing on the later of
(a) June 15, 1997 and (b) the first
Payment Date (as defined below) to occur
after the date of the first disbursement
of the Loan.
6. Interest Rate: Payable semi-annually in arrears at a rate
or on a basis to be negotiated with the
guaranteed lender or lenders on terms
<PAGE> 3
- 3 -
acceptable to OPIC. The Company shall pay to OPIC
a default premium at the rate of two percent (2%)
per annum with respect to any amount not paid when
due under the Finance Agreement (as defined in
paragraph 14(a) below).
7. Guaranty Fee: Two and sixty-five hundredths percent (2.65%) per annum
on the outstanding balance of the Loan, payable to OPIC
semi-annually in arrears (the "Guaranty Fee") on each
Payment Date.
8. Facility Fee: One percent (1%) of the Guaranty Commitment (the
"Facility Fee"), of which (i) $200,000 was previously
paid as a retainer to be credited toward the Facility
Fee, (ii) one-half ($270,000) is due and payable to
OPIC on the date of execution of this Commitment Letter
and (iii) the remainder shall be due and payable on the
date of execution of the Finance Agreement.
9. Commitment Fee: One-half of one percent (0.5%) per annum on the
undisbursed and uncanceled amount of the Guaranty
Commitment (the "Commitment Fee"). Such fee shall
accrue from the date of this Commitment Letter and be
due and payable to OPIC semi-annually in arrears on
December 15 and June 15 of each year (each such date a
"Payment Date"), and upon either the termination of
this Commitment Letter or the date of execution of the
Finance Agreement. The Commitment Fee will continue to
accrue under and shall be payable as provided in the
Finance Agreement on the undisbursed and uncanceled
amount of the Guaranty Commitment. No disbursement of
the Loan shall occur after September 30, 1997.
10. Maintenance Fee: The Company shall pay to OPIC an annual maintenance
fee of $5,000 on each December 15 so long as the Loan
remains outstanding (the "Maintenance Fee").
<PAGE> 4
- 4 -
11. Cancellation Fee: The Company may cancel any portion of the Guaranty
Commitment to the extent of any undisbursed portion
of the Loan upon payment to OPIC of a cancellation
fee (the "Cancellation Fee") equal to (a) for the
cancellation of any part of the Guaranty Commitment
that, together with all other canceled parts of the
Guaranty Commitment (if any), does not exceed $9
million in the aggregate, one-half percent (0.5%) of
the amount canceled and (b) for the cancellation of
any part of the Guaranty Commitment that, together with
all other canceled parts of the Guaranty Commitment
(if any), does exceed $9 million in the aggregate, one
and one-half percent (1.50%) of the amount canceled.
Any portion of the Guaranty Commitment that for any
reason expires or is terminated without being disbursed
shall be deemed to have been canceled, and the
Cancellation Fee shall apply.
12. Reimbursement of
Expenses: The Company or the Sponsor shall pay or reimburse OPIC
for all reasonable expenses incurred by OPIC in
connection with this Commitment Letter and the
negotiation, execution and implementation of the
Finance Agreement and the Financing Documents (as
defined in paragraph 14(b) below), including reasonable
fees and expenses for outside legal counsel, business
advisers and consultants, travel expenses, cost of
reproducing and binding post-closing document
transcripts (including up to five OPIC copies) and
other such out-of-pocket expenses incurred by OPIC,
including any costs of collecting any amount due
hereunder. Such payment or reimbursement shall be due
and payable within 30 days after the Company's receipt
of OPIC's request therefor from time to time and upon
the extension or termination of this Commitment Letter
or execution of the Finance Agreement, provided that,
to the extent of any portion of the Facility Fee that
has been paid to OPIC, travel expenses incurred by
OPIC staff shall be
<PAGE> 5
-5-
reimbursed out of such fee. The payment or reimbursement
of OPIC expenses shall be due whether or not this
Commitment Letter expires without renewal or is canceled
or a Finance Agreement is executed or any disbursement of
the Loan is made thereunder.
13. Payments: All payments due hereunder to OPIC shall be paid by wire
transfer as follows:
U.S. Treasury Department
New York, NY
ABA No. 0210-3000-4
TREAS NYC/CTR/BNF=AC-71000001
OBI=OPIC Loan Number 641-95-353-IG
14. Other
Conditions: (a) The terms and conditions of the Loan and of OPIC's
guaranty thereof (the "OPIC Guaranty") shall be set forth
in a finance agreement with the Company (the "Finance
Agreement") providing the foregoing terms, the terms and
conditions set forth in the term sheet attached thereto
as Annex A and such other terms and conditions as are
mutually agreed to between the parties.
(b) On the date of execution of the Finance Agreement, no
condition shall exist that in OPIC's judgment materially
adversely affects the Company's or the Sponsor's ability
to carry out the Project or to perform their respective
obligations under the Finance Agreement and all documents,
instruments and approvals required by the Finance
Agreement (collectively with the Finance Agreement, the
"Financing Documents").
(c) The Financing Documents shall be satisfactory to OPIC
in form and substance.
(d) The Company shall arrange for, and pay all costs
associated with, the funding of the Loan, including
without limitation the fees of all placement agents,
paying agents and liquidity facility providers
<PAGE> 6
-6-
and their respective counsel, and all documents,
instruments and approvals required in connection with
such funding shall be satisfactory to OPIC in form and
substance.
15. Termination: If for any reason the Finance Agreement is not
executed and delivered on or before March 1, 1996,
OPIC's commitment and its obligations hereunder will
thereupon terminate. In addition, OPIC may, by written
notice to the Sponsor, terminate this commitment and its
obligations hereunder as of an earlier date if, in
OPIC's reasonable judgment, the Sponsor or the Company
is unlikely to be able or willing to perform its
obligations under any Financing Document. Upon any such
termination, the Company or the Sponsor shall forthwith
pay to OPIC the Commitment Fee, the Cancellation Fee and
any other amounts then due hereunder.
16. Extension of
Commitment: The parties hereto shall use their best efforts to
complete negotiations of the Financing Documents as soon
as possible prior to the termination of this Commitment
Letter. Extension of the term of this Commitment Letter
shall be subject, at OPIC's sole discretion, to
modification of the terms hereof.
17. Indemnity: The Company and the Sponsor shall indemnify and hold
harmless OPIC and each of its directors, officers and
employees (each, an "indemnified person") in connection
with any losses, claims, damages, liabilities (or
actions in respect thereof) or other expenses (including
without limitation attorneys' fees and expenses as they
are incurred in connection with investigating,
preparing, or defending any such action or claim) (any
of the foregoing being a "Loss" and collectively
"Losses") to which such indemnified person may become
subject arising out of or relating to this Commitment
Letter, the provision of the
<PAGE> 7
financing and guaranty contemplated hereby or the use or
intended use of the proceeds thereof; provided that such
indemnity shall not apply to the extent that there is a
final determination that the Loss resulted from (a) the
gross negligence or willful misconduct of the
indemnified person, (b) a failure by OPIC to fulfill its
guarantee obligations with respect to the Loan or (c) a
failure by the Company to pay its financial obligations
under the Financing Documents (except to the extent
arising from fraud or misrepresentation). This indemnity
obligation shall survive the execution of the Finance
Agreement and the expiration, termination or other
modification of the Guaranty Commitment set forth
herein.
18. Joint and Several
Obligations: Payment of all fees and expenses payable to OPIC
hereunder shall be the joint and several obligation of
the Company and the Sponsor, provided that the Sponsor
shall have no obligation for any such fees and expenses
incurred after Project Completion, other than (a) costs
of enforcement of any direct obligation of the Sponsor
hereunder and (b) any amounts owed by the Sponsor
pursuant to Section 17.
19. Counterparts: This Commitment Letter may be executed in separate
counterparts, each of which shall be an original and all
of which taken together shall constitute one and the
same agreement.
20. Governing Law: This Commitment Letter shall be governed by the law of
the State of New York.
In consideration of OPIC's Commitment set forth herein, the Sponsor and
the Company jointly and severally represent and warrant to OPIC that (i) the
Sponsor and the Company and their respective officers, directors, employees and
agents have complied in all material respects with all applicable Corrupt
Practices Laws (as hereinafter defined) in obtaining any consents, licenses,
approvals, authorizations, rights or privileges in respect of the Project, (ii)
the Company is
<PAGE> 8
otherwise conducting its business in compliance in all material respects with
all applicable Corrupt Practices Laws and (iii) the internal management and
accounting practices and controls of the Company and the Sponsor are adequate
to ensure compliance with applicable Corrupt Practices Laws. This
representation shall survive the execution of the Finance Agreement and any
termination or expiration of the Guaranty Commitment set forth herein. As used
herein, "Corrupt Practices Laws" means (i) the Foreign Corrupt Practices Act of
1977, Pub.L. No. 95-213, as amended (codified in Sections of 15 U.S.C. Section
78 (1988)) and (ii) any other law, regulation, order, decree, or directive
having the force of law and relating to bribery, kick-backs, or similar corrupt
business practices.
If the foregoing correctly sets forth our understanding and agreement,
please confirm your acceptance thereof by (i) signing and returning to OPIC an
executed counterpart of this Commitment Letter and (ii) wiring to OPIC the
amount referred to in paragraph 8 in partial payment of the Facility Fee, all
no later than September 29, 1995. If OPIC receives such countersigned
<PAGE> 9
copy and funds by such time, then this Commitment Letter shall constitute an
agreement between us effective and legally binding on each of us as of its date.
Very truly yours,
OVERSEAS PRIVATE INVESTMENT CORPORATION
By: /s/ DANIEL W. RIORDAN
------------------------------------------
Daniel W. Riordan
Title: Executive Vice President
--------------------------------------
ACCEPTED AND AGREED TO
as of the date of this Commitment Letter:
TEBEREBIE GOLDFIELDS LIMITED
By: /s/ Lucien Girard, III
------------------------------------
Title: Managing Director
---------------------------------
THE PIONEER GROUP, INC.
By: /s/ JOHN F. LAWLOR
------------------------------------
John F. Lawlor
Title: Vice President
---------------------------------
<PAGE> 10
ANNEX A
TERM SHEET FOR $54,000,000 OPIC LOAN GUARANTY FOR TEBEREBIE
GOLDFIELDS LIMITED
All capitalized terms used herein have the meanings given them in the
Commitment Letter to which this Term Sheet is attached, unless the context
otherwise requires. The Finance Agreement shall include the following terms and
conditions, in addition to standard representations and warranties, covenants
and events of default:
1. Drawdown and
Commitment Period: The Loan shall be disbursed is not more than
four disbursements. No disbursement of the
Loan shall be made after September 30, 1997
(the period from today through such date being
the "Commitment Period").
2. Voluntary
Prepayment: In addition to any requirements of the
lender(s), the Loan, after the Commitment
Period, may be prepaid in inverse order of
maturity upon the payment to OPIC of the
following premiums (each a "Prepayment
Premium"), each expressed as a percent of the
principal amount prepaid. If prepayment occurs
in the twelve-month period commencing with:
(i) the last day of Commitment Period, the
Prepayment Premium shall be 3%, (ii) the first
anniversary of last day of Commitment Period,
the Prepayment Premium shall be 2%, (iii) the
second anniversary of last day of Commitment
Period, the Prepayment Premium shall be 1%, and
(iv) thereafter, prepayments may be made without
premium.
3. Mandatory
Prepayment: Prepayment of the Loan shall be mandatory in the
event that, and in the amount by which, (i)
insurance proceeds received by the Company in
any fiscal year in excess of $500,000 are not
used to repair or replace damaged assets and
(ii) dividends
<PAGE> 11
-2-
paid in any fiscal year exceed seventy percent (70%) of
the prior year's net income.
4. Security: Subject to the next sentence, the Company's obligations
to OPIC shall be secured by a perfected first lien and
charge on all of the Company's assets, including without
limitation the escrow account referred to below and all
rights of the Company (and of the Sponsor or any
affiliate of the Sponsor) under (i) any existing or
future agreements with purchasers of ore or other output
from the Teberebie Mine; (ii) the Deed of Warranty
Confirmation and Conditions from the Government of Ghana
dated December 3, 1987 and any amendment thereof or
supplement thereto; (iii) the Mining Lease from the
Government of Ghana dated February 2, 1988 and any
amendment thereof or supplement thereto; and (iv) any
other agreements with the Government of Ghana relating
to the Teberebie Mine. The lien and charge so granted
may be of second priority with respect to any crushing
equipment that is subject to prior mortgage (the
"Equipment Mortgage") securing loans outstanding under a
Credit Agreement dated June 1, 1993 between the Company
and Skandinaviska Enskilda Banken (the "SEB Credit
Agreement").
5. Escrow: The Company shall maintain on deposit in an escrow
account in a financial institution satisfactory to OPIC
an amount equal on any date to debt service (including
principal, interest and Guaranty Fee) due on the Loan
during the immediately succeeding six-month period.
6. Subordination: All fees, debt service and any other amounts payable by
the Company to the Sponsor or affiliates thereof shall
be subordinated to the payment of all amounts due in
respect of the Loan, provided that the Company may (a)
pay dividends subject to the dividend restrictions set
forth in paragraph 9(d) below and (b) pay to
<PAGE> 12
-3-
officers of the Company that are also affiliates of the
Sponsor compensation on an unsubordinated basis for
services as an officer of the Company at a rate
established on an arm's length basis.
7. Principal Conditions Precedent to Loan Disbursement:
(a) The following agreement shall have been entered into by the
Company and the other respective parties on terms and
conditions satisfactory to OPIC and shall each be fully
effective:
(i) a share retention agreement between the Sponsor and OPIC
requiring the Sponsor to maintain at least a minimum
indirect percentage interest in the Company;
(ii) agreements and other documents providing the security,
escrow, and subordination arrangements in favor of OPIC
referred to above;
(iii) a project completion agreement among the Company, the
Sponsor and OPIC establishing the obligations and
project completion tests described below in paragraph
11;
(iv) a Participation and OPIC Guaranty Agreement among the
Company, OPIC and a paying agent satisfactory to OPIC,
together with all other documents and instruments
required to fund the Loan on terms and conditions
satisfactory to OPIC;
(v) other construction, supply, lease, management or other
relevant contracts reasonably required as conditions for
disbursement;
(b) OPIC shall have received satisfactory evidence of all necessary
Government of Ghana consents and approvals, including without
limitation:
(i) approval of the Project for purposes of the OPIC
guaranty;
(ii) registration of the Loan with the Central Bank of Ghana
and foreign exchange consents
<PAGE> 13
permitting the remittance of all amounts payable
under the Financing Documents; and
(iii) all approvals, permits and consents necessary for the
Company to carry out the Project and its ongoing
operations at the Teberebie Mine.
(c) OPIC shall have received satisfactory evidence of all necessary
corporate documents and authorizations of the Company and the
Sponsor.
(d) OPIC shall have received satisfactory evidence that adequate
insurance coverage has been obtained, with OPIC named as an
additional insured.
(e) OPIC shall have received legal opinions of (i) counsel to OPIC
in Ghana, (ii) counsel to the Company in Ghana, (iii) counsel
to the Company in the United States and (iv) counsel to the
Sponsor in the United States, each in form and substance
satisfactory to OPIC.
(f) As of the date of each disbursement, (i) no default under the
Finance Agreement shall have occurred and be continuing, (ii)
the representations and warranties contained in the Finance
Agreement shall be true and correct as if made on such date,
and (iii) no change in circumstances shall have occurred
which materially adversely affects the Company's or the
Sponsor's financial condition or ability to fulfill their
respective obligations under the Financing Documents.
(g) An environmental impact assessment which takes the
implementation of the Project into account shall have been
delivered to OPIC, and OPIC shall be satisfied with the views
and conclusions set forth therein.
8. Reporting Requirements:
(a) The Company shall furnish OPIC with financial information and
reports expressed in U.S. dollars and in the English language,
all prepared in accordance with U.S. generally accepted
accounting principles, including but not limited to quarterly
financial statements, audited annual financial statements,
compliance certificates and, prior to Project Completion (as
defined below under the caption "Project Completion"), quarterly
progress reports.
<PAGE> 14
OPIC shall have reasonable access to the Company's books and
records and to the Company's premises for purposes of
inspection.
(b) The Company shall annually complete and deliver to OPIC a
"Self-Monitoring Questionnaire" in such form as OPIC may
from time to time prescribe and an environmental compliance
report in form and substance satisfactory to OPIC with respect
to the Company's compliance with the environmental protection
requirements of the Finance Agreement.
9. Principal Financial Covenants:
(a) Indebtedness Restrictions: The Company shall not incur any
indebtedness other than:
(i) that provided in the Financial Plan;
(ii) trade credit on terms not exceeding 90 days;
(iii) indebtedness to the Sponsor or PGL that is subordinated
to the Loan on terms fully acceptable to OPIC; and
(iv) other indebtedness (including lease obligations),
provided that the Company's ratio of total
indebtedness to tangible net worth (which for this
purpose shall include the Company's capitalized
costs of development of the Project) shall not exceed
1.5 to 1.
(b) Mortgage and Lien Restrictions: The Company shall not create or
suffer to exist any liens, security interests or encumbrances
on any of its properties or assets other than:
(i) The liens and encumbrances securing the Loan;
(ii) the Equipment Mortgage, securing not more than $3.12
million of indebtedness outstanding under the SEB Credit
Agreement as of the date of this Commitment Letter;
(iii) tax, mechanics' and other statutory liens being
contested or litigated in good faith; and
(iv) liens and encumbrances securing indebtedness referred
to in paragraph (a)(iii) above that
<PAGE> 15
- 6 -
OPIC in its sole discretion shall have determined could
not in any way interfere with OPIC's rights as a
secured creditor of the Company or its ability to
enforce such rights without restriction.
(c) Debit Service Coverage Ratio: For the four most recently
completed fiscal quarters of the Company, taken as a single
accounting period, the ratio of (i) the sum of (x) cash
generated by the Company and available for debt service and
(y) cash on hand at the beginning of such period to (ii) the
Company's debt service payments shall not be less than 2.00
to 1.
(d) Dividend Restrictions: The Company may declare or pay dividends
or make other distributions on or in respect of shares of its
capital stock only if (i) no default or event of default under
the finance Agreement then exists or would exist after giving
effect to any such dividend or distribution; (ii) after giving
effect to each such dividend or distribution (w) the ratio of
the Company's total indebtedness to its tangible net worth
(which for this purpose shall include the Company's
capitalized costs of development of the Project) would not
exceed 1.5 to 1, (x) the Company's tangible net worth would
not be less than $45,000,000, of the prior year's net income
unless the Loan is prepaid at the time of such dividend or
distribution in the amount of such excess; and (iii) for the
four next succeeding fiscal quarters of the Company, taken as
a single accounting period, the ratio of (x) the sum of
(A) cash projected to be generated by the Company and
available for debt service and (b) cash on hand at the
beginning of such period to (y) the Company's projected debt
service payments shall be not less than 2.00 to 1.
(e) Tax Gross-up: If for any reason any withholding or other
tax is applied to any payments due under the Finance Agreement,
the Company shall gross up all such payments.
<PAGE> 16
10. Other Covenants:
(a) All inter-company transactions involving the Company, the
Sponsor or any affiliate thereof shall be conducted on an
arm's-length basis and reported to OPIC.
(b) The Company shall not, without OPIC's prior written consent,
either: (i) form any subsidiaries or (ii) make any investments
outside the ordinary course of business.
(c) The Company shall not carry on any business other than (i)
completion and operation of the Project and the Teberebie Mine
and (ii) exploration activities costing less than $2,000,000
in any fiscal year of the Company that are carried on for the
purpose of locating other gold deposits within Ghana, and the
Company shall not take any action that would constitute or
result in any material alteration to the nature or scope of
that business.
(d) Standard covenants will be provided in the Finance Agreement,
including no material changes in the Project, the documents
referred to herein or the Company's Memorandum or Articles of
Association, no substantial disposition of assets and no merger,
consolidation, etc.
(e) The Company shall not take actions to prevent its employees
from lawfully exercising their right of free association and
their right to organize and bargain collectively. The Company
shall observe applicable laws relating to a minimum age for
employment of children, acceptable conditions of work with
respect to minimum wages, hours of work, and occupational
health and safety, and shall not use forced labor. The Company
is not responsible for the actions of a government.
(f) The Company shall not require employees to work more than eight
hours per day for six consecutive days (a "standard work week"),
except with financial remuneration at a rate in excess of that
to which such workers would otherwise be entitled for working
a standard work week. The Company will not employ workers under
the age of 16 years.
<PAGE> 17
(g) The Project shall be operated in compliance with World Bank
environmental and health and safety standards applicable to
gold mining, except to the extent that OPIC shall have waived
compliance therewith.
(h) The Company shall comply with all applicable Corrupt Practices
Laws.
11. Project Completion:
(a) The Sponsor and the Company shall execute a Project Completion
Agreement that will require the Sponsor (i) to cause the
Company to fulfill all of the requirements needed to achieve
Project Completion, (ii) up to Completion Date, unconditionally
and irrevocably to guarantee the payment of all of the Company's
financial obligations as they become due and payable, including,
without limitation, the Company's obligations under the Finance
Agreement and the Notes, and (iii) pursuant to such guaranty, to
pay amounts demanded from time to time by OPIC. The Sponsor's
payment obligations pursuant to the Project Completion Agreement
shall be subject to a cap equal, at any time, to the dollar
equivalent of the amount of dividends paid by the Company from
the date hereof through the earlier of such time and the date of
Project Completion. "Project Completion" shall means and be
deemed to have occurred at the time that OPIC has notified the
Sponsor that the following have been accomplished to OPIC's
satisfaction:
(w) Physical Completion Test: All buildings, facilities
and necessary infrastructure for the Project shall have
been completely constructed utilizing first-class
standards of workmanship and materials and in accordance
with the Project plans and the terms of applicable
construction agreements, and all equipment shall have
been installed and be operating in accordance with
applicable specifications;
(x) Operational Completion Tests: After satisfaction of the
foregoing physical completion test the Company shall
have demonstrated its production capabilities by
producing 195,000 troy ounces of gold over a period of
six months consecutive months;
<PAGE> 18
- 9 -
(y) Legal conditions:
(i) the Company shall have good freehold title or valid
leasehold interests free and clear of all Liens and
encumbrances (except for security interests permitted by the
Finance Agreement) to all of the land and all buildings,
equipment and facilities now or at the time known to be
required for the Project:
(ii) the Company shall have granted liens in favor of OPIC
with respect to all of the assets required to be pledged
pursuant to the Finance Agreement, and in accordance with the
requirements thereof;
(iii) the Company shall have met all of its material
obligations of any kind through the date of Project Completion,
including, without limitation, payment of all amounts at any
time to become due under contracts for construction,
procurement, installation and improvement of land, buildings,
equipment and facilities for the Project;
(iv) each Financing Document and each other document
identified in the Finance Agreement as being necessary to the
Project remains in full force and effect; and
(v) no Event of Default (or condition or event that, with
the giving of notice, or lapse of time, or both, would
constitute an Event of Default) under the Finance Agreement
shall then exist; and
(z) Financial Tests:
(i) the ratio of total liabilities to tangible net worth of
the Company shall not exceed 1.5 to 1; and
(ii) The Company shall have made at least one principal
repayment on the Loan as and when due from cash flow generated
from the Project.
<PAGE> 19
-10-
(b) The Company shall use its best efforts to achieve Project Completion
by December 31, 1998.
12. Governing Law: The Finance Agreement, the Project Completion Agrement, the
other Financing Documents and related agreements shall be
governed by the laws of the State of New York.
<PAGE> 1
EXHIBIT 10.3
[BANK OF BOSTON LETTERHEAD]
October 20, 1995
Mr. William H. Keough
SVP, CFO and Treasurer
The Pioneer Group, Inc.
60 State St.
Boston, MA 02110
Dear Bill:
We are pleased to confirm that The First National Bank of Boston, (the
"Bank") holds available an unsecured $15,000,000.00 line of credit for The
Pioneer Group, Inc. (the "Company") through February 27, 1996. This facility
supersedes and replaces the $10,000,000 line of credit established on May 22,
1995.
1. Term. This line of credit shall commence October 20, 1995 and expire on
February 27, 1996.
2. Notice and Manner of Borrowings. Each loan made under this line of
credit must be in a minimum amount of $1,000,000.00 or any larger
amount which is an integral multiple of $100,000.00, and aggregate
loans outstanding may not exceed $15,000,000.00. Requests by the
Company for loans must be received by the Bank no later than 12:00
noon (Boston time) on the day of the requested loan (in the case of
Alternate Base Loans or Money Market Loans) or two business days prior
to such date (in the case of Eurodollar Rate Loans). Promptly upon
receipt of such notice, and provided that the condition set forth in
paragraph 10 has been satisfied, the Bank will make the requested loans
by crediting the proceeds thereof to the demand deposit account of the
Company maintained with the Bank.
3. Evidence of Indebtedness. All Alternate Base Rate Loans and Eurodollar
Rate Loans will be evidenced by a promissory note (a "Note") in the
form attached hereto as Exhibit I. All Money Market Loans will be
evidenced by a promissory note in the form attached hereto as Exhibit II
(also a "Note"). The Company hereby authorizes the Bank to record each
loan and the corresponding information on the schedule forming part of
the applicable Note, and, absent manifest error, this record shall be
conclusive and binding.
4. Interest Rates. Subject to the terms and conditions hereof, the Company
may elect in its request for a loan to have interest thereon accrue at
any of the following interest rate options:
(a) a rate per annum equal to the higher of the rate of interest
announced from time to time by the Bank at its head office as its Base
Rate, or the overnight Federal Funds Rate plus 1/2% (the "Alternate
Base Rate"), or
(b) a rate quoted by the Bank in its sole discretion (it being
understood that the Bank is under no obligation to quote such rate) to
the Company as the fixed rate of interest at which it is willing to make
a "money market" advance to the Company in the amount and for the period
of the requested loan (the "Money Market Rate"); or
(c) a rate quoted by the Bank to the Company as the prevailing rate per
annum at which U.S. dollar deposits are offered to the Bank by first
class banks in the interbank Eurodollar market in which it
<PAGE> 2
2
regularly participates at approximately 10:00 a.m. (Boston time) two
business days before the date of the requested loan in the amount and
for an interest period approximately equal to that of the requested
loan, adjusted for reserve requirements, plus 1.10% per annum.
Loans bearing interest as provided in paragraphs (a), (b) and (c) of
this section 5 shall be referred to herein as "Alternate Base Rate
Loans", "Money Market Loans", and "Eurodollar Rate Loans", respectively.
Money Market Loans may be requested for interest periods of up to 180
days; Eurodollar Rate Loans may be requested for interest periods of
one, two or three months; and no loan shall have an interest period that
extends beyond the expiration of this line of credit. In the event that
the Company fails to specify an interest period in its request for a
loan, the interest period for the Money Market Loans shall be deemed to
be one month. Interest on each loan shall be calculated on the basis of
a 360-day year for the actual number of days elapsed and shall be
payable as set forth in the Notes.
5. Additional Interest. The Company shall pay to the Bank additional
interest at the rate of .25 of 1% per annum on the unused amount of the
line of credit. Additionally, such interest shall be payable quarterly
in arrears at the end of each March, June, September, and December of
any year.
6. Payments and Prepayments. Base Rate Loans shall be payable on demand.
Money Market Loans and Eurodollar Rate Loans shall be payable on the
last day of the interest period applicable thereto. The Company may
prepay Alternate Base Rate Loans, in whole or in part, at any time and
without prepayment penalties, but prepayments of Money Market Loans will
not be permitted. Your ability to prepay Eurodollar Rate Loans is
subject to the requirement that you compensate us for any funding
losses and other costs (including lost profits) incurred as a result of
such prepayment. If the Company for any reason makes any payment with
respect to a Money Market Loan or Eurodollar Rate Loan before its
maturity, or fails to borrow a Money Market Loan or Eurodollar Rate
Loan requested by the Company pursuant to Section 2, the Company will be
required to pay any costs, losses or liabilities incurred by the Bank as
a result thereof, including any losses incurred in obtaining,
liquidating or employing deposits with reference to which the rate of
interest for such loan was determined, upon presentation by the Bank of
a statement in the amount and setting forth the Bank's calculation
thereof, which statement shall be deemed true and correct absent
manifest error.
7. Changed Circumstances; Increased Costs
(a) In the event that any law, regulation, treaty or official directive
or the interpretation or application thereof by any court or
governmental authority or the compliance with any guideline or request
of any central bank or other governmental authority (whether or not
having the force of law):
(i) subjects the Bank to any tax with respect to any amounts
payable hereunder by the Company or otherwise with respect to
the transactions contemplated hereunder (except for taxes on
the overall net income of the Bank imposed by the United States
of America or any political subdivision thereof), or
(ii) imposes, modifies or deems applicable any deposit
insurance, reserve, special deposit, capital maintenance or
similar requirement against assets held by, or deposits in or
for the account of, or loans or commitments to make loans by,
the Bank (other than such requirements the effect of which is
included in the determination of the interest rates for loans
made hereunder), or
(iii) imposes upon the Bank any other condition with respect to
the loans made hereunder,
<PAGE> 3
3
and the result of any of the foregoing is to increase the cost to the Bank,
reduce the income receivable by or return on equity of the Bank or impose
any expense upon the Bank with respect to any loans or commitments to make
loans hereunder, the Bank shall so notify the Company. The Company agrees
to pay to the Bank the amount of such increase in costs, reduction in
income, reduced return on equity or additional expense as and when such
cost, reduction or expense is incurred or determined, upon presentation by
the Bank of a statement in the amount and setting forth the Bank's
calculation thereof, which statement shall be deemed true and correct
absent manifest error.
8. Loan Participations. The Bank may sell, transfer or grant participations in
the Note without the prior consent of the Company, and the Company agrees
that any transferee or participant shall be entitled to the benefits of
paragraph 7 and 8 hereof to the same extent as if such transferee or
participant were the Bank hereunder.
9. Availability of Loans. The availability of loans under this facility is
subject to (a) the Bank's usual condition that the Bank continue to be
satisfied that there shall have been no material adverse change in the
assets, liabilities, financial condition, business operations or prospects
of the Company or the Guarantor since the date, hereof; and (b) any
substantive changes in government regulations or monetary policies.
Sincerely,
The First National Bank of Boston
By: /s/ STEWART P. NEFF
---------------------------
Title: Managing Director
Acknowledged and Accepted:
The Pioneer Group, Inc.
By: /s/ William H. Keough
-------------------------
Title: Senior Vice President,
and Treasurer
Date: Oct. 28, 1995
<PAGE> 4
4
EXHIBIT I
THE PIONEER GROUP, INC.
PROMISSORY NOTE Boston, Massachusetts
October 20, 1995
FOR VALUE RECEIVED, the undersigned hereby promises to pay to THE FIRST
NATIONAL BANK OF BOSTON (the "Bank"), or order, at the head office of the Bank
in Boston, Massachusetts, the aggregate principal amount of all loans made by
the Bank to the undersigned pursuant to the letter agreement between the Bank
and the undersigned dated October 20, 1995, as shown in the schedule attached
hereto (the "Note Schedule"), together with interest on each loan from the date
such loan is made until the maturity thereof at the applicable rate set forth
in the Note Schedule. The principal amount of each loan shall be payable on
demand or on the maturity date of such loan as indicated in the Note Schedule,
and in any event, the aggregate outstanding principal amount of all loans
hereunder shall be due and payable on February 27, 1996. Interest on the
principal amount of each loan shall be payable in arrears on the same day as
the principal amount is due, provided that (i) interest on each loan bearing
interest at the Alternate Base Rate shall be payable on the last day of each
quarter, beginning on the first of such dates occurring after the date of such
loan and when such loan is due, and (ii) if the maturity of any loan is more
than 90 days from the date of such loan, then interest shall be payable at
intervals of 90 days and when such loan is due. Loans which are shown as
bearing interest at the Alternate Base Rate shall bear interest at a rate per
annum equal to the greater of (i) the rate of interest announced from time to
time by the Bank at its head office as its "Base Rate", and (ii) the rate equal
to the weighted average of the published rates on overnight Federal Funds
transactions with members of the Federal Reserve System plus 1.2%, in each case
plus the applicable margin, if any, which interest rate shall change as and
when the Alternate Base Rate changes. Interest shall be computed on the basis
of a 360 day year and paid for the actual number of days elapsed. All payments
shall be made in lawful currency of the United States of America in immediately
available funds.
Overdue payments of principal of any loan (whether at stated maturity,
by acceleration or otherwise), and, to the extent permitted by law, overdue
interest, shall bear interest, payable on demand and compounded daily, at a
rate per annum equal to two percent (2%) above the greater of (i) the Alternate
Base Rate and (ii) the rate applicable to such loan prior to the date such loan
was due.
If any of the following events of default shall occur ("Defaults:): (a)
default in the payment of any amounts due hereunder or performance of any of
the Obligations or of any obligations of any Obligor to others for borrowed
money or in respect of any extension of credit or accommodations; (b) failure
of any representation or warranty, statement or information in any documents or
financial statements delivered to the Bank for the purpose of inducing it to
make or maintain any loan under this Note to be true and correct; (c) failure
of the undersigned to file any tax return, or to pay or remit any tax, when
due; (d) failure to furnish the holder promptly on request with financial
information about, or to permit inspection by the holder of books, records and
properties of, any Obligor; (e) loss, theft, substantial damage, sale or
encumbrance to or of any property constituting any collateral for the
Obligations, or the making of any levy, seizure or attachment thereof or
thereon or the failure to pay when due any tax thereon or, with respect to any
insurance policy, any premium therefore; (f) default under any instrument
constituting, or under any agreement relating to, any collateral; (g) Any
Obligor generally not paying its debts as they become due; (h) death,
dissolution, termination of existence, insolvency, business failure,
appointment of a
<PAGE> 5
5
receiver or other custodian of any part of the property of, assignment for the
benefit of creditors by, or the commencement of any proceedings under any
bankruptcy or insolvency laws by or against, any Obligor; (i) change in the
condition or affairs (financial or otherwise) of which in the opinion of the
holder will impair its security or increase its risk; then immediately and
automatically with respect to any Defaults set forth in clauses (g) and (h)
above, and thereupon or at any time thereafter with respect to each other
Default (such Default not having been previously cured), at the option of the
holder, all Obligations of the undersigned shall become immediately due and
payable without notice or demand and, if there is any collateral for the
Obligations, the holder shall then have in any jurisdiction where enforcement
hereof is sought, in addition to all other rights and remedies, the rights and
remedies of a secured party under the Uniform Commercial Code of Massachusetts.
Any sums from time to time credited by or due from the holder to any
Obligor, and any property of the undersigned or any guarantor in which the
holder has from time to time any security interest or which from time to time
may be in the possession of the holder for any purpose shall constitute
collateral security for the payment or performance of the Obligations of the
undersigned or such guarantor hereunder, and the undersigned hereby grants the
holder a security interest in such sums and property. Regardless of the
adequacy of any collateral, the holder may apply such sums or property or
realizations upon any such security interest against such Obligations at any
time in the case of the primary Obligor but only against matured Obligations in
the case of a secondary Obligor.
The undersigned hereby waives presentment, demand, notice of dishonor,
protest and all other demands and notices in connection with the delivery,
acceptance, performance and enforcement of this Note.
Each Obligor waives presentment, demand, notice of dishonor protest and
all other demands and notices in connection with the delivery, acceptance,
performance, default and enforcement of this Note or of any collateral, and
assents to any extension or postponement of the time of payment or any other
indulgence under this Note or with respect to any collateral, to any
substitution, exchange or release of any collateral and/or to the addition or
release or any other party or person primarily or secondarily liable hereunder.
As used herein "Obligor" means any person primarily or secondarily liable
hereunder or in respect hereto; "Obligation" means any obligation hereunder or
otherwise of any Obligor to the holder whether direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising; and
"holder" means the payee or any endorsee of this Note who is in possession of
it, or the bearer hereof if this Note is at the time payable to the bearer.
The undersigned will pay on demand all costs of collection and
attorney's fees paid or incurred by the holder in enforcing the Obligations of
any Obligor.
This instrument shall have the effect of an instrument executed under
seal and shall be governed by and construed in accordance with the laws of The
Commonwealth of Massachusetts.
The Pioneer Group, Inc.
By: /s/ William H. Keough
----------------------------
Title: Senior Vice President
and Treasurer
<PAGE> 6
6
NOTE SCHEDULE TO $15,000,000 PROMISSORY NOTE OF
THE PIONEER GROUP, INC.
DATED October 20, 1995
<TABLE>
Date and
Amount of
Principal Payment Notation Made
Date of Loan Amount of Loan Maturity Date Interest Rate Received By
- ------------ -------------- ------------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
</TABLE>
<PAGE> 7
7
EXHIBIT II
THE PIONEER GROUP, INC.
PROMISSORY NOTE (MONEY MARKET NOTE)
October 20, 1995
Boston, Massachusetts
FOR VALUE RECEIVED, the undersigned hereby promises to pay to THE FIRST
NATIONAL BANK OF BOSTON (the "Bank"), or order, at the head office of the Bank
in Boston, Massachusetts, the aggregate principal amount of all loans made by
the Bank to the undersigned pursuant to the letter agreement between the Bank
and the undersigned dated October 20, 1995, as shown in the schedule attached
hereto (the "Note Schedule"), together with interest at the rate or rates set
forth in the Note Schedule. The principal amount of each loan as shown on the
Note Schedule shall be payable on the maturity date set forth therein, and
interest with respect to such principal amount is due. Interest shall be
computed on the basis of a 360-day year and paid for the actual number of days
elapsed in any interest period. All payments shall be made in lawful currency
of the United States of America in immediately available funds.
No prepayment of the principal amount of any loan shall be permitted.
Upon the occurrence of any of the following events of default: (a)
default in the payment or performance of any of the Obligations or of any
obligations of any Obligor to others for borrowed money or in respect of any
extension of credit or accommodation; (b) failure of any representation and
warranty hereunder or of any representation or warranty, statement or
information in any documents or financial statements delivered to the Bank for
the purpose of inducing it to make or maintain the loans under this Note to be
true and correct; (c) failure to furnish the holder promptly on request with
financial information about, or to permit inspection by the holder of books,
records and properties of, any Obligor; (d) any Obligor generally not paying
its debts as they become due; (e) death, dissolution, termination of existence,
insolvency, business failure, appointment of a receiver or other custodian of
any part of the property of, assignment for the benefit of creditors by, or the
commencement of any proceedings under any bankruptcy or insolvency laws by or
against, any Obligor; then the unpaid principal balance of this Note, plus
accrued interest may, at the option of the Bank, be declared immediately due
and payable. As used herein "Obligor" means any person primarily or secondarily
liable hereunder or in respect hereto; "Obligation" means any obligation
hereunder or otherwise of any Obligor to the holder whether direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter
arising; and "holder" means the payee or any endorsee or assignee of this Note.
Overdue payments of principal (whether at stated maturity, by
acceleration or otherwise), and to the extent by law, overdue interest, shall
bear interest, payable on demand and compounded monthly, at a rate per annum
equal to two percent (2%) above the rate of interest announced from time to
time by the First National Bank of Boston at its head office as its Base Rate
(the "Base Rate"), which rate shall change as the Base Rate changes.
The parties hereunder, including the undersigned, hereby waive
presentment, demand, notice of dishonor, protest and all other demands and
notices in connection with the delivery, acceptance, performance and
enforcement of this Note.
<PAGE> 8
8
The undersigned agrees to pay all charges of the Bank in connection
with the collection or enforcement of this Note, including reasonable
attorneys' fees.
This instrument shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
THE PIONEER GROUP, INC.
By: /s/ William H. Keough
------------------------------
Title: Senior Vice President
and Treasurer
<PAGE> 9
9
NOTE SCHEDULE TO $15,000,000 PROMISSORY NOTE OF
THE PIONEER GROUP, INC.
DATED October 20, 1995
<TABLE>
<CAPTION>
Date and
Amount of
Principal Maturity Interest Payment Notation
Date of Loan Amount of Loan Date Rate Received Made By
- ------------ -------------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
</TABLE>
<PAGE> 1
EXHIBIT 11
THE PIONEER GROUP, INC.
Computation of Earnings Per Share (Unaudited)
(Dollars in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
COMPUTATION FOR CONSOLIDATED
STATEMENT OF INCOME THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
------------------- -------------------------------- -------------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET INCOME (1) $6,273 $8,280 $19,399 $27,018
========== ========== ========== ==========
SHARES
Weighted average number of
common shares outstanding (2) 24,816,000 24,672,000 24,804,000 24,664,000
Dilutive effect of stock options and
restricted stock proceeds as common
stock equivalents computed under the
treasury stock method using the
average price during the period (2) 555,000 702,000 493,000 674,000
---------- ---------- ---------- ----------
WEIGHTED AVERAGE NUMBER OF SHARES
outstanding as adjusted (1) (2) 25,371,000 25,374,000 25,297,000 25,338,000
========== ========== ========== ==========
EARNINGS PER SHARE (1) (2) $0.25 $0.33 $0.77 $1.07
========== ========== ========== ==========
-------------------
(1) These amounts agree with the related amounts in the Consolidated Statement of Income.
(2) Adjusted for December 1, 1994, 2-for-1 stock split effected in the form of a 100% stock dividend.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF PIONEER GROUP FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1.00000
<CASH> 24,205
<SECURITIES> 9,514
<RECEIVABLES> 23,803
<ALLOWANCES> 0
<INVENTORY> 16,071
<CURRENT-ASSETS> 81,122
<PP&E> 127,967
<DEPRECIATION> (48,842)
<TOTAL-ASSETS> 274,932
<CURRENT-LIABILITIES> 75,086
<BONDS> 0
<COMMON> 2,482
0
0
<OTHER-SE> 145,241
<TOTAL-LIABILITY-AND-EQUITY> 274,932
<SALES> 0
<TOTAL-REVENUES> 143,472
<CGS> 0
<TOTAL-COSTS> 114,553
<OTHER-EXPENSES> (4,662)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 557
<INCOME-PRETAX> 33,024
<INCOME-TAX> 13,625
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,399
<EPS-PRIMARY> 0.770
<EPS-DILUTED> 0.770
</TABLE>
