<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE THREE MONTHS ENDED MARCH 31, 1997 COMMISSION FILE NO. 0-8841
THE PIONEER GROUP, INC.
(exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 13-5657669
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
60 STATE STREET, BOSTON, MASSACHUSETTS 02109
(Address of principal executive offices) (Zip Code)
</TABLE>
617-742-7825
(Registrant's telephone number, including area code)
NO CHANGES
(Former name, former address and former fiscal year,
if changes since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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.
Yes X No
--- ---
As of March 31, 1997, there were 25,130,983 shares
of the Registrant's Common Stock,
$.10 par value per share, issued and outstanding.
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<PAGE> 2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE PIONEER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents, at cost which approximates fair value..................................... $ 42,532 $ 30,813
Restricted cash...................................................................................... 1,891 1,664
Investment in marketable securities, at fair value................................................... 31,497 27,542
Receivables:
From securities brokers and dealers for sales of mutual fund shares.............................. 10,145 9,010
From Pioneer Family of Mutual Funds.............................................................. 16,203 13,978
For securities sold.............................................................................. 13,909 2,600
For gold shipments............................................................................... 481 2,686
Other............................................................................................ 12,975 14,912
Mining inventory..................................................................................... 25,639 23,502
Other current assets................................................................................. 9,376 12,607
-------- --------
Total current assets......................................................................... 164,648 139,314
-------- --------
NONCURRENT ASSETS:
Mining operations:
Mining equipment and facilities (net of accumulated depreciation of $60,188 in 1997 and
$56,143 in 1996)................................................................................ 109,135 107,807
Deferred mining development costs (net of accumulated amortization of $14,011 in 1997 and
$13,455 in 1996)................................................................................ 10,754 10,675
Cost of acquisition in excess of net assets (net of accumulated amortization of $9,972 in 1997
and $9,268 in 1996)................................................................................ 22,257 22,945
Long-term venture capital investments, at fair value (cost $51,400 in 1997 and $46,651 in 1996)...... 68,848 59,872
Long-term investments, at cost....................................................................... 15,701 15,996
Timber project in development:
Timber equipment and facilities (net of accumulated depreciation of $235 in 1997
and $0 in 1996)................................................................................. 13,406 11,852
Deferred timber development costs (net of accumulated amortization of $457 in 1997
and $0 in 1996)................................................................................. 24,204 25,713
Timber inventory................................................................................. 4,957 1,406
Building in progress................................................................................. 22,932 22,340
Furniture, equipment, and leasehold improvements (net of accumulated depreciation and amortization of
$14,287 in 1997 and $13,293 in 1996)............................................................... 14,579 14,368
Loans to bank customers.............................................................................. 2,559 6,632
Dealer advances (net of accumulated amortization of $10,550 in 1997 and $8,613 in 1996).............. 35,851 34,293
Other noncurrent assets.............................................................................. 20,266 19,999
-------- --------
Total noncurrent assets...................................................................... 365,449 353,898
-------- --------
$530,097 $493,212
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Payable to funds for shares sold..................................................................... $ 10,134 $ 8,996
Accounts payable..................................................................................... 30,129 25,633
Accrued expenses..................................................................................... 22,028 24,751
Customer deposits.................................................................................... 17,834 15,328
Payable for securities purchased..................................................................... 16,926 2,040
Short-term borrowings - banking activities........................................................... 2,886 5,573
Accrued income taxes................................................................................. 3,830 1,690
Current portion of notes payable..................................................................... 10,468 10,002
-------- --------
Total current liabilities.................................................................... 114,235 94,013
-------- --------
NONCURRENT LIABILITIES:
Notes payable, net of current portion................................................................ 153,359 149,500
Deferred income taxes, net........................................................................... 28,276 25,569
-------- --------
Total noncurrent liabilities................................................................. 181,635 175,069
-------- --------
Total liabilities............................................................................ 295,870 269,082
-------- --------
Minority interest.................................................................................... 66,300 61,657
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $10 par value; authorized 60,000,000 shares; issued 25,154,833 shares in 1997 and
25,013,763 shares in 1996....................................................................... 2,515 2,501
Paid-in capital.................................................................................. 14,596 11,450
Retained earnings................................................................................ 157,254 152,457
Cumulative translation adjustment................................................................ (152) --
Treasury stock at cost, 23,850 shares in 1997 and 910 shares in 1996............................. (483) (16)
-------- --------
173,730 166,392
Less - Deferred cost of restricted common stock issued........................................... (5,803) (3,919)
-------- --------
Total stockholders' equity................................................................... 167,927 162,473
-------- --------
$530,097 $493,212
======== ========
</TABLE>
The Company's Annual Report on Form 10-K should be read in conjunction with
these financial statements.
1
<PAGE> 3
THE PIONEER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenues and sales:
Investment management fees..................................... $ 27,095 $ 18,650
Underwriting commissions and distribution fees................. 5,768 3,856
Shareholder services fees...................................... 6,664 6,089
Securities and interest income -- banking activities........... 2,444 1,677
Trustee fees and other income.................................. 10,272 4,966
----------- -----------
Revenues from financial services businesses............... 52,243 35,238
Gold sales..................................................... 17,467 21,237
----------- -----------
Total revenues and sales.................................. 69,710 56,475
----------- -----------
Costs and expenses:
Management, distribution, shareholder service and
administrative expenses....................................... 42,912 28,992
Interest expense -- banking activities......................... 1,360 577
Gold mining operating costs and expenses....................... 17,227 16,645
----------- -----------
Total costs and expenses.................................. 61,499 46,214
----------- -----------
Other (income) expense:
Unrealized and realized gains on venture capital and marketable
securities investments, net................................... (8,486) (217)
Interest expense............................................... 1,614 420
Other, net..................................................... 420 421
----------- -----------
Total other (income) expense.............................. (6,452) 624
----------- -----------
Income before provision for federal, state and foreign income taxes
and minority interest............................................. 14,663 9,637
----------- -----------
Provision for federal, state and foreign income taxes............... 6,644 3,912
----------- -----------
Income before minority interest..................................... 8,019 5,725
----------- -----------
Minority interest................................................... 710 611
----------- -----------
Net income.......................................................... $ 7,309 $ 5,114
=========== ===========
Earnings per share.................................................. $ 0.29 $ 0.20
=========== ===========
Dividends per share................................................. $ 0.10 $ 0.10
=========== ===========
Weighted average common and common equivalent shares outstanding.... 25,503,000 25,439,000
=========== ===========
</TABLE>
The Company's Annual Report on Form 10-K should be read in conjunction with
these financial statements.
2
<PAGE> 4
THE PIONEER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1997 1996
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................................... $ 7,309 $ 5,114
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization........................................................ 9,054 6,505
Unrealized and realized gains on venture capital and marketable securities, net...... (8,486) (217)
(Equity in earnings of) provision on other investments............................... (16) 20
Restricted stock plan expense........................................................ 456 389
Deferred income taxes................................................................ 2,707 5,847
Minority interest.................................................................... 710 611
Changes in operating assets and liabilities:
Investments in marketable securities, net............................................ (3,515) (1,056)
Receivable from securities brokers and dealers for sales of mutual fund shares....... (1,135) (245)
Receivables for securities sold...................................................... (11,309) --
Receivables for gold shipments....................................................... 2,205 2,199
Receivables from Pioneer Family of Mutual Funds and Other............................ (288) (6,302)
Mining inventory..................................................................... (2,137) (2,207)
Other current assets................................................................. 3,049 (748)
Other noncurrent assets.............................................................. (586) (244)
Payable to funds for shares sold..................................................... 1,138 537
Accrued expenses and accounts payable................................................ 1,773 7,103
Payable for securities purchased..................................................... 14,886 --
Accrued income taxes................................................................. 2,255 (744)
------- -------
Total adjustments................................................................ 10,761 11,448
------- -------
Net cash provided by operating activities........................................ 18,070 16,562
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of mining equipment and facilities.............................................. (5,395) (19,538)
Deferred mining development costs........................................................ (635) (164)
Additions to furniture, equipment and leasehold improvements............................. (1,588) (810)
Building in progress..................................................................... (592) (3,915)
Long-term venture capital investments.................................................... (4,789) (6,105)
Proceeds from sale of long-term venture capital investments.............................. 57 1,900
Loans to bank customers.................................................................. 4,073 --
Deferred timber development costs........................................................ 1,342 (1,873)
Timber equipment and facilities.......................................................... (1,554) (201)
Timber inventory......................................................................... (3,551) --
Other investments........................................................................ (479) (2,716)
Proceeds from sales of other investments................................................. 1,732 --
Cost of acquisition in excess of net assets acquired..................................... (16) --
Long-term investments.................................................................... (1,934) (1,880)
Proceeds from sale of long-term investments.............................................. 4,897 3,964
------- -------
Net cash used in investing activities................................................ (8,432) (31,338)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid........................................................................... (2,513) (2,496)
Distributions to limited partners of venture capital subsidiary.......................... (64) --
Exercise of stock options................................................................ 229 254
Restricted stock plan award.............................................................. 10 7
Dealer advances.......................................................................... (3,495) (6,555)
Customer deposits........................................................................ 2,506 --
Short term borrowings-banking activities, net............................................ (2,687) --
Borrowings............................................................................... 6,000 12,000
Amounts raised by venture capital investment partnerships................................ 3,997 4,543
Repayments of notes payable.............................................................. (1,675) (812)
Reclassification of restricted cash...................................................... (227) --
------- -------
Net cash provided by financing activities............................................ 2,081 6,941
------- -------
Net increase in cash and cash equivalents.................................................... 11,719 (7,835)
Cash and cash equivalents at beginning of period............................................. 30,813 27,809
------- -------
Cash and cash equivalents at end of period................................................... $42,532 $19,974
======= =======
</TABLE>
The Company's Annual Report on Form 10-K should be read in conjunction with
these financial statements.
3
<PAGE> 5
THE PIONEER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1997
NOTE 1 -- NATURE OF OPERATIONS AND ORGANIZATION
The Pioneer Group, Inc., and its subsidiaries (collectively, the
"Company"), are engaged in financial services businesses in the United States
and several foreign countries and in a number of natural resource development
projects, including a gold mining venture in the Republic of Ghana and three
timber ventures in the Russian Far East.
In the United States, the Company conducts four lines of financial services
businesses: (i) Pioneering Management Corporation ("PMC") serves as investment
manager to the 31 U.S. registered investment companies in the Pioneer Family of
Mutual Funds and several institutional accounts, (ii) Pioneer Funds Distributor,
Inc. ("PFD") serves as distributor of shares of the Pioneer Family of Mutual
Funds, (iii) Pioneer Capital Corporation ("PCC"), and its subsidiaries, engage
in venture capital investing and management activities, and (iv) Pioneering
Services Corporation serves as shareholder servicing agent for the Pioneer
Family of Mutual Funds.
The Company's international financial services businesses include
investment operations in: (i) Warsaw, Poland, where the Company manages and
distributes units of three mutual funds, owns 50% of a unitholder servicing
agent, manages an institutional venture capital fund, and owns a majority
interest in a brokerage operation, (ii) Dublin, Ireland, where the Company
distributes shares of, manages and services three offshore investment funds,
sold primarily in Western Europe, and (iii) Moscow, Russia, where the Company
provides financial services, including banking, investment advisory, investment
banking and brokerage and transfer agency services, distributes shares of,
manages, and services, Pioneer First, one of the first open-end mutual funds
available to Russian citizens, and where the Company owns 51% of the First
Voucher Fund, the largest Russian voucher investment fund. In addition, the
Company has investment operations in the Czech Republic and has invested in
investment management operations in India and Taiwan.
The Company's Russian investment operations are consolidated under Pioneer
First Russia, Inc. ("PFR"). In 1996, PFR entered into a subscription agreement
with the International Finance Commission("IFC") for the sale of up to $4
million of its common stock. Simultaneously, the Company also entered into a put
and call agreement for this common stock. The put allows the holder of the
shares to put them to PFR for the greater of the IFC shares net asset value, as
defined in the agreement, or twelve times PFR's average earnings, as defined in
the agreement, during the period from four to eight years from the date of the
initial closing. The call feature allows the Company to call the shares for the
same amount, beginning eight years and ending ten years from the date of initial
closing.
In 1996, the IFC advanced $2 million to PFR, pursuant to the subscription
agreement. The balance of the commitment was received by PFR during the first
quarter of 1997. The entire commitment is included in minority interest
liability. Adjustments are made to the carrying amount of this liability to
reflect the IFC's interest under the put and call agreement.
The Company's wholly owned subsidiary, Pioneer Goldfields Limited ("PGL"),
conducts mining and exploration activities in the Republic of Ghana and
exploration activities elsewhere in Africa. PGL's principal asset is its
ownership of 90% of the outstanding shares of Teberebie Goldfields Limited
("TGL"), which operates a gold mine in the western region of the Republic of
Ghana. The Republic of Ghana owns the remaining 10% of TGL. The Company also
participates in several natural resource development ventures in Russia,
including a project pursuing the development of timber production in the Russian
Far East, in which the Company has a 90% direct interest and a 2.1% indirect
interest.
4
<PAGE> 6
THE PIONEER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of 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, 1996. The footnotes to the financial statements reported
in the 1996 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 1996
consolidated financial statements to conform with the 1997 presentation.
Income taxes paid were $2,224,000 and $442,000 for the three months ended
March 31, 1997, and March 31, 1996, respectively. In addition, interest paid was
$2,894,000 for the three months ended March 31, 1997, and $1,123,000 for the
three months ended March 31, 1996. Included in these interest paid amounts was
$1.1 million for the three months ended March 31, 1997, that was capitalized
related to TGL's mining Phase III expansion operations and $709,000 for the
three months ended March 31, 1996, that was capitalized related to the
development of the Company's building in progress and Russian timber operations.
NOTE 3 -- MINING INVENTORY
Mining inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Gold dore........................................... $ 1,546 $ --
Gold-in-process..................................... 1,706 1,658
Materials and supplies.............................. 22,387 21,844
------- --------
$25,639 $ 23,502
======= ========
</TABLE>
NOTE 4 -- MINING EQUIPMENT
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Mobile mine equipment............................. $ 62,662 $ 62,177
Crusher........................................... 23,166 22,550
Processing plant and laboratory................... 5,042 5,040
Leach pads and ponds.............................. 19,585 19,318
Building and civil works.......................... 10,820 10,813
Office furniture and equipment.................... 1,869 1,798
Motor vehicles.................................... 2,448 2,307
Construction in progress.......................... 41,681 37,937
Other assets...................................... 2,050 2,010
-------- --------
169,323 163,950
Less: accumulated depreciation.............. (60,188) (56,143)
-------- --------
Total mining equipment............................ $109,135 $107,807
======== ========
</TABLE>
NOTE 5 -- INCOME TAXES
The Company follows the accounting and disclosure rules specified by
Statement of Financial Accounting Standards ("SFAS No. 109") "Accounting for
Income Taxes." 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
5
<PAGE> 7
THE PIONEER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
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 loans to Forest-Starma (the Company's
Russian timber venture), non-qualified pension expense, deferred rent expense,
and foreign tax credits' 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 6 -- STOCK PLANS
The Company records stock compensation in accordance with APB 25. 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 2005. The Company's 1990 Restricted
Stock Plan (the "1990 Plan") expired in January 1995. The 1995 Plan and the 1990
Plan are collectively referred to as the "Plans."
The following tables summarize restricted stock plan activity for the Plans
during the first three months of 1997.
<TABLE>
<CAPTION>
UNVESTED SHARES
------------------------------------
1995 PLAN 1990 PLAN TOTAL
--------- --------- --------
<S> <C> <C> <C>
Balance at 12/31/96............................... 69,680 259,841 329,521
Awarded...................................... 131,735 -- 131,735
Vested....................................... (240) (123,682) (123,922)
Forfeited.................................... (6,020) (29,585) (35,605)
------- ------- -------
Balance at 3/31/97................................ 195,155 106,574 301,729
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
VESTED SHARES
-----------------------------------
1995 PLAN 1990 PLAN TOTAL
--------- --------- -------
<S> <C> <C> <C>
Balance at 12/31/96................................. 10,089 485,658 495,747
Vested......................................... 240 123,682 123,922
------ ------- -------
Balance at 3/31/97.................................. 10,329 609,340 619,669
====== ======= =======
</TABLE>
The Company awarded 78,137 in 1996 and 3,937 shares in 1995 under the 1995
Plan. The Company awarded 123,400 shares in 1995 under the 1990 Plan.
The participant's right to sell 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
6
<PAGE> 8
THE PIONEER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
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 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.
The following table summarizes all stock option activity since December 31,
1994.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
--------- ----------------
<S> <C> <C>
Outstanding at December 31, 1994................... 1,794,500 $ 7.35
Granted....................................... 207,500 27.48
Exercised..................................... (25,000) 6.03
--------- ------
Outstanding at December 31, 1995................... 1,977,000 $ 9.30
Granted....................................... 281,000 24.85
Exercised..................................... (80,000) 6.34
--------- ------
Outstanding at December 31, 1996................... 2,178,000 $11.58
Forfeited..................................... (24,000) 18.38
Exercised..................................... (22,000) 10.39
--------- ------
Outstanding at March 31, 1997...................... 2,132,000 $11.51
========= ======
Exercisable at March 31, 1997...................... 1,464,500 $ 6.93
========= ======
</TABLE>
On May 4, 1995, the Company adopted the 1995 Employee Stock Purchase Plan
(the "1995 Purchase Plan") which qualifies as an "Employee Stock Purchase Plan"
within the meaning of Section 423 of the Internal Revenue Code of 1986. An
aggregate total of 500,000 shares of common stock have been authorized for
issuance under the 1995 Purchase Plan, to be implemented through one or more
offerings, each approximately six months in length beginning on the first
business day of each January and July. The price at which shares may be
purchased during each offering will be the lower of (i) 85% of the closing price
of the common stock as reported on the NASDAQ National Market (the "closing
price") on the date that the offering commences or (ii) 85% of the closing price
of the common stock on the date the offering terminates. In 1996 and 1995, the
Company issued 33,433 shares and 18,228 shares under the 1995 Purchase Plan,
respectively.
In March of 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS No. 128") "Earnings Per Share." It is
effective for fiscal years ending after December 15, 1997. SFAS No. 128 requires
the replacement of earnings per share with basic earnings per share. Basic EPS
is computed by dividing reported earnings available to stockholders by weighted
average shares outstanding. No dilution for potentially dilutive securities is
included. Fully diluted EPS, now called diluted EPS, is still required. The
Company does not expect the adoption of SFAS No. 128 to have a material effect
on previously reported earnings per share amounts.
NOTE 7 -- NET CAPITAL
As a broker-dealer, Pioneer Funds Distributor, Inc. ("PFD"), is subject to
the Securities and Exchange Commission's ("SEC") 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
7
<PAGE> 9
THE PIONEER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
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 $3,514,044 at March 31, 1997, which exceeded
required net capital of $936,801 by $2,577,243. The ratio of aggregate
indebtedness to net capital at March 31, 1997, was 4 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 8 -- 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 ("the Benefit Plans") qualified under section 401 of the
Internal Revenue Code. 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 the Benefit Plans were $672,000
for the three months ended March 31, 1997, and $577,000 for the three months
ended March 31, 1996.
Both of the Company's qualified Benefit 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 10% of their compensation to the
plan, and the Company will match this contribution up to 2%.
NOTE 9 -- RELATED PARTY TRANSACTIONS
Certain officers and/or directors of the Company and its subsidiaries are
officers and/or trustees of the Pioneer Family of Mutual Funds and the Company's
international mutual funds. Investment management fees earned from the mutual
funds were approximately $26,345,000 for the three months ended March 31, 1997,
and $17,624,000 for the three months ended March 31, 1996. Underwriting
commissions and distribution fees earned from the sales of mutual funds shares
were approximately $5,768,000 for the three months ended March 31, 1997, and
$3,856,000 for the three months ended March 31, 1996, respectively. Shareholder
services fees earned from the mutual funds were approximately $6,664,000 for the
three months ended March 31, 1997, and $6,089,000 for the three months ended
March 31, 1996.
Within the Pioneer mutual funds, total revenues from Pioneer II were
approximately $11,704,000 for the three months ended March 31, 1997, and
$8,801,000 for the three months ended March 31, 1996.
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 $207,000 for the three months ended
March 31, 1997, and $314,000 for the three months ended March 31, 1996.
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
U.S. rental expense was approximately $855,000 for the three months ended
March 31, 1997, and $787,000 for the three months ended March 31, 1996. Future
minimum payments under the leases amount to approximately $2,759,000 for the
last nine months of 1997, $3,821,000 in 1998, $3,749,000 in 1999, $3,610,000 in
2000, $3,692,000 in 2001, $1,194,000 in 2002 and $1,061,000 thereafter. These
future minimum payments include estimated annual operating and tax expenses of
approximately $1,196,000 in the last nine months of 1997, and $1,642,000
thereafter.
8
<PAGE> 10
THE PIONEER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
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.
The Company guaranteed a custody bank account in Poland in the amount of
$600,000, in order to enable its broker-dealer subsidiary in Poland, to fulfill
certain regulatory requirements.
At March 31, 1997, the Company was committed to additional capital
contributions of $1.8 million to Pioneer Poland U.S. L.P. and $1.8 million to
Pioneer Poland U.K. L.P.. These contributions are due upon call by Management as
prior contributions become 80% invested. In April of 1997, the Company
contributed $1.2 million equally among the two limited partnerships thereby
reducing these amounts to $1.2 million and $1.2 million, respectively. At March
31, 1997, the Company was committed to additional capital contributions of $1.9
million to Pioneer Ventures Limited Partnership II, a U.S. venture capital fund.
NOTE 11 -- NOTES PAYABLE
Notes payable of the Company consists of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Revolving Credit Agreement........................................... $92,000 $87,500
Preferred shares financing related to the Russian investment
operations, principal payable in three annual installments of
$2,000,000 through 1998, interest payable at 5%.................... 4,000 4,000
Small Business Administration ("SBA") financing, notes payable to a
bank, interest payable semi-annually at rates ranging from 6.12% to
9.8%, principal due in 1998 through 2003........................... 4,950 4,950
Note payable to a bank, guaranteed by the Swedish Exports Credits
Guarantee Board, principal payable on March 31, 1997, interest
payable at 5.77%, secured by equipment............................. -- 812
Note payable to a bank, interest payable quarterly at the three month
LIBOR rate plus 6%, principal due in eight quarterly installments
through January, 1999, secured by lease rental payments and
proceeds from insurance policies................................... 1,500 --
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.......................... 1,286 1,286
Note payable to a bank, guaranteed by the Swedish Exports Credits
Guarantee Board, principal payable in ten semi-annual installments
of $1,415,000 beginning no later than July 31, 1997, interest
payable at 6.42%, secured by equipment............................. 14,147 14,147
Note payable to a supplier, principal payable in quarterly
installments of $336,000 through April 15, 2001, interest payable
at 7.85%, secured by equipment..................................... 5,706 6,042
Note payable to a supplier, principal and interest payable in
quarterly installments of $102,000 through April 15, 2001, interest
payable at 7.85%, secured by equipment............................. 1,463 1,535
Note payable to a supplier, principal payable in quarterly
installments of $285,000 through May 30, 2001, interest payable at
8.00%, secured by equipment........................................ 4,843 5,128
</TABLE>
9
<PAGE> 11
THE PIONEER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Note payable to a supplier, principal payable in quarterly
installments of $338,000 through September 15, 2001, interest
payable at 8.25%, secured by equipment............................. 6,252 6,422
Note payable to a bank, guaranteed by OPIC, principal payable in
twelve equal semi-annual installments of $1,583,000 commencing
March 15, 1998, interest payable at a fixed rate of 6.37%.......... 19,000 19,000
Project financing, guaranteed by OPIC, payable in fourteen equal
semiannual installments of $620,000 through December 15, 2003,
interest payable at a fixed rate of 7.20%.......................... 8,680 8,680
-------- --------
163,827 159,502
Less: Current portion............................................... (10,468) (10,002)
-------- --------
$153,359 $149,500
======== ========
</TABLE>
In June 1996, the Company entered into an agreement with a syndicate of
commercial banks for a senior credit facility (the "Credit Facility") in the
amount of $115 million. Under the Credit Facility, the Company may borrow up to
$35 million (the "B-share Revolver") to finance dealer advances relating to
sales of back-end load shares of the Company's domestic mutual funds. See Note
14 below for further discussion on dealer advances. The B-share Revolver is
subject to annual renewal by the Company and the commercial banks. In the event
the B-share Revolver is not renewed at maturity it will automatically convert
into a five-year term loan. Advances under the B-share Revolver 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% or (b) LIBOR plus 1.25%. The Credit Facility
also provides that the Company may borrow up to $80 million for general
corporate purposes (the "Corporate Revolver"). The Corporate Revolver is payable
in full on June 11, 2001. Advances under the Corporate Revolver 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% or (b) LIBOR plus the applicable margin tied
to the Company's financial performance, of 1.25%, 1.50% or 1.75% in the first
year of the agreement and 0.75%, 1.25%, 1.50% or 1.75% for the remaining term as
defined under the agreement. The Credit Facility provides that the Company must
pay additional interest at the rate of 0.375% per annum of the unused portion of
the facility and an annual arrangement fee of $35,000. The commitment fees were
approximately $0.7 million. At March 31, 1997, the Company had borrowed $57
million under the Corporate Revolver and $35 million under the B-share Revolver.
In order to accommodate projected mutual fund sales, in April 1997, the Company
and the banking syndicate amended the Credit Facility to increase to $60 million
the amount available under the B-share Revolver. For the three months ended
March 31, 1997, and March 31, 1996 the weighted average interest rate on the
borrowings under the Credit Facility and lines of credit outstanding was 8.0%
and 6.5%, respectively.
The Credit Facility contains restrictions that limit, among other things,
encumbrances on the assets of the Company's domestic mutual fund subsidiaries
and certain mergers and sales of assets. Additionally, the Credit Facility
requires that the Company meet certain financial covenants including covenants
that require the Company to maintain certain minimum ratios with respect to debt
to cash flow and interest payments to cash flow and a minimum tangible net
worth, all as defined in the Credit Facility. As of March 31, 1997, the Company
was in compliance with all applicable covenants of the Credit Facility.
Under the Credit Facility, the Company is required to maintain interest
rate protection agreements covering at least 60% of the outstanding indebtedness
under the B-share Revolver. As of March 31, 1997, the Company entered into six
five-year interest rate swap agreements with a member of the Company's banking
group which has effectively fixed the interest rate on notional amounts totaling
$100 million. Under these agreements, the Company will pay the bank a weighted
average fixed rate of 6.76%, plus the applicable margin
10
<PAGE> 12
THE PIONEER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
(1.25%), on the notional principal. The bank will pay the Company interest on
the notional principal at the current variable rate stated under the B-share
Revolver. The Company has incurred approximately $292,000 of interest expense on
these swap agreement at March 31, 1997. The fair value of these agreements was
approximately $89,000, at March 31, 1997, which amount represents the estimated
amount the commercial banks would be obligated to pay the Company to terminate
the agreements.
The Company has executed a commitment letter agreement with a commercial
lender pursuant to which the Company will issue to the lender Senior Notes in
the aggregate principal amount of $20 million. The Senior Notes, which bear
interest at the rate of 7.95% per annum, will have a maturity of seven years.
The lender's obligation under the commitment letter is subject to the
fulfillment of certain conditions which are not within the control of the
Company. The Company intends to use the proceeds of this financing to reduce the
amount outstanding under the Corporate Revolver.
In March 1996, TGL executed a loan agreement with Enskilda, a division of
Skandinaviska Enskilda Banken, pursuant to which Enskilda agreed to provide a
direct loan of SEK 94.5 million (approximately $14.2 million) bearing interest
at a fixed rate of 6.42% to finance the gyratory crusher and related equipment
procured from Svedala Crushing and Screening AB. This loan is guaranteed by the
Swedish Export Credits Board. As of March 31, 1997, TGL has drawn down SEK 93.8
million (or approximately $14.1 million).
In April 1996, TGL obtained credit approval from Caterpillar Financial
Services Corporation, a wholly owned subsidiary of Caterpillar Inc.
(collectively, "Caterpillar"), pursuant to which Caterpillar agreed, subject to
the fulfillment of certain conditions, to provide a revolving credit facility of
up to $21 million to finance the purchase of Caterpillar and other mining
equipment. The revolving facility was subject to renewal in January 1997. This
renewal is still under review. In the event the credit facility is not renewed
at maturity, outstanding loan balances will continue to be repaid over a five
year term. At March 31, 1997, Caterpillar had issued net disbursements, at TGL's
request, for $18.3 million of such facility bearing interest at fixed rates
ranging from 7.85% to 8.25%.
On October 25, 1996, TGL and the Company executed definitive loan
agreements with OPIC pursuant to which OPIC agreed, subject to the fulfillment
of certain conditions, to finance up to $19 million with respect to the Phase
III expansion. Disbursements under this facility occurred in early November
1996. The underlying note is payable in twelve equal semiannual installments
from March 15, 1998, through September 15, 2003, and bears a fixed interest rate
of 6.37%. In addition, a spread of 2.65% on outstanding borrowings is payable to
OPIC. As a condition to such OPIC financing, the Company was required to execute
a Project Completion Agreement pursuant to which the Company would advance
funds, as necessary and to the extent of dividends received during the
construction stage of the Phase III Expansion, to permit TGL to fulfill all of
its financial obligations, including cost overruns related to project
development. Under the Project Completion Agreement, the Company is also
obligated to advance the lesser of $9 million and any deficit with respect to a
defined cash flow ratio in the event of a payment default. The foregoing
obligations of the Company continue to exist until such time as TGL satisfies a
production test and certain financial and project development benchmarks. In
addition, the Company has guaranteed that to the extent that the percentage of
gold proceeds that TGL must retain in Ghana increases above a certain threshold,
and, as a result of regulatory or other government restrictions TGL is unable to
convert such proceeds to satisfy its debt service obligations to OPIC, the
Company shall guarantee up to $10 million of such obligations. The Company
insured 90% of this obligation in January 1997. In addition to third-party
financing facilities, the Company provided $9.1 million in bridge financing to
TGL during the first nine months of 1996, all of which has been repaid to the
Company.
Forest-Starma completed a $9.3 million project financing, guaranteed by
OPIC, in early July 1996, of which $8.7 million was outstanding at March 31,
1997. The underlying note is payable in fourteen equal semiannual installments
through December 15, 2003, and bears interest at a fixed rate of 7.20%. In
addition, a guarantee fee of 2.75% on outstanding borrowings is payable to OPIC
prior to project completion, increasing
11
<PAGE> 13
THE PIONEER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
to 5.125% after project completion when the Company ceases to be an obligor in
the transaction. As a condition to OPIC's guarantee, the Company was required to
execute a Project Completion Agreement pursuant to which the Company would
advance funds to Forest-Starma as necessary, to permit Forest-Starma to fulfill
all of its financial obligations, including cost overruns related to project
development, until such time as Forest-Starma satisfies a production test and
certain financial and project development benchmarks. By the end of 1997, $1.9
million of principal will be paid on this third party financing leaving a $7.4
million outstanding balance.
During the second half of 1996, Forest Starma applied for $6.5 million in
additional OPIC guaranteed financing for an expansion planned in 1997.
On December 19, 1996, Pioneer Real Estate Advisors ("PREA") entered into an
agreement with a bank providing for a $2.6 million line of credit to finance
property development activities in Russia. Advances under the line bear interest
at the 3 month LIBOR rate plus 6%. The line, which expires on January 5, 1999,
provides for an arrangement fee of 0.25% of the total commitment and a
commitment fee of 0.50% of the unused portion of the line. The first drawdown on
the line of credit occurred in March 1997, in the amount of $1.5 million.
Maturities of notes payable at March 31, 1997, for each of the next five
years and thereafter are as follows (dollars in thousands):
<TABLE>
<S> <C>
4/1/97-3/31/98............................................... $ 10,468
4/1/98-3/31/99............................................... 14,946
4/1/99-3/31/00............................................... 10,272
4/1/00-3/31/01............................................... 11,371
4/1/01-3/31/02............................................... 8,293
Thereafter................................................... 108,477
--------
$163,827
========
</TABLE>
NOTE 12 -- MAJOR CUSTOMERS AND EXPORT SALES
During the three months ended March 31, 1997, gold sales aggregated $17.5
million. During this period, gold shipments from TGL in Ghana to two
unaffiliated European refiners accounted for $9 million and $8.5 million of
total gold sales, respectively, representing 100% of such total gold sales.
During the three months ended March 31, 1996, gold sales aggregated $21.2
million. During this period, gold shipments from TGL in Ghana to two
unaffiliated European refiners accounted for $8.7 million and $12.5 million of
total gold sales, respectively, representing 100% of such total gold sales.
NOTE 13 -- ACQUISITIONS
Cost in excess of net assets acquired, net, as reflected in the
accompanying consolidated balance sheets, consists of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Mutual of Omaha Fund................................... $18,119 $ 18,649
Management Company Russian investment operations....... 2,384 2,458
Gold mining operations................................. 1,499 1,592
Polish investment operations........................... 255 246
------- -------
$22,257 $ 22,945
======= =======
</TABLE>
12
<PAGE> 14
THE PIONEER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 14 -- DEALER ADVANCES
Certain of the Pioneer Family of Mutual Funds maintain a multi-class share
structure, whereby the participating funds offer both the traditional front-end
load shares (Class A shares) and back-end load shares (Class B and Class C
shares). Back-end load 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 in the case of Class B shares and is
one year in the case of C shares. However, the Company pays upfront sales
commissions (dealer advances) to broker-dealers ranging from 2% to 4% of the
sales transaction amount on Class B shares and 1% on Class C shares. The
participating Funds pay the Company distribution fees of 0.75% and service fees
of 0.25%, per annum of their net assets invested in Class B and Class C shares,
subject to annual renewal by the participating Fund's Board of Trustees. In
addition, the Company is paid a contingent deferred sales charge (CDSC) on B and
C shares redeemed within the minimum holding period. The CDSC is paid based on
declining rates ranging from 2% to 4% on the purchases of Class B shares and 1%
for Class C shares.
The Company capitalizes and amortizes Class B share dealer advances for
financial statement purposes over periods which range from three to six years
depending on the participating Fund. The Company capitalizes and amortizes Class
C share dealer advances for financial statement purposes over a twelve month
period. The Company deducts the dealer advances in full for tax purposes in the
year such advances are paid. Distribution and service fees received by the
Company from participating Funds are recorded in income as earned. CDSC received
by the Company from redeeming shareholders reduce unamortized dealer advances
directly. For the three months ended March 31, 1997, and March 31, 1996, the
Company paid dealer advances in the amount of $5.1 million and $6.6 million,
respectively.
13
<PAGE> 15
THE PIONEER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 15 -- FINANCIAL INFORMATION BY BUSINESS SEGMENT
Total revenues and income (loss) before income taxes and minority interest
by business segment, excluding intersegment transactions, were as follows:
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------------
MUTUAL FUND
INVESTMENT UNDERWRITING VENTURE CAPITAL
MANAGEMENT AND OTHER BANKING INVESTMENTS
----------------- --------------------- -------------------- -------------------
3/31/97 3/31/96 3/31/97 3/31/96 3/31/97 3/31/96 3/31/97 3/31/96
------- ------- -------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues & Sales.. $27,690 $20,953 $ 14,740 $ 5,820 $ 2,444 $ 1,677 $ 411 $ 614
======= ======= ======= ======= ======= ====== ======= =======
Income (Loss)
Before Income
Taxes & Minority
Interest......... $17,814 $12,235 $ (5,873)(1) $(7,569)(1) $ (466)(2) $ 887(2) $ 3,989(3) $ (995)
======= ======= ======= ======= ======= ====== ======= =======
Depreciation &
Amortization..... $ 622 $ 489 $ 3,577 $ 2,088 $ 20 $ 0 $ 35 $ 31
======= ======= ======= ======= ======= ====== ======= =======
Capital Expendi-
tures............ $ 831 $ 4,108 $ 1,110 $ 31 $ 50 $ 0 $ 21 $ 28
======= ======= ======= ======= ======= ====== ======= =======
Identifiable
Assets at Quarter
End.............. $87,152 $73,224 $114,933 $65,719 $35,010 $ 8,279 $82,077 $61,849
======= ======= ======= ======= ======= ====== ======= =======
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------------------------
SHAREHOLDER
SERVICES GOLD MINING OTHER CONSOLIDATED
------------------- -------------------- -------------------- -------------------
3/31/97 3/31/96 3/31/97 3/31/96 3/31/97 3/31/96 3/31/97 3/31/96
------- ------- -------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues & Sales.. $ 6,958 $ 6,174 $ 17,467 $21,237 $ 0 $ 0 $ 69,710 $ 56,475
======= ====== ======== ======= ======= ======= ======== ========
Income (Loss)
Before Income
Taxes & Minority
Interest......... $ 533 $ 1,103 $ 56(4) $ 4,397(4) $(1,390)(5) $ (421)(5) $ 14,663 $ 9,637
======= ====== ======== ======= ======= ======= ======== ========
Depreciation &
Amortization..... $ 449 $ 552 $ 4,776 $ 3,708 $ 31 $ 26 $ 9,510 $ 6,894
======= ====== ======== ======= ======= ======= ======== ========
Capital Expendi-
tures............ $ 168 $ 558 $ 5,395 $19,538 $ 3,551 $ 201 $ 11,126 $ 24,464
======= ====== ======== ======= ======= ======= ======== ========
Identifiable
Assets at Quarter
End.............. $ 8,343 $ 8,670 $149,479 $96,116 $53,103 $37,565 $530,097 $351,422
======= ====== ======== ======= ======= ======= ======== ========
</TABLE>
- ---------------
(1) Net of interest expense of approximately $729 for the three months ended
March 31, 1997, and $282 for the three months ended March 31, 1996.
(2) Net of interest expense of approximately $1,360 for the three months ended
March 31, 1997, and $577 for the three months ended March 31, 1996.
(3) Net of interest expense of approximately $99 for the three months ended
March 31, 1997, and $100 for the three months ended March 31, 1996.
(4) Net of interest expense of approximately $40 for the three months ended
March 31, 1997, and $39 for the three months ended March 31, 1996.
(5) Net of expense related to the Company of $300 for the three months ended
March 31, 1997, and $167 for the three months ended March 31, 1996. These
expenses were related to the Company's Russian natural resources ventures.
Net of interest expense of $196 related to the Company's Russian timber
venture and $550 of unallocated interest expense.
14
<PAGE> 16
THE PIONEER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
The following table details for the investment management business segment
and mutual fund underwriting and other business segment, total revenues and
income (loss) before income taxes and minority interest by geographical region,
excluding intersegment transactions (dollars in thousands):
INVESTMENT MANAGEMENT
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------
EASTERN EUROPE &
RUSSIA UNITED STATES CONSOLIDATED
----------------- ------------------- --------------------
3/31/97 3/31/96 3/31/97 3/31/96 3/31/97 3/31/96
------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenues and Sales.............. $ 3,125 $ 4,070 $24,565 $16,883 $ 27,690 $20,953
======= ======= ======= ======= ======== =======
Income (loss) before income
taxes and minority interest... $ 1,741 $ 2,203 $16,073 $10,032 $ 17,814 $12,235
======= ======= ======= ======= ======== =======
Depreciation and Amortization... $ 92 $ 128 $ 530 $ 361 $ 622 $ 489
======= ======= ======= ======= ======== =======
Capital Expenditures............ $ 667 $ 3,915 $ 164 $ 193 $ 831 $ 4,108
======= ======= ======= ======= ======== =======
Identifiable assets at quarter
end........................... $46,452 $40,420 $40,700 $32,804 $ 87,152 $73,224
======= ======= ======= ======= ======== =======
</TABLE>
MUTUAL FUND UNDERWRITING AND OTHER
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------
EASTERN EUROPE &
RUSSIA UNITED STATES CONSOLIDATED
----------------- ------------------- --------------------
3/31/97 3/31/96 3/31/97 3/31/96 3/31/97 3/31/96
------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenues and Sales.............. $ 8,184 $ 1,332 $ 6,556 $ 4,488 $ 14,740 $ 5,820
======= ======= ======= ======= ======== =======
Income (loss) before income
taxes and minority interest... $ 1,132 $ (522) $(7,005)(1) $(7,047)(1) $ (5,873)(1) $(7,569)(1)
======= ======= ======= ======= ======== =======
Depreciation and Amortization... $ 53 $ 68 $ 3,524 $ 2,020 $ 3,577 $ 2,088
======= ======= ======= ======= ======== =======
Capital Expenditures............ $ 258 $ -- $ 852 $ 31 $ 1,110 $ 31
======= ======= ======= ======= ======== =======
Identifiable assets at quarter
end........................... $39,480 $ 8,088 $75,453 $57,631 $114,933 $65,719
======= ======= ======= ======= ======== =======
</TABLE>
- ---------------
(1) Net of interest expense of approximately $729 for the three months ended
March 31, 1997 and $282 for the three months ended March 31, 1996.
15
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SUMMARY OF OPERATIONS
The Pioneer Group, Inc. (the "Company") reported first quarter 1997
earnings of 29 cents per share, 9 cents higher than earnings in the first
quarter of 1996. The Company had gross revenues and net income of $69.7 million
and $7.3 million, respectively, in the first quarter of 1997, compared to $56.5
million and $5.1 million, respectively, in the first quarter of 1996.
The table compares earnings by business segment for the first quarter of
1997 versus the first quarter of 1996.
FIRST QUARTER EARNINGS PER SHARE
<TABLE>
<CAPTION>
INCREASE/
BUSINESS SEGMENT 1997 1996 (DECREASE)
---------------- ---- ---- ----------
<S> <C> <C> <C>
Domestic mutual fund..................... 25Cents 11Cents 14Cents
U.S. venture capital..................... 8Cents (1Cents) 9Cents
Polish financial services................ 2Cents 0Cents 2Cents
Russian financial services............... 0Cents 3Cents (3Cents)
Czech Republic mutual fund............... (2Cents) (1Cents) (1Cents)
Eastern European venture capital......... 0Cents (1Cents) 1Cents
------- ------- --------
Worldwide financial services............. 33Cents 11Cents 22Cents
------- ------- --------
Gold mining.............................. 0Cents 10Cents (10Cents)
Russian timber........................... (2Cents) 0Cents (2Cents)
Other.................................... (2Cents) (1Cents) (1Cents)
------- ------- --------
TOTAL.......................... 29Cents 20Cents 9Cents
======= ======= ========
</TABLE>
The Company's earnings from its worldwide financial services businesses of
33 cents per share in the first quarter of 1997 increased by 22 cents,
principally as a result of significantly higher earnings of 14 cents from
domestic mutual fund operations and 9 cents from U.S. venture capital
operations. These higher earnings were partially offset by lower earnings from
the Company's gold mining operations, consisting of its wholly owned subsidiary,
Pioneer Goldfields Limited ("PGL"), and PGL's 90% owned subsidiary, Teberebie
Goldfields Limited ("TGL"). Gold mining operations reported essentially break
even earnings in the first quarter of 1997, compared to earnings of 10 cents per
share in the first quarter of 1996, principally reflecting lower gold prices.
The Company's Russian Far East timber operation, Closed Joint-Stock Company
"Forest-Starma," commenced commercial operations on January 1, 1997, and
reported losses of 2 cents per share for the quarter.
FINANCIAL SERVICES BUSINESSES
RESULTS OF OPERATIONS
Revenues. The Company's worldwide financial services businesses have three
principal sources of revenues: fees derived from managing the 31 U. S.
registered investment companies (mutual funds) in the Pioneer Family of Mutual
Funds and institutional accounts, fees from underwriting and distribution of
mutual fund shares, and fees derived from acting as shareholder servicing agent.
The Company earns similar revenues from its international investment operations
in Poland, Russia, Ireland, the Czech Republic, and from its joint venture in
India. The Company also earns securities and interest income from Pioneer Bank
in Russia, in which the Company has a 57.7% interest, and revenues from Russian
brokerage operations.
16
<PAGE> 18
Revenues from the worldwide financial services businesses of $52.2 million
in the first quarter of 1997 were $17 million, or 48%, higher than revenues
earned in the first quarter of 1996 as a result of increases in all revenue
categories as discussed below.
Management fees of $27.1 million in the first quarter of 1997 were $8.4
million, or 45%, higher than management fees in the first quarter of 1996.
Substantially all of the increase ($7.6 million) resulted from higher management
fees earned from the Company's U.S. registered mutual funds. This increase in
management fees resulted from: (i) an increase in assets from strong U.S. stock
market performance; and (ii) a management fee rate increase for three of the
Company's largest U.S. registered mutual funds effective in the second quarter
of 1996. Assets under management grew to $17.3 billion at March 31, 1997,
compared to $14.6 billion at March 31, 1996, and $17 billion at December 31,
1996.
Distribution fees and underwriting commissions of $5.8 million in the first
quarter of 1997 were $1.9 million, or 50%, higher than comparable fees and
commissions earned in the first quarter of 1996. Distribution fees increased by
$1.5 million as a result of the increase in average assets under management of
the Company's mutual funds which offer back-end load shares. Underwriting
commissions earned from sales of U.S. registered mutual funds decreased by $0.2
million. In the first quarter of 1997, the Company had U.S. registered mutual
fund sales (including reinvested dividends) of $661 million (essentially at the
first quarter 1996 level) and net sales of $118 million compared to net sales of
$308 million in the first quarter of 1996. Sales of the Company's three Polish
mutual funds were $118 million in the first quarter of 1997 versus $29 million
in the first quarter of 1996. Underwriting commissions earned from the sale of
Polish mutual funds, which increased by $0.6 million in the first quarter of
1997, offset the decrease in underwriting commissions earned from the sale of
U.S. registered mutual funds.
Shareholder services fees of $6.7 million in the first quarter of 1997
increased by $0.6 million, or 9%, over the first quarter of 1996, as a result of
an increase in the number of shareholder accounts.
Trustee fees and all other income of $10.3 million in the first quarter of
1997 increased by $5.3 million, principally from rental income from the building
owned by First Voucher Fund (the "Voucher Fund"), the Russian voucher investment
fund in which the Company owns a 51% interest, and revenues from Russian
brokerage operations.
The Company reported securities and interest income from Pioneer Bank of
approximately $2.4 million in the first quarter of 1997 compared to $1.7 million
in the first quarter of 1996. These revenues are derived from the acquisition
and subsequent sale of Russian government securities and interest income from
loans.
Costs and Expenses. Costs and expenses of the worldwide financial services
businesses of $42.9 million in the first quarter of 1997 increased by $13.9
million, or 48%, over the first quarter 1996 level. Approximately 80% of the
increase in expenses resulted from: (i) $6.2 million in expenses related to the
Company's Russian investment operations principally from new businesses and the
Voucher Fund's building operating and management expenses; (ii) $3.6 million of
higher payroll costs (excluding Russian financial services), of which $2.3
million related to the domestic mutual fund business; and (iii) $1 million in
expenses associated with the amortization of dealer advances resulting from
sales of back-end load mutual fund shares. The amortization expenses were more
than offset by the $1.4 million increase in distribution fees.
Other Income and Expense. The Company reported net venture capital
investment portfolio gains of $4.2 million (excluding operating expenses) in the
first quarter of 1997 compared to net gains of $0.1 million in the first quarter
of 1996, from investments in the Company's U.S. venture capital portfolio.
Additionally, the Company reported net realized gains of $4.2 million in the
first quarter of 1997, from investments held by the Voucher Fund and other
Russian venture capital investments compared to $0.1 million of net realized
gains in the first quarter of 1996. The Company's U.S. venture capital and
affiliated mutual fund investments are marked-to-market and thus the Company's
results reflect both realized and unrealized gains and losses. In contrast, due
to the developing nature of the Russian securities markets, the Company only
reports the Voucher Fund's realized gains and losses. The Company believes,
however, that there is significant unrealized value in the assets included in
the Voucher Fund's portfolio. There can be no assurance, however, that the
17
<PAGE> 19
Company will be able to realize these values. For a description of the risks
associated with investments in foreign countries, including Russia, see "Future
Operating Results" below.
Interest expense of $1.6 million in the first quarter of 1997 increased by
$1.2 million over the comparable 1996 period resulting from increased borrowings
by the Company under its credit facility which is discussed below.
Taxes. The Company's effective tax rate for the worldwide financial
services businesses was 44% in the first quarter of 1997 and 46% in the first
quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
IRS 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 plan accounts at year end. At March 31,
1997, the Company served as trustee for $5.1 billion of qualified plan assets
and the ratio of net worth to qualified assets was 3.3%. The Company's
stockholders' equity of $167.9 million at March 31, 1997, would permit it to
serve as trustee for up to $8.4 billion of qualified plan assets.
The Company has established a multi-class share structure for the Pioneer
Family of Mutual Funds. Under this arrangement, the funds offer both traditional
front-end load shares (Class A shares) and back-end load shares (Class B and C
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 in the case of Class B shares and is one
year in the case of Class C shares), in which case the shareholder would pay a
contingent deferred sales charge ("CDSC"). The Company, however, pays "up-front"
commissions to broker-dealers ("Dealer Advances") related to sales and service
of the back-end load shares ranging from 2% to 4% of the sales transaction
amount on Class B shares and of 1% on Class C shares. The funds pay the Company
distribution fees of 0.75%, and service fees of 0.25%, per annum of their
respective net assets invested in Class B and Class C shares, subject to annual
renewal by the trustees of the funds. Class B shares were introduced in April
1994 and Class C shares were introduced in January 1996. Sales of back-end load
shares were $167 million in the first quarter of 1997 versus $198 million in the
first quarter of 1996. Dealer Advances totaled $5.1 million in the first quarter
of 1997 versus $6.6 million in the first quarter of 1996. Dealer Advances (which
are amortized to operations over the life of the CDSC period) were $35.9 million
at March 31, 1997. The Company intends to continue to finance this program, in
part, through the credit facilities described in the section entitled "General."
In April 1995, the Company acquired approximately 51% of the shares of the
Voucher Fund, the largest voucher investment fund 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 subsidiary of the Company. 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 the right to manage
the Voucher Fund's investments. Pioneer Omega paid $2 million in cash and issued
preferred shares (the "Omega shares") valued at $6 million as consideration for
the acquisition of the management company and related rights. 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. The Company will pay a total of $6.6 million for the
Omega shares over a three-year period as the put and/or call options are
exercised. The Company has exercised its options and purchased the first two
tranches of Omega shares for $4.3 million.
The Company's Russian investment operations (excluding the Voucher Fund)
are consolidated under PFR. In September 1996, PFR executed agreements with the
International Finance Corporation ("IFC"), a member of the World Bank Group,
pursuant to which IFC agreed to invest $4 million in PFR to acquire an 18.4%
equity interest. This transaction was completed in January 1997.
18
<PAGE> 20
The Company, through Pioneer Omega, has secured Overseas Private Investment
Corporation ("OPIC") "political risk" insurance covering the Voucher Fund and
PFR's subsidiaries subject to annual elections up to a ceiling amount of $68
million which would protect 90% of the Company's equity investment and a
proportionate share of cumulative retained earnings.
NATURAL RESOURCE DEVELOPMENT BUSINESSES
GOLD MINING BUSINESS
The results of the gold mining business are substantially attributable to
the operations of TGL, the principal operating subsidiary of the Company's
wholly owned subsidiary, PGL. The Company's financial statements include an
adjustment to TGL's earnings to give effect to the 10% minority interest in TGL
held by the Government of Ghana.
TGL earns all of its revenues in U. S. dollars and the majority of its
transactions and costs are denominated in U. S. dollars or are based in U. S.
dollars. Consequently, Ghanaian inflation has not had a material effect on TGL's
operations. Ghanaian cedi denominated costs such as fuel, wages, power and local
purchases are affected, in dollar terms, when currency devaluation does not
offset changes in the relative inflation rates in the U. S. and Ghana. Since
Ghana has experienced significant inflation over the last three years, the cedi
has devalued continuously against the dollar.
RESULTS OF OPERATIONS
The gold mining business was essentially break even in the first quarter of
1997, a decrease of $2.6 million, or 10 cents per share, compared with the first
quarter of 1996. The decrease was attributable principally to a lower gold
prices and shipments. Revenues decreased by 18% to $17.5 million as the average
realized price of gold decreased by 12% to $350 per ounce and gold shipments
decreased by 6% to 49,900 ounces. TGL produced 56,700 ounces of gold in the
first quarter of 1997 compared to 53,300 ounces in the first quarter of 1996,
however, 6,800 ounces of gold dore valued at $227 per ounce remained in
inventory at the end of the quarter.
The following table provides production and shipment results and compares
TGL's cash cost and total cost per ounce for the three months ended March 31,
1997, with the same period in 1996:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
----------------- (DECREASE)
1997 1996 INCREASE/
------ ------ ----------
<S> <C> <C> <C>
Production (ounces).............................. 56,700 53,300 3,400
====== ====== ======
Shipments (ounces)............................... 49,900 53,300 (3,400)
====== ====== ======
Cash costs:
Production costs................................. $ 193 $ 190 $ 3
Royalties........................................ 10 12 (2)
General and administrative costs................. 35 32 3
------ ------ ------
CASH COSTS PER OUNCE................... 238 234 4
Non-cash costs:
Depreciation and amortization.................... 92 69 23
Other............................................ 5 2 3
------ ------ ------
COST OF PRODUCTION PER OUNCE........... 335 305 30
------ ------ ------
Interest and other costs......................... 8 11 (3)
====== ====== ======
TOTAL COSTS PER OUNCE.................. $ 343 $ 316 $ 27
====== ====== ======
</TABLE>
Production Costs. Production costs represent costs attributable to mining
ore and waste and processing the ore through crushing and processing facilities.
TGL's costs of production are affected by ore grade, gold recovery rates, the
waste to ore, or "stripping" ratio, the age of equipment, the weather,
availability of labor, haul distances, foreign exchange fluctuations, gold
production lag from new operations and the number of lifts
19
<PAGE> 21
on the heap leach pads. Production costs increased by $3 per ounce compared with
the first quarter of 1996 principally because of an expected increase in the
stripping ratio from 2.96:1 to 3.42:1, an increase in fuel costs and higher
labor costs associated with TGL's 1996 collective bargaining agreement with the
Ghana Mineworkers' Union. These increases were offset, in part, by lower
explosives costs and certain production efficiencies associated with the
introduction of larger mining equipment.
A comparison of key production statistics for the three months ended March
31, 1997, and March 31, 1996, is shown in the table below:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-----------------
1997 1996
------ ------
<S> <C> <C>
Tonnes mined (in thousands):
Waste........................................................... 6,182 3,226
Run-of-mine..................................................... 592 1,841
------ ------
Tonnes Waste and Run-of-Mine.................................... 6,774 5,067
Ore............................................................. 1,979 1,711
------ ------
Total Tonnes Mined.............................................. 8,753 6,778
Stripping Ratio (waste + run of mine / ore)..................... 3.42:1 2.96:1
Tonnes of Ore Processed......................................... 1,771 1,652
Process Grade (grams/tonne)..................................... 1.28 1.29
</TABLE>
Royalties. Under the Ghanaian Minerals and Mining Law, royalties are
levied at rates ranging from 3% to 12% of operating revenues as determined by
reference to an operating ratio. Such operating ratio represents the percentage
that the operating profits, after giving effect to capital allowances and
interest expense (as permitted by TGL's Deed of Warranty), bears to gold sales.
In the first quarter of 1997 and 1996, the royalty rate payable by TGL remained
at 3% of operating revenues, the minimum permitted by law, principally because
of a sustained level of capital expenditures, and associated capital allowances,
since the inception of the project.
General and Administrative Costs. General and administrative costs consist
principally of administrative salaries and related benefits, travel expenses,
insurance, utilities, legal costs, employee meals, rents and vehicle
expenditures. These costs increased by $3 per ounce principally because of
higher labor and benefits costs associated with TGL's 1996 collective bargaining
agreement with the Ghana Mineworkers' Union and increases in employee meals,
consulting and telecommunications costs.
Depreciation and Amortization. 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. These costs increased by $23 per ounce principally because of
mining and construction equipment additions (increasing depreciation expense by
approximately $11 per ounce and $3 per ounce, respectively). In addition,
increases in run-of-mine pad depreciation and pad and pond depreciation
aggregated approximately $5 per ounce while depreciation recorded on a
straight-line basis, including capitalized rebuilds, increased by $4 per ounce.
Other. Other costs represent provisions for future reclamation costs and
supplies inventory obsolescence and costs related to exploration activities
conducted by TGL at the Teberebie concession. The increase of $3 per ounce in
1997 compared with 1996 was attributable principally to an increase in the
inventory obsolescence reserve.
Interest and Other Costs. Interest and other costs include interest
expense, foreign exchange gains and losses, political risk insurance premiums,
and goodwill amortization. The $3 per ounce decrease in interest and other costs
in the first quarter of 1997 compared with 1996 represented decreases in foreign
exchange losses of $2 per ounce and a $1 per ounce reduction in political risk
insurance premiums.
Income Taxes. The statutory tax rate for mining companies in Ghana in 1997
and 1996 was 35%.
20
<PAGE> 22
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow. PGL's cash balances increased by $0.1 million to $1.1 million
during the first quarter of 1997. Seventy-six percent, or $0.8 million, of TGL's
cash balances remain in escrow and are unavailable to pay short-term
obligations. Cash generated from operating activities aggregated $7.4 million
while capital expenditures and loan principal payments were $6 million and $1.7
million, respectively. In addition, the Company financed approximately $0.4
million in PGL exploration activities. Major capital expenditures during the
quarter included: (i) $2.5 million for crushing, electrical, and other
processing equipment associated with the Phase III mine expansion; (ii)
capitalized interest and financing costs associated with the Phase III mine
expansion of $1.1 million; (iii) ore stockpile development and pad and pond
construction aggregating $1 million; and (iv) capitalized rebuilds of $0.4
million. During the first quarter, TGL continued to generate sufficient
operating cash flow to fund all of its third-party debt service payments. TGL,
however, borrowed $1.25 million from the Company in May 1997 to meet operating
requirements.
Third-Party Debt. At the end of the first quarter of 1997, third-party
debt aggregated $52.7 million, including $19 million from OPIC for which the
Company is subject to limited recourse (described under "Financing Facilities"
below) and $1.3 million from other sources which is guaranteed by the Company.
Scheduled third-party debt service for the remainder of 1997 is expected to
aggregate $7.6 million, all of which is expected to be funded by mining
operations revenues.
Phase III Mine Expansion. In July 1995, the Board of Directors of TGL
approved the Phase III expansion of the Teberebie mine. Phase III includes a
further heap leach operation and the construction of a near-pit gyratory
crushing facility which acts as the primary crushing facility for both the
modified West Plant and the new South Plant. The Phase III expansion is expected
to increase annual crushing capacity to 12 million tonnes of ore. Construction
work on the project has been substantially completed and the first gold pour at
the South Plant occurred in April 1997. Modifications to the West Plant and its
conveyor systems are expected to be completed in May 1997. In connection with
expansion, ten CAT 785 trucks and three CAT 5230 hydraulic shovels have been
delivered to the site. The cost of the expansion and West Plant modification is
expected to aggregate approximately $57 million. Expansion capital expenditures
in 1997 are estimated at approximately $6 million, of which approximately $4.0
million had been expended through March 1997.
Financing Facilities. At inception, financing requirements for the Phase
III mine expansion were estimated at $54 million. By December 31, 1996,
third-party financings of approximately $54.2 million had been secured, of which
$53.6 million was drawn down, and $51.4 million remained outstanding at March
31, 1997.
In March 1996, TGL executed a loan agreement with Enskilda, a division of
Skandinaviska Enskilda Banken, pursuant to which Enskilda agreed to provide a
direct loan of SEK 94.5 million (approximately $14.2 million) bearing interest
at a fixed rate of 6.42% to finance the gyratory crusher and related equipment
procured from Svedala Crushing and Screening AB. The loan is guaranteed by the
Swedish Export Credits Board. As of March 31, 1997, TGL had drawn down SEK 93.8
million (or approximately $14.1 million). In April 1996, TGL obtained credit
approval from CAT Financial Services Corporation, a wholly owned subsidiary of
Caterpillar Inc. (collectively, "Caterpillar"), pursuant to which Caterpillar
agreed to provide a revolving credit facility of up to $21 million to finance
the purchase of Caterpillar and other mining equipment. The revolving credit
facility was subject to annual renewal in January 1997. This renewal is still
under review. In the event that the credit facility is not renewed at maturity,
outstanding loan balances will continue to be repaid over a five year term. At
March 31, 1997, Caterpillar had issued disbursements, at TGL's request, for
$20.5 million of such facility, bearing interest at fixed rates ranging from
7.85% to 8.25%, of which $2.2 million had been repaid. On October 25, 1996, TGL
and the Company executed definitive loan agreements with OPIC pursuant to which
OPIC agreed to provide financing of up to $19 million with respect to the Phase
III expansion. Disbursement under this facility occurred in early November 1996.
The underlying note is payable in twelve equal semiannual installments from
March 15, 1998, through September 15, 2003, and bears a fixed interest rate of
6.37%. In addition, a spread of 2.65% on outstanding borrowings is payable to
OPIC. As a condition to the financing, the Company was required to execute a
Project Completion Agreement pursuant to which the Company would advance funds,
as necessary (to the extent of dividends
21
<PAGE> 23
received during the construction stage of the Phase III expansion), to permit
TGL to fulfill all of its financial obligations, including cost overruns related
to project development. Under the Project Completion Agreement, the Company is
also obligated to advance the lesser of $9 million or any deficit with respect
to a defined cash flow ratio in the event of a payment default. The foregoing
obligations of the Company continue to exist until such time as TGL satisfies a
production test and certain financial and project development benchmarks. In
addition, the Company has guaranteed that to the extent that the percentage of
gold proceeds that TGL must convert to Ghanaian cedis increases above a certain
threshold, and, as a result of regulatory or other government restrictions, TGL
is unable to convert such proceeds to dollars to satisfy its debt service
obligations to OPIC, the Company shall guarantee up to $10 million of such
obligations. The Company secured insurance for 90% of this obligation in the
beginning of 1997.
Risk Management. In the fourth quarter of 1996, TGL entered into a series
of put options which secure a minimum selling price of $340 per ounce to cover
1997 estimated production. Should the market price of gold decline below $340
per ounce in 1997, TGL continues to ship gold to refineries and either sells or
exercises the put options, receiving payment for the difference between the
market price of gold and approximately $340 per ounce. TGL has exercised several
of these put options since February 1997. In May 1997, TGL purchased additional
options at an exercise price of $320 per ounce to cover estimated production for
the first four months of 1998.
The Company maintains $65.9 million of "political risk" insurance,
principally from OPIC covering 90% of its equity and loan guarantees. The
insurance also covers 90% of the Company's proportionate share of TGL's
cumulative retained earnings. This insurance is presently limited to a ceiling
of $64.4 million; however, the Company intends to apply to increase the ceiling
in 1997. There can be no assurance that such OPIC insurance will become
available in 1997. The Company has also secured $9 million foreign exchange
exposure insurance from another source to hedge its 90% owned exposure to a
limited recourse provision contained in the OPIC Phase III expansion financing
(discussed in more detail above). In addition to other commercial insurance
policies, TGL has secured business interruption coverage of up to $19 million
for losses associated with machinery breakdown and property damage and to defray
continuing infrastructure and interest costs.
RECENT DEVELOPMENTS
TGL is changing its mining method from selective mining to bulk mining. TGL
believes that this change will increase operating efficiencies and improve ore
control. TGL is currently developing a new mine plan using a more sophisticated
mine model and historical production data. The new mine plan will: (i)
incorporate a new, modified pit design, (ii) facilitate the change in mining
method, and (iii) address the previously disclosed slope instability problem.
Until the new mine plan is complete, TGL cannot quantify the effect that the new
mine plan will have on the calculation of previously reported proven and
probable in situ mineable reserves. It is anticipated, however, that proven and
probable in situ mineable reserves will be reduced.
TGL produced its one millionth ounce of gold in January 1997, and estimates
production of approximately 300,000 ounces in 1997. The 1997 production estimate
is dependent upon the successful implementation of TGL's Phase III expansion
which requires that TGL complete anticipated modifications to the West Plant. In
addition, TGL's gold production is dependent upon a number of factors that could
cause actual gold production to differ materially from projections, including
obtaining and maintaining necessary equipment, accessing key supplies, including
fuel, and hiring and training supervisory personnel and skilled workers. Gold
production is also affected by the time lag inherent in heap leaching
technology, subject to changing weather conditions, dependent on the continued
political stability in the Republic of Ghana and subject to the additional risk
factors detailed below in the section entitled "Future Operating Results."
TIMBER BUSINESS
LIQUIDITY AND CAPITAL RESOURCES
The Company's Russian venture, Forest-Starma, in which the Company has a
90% direct interest and a 2.1% indirect interest, is pursuing the development of
timber production under a long-term lease comprising
22
<PAGE> 24
129,900 hectares (approximately 321,000 acres) in the aggregate with annual
cutting rights of 245,000 cubic meters awarded to the venture in the Khabarovsk
Territory of Russia. The Company is in the process of confirming with
governmental authorities that it has been granted additional annual cutting
rights of approximately 450,000 cubic meters on additional contiguous forest
area. Forest-Starma has developed a modern logging camp, including a harbor,
from which it exports timber for markets in the Pacific Rim, primarily Japan.
Timber harvesting commenced in the first quarter of 1995 and the first
shipments of timber totaling approximately 30,000 cubic meters occurred in the
second half of that year. In 1996, Forest-Starma shipped approximately 133,000
cubic meters of timber. Since timber shipped in 1995 and 1996 was acquired in
the development stage, the related revenues were used to offset capitalized
development costs. At the beginning of 1997, the Company commenced commercial
operations, producing approximately 49,000 cubic meters of timber in the first
quarter and commencing amortization of deferred development costs. Forest-Starma
did not begin shipping timber this year until mid-April because, as expected,
the harbor was frozen.
Capital required by this venture is now projected at approximately $49
million through the end of 1997, including $41.5 million in subordinated debt
and accrued interest provided by the Company and $7.4 million in outstanding
third party financing. Forest-Starma completed a $9.3 million project financing
with OPIC in early July 1996, of which $8.7 million was outstanding at March 31,
1997. The underlying note is payable in fourteen equal semiannual installments
through December 15, 2003, and bears interest at a fixed rate of 7.20%. In
addition, a spread of 2.75% on outstanding borrowings is payable to OPIC prior
to project completion, increasing to 5.125% after project completion when the
Company ceases to be an obligor in the transaction. As a condition to the OPIC
financing, the Company was required to execute a Project Completion Agreement
pursuant to which the Company would advance funds to Forest-Starma, as
necessary, to permit Forest-Starma to fulfill all of its financial obligations,
including cost overruns related to project development, until such time as
Forest-Starma satisfies a production test and certain financial and project
development benchmarks. By the end of 1997, $1.9 million of principal will be
paid on the third-party financing, leaving an outstanding balance of $7.4
million. During the second half of 1996, Forest-Starma applied for $6.5 million
in additional OPIC financing for an expansion planned in 1997. These funds will
offset, in part, the subordinated debt provided by the Company for the 1997
expansion.
Direct investments in Forest-Starma by the Company aggregated $30.5 million
at March 31, 1997. Forest-Starma is expected to produce in excess of 300,000
cubic meters of timber in 1997.
In connection with its investment in Forest-Starma, the Company has secured
OPIC political risk insurance in an 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.
In 1995, Closed Joint-Stock Company "Amgun-Forest" and "Udinskoye", the
Company's other Russian timber ventures, each executed a long-term lease (50
years) relating to timber harvesting. The Amgun-Forest lease covers 485,400
hectares (approximately 1,200,000 acres) with annual cutting rights of 350,000
cubic meters while the Udinskoye lease covers 201,000 hectares (approximately
497,000 acres) with annual cutting rights of 300,000 cubic meters. The Company
has a 80.6% direct interest and 4.2% indirect interest in Amgun-Forest and a 72%
direct interest and 4.2% indirect interest in Udinskoye. The feasibility study
on Amgun-Forest is being reviewed, and the Udinskoye feasibility study is in the
early stages of development. The studies will form the basis for estimating
capital requirements for these projects. Prior to securing third-party
financing, the Company will provide funding of approximately $1 million in 1997.
GENERAL
The Company's liquid assets consisting of cash and marketable securities
(exclusive of gold mining operations) increased by $15.6 million in the first
quarter of 1997 to $72.9 million principally from increased cash and investments
held by Pioneer Bank and the Russian brokerage operation.
The Company entered into an agreement in June 1996 with a syndicate of
commercial banks for a senior credit facility (the "Credit Facility") in the
amount of $115 million. Under the Credit Facility, the Company
23
<PAGE> 25
may borrow up to $35 million (the "B-share Revolver") to finance Dealer Advances
relating to sales of back-end load shares of the Company's domestic mutual
funds. The B-share Revolver is subject to annual renewal by the Company and the
commercial banks. In the event the B-share Revolver is not renewed at maturity,
it will automatically convert into a five-year term loan. Advances under the
B-share Revolver 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% or (b) LIBOR
plus 1.25%. The Credit Facility also provides that the Company may borrow up to
$80 million for general corporate purposes (the "Corporate Revolver"). The
Corporate Revolver is payable in full on June 11, 2001. Advances under the
Corporate Revolver 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% or (b) LIBOR
plus the applicable margin, tied to the Company's financial performance, of
either 1.25%, 1.50%, or 1.75% in the first year of the agreement and 0.75%,
1.25%, 1.50% or 1.75% for the remaining term as defined under the agreement. The
Credit Facility provides that the Company must pay additional interest at the
rate of 0.375% per annum of the unused portion of the facility and an annual
arrangement fee of $35,000. The commitment fees were approximately $0.7 million.
At May 2, 1997, the Company had borrowed $35 million under the B-share Revolver
and $62.5 million under the Corporate Revolver. In order to accommodate
projected mutual fund sales, in April 1997, the Company and the banking
syndicate amended the Credit Facility to increase to $60 million the amount
available under the B-share Revolver.
The Credit Facility contains restrictions that limit, among other things,
encumbrances on the assets of the Company's domestic mutual fund subsidiaries
and certain mergers and sales of assets. Additionally, the Credit Facility
requires that the Company meet certain financial covenants including covenants
that require the Company to maintain certain minimum ratios with respect to debt
to cash flow and interest payments to cash flow and a minimum tangible net
worth, all as defined in the Credit Facility. As of March 31, 1997, the Company
was in compliance with all applicable covenants.
Under the Credit Facility, the Company is required to maintain interest
rate protection agreements covering at least 60% of the outstanding indebtedness
under the B-share Revolver. As of March 31, 1997, the Company had entered into
six five-year interest rate swap agreements with a member of the Company's
banking syndicate which has effectively fixed the interest rate on notional
amounts totaling $100 million. Under these agreements, the Company will pay the
bank a weighted average fixed rate of 6.76%, plus the applicable margin (1.25%),
on the notional principal. The bank will pay the Company interest on the
notional principal at the current variable rate stated under the B-share
Revolver. The fair value of these swap agreements was approximately $89,000 at
March 31, 1997, which amount represents the estimated amount the bank would be
obligated to pay to terminate the agreements.
The Company has executed a commitment letter agreement with a commercial
lender pursuant to which the Company will issue to the lender Senior Notes in
the aggregate principal amount of $20 million. The Senior Notes, which bear
interest at the rate of 7.95% per annum, will have a maturity of seven years.
The lender's obligation under the commitment letter is subject to the
fulfillment of certain conditions which are not within the control of the
Company. The Company intends to use the proceeds of this financing to reduce the
amount outstanding under the Corporate Revolver.
In December 1996, the Company's wholly owned subsidiary, Pioneer Real
Estate Advisors, Inc. ("PREA"), entered into an agreement with a bank providing
for a $2.6 million line of credit to finance property development activities in
Russia. Advances under the line bear interest at the rate of LIBOR (3 months)
plus 6%. The credit facility, which expires on January 5, 1999, provides for an
arrangement fee of 0.25% of the total commitment and an annual commitment fee of
0.50% of the unused portion of the facility. At May 2, 1997, PREA had borrowed
$2.6 million under the facility.
FUTURE OPERATING RESULTS
Certain of the information contained in this Quarterly Report on Form 10-Q,
including information with respect to the Company's plans and strategies for its
worldwide financial services and natural resource development businesses,
consists of forward-looking statements. For this purpose, any statements
contained herein that are not statements of historical fact may be deemed to be
forward-looking statements. Without
24
<PAGE> 26
limiting the foregoing, the words "believes," "anticipates," "plans," "expects,"
"projects," "estimates" and similar expressions are intended to identify
forward-looking statements. Important factors that could cause actual results to
differ materially from those indicated by such forward-looking statements
include, but are not limited to, the following:
The Company derives a significant portion of its revenues from investment
management fees, underwriting and distribution fees and shareholder services
fees. Success in the investment management and mutual fund share distribution
businesses is substantially dependent on investment performance. Good
performance stimulates sales of shares and tends to keep redemptions low. Sales
of shares generate higher management fees and distribution fees (which are based
on assets of the funds). Good performance also attracts institutional accounts.
Conversely, relatively poor performance results in decreased sales and increased
redemptions and the loss of institutional accounts, with corresponding decreases
in revenues to the Company. Investment performance may also be affected by
economic or market conditions which are beyond the control of the Company. In
addition, three of the Company's mutual funds (including the two largest funds)
have management fees which are adjusted based upon the funds' performance
relative to the performance of an established index. As a result, management fee
revenues may be subject to unexpected volatility.
The mutual fund industry is intensely competitive. Many organizations in
this industry are attempting to sell and service the same clients and customers,
not only with mutual fund investments but with other financial services
products. Some of the Company's competitors have more products and product lines
and substantially greater assets under management and financial resources.
As described above, the Company offers a multi-class share structure on its
domestic mutual funds. Under such structure, the Company pays to dealers a
commission on the sale of back-end load shares but the investor does not pay any
sales charge unless it redeems before the expiration of the minimum holding
period, which ranges from three to six years in the case of Class B Shares and
which is one year in the case of Class C Shares. The Company's cash flow and
results of operations may be adversely affected by vigorous sales of back-end
load shares because its recovery of the cost of commissions paid up front to
dealers is spread over a period of years. During this period, the Company bears
the costs of financing and the risk of market decline.
The businesses of the Company and its domestic financial services
subsidiaries are primarily dependent upon their associations with the Pioneer
Family of Mutual Funds with which they have contractual relationships. In the
event any of the management contracts, underwriting contracts or service
agreements were canceled or not renewed pursuant to the terms thereof, the
Company may be substantially adversely affected.
The Securities and Exchange Commission has jurisdiction over registered
investment companies, registered investment advisers, broker-dealers and
transfer agents and, in the event of a violation of applicable rules or
regulations by the Company or its subsidiaries, may take action which could have
a serious negative effect on the Company and its financial performance.
Because a significant portion of the Company's revenues and net income are
derived from the mining and sale of gold by TGL, the Company's earnings are
directly related to gold production, the cost of such production, and the price
of gold. TGL's gold production is dependent upon a number of factors that could
cause actual gold production to differ materially from projections, including
obtaining and maintaining necessary equipment, accessing key supplies, and
hiring and training supervisory personnel and skilled workers. Gold production
is also affected by the time lag inherent in heap leaching technology, subject
to weather conditions and dependent on the continued political stability in the
Republic of Ghana. Gold prices have historically fluctuated significantly and
are affected by numerous factors, including expectations for inflation, the
strength of the U.S. dollar, global and regional demand, central bank gold
supplies and political and economic conditions. If, as a result of a decline in
gold prices, TGL's revenues from gold sales were to fall below cash costs of
production, and to remain below cash costs of production for any substantial
period, the Company could determine that it is not economically feasible for TGL
to continue commercial production.
25
<PAGE> 27
TGL is dependent upon a number of key supplies for its mining operations,
including diesel fuel, electricity, explosives, lubricants, tires and sodium
cyanide. There can be no assurance that a disruption in the supplies to TGL of
these key materials will not occur and adversely affect the Company's
operations.
The operations at TGL depend on the ability to recruit, train and retain
employees with the requisite skills to operate large-scale mining equipment.
Although TGL offers its employees an attractive compensation package,
competition for skilled labor is strong among the various mines in Ghana. There
can be no assurance that the Company's operations will not be adversely affected
by a shortage of skilled laborers or by an increase in the time required to
fully train new employees.
The Company has incurred considerable expenses in connection with the
Forest-Starma timber project located in the Russian Far East. Forest-Starma has
commenced harvesting and has made shipments of timber. The commercial
feasibility of Forest-Starma is, however, dependent upon a number of factors
which are not within the control of the Company including the price of timber,
the weather, political stability in Russia and the strength of the Japanese
economy, the primary market for Forest-Starma's timber. While the Company
continues to believe that the project will achieve commercial feasibility, there
can be no assurance that it will do so.
The Company has a significant number of operations and investments located
outside of the U. S., including the gold mining operation at TGL and the timber
and investment operations in Russia. Foreign operations and investments may be
adversely affected by exchange controls, currency fluctuations, taxation,
political instability and laws or policies of the particular countries in which
the Company may have operations. There is no assurance that permits,
authorizations and agreements to implement plans at the Company's projects can
be obtained under conditions or within time frames that make such plans
economically feasible, that applicable laws or the governing political
authorities will not change or that such changes will not result in the
Company's having to incur material additional expenditures.
------------------------
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.
26
<PAGE> 28
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The Exhibits filed with this Quarterly Report on Form 10-Q are listed
on the "Index to Exhibits" below.
(b) Reports filed on form 8-K. None.
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.
Dated: May 13, 1997
THE PIONEER GROUP, INC.
/s/ WILLIAM H. KEOUGH
------------------------------------
WILLIAM H. KEOUGH
SENIOR VICE PRESIDENT, CHIEF
FINANCIAL OFFICER
AND TREASURER
27
<PAGE> 29
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<C> <S>
3.1 Restated Certificate of Incorporation of The Pioneer Group, Inc., as
amended.
10.1 Finance Agreement between Closed Joint-Stock Company "Forest-Starma" and
Overseas Private Investment Corporation dated as of December 21, 1995.
10.2 Project Completion Agreement among Closed Joint-Stock Company
"Forest-Starma", The Pioneer Group, Inc., International Joint-Stock Company
"Starma Holding" and Overseas Private Investment Corporation dated as of
December 21, 1995.
10.3 Closed Joint-Stock Company "Forest-Starma" Promissory Note in the principal
amount of $9.3 million dated as of July 1, 1996.
10.4 Amendment to Finance Agreement dated as of June 24, 1996 between Closed
Joint-Stock Company "Forest-Starma" and Overseas Private Investment
Corporation.
10.5 Amendment No. 1 to Credit Agreement dated as of April 23, 1997, among The
Pioneer Group, Inc., certain of its subsidiaries, the Lenders and The First
National Bank of Boston.
11 Computation of earnings per share.
27 Financial Data Schedule
</TABLE>
28
<PAGE> 1
Exhibit 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
FUND RESEARCH AND MANAGEMENT, INC.
Pursuant to Sections 242 and 245 of the General Corporation
Law of the State of Delaware.
The Corporation was organized as Fund Research and Sales, Inc.
on October 3, 1956. By amendment filed on January 14, 1957, its name
was changed to Fund Research and Management, Inc. This Restated
Certificate of Incorporation has been duly adopted by the stockholders
of the Corporation in accordance with the provisions of Section 245 of
the General Corporation Law of the State of Delaware.
FIRST. The name of the Corporation is The Pioneer Group,
Inc.
SECOND. The address of its registered office in the State of
Delaware is No. 100 West Tenth Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address
is The Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted
or promoted is as follows:
To engage in any lawful act or activity for which
corporations may be organized under the General Corporation
Law of Delaware.
FOURTH. The total number of shares of stock which the
Corporation shall have authority to issue is 3,000,000. Each of such
shares shall have a par value of $.10. All such shares are of one class
and are shares of common stock. The 2,000 shares of Class A Common
Stock outstanding prior to the filing of this Restated Certificate of
Incorporation are hereby converted into 2,079,277 shares of Common
Stock, $.10 par value, of the Corporation.
FIFTH. In furtherance of and not in limitation of powers
conferred by statute, it is further provided:
1. Election of directors need not be by written
ballot.
2. The Board of Directors is expressly authorized to
adopt, amend or repeal the By-laws of the Corporation.
SIXTH. Whenever a compromise or arrangement is proposed
between this Corporation and its creditors or any class of them
<PAGE> 2
and/or between this Corporation and its stockholders or any class of
them, any court of equitable jurisdiction within the State of Delaware
may, on the application in a summary way of this Corporation or of any
creditor or stockholder thereof, or on the application of any receiver
or receivers appointed for this Corporation under the provisions of
Section 291 of Title 8 of the Delaware Code or on the application of
trustees in dissolution or of any receiver or receivers appointed for
this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the
said court directs. If a majority in number representing three-fourths
in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case
may be, agree to any compromise or arrangement and to any
reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said
application has been made, be binding on all the creditors or class of
creditors, and/or on all the stockholders or class of stockholders, of
this Corporation, as the case may be, and also on this Corporation.
SEVENTH: The Corporation shall, to the fullest extent
permitted by Section 145 of the General Corporation Law of Delaware, as
that Section may be amended and supplemented from time to time,
indemnify any director or officer which it shall have power to
indemnify under that Section against any expenses, liabilities or other
matters referred to in or covered by that Section. The indemnification
provided for in this Article (i) shall not be deemed exclusive of any
other rights to which those indemnified may be entitled under any
by-law, agreement or vote of stockholders or disinterested directors or
otherwise, both as to action in their official capacities and as to
action in another capacity while holding such office, (ii) shall
continue as to a person who has ceased to be a director or officer and
(iii) shall inure to the benefit of the heirs, executors and
administrators of such a person. To assure indemnification under this
Article of all such persons who are determined by the Corporation or
otherwise to be or to have been "fiduciaries" of any employee benefit
plan of the Corporation which may exist from time to time and which is
governed by the Act of Congress entitled "Employee Retirement Income
Security Act of 1974," as amended from time to time, such Section 145
shall, for the purposes of this Article, be interpreted as follows: an
"other enterprise" shall be deemed to include such an employee benefit
plan; the Corporation shall be deemed to have requested a person to
serve an employee benefit
- 2 -
<PAGE> 3
plan where the performance by such person of his duties to the
Corporation also imposes duties on, or otherwise involves services by,
such person to the plan or participants or beneficiaries of the plan;
excise taxes assessed on a person with respect to an employee benefit
plan pursuant to such Act of Congress shall be deemed "fines"; and
action taken or omitted by a person with respect to an employee benefit
plan in the performance of such person's duties for a purpose
reasonably believed by such person to be in the interest of the
participants and beneficiaries of the plan shall be deemed to be for a
purpose which is not opposed to the best interests of the Corporation.
EIGHTH: Any director or the entire Board of Directors of the
Corporation may be removed, with or without cause, by the holders of
not less than two-thirds of the shares then entitled to vote at
elections of directors of the Corporation.
NINTH: The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by statute,
and all rights conferred upon stockholders herein are granted subject
to this reservation.
EXECUTED at Boston, Massachusetts, on December 15, 1978.
ATTEST:
/s/ Joseph P. Barri /s/ John F. Cogan, Jr.
----------------------------- -----------------------------------
Joseph P. Barri John F. Cogan, Jr.
Secretary President
- 3 -
<PAGE> 4
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
THE PIONEER GROUP, INC.
THE PIONEER GROUP, INC. (the "Corporation"), a corporation organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: At a meeting of the Board of Directors of the Corporation a
resolution was duly adopted, pursuant to Section 242 of the General Corporation
Law of the State of Delaware, setting forth an amendment to the Restated
Certificate of Incorporation of the Corporation and declaring said amendment to
be advisable. The stockholders of the Corporation have duly approved said
amendment by the required vote of such stockholders, adopted by the consent of
the holders of a majority of the outstanding shares of the Corporation's Common
Stock in accordance with Section 242 of the General Corporation Law of the State
of Delaware. The resolution setting forth the amendment is as follows:
RESOLVED: That Article FOURTH of the Restated Certificate of Incorporation of
the Corporation be and hereby is amended to read in its entirety as
follows:
"FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is 10,000,000. Each of such shares shall have a
par value of $.10. All such shares are of one class and are shares of common
stock."
<PAGE> 5
IN WITNESS WHEREOF, THE PIONEER GROUP, INC. has caused its corporate
seal to be affixed hereto and this Certificate of Amendment of the Restated
Certificate of Incorporation of the Corporation to be signed by its President
and attested by its Secretary this 3rd day of May, 1984.
THE PIONEER GROUP, INC.
By: /s/
-------------------------------
Vice Presindent
Attest: /s/ Joseph P. Barri
------------------------------
Secretary
<PAGE> 6
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
THE PIONEER GROUP, INC.
Pursuant to Section 242
of the Corporation Law of the
State of Delaware
-----------------------------
THE PIONEER GROUP, INC. (hereinafter called the "Corporation"),
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware, does hereby certify:
FIRST: At a meeting of the Board of Directors of the Corporation held
on February 1, 1986, a resolution was duly adopted, pursuant to Section 242 of
the General Corporation Law of the State of Delaware, setting forth an amendment
to the Restated Certificate of Incorporation of the Corporation, declaring said
amendment to be advisable and submitting said amendment to the stockholders of
the Corporation for consideration thereof. A majority of the stockholders of the
Corporation approved said proposed amendment, at a meeting held on May 6, 1986,
in accordance with Section 242 of the General Corporation Law of the State of
Delaware. The resolution setting forth the amendment is as follows:
RESOLVED: That Article FOURTH of the Corporation's Restated Certificate of
Incorporation be and it hereby is deleted in its entirety and the
following paragraph is inserted in lieu thereof:
"FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue is 15,000,000. Each
of such shares shall have a par value of $.10. All such shares
are of one class and are shares of common stock."
<PAGE> 7
SECOND: The capital of the Corporation will not be reduced under or by
reason of the amendment herein certified.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
hereto affixed and this Certificate of Amendment of the Restated Certificate of
Incorporation to be signed by its President and attested by its Secretary this
6th day of May, 1986.
THE PIONEER GROUP, INC.
By: /s/ John F. Cogan, Jr.
-------------------------------
John F. Cogan, Jr.
President
Corporate Seal
Attest: /s/ Joseph P. Barri
------------------------------
Joseph P. Barri
Secretary
-2-
<PAGE> 8
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
[SIGNATURE]
OF SECRETARY OF STATE
THE PIONEER GROUP, INC.
Pursuant to Section 242 of the
Corporation Law of the State of Delaware
----------------------------------------
THE PIONEER GROUP, INC. (the "Corporation"), organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
does hereby certify:
That at a meeting of the Board of Directors of the Corporation held on
February 8, 1987, resolutions were duly adopted, pursuant to Section 242 of the
General Corporation Law of the State of Delaware, setting forth proposed
amendments to the Certificate of Incorporation of the Corporation and declaring
said amendments to be advisable. Thereafter, the stockholders of the Corporation
duly approved said proposed amendments at a meeting on May 12, 1987 in
accordance with Sections 211 and 242 of the General Corporation Law of the State
of Delaware.
The effect of the amendments is to delete Article SEVENTH of the
Certificate of Incorporation of the Corporation and to substitute the following
language such that Article SEVENTH shall read in its entirety as follows:
"SEVENTH (Part I): Except to the extent that the General Corporation
Law of the State of Delaware prohibits the elimination or limitation of
liability of directors for breaches of fiduciary duty, no director of
the Corporation shall be liable for any breach of fiduciary duty. No
amendment to or repeal of this provision shall apply to or have any
effect on the liability or alleged liability of any
<PAGE> 9
director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment.
(Part II): The following provisions relate to indemnification by the
corporation:
1. ACTIONS, SUITS OR PROCEEDINGS OTHER THAN BY OR IN THE RIGHT
OF THE CORPORATION. The Corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or
in the right of the Corporation) by reason of the fact that he is or
was or has agreed to become a director or officer of the Corporation,
or is or was serving or has agreed to serve at the request of the
Corporation as a director, officer, employee or trustee of another
corporation, partnership, joint venture, trust or other enterprise (all
such persons being referred to hereafter as an "Indemnitee"), or by
reason of any action alleged to have been taken or omitted in such
capacity, against costs, charges, expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and
in a manner he reasonably believed to be, or not opposed to, the best
interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of NOLO
CONTENDERE or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner
which he reasonably believed to be in, or not opposed to, the best
interests of the Corporation and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was
unlawful. Notwithstanding anything to the contrary in this Article,
except as set forth in Section 5, the Corporation shall not indemnify
an Indemnitee seeking indemnification in connection with a proceeding
(or part thereof) initiated by the Indemnitee unless the initiation
thereof was approved by the Board of Directors of the Corporation.
2. ACTIONS OR SUITS BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was or has
agreed to become a director or officer of the Corporation or by reason
of any action alleged to have been taken or omitted in such capacity,
against costs, charges and expenses (including
-2-
<PAGE> 10
attorneys' fees) actually and reasonably incurred by him or on his
behalf in connection with the defense or settlement of such action or
suit and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best
interests of the Corporation, except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the Corporation unless and
only to the extent that the Court of Chancery of Delaware or the court
in which such action or suit was brought shall determine upon
application that, despite the adjudication of such liability but in
view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such costs, charges and expenses
which the Court of Chancery or such other court shall deem proper.
3. INDEMNIFICATION FOR COSTS, CHARGES AND EXPENSES OF
SUCCESSFUL PARTY. Notwithstanding the other provisions of this Article,
to the extent that an Indemnitee has been successful, on the merits or
otherwise, including, without limitation, the dismissal of an action
without prejudice or the settlement of an action without admission of
liability, in defense of any action, suit or proceeding referred to in
Sections 1 and 2 of this Article, or in defense of any claim, issue or
matter therein, or on appeal from any such action, suit or proceeding,
he shall be indemnified against all costs, charges and expense
(including attorneys' fees) actually and reasonably incurred by him or
on his behalf in connection therewith.
4. NOTIFICATION AND DEFENSE OF CLAIM. As a condition precedent
to his right to be indemnified, the Indemnitee must give to the
Corporation notice in writing as soon as practicable of any action,
suit, proceeding or investigation involving him for which indemnity
will or could be sought. With respect to an action, suit, proceeding or
investigation of which the Corporation is so notified, the Corporation
will be entitled to participate therein at its own expense and/or to
assume the defense thereof at its own expense, with legal counsel
reasonably acceptable to such Indemnitee. After notice from the
Corporation to the Indemnitee of its election so to assume such
defense, the Corporation shall not be liable to the Indemnitee for any
legal or other expenses subsequently incurred by the Indemnitee in
connection with such claim, other than as provided below in this
Section. The Indemnitee shall have the right to employ his own counsel
in connection with such claim, but the fees and expenses of such
counsel incurred after notice from the Corporation of its assumption of
the defense thereof shall be at the expense of the Indemnitee unless
(i) the employment of counsel by the Indemnitee has been authorized by
the Corporation, (ii) counsel to the Indemnitee shall have reasonably
concluded that there may be a conflict of interest or position on any
significant issue between the Corporation and
-3-
<PAGE> 11
the Indemnitee in the conduct of the defense of such action or (iii)
the Corporation shall not in fact have employed counsel to assume the
defense of such action, in each of which cases the fees and expenses of
counsel for the Indemnitee shall be at the expense of the Corporation,
except as otherwise expressly provided by this Article. The Corporation
shall not be entitled to assume the defense of any claim brought by or
on behalf of the Corporation or as to which counsel for the Indemnitee
shall have reasonably made the conclusion provided for in (ii) above.
5. Advances of Costs, Charges and Expenses. In the event that
the Company does not assume the defense pursuant to Section 4 of this
Article of any action, suit, proceeding or investigation about which
the Corporation receives notice under this Article, any costs, charges
and expenses (including attorneys' fees) incurred by an Indemnitee in
defending a civil or criminal action, suit, proceeding or investigation
or any appeal therefrom shall be paid by the Corporation in advance of
the final disposition of such matter, PROVIDED, HOWEVER, that the
payment of such costs, charges and expenses incurred by an Indemnitee
in advance of the final disposition of such matter shall be made only
upon receipt of an undertaking by or on behalf of the Indemnitee to
repay all amounts so advanced in the event that it shall ultimately be
determined that such Indemnitee is not entitled to be indemnified by
the Corporation as authorized in this Article.
6. PROCEDURE FOR INDEMNIFICATION. Any indemnification or
advancement of expenses pursuant to Section 1, 2, 3 or 5 of this
Article shall be made promptly, and in any event within 60 days after
receipt by the Corporation of the written request of the Indemnitee,
unless with respect to requests under Section 1 or 2, a determination
is made within such 60-day period by the Board of Directors of the
Corporation by a majority vote of a quorum of disinterested directors
that such Indemnitee did not meet the applicable standard of conduct
set forth in Section 1 or Section 2, as the case may be. In the event
no quorum of disinterested directors is obtainable, the Board of
Directors shall promptly direct that independent legal counsel shall
determine, based on facts known to such counsel at such time, whether
such Indemnitee met the applicable standard of conduct set forth in
such Sections; and, in such event, indemnification shall be made to the
Indemnitee unless within 60 days after receipt by the Corporation of
the request by such Indemnitee for indemnification, such independent
legal counsel in a written opinion determines that the Indemnitee has
not met the applicable standard of conduct. The right to
indemnification or advances as granted by this Article shall be
enforceable by the Indemnitee in any court of competent jurisdiction if
the Corporation denies such request, in whole or in part, or if no
disposition thereof is made within the
-4-
<PAGE> 12
60-day period referred to above. Such Indemnitee's costs and expenses
incurred in connection with successfully establishing his right to
indemnification, in whole or in part, in any such proceeding shall also
be indemnified by the Corporation.
7. SUBSEQUENT AMENDMENT. No amendment, termination or repeal
of this Article or of relevant provisions of the Delaware General
Corporation Law or any other applicable laws shall affect or diminish
in any way the rights of any Indemnitee to indemnification under the
provisions hereof with respect to any action, suit, proceeding or
investigation arising out of, or relating to any actions, transactions
or facts occurring prior to the final adoption of such amendment,
termination or repeal.
8. OTHER RIGHTS. The indemnification provided by this Article
shall not be deemed exclusive of any other rights to which an
Indemnitee seeking indemnification may be entitled under any law
(common or statutory), agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and
as to action in any other capacity while holding office for the
Corporation, and shall continue as to a person who has ceased to be a
director or officer, and shall inure to the benefit of the estate,
heirs, executors and administrators of such person. Nothing contained
in this Article shall be deemed to prohibit, and the Corporation is
specifically authorized to enter into, agreements with officers and
directors providing indemnification rights and procedures different
from those set forth herein. In addition, the Corporation, acting
through its Board of Directors, may grant indemnification rights to
other employees or agents of the Corporation and such rights may be
equivalent to or greater or less than those set forth in this Article.
9. PARTIAL INDEMNIFICATION. If an Indemnitee is entitled under
any provision of this Article to indemnification by the Corporation for
some or a portion of the costs, charges, expenses, judgments or fines
actually and reasonably incurred by him in the investigation, defense,
appeal or settlement of any proceeding but not, however, for the total
amount thereof, the Corporation shall nevertheless indemnify the
Indemnitee for the portion of such costs, charges, expenses, judgments
or fines to which such Indemnitee is entitled.
10. INSURANCE. The Corporation may purchase and maintain
insurance, at its expense, to protect itself and any director, officer,
employee or agent of the Corporation or another corporation,
partnership, joint venture, trust or other enterprise against any
expense, liability or loss incurred by him in any such capacity, or
arising out of his
-5-
<PAGE> 13
status as such, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.
11. MERGER, CONSOLIDATION, ETC. If the Corporation is merged
into or consolidated with another corporation and the Corporation is
not the surviving corporation, or if substantially all of the assets or
stock of the Corporation is acquired by any other corporation, or in
the event of any other similar reorganization involving the
Corporation, the Board of Directors of the Corporation or the board of
directors of any corporation assuming the obligations of the
Corporation shall assume the obligations of the Corporation under this
Article, with respect to any action, suit, proceeding or investigation
arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger, consolidation, acquisition
or reorganization.
12. SAVINGS CLAUSE. If this Article or any portion hereof
shall be invalidated on any ground by any court of competent
jurisdiction, then the Corporation shall nevertheless indemnify each
Indemnitee as to any costs, charges, expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement with respect to
any action, suit, proceeding or investigation, whether civil, criminal
or administrative, including an action by or in the right of the
Corporation, to the full extent permitted by any applicable portion of
this Article that shall not have been invalidated and to the full
extent permitted by applicable law.
13. DEFINITIONS. Terms used herein and defined in Section
145(h) and Section 145(i) of the Delaware General Corporation Law shall
have the respective meanings assigned to such terms in such Section
145(h) and Section 145(i).
14. SUBSEQUENT LEGISLATION. If the Delaware General
Corporation Law is amended after adoption of this Article to further
expand the indemnification permitted to Indemnitees, then the
Corporation shall indemnify such persons to the fullest extent
permitted by the Delaware General Corporation Law, as so amended."
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by John F. Cogan, Jr., its President, and
-6-
<PAGE> 14
attested by Joseph P. Barri, its Secretary, this 2nd day of June, 1987.
THE PIONEER GROUP, INC.
By: /s/ John F. Cogan, Jr.
-------------------------------
President
ATTEST:
/s/Joseph P. Barri
- -----------------------------
Secreatry
-7-
<PAGE> 15
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
THE PIONEER GROUP, INC.
Pursuant to Section 242
of the Corporation Law of the
State of Delaware
-----------------------------
THE PIONEER GROUP, INC. (hereinafter called the "Corporation"),
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware, does hereby certify:
FIRST: At a meeting of the Board of Directors of the Corporation held
on February 3, 1994, a resolution was duly adopted, pursuant to Section 242 of
the General Corporation Law of the State of Delaware, setting forth an amendment
to the Restated Certificate of Incorporation of the Corporation, declaring said
amendment to be advisable and submitting said amendment to the stockholders of
the Corporation for consideration thereof. A majority of the stockholders of the
Corporation approved said proposed amendment, at a meeting held on May 5, 1994,
in accordance with Section 242 of the General Corporation Law of the State of
Delaware. The resolution setting forth the amendment is as follows:
<PAGE> 16
RESOLVED: That Article FOURTH of the Corporation's Restated Certificate of
Incorporation be and it hereby is deleted in its entirety and the
following paragraph is inserted in lieu thereof:
"FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue is 33,000,000. Each
of such shares shall have a par value of $.10. All such shares
are of one class and are shares of common stock."
IN WITNESS WHEREOF, the Corpora:ion has caused its corporate seal to be
hereto affixed and this Certificate of Amendment of Restated Certificate of
Incorporation to be signed by its President and attested by its Secretary this
5th day of May, 1994.
THE PIONEER GROUP, INC.
By: /s/ John F. Cogan, Jr.
-------------------------------
John F. Cogan, Jr.
President
Corporate Seal
Attest: /s/ Joseph P. Barri
------------------------------
Joseph P. Barri
Secretary
-2-
<PAGE> 17
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
THE PIONEER GROUP, INC.
Pursuant to Section 242
of the Corporation Law of the
State of Delaware
-----------------------------
THE PIONEER GROUP, INC. (hereinafter called the "Corporation"),
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware, does hereby certify:
FIRST: At a meeting of the Board of Directors of the Corporation held
on January 26, 1995, a resolution was duly adopted, pursuant to Section 242 of
the General Corporation was Law of the State of Delaware, setting forth an
amendment to the Restated Certificate of Incorporation of the Corporation,
declaring said amendment to be advisable and submitting said amendment to the
stockholders of the Corporation for consideration thereof. A majority of the
stockholders of the Corporation approved said proposed amendment, at a meeting
held on May 4, 1995, in accordance with Section 242 of the General Corporation
Law of the State of Delaware. The resolution setting forth the amendment is as
follows:
<PAGE> 18
RESOLVED: That Article FOURTH of the Corporation's Restated Certificate of
Incorporation be and it hereby is deleted in its entirety and the
following paragraph is inserted in lieu thereof:
"FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue is 60,000,000.
Each of such shares shall have a par value of $.10. All such
shares are of one class and are shares of common stock."
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to
be hereto affixed and this Certificate of Amendment of Restated Certificate of
Incorporation to be signed by its President and attested by its Secretary this
4th day of May, 1995.
THE PIONEER GROUP, INC.
By: /s/ John F. Cogan, Jr.
-------------------------------
John F. Cogan, Jr.
President
Corporate Seal
Attest: /s/ Joseph P. Barri
------------------------------
Joseph P. Barri
Secretary
-2-
<PAGE> 1
Exhibit 10.1
================================================================================
FINANCE AGREEMENT
BETWEEN
CLOSED JOINT-STOCK COMPANY
"FOREST STARMA"
AND
OVERSEAS PRIVATE INVESTMENT CORPORATION
DATED AS OF DECEMBER 21, 1995
OPIC/118-94-162-IG
================================================================================
<PAGE> 2
TABLE OF CONTENTS
PAGE
----
ARTICLE I. DEFINITIONS ....................................................1
Section 1.01. Definitions .............................................1
Section 1.02. Interpretation ..........................................9
Section 1.03. Project Cost; Financial Plan ...........................10
ARTICLE II. AMOUNT AND TERMS OF THE LOAN ..................................10
Section 2.01. Amount and Disbursement ................................10
Section 2.02. Commitment Fee .........................................10
Section 2.03. Cancellation of the Commitment .........................11
Section 2.04. Interest ...............................................11
Section 2.05. Repayment of the Loan ..................................11
Section 2.06. Voluntary Prepayment ...................................11
Section 2.07. Mandatory Prepayment ...................................12
Section 2.08. Facility Fee ...........................................12
Section 2.09. Taxes ..................................................12
Section 2.10. Miscellaneous ..........................................13
ARTICLE III. REPRESENTATIONS AND WARRANTIES ..............................14
Section 3.01. Existence and Power of the Company .....................14
Section 3.02. Authority of the Company ...............................14
Section 3.03. Financial Condition ....................................15
Section 3.04. Capitalization of the Company ..........................15
Section 3.05. Subsidiaries ...........................................16
Section 3.06. Liens ..................................................16
Section 3.07. Taxes and Reports ......................................16
Section 3.08. Defaults ...............................................17
Section 3.09. Litigation .............................................17
Section 3.10. Compliance with Law ....................................17
Section 3.11. Easements, Property Interests, Utilities, Etc ..........17
Section 3.12. Environmental Matters ..................................18
Section 3.13. Project Cost and Project Completion ....................18
Section 3.14. Disclosure .............................................18
Section 3.15. Charter Documents ......................................18
ARTICLE IV. CONDITIONS PRECEDENT TO DISBURSEMENT ..........................19
Section 4.01. Corporate Authorization ................................19
Section 4.02. Representations and Defaults ...........................19
Section 4.03. Change in Circumstances ................................20
Section 4.04. Certification ..........................................20
Section 4.05. Funding Arrangements ...................................20
Section 4.06. Financing Documents ....................................20
Section 4.07. Sponsor Investment; Subordinated Loan ..................22
<PAGE> 3
-ii-
Section 4.08. Harvesting Plan ........................................22
Section 4.09. Government Approvals ...................................22
Section 4.10. Land ...................................................23
Section 4.11. Insurance ..............................................23
Section 4.12. Financial Information and Construction Progress ........23
Section 4.13. Appointment of Agent ...................................23
Section 4.14. Legal Opinions .........................................24
Section 4.15. Payment or Reimbursement of Expenses ...................24
Section 4.16. Other Documents ........................................24
ARTICLE V. AFFIRMATIVE COVENANTS .........................................24
Section 5.01. Project Completion .....................................24
Section 5.02. Company Operations .....................................25
Section 5.03. Maintenance of Rights and Compliance with Laws .........25
Section 5.04. Government Approvals; Foreign Exchange Consents ........25
Section 5.05. Maintenance of Insurance ...............................25
Section 5.06. Accounting and Financial Management ....................28
Section 5.07. Financial Statements and Other Information .............29
Section 5.08. Access to Records; Inspection; Meetings ................30
Section 5.09. Notice of Default and Other Matters ....................30
Section 5.10. Security Documents .....................................30
Section 5.11. Financial Ratios .......................................31
Section 5.12. Environmental Compliance ...............................31
Section 5.13. Designated Accounts and Russian Bank Accounts ..........32
ARTICLE VI. NEGATIVE COVENANTS ............................................32
Section 6.01. Liens ..................................................32
Section 6.02. Indebtedness ...........................................33
Section 6.03. No Alteration of Agreements ............................33
Section 6.04. Dividends and Share Redemptions and
Subordinated Loan Payments .............................34
Section 6.05. Conduct of Business with Sponsors and Shareholders .....34
Section 6.06. Sale of Assets; Mergers ................................35
Section 6.07. Lease Obligations ......................................35
Section 6.08. Hedging Arrangements ...................................35
Section 6.09 Ordinary Conduct of Business ...........................35
Section 6.10. Worker Rights ..........................................36
ARTICLE VII. DEFAULTS AND REMEDIES .........................................36
Section 7.01. Events of Default ......................................36
Section 7.02. Remedies upon Event of Default .........................39
Section 7.03. Jurisdiction and Consent to Suit .......................39
Section 7.04. Arbitration ............................................40
Section 7.05. Judgment Currency ......................................42
Section 7.06. Immunity ...............................................42
<PAGE> 4
-iii-
ARTICLE VIII. MISCELLANEOUS ................................................43
Section 8.01. Notices .................................................43
Section 8.02. English Language ........................................44
Section 8.03. Governing Law ...........................................44
Section 8.04. Succession ..............................................44
Section 8.05. Survival of Agreements ..................................44
Section 8.06. Integration; Amendments .................................45
Section 8.07. Severability ............................................45
Section 8.08. No Waiver ...............................................45
Section 8.09. Waiver of Jury Trial ....................................45
Section 8.10. Waiver of Litigation Payments ...........................46
Section 8.11. Indemnity ...............................................46
Section 8.12. Further Assurances ......................................46
Section 8.13. Counterparts ............................................46
EXHIBITS
- --------
A Form of Promissory Note
B Form of Disbursement Request
C Form of Corporate Authorization Certificate (pursuant to
Section 4.01)
D Form of Disbursement Certificate (pursuant to Section 4.04)
E Form of Self-Monitoring Questionnaire
F Project Completion Agreement
G Subordination Agreement
H Security and Accounts Deed
I Form of Subordinated Promissory Note
J Form of Letter of Acknowledgment
SCHEDULES
- ---------
1.01 Application
1.03 Financial Plan
4.09 Government Registrations and Consents
5.12 Guidelines Schedule
<PAGE> 5
FINANCE AGREEMENT
AGREEMENT, dated as of December 21, 1995, between CLOSED JOINT-STOCK
COMPANY "FOREST STARMA", a closed joint-stock company, organized and existing
under the laws of the Russian Federation (the "COMPANY"), and OVERSEAS PRIVATE
INVESTMENT CORPORATION, an agency oft he United States of America ("OPIC"),
WITNESSETH:
WHEREAS, the Company intends to construct and operate the Project (as
hereinafter defined); and
WHEREAS, to secure a portion of the financing for the Project, the Company
has requested that OPIC provide a credit facility to the Company in an amount up
to $9,300,000 pursuant to Section 234(b) of the Foreign Assistance Act of 1961,
as amended, which OPIC is willing to do on the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the premises and of the agreements
contained herein, it is hereby agreed as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.01. DEFINITIONS.
Unless otherwise provided, capitalized terms used herein shall have the
definitions specified below:
"ADJUSTED CASH FLOW" means, as of any date, the sum of the following
amounts for the preceding six months, multiplied by two: (i) Net
Income of the Company; (ii) all depreciation, amortization, deferred
taxes and other non-cash charges of the Company, excluding bad and
doubtful debts; and (iii) interest payments made by the Company on
all loans and all fees due to OPIC for the next succeeding Fiscal
Year.
"ADJUSTED NET WORTH" means, as of any date, (i) the Company's total
stockholders' equity (including capital stock, paid-in capital and
retained earnings and/or accumulated
<PAGE> 6
-2-
losses, after deducting treasury stock and reserves) that would
appear on the Company's Financial Statements prepared as of that
date, and (ii) the Subordinated Loan.
"AFFILIATE" means, with respect to any Person, (i)any other Person that is
directly or indirectly controlled by, under common control with or
controlling such Person; (ii) any other Person owning beneficially
or controlling five percent (5%) or more of the equity interest in
such Person; (iii) any officer, director or parmer of such Person;
or (iv)any spouse or relative of such Person. As used herein, the
term "control" means possession, directly or indirectly, of the
power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of partnership
interests or voting securities, by contract or otherwise.
"AGREEMENT" means this Finance Agreement between the Company and OPIC.
"APPLICATION" means the Company's application to OPIC for the Loan,
consisting of the Commitment Letter and the items described in
Schedule 1.01.
"AUTHORIZED OFFICER" means, with respect to any Person, its Chairperson,
Managing Director, President, Secretary or Treasurer, any Vice
President, Assistant Secretary or Assistant Treasurer thereof, and
any other officer designated in writing by such Person as having
been authorized to execute and deliver this Agreement, the Notes,
any of the other Financing Documents to which it is or will be a
party, or any other notice or instrument contemplated hereunder.
"BUSINESS DAY" means any day other than a Saturday, Sunday or day on which
commercial banks are authorized by law to close in the City of New
York or Washington, D.C., United States of America.
"CAPITAL EXPENDITURE AND U.S.$ OPERATING EXPENDITURE ACCOUNT" means a
Designated Account into which the Company shall deposit the amount
of the Proceeds in excess of the Cash Collateral Amount.
"CASH COLLATERAL ACCOUNT" means a Dollar Designated Account in which the
Company shall maintain the Cash Collateral Amount so long as any
amount remains outstanding under the Loan or any fees are due to
OPIC.
"CASH COLLATERAL AMOUNT" means (i) prior to the Project Completion, an
amount equal to the Debt Service for one Interest Period and (ii)
subsequent to Project Completion, an amount equal to the Debt
Service for two Interest Periods.
<PAGE> 7
-3-
"CHARTER DOCUMENTS" means, in respect of any company, corporation,
partnership, governmental agency or other enterprise, its founding
act, charter, articles of incorporation and by-laws, memorandum and
articles of association, statute, or similar instrument.
"CLOSING DATE" means any Business Day on which a Disbursement is made.
"COMMITMENT" means OPIC's commitment to guarantee an amount not to exceed
$9,300,000 less (i)the portion thereof which pursuant to Section
2.03 has been cancelled or has been deemed cancelled and (ii)any
Loan amounts repaid or prepaid.
"COMMITMENT FEE" has the meaning set forth in Section 2.02.
"COMMITMENT LETTER" means the letter agreement among the Company, the
Sponsors and OPIC, dated November 28, 1994, as amended, in which
OPIC and the Company have agreed to enter into this credit facility,
subject to the conditions stated therein.
"COMMITMENT PERIOD" means the period Commencing on the date hereof and
ending on the earlier of (i) the first date on which the amount of
the Loan equals the amount of the Commitment and (ii) February 28,
1996.
"COMPANY" means Closed Joint-Stock Company "Forest Starma", a closed
joint-stock company organized and existing under the laws of Russia.
"CONTRACT OF PLEDGE OF SHARES" has the meaning set forth in Section 4.06.
"CURRENT ASSETS" means assets treated as current assets under U.S. GAAP.
"CURRENT LIABILITIES" means all Indebtedness and liabilities due on demand
or to become due within one year and other liabilities treated as
current liabilities under U.S. GAAP.
"CUTTING LICENSE" means the license entitled "Siziman Forest Cutting
License" dated October 24, 1994 issued by the Federal Forest Service
of Russia.
"DAY COUNT FRACTION" means 360-day years consisting of twelve 30-day
months.
"DEBT SERVICE" means principal of and interest on the Loan and all fees
due to OPIC.
"DEBT SERVICE RATIO" means the ratio of Adjusted Cash Flow to the Debt
Service Requirement.
<PAGE> 8
-4-
"DEBT SERVICE REQUIREMENT" means an amount equal to the principal,
interest and all fees due to OPIC for the next succeeding one year
period.
"DESIGNATED ACCOUNTS" means one or more accounts opened and maintained by
the Company with the Escrow Agent, pursuant to the applicable
Russian Central Bank License for offshore bank accounts and the
terms of the Security and Accounts Deed, and subject to a pledge in
favor of OPIC. The Designated Accounts shall include the Funding
Account, the Timber Proceeds Account, the Cash Collateral Account
and the Capital Expenditure and U.S.$ Operating Expenditure Account.
"DISBURSEMENT" means the disbursement of the Loan.
"DISBURSEMENT REQUEST" means a request for a Disbursement substantially in
the form of Exhibit B.
"DOLLARS" or "$" means United States dollars.
"ESCROW AGENT" means Moscow Narodny Bank, London, or a successor financial
institution acceptable to OPIC, as escrow agent pursuant to the
terms of the Security and Accounts Deed.
"EVENT OF DEFAULT" has the meaning set forth in Section 7.01.
"FACILITY FEE" has the meaning set forth in Section 2.08.
"FINANCIAL PLAN" has the meaning set forth in Section 1.03.
"FINANCIAL STATEMENTS" means, with respect to any Person, such Person's
quarterly or annual balance sheet and statements of income, retained
earnings, and sources and application of funds for such fiscal
period, together with all notes thereto and with comparable figures
for the corresponding period of its previous Fiscal Year, each
prepared in Dollars, and in the case of such Person's annual
statements, prepared in accordance with U.S. GAAP.
"FINANCING DOCUMENTS" has the meaning set forth in Section 4.06.
"FISCAL YEAR" means, with respect to the Company, the period beginning on
January 1 and ending on December 31 of each year.
"FUNDING ACCOUNT" means a Designated Account into which the Company shall
receive the Disbursement.
<PAGE> 9
-5-
"FUNDING DOCUMENTS" has the meaning set forth in Section 4.05.
"HARVESTING PLAN" has the meaning set forth in Section 4.08.
"HEDGING ARRANGEMENT" means any interest rate or currency swap, future,
option, cap, collar, ceiling, hedge, or other interest rate
protection agreement or foreign exchange contract, or any other
agreement or arrangement designed to protect against fluctuations in
interest rates or currency values.
"INDEBTEDNESS" of any Person means, at any date, all or any liabilities,
obligations and reserves, contingent or otherwise, which, in
accordance with U.S. GAAP, would be reflected as a liability on a
balance sheet, including without limitation, (i)any obligation of
such Person for borrowed .money or arising out of any credit
facility, (ii) any obligation of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) any obligation
of such Person to pay the deferred purchase price of property or
services, (iv) any obligation of such Person under conditional sales
or other title retention agreements, (v)the net aggregate rentals
under any lease by such Person as lessee that under U.S. GAAP would
be capitalized on the books of the lessee or is the substantial
equivalent of the financing of the property so leased, (vi)any
obligation of such Person to purchase securities or other property
which arises out of or in connection with the sale of the same or
substantially similar securities or property, (vii)any obligation of
such Person secured by any Lien upon property, (viii) any
Indebtedness of others secured by a Lien on any asset of such
Person, and (ix) any Indebtedness of others guaranteed, directly or
indirectly, by such Person.
"INDEMNIFIED PERSONS" has the meaning set forth in Section 8.11.
"INTEREST PERIOD" means the period (i)from and including the day following
the immediately preceding Payment Date or, if later, the Closing
Date (ii)to and including the next succeeding Payment Date or, if
earlier, the Loan Maturity Date.
"INTEREST RATE" means the rate of interest specified in the Note.
"LIEN" means any lien, pledge, mortgage, security interest, deed of trust,
charge, assignment, hypothecation, title retention or other
encumbrance on or with respect to, or any preferential arrangement
having the practical effect of constituting a security interest with
respect to the payment of any obligation with, or from the proceeds
of, any asset or revenue of any kind.
"LITIGATION PAYMENT" has the meaning set forth in Section 8.10.
<PAGE> 10
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"LOAN" means, on any date, the aggregate of the outstanding unpaid
principal amounts of the Notes then outstanding.
"LOAN DOCUMENTS" has the meaning set forth in Section 4.06.
"LOAN MATURITY DATE" means December 15, 2003.
"LOCAL CURRENCY" or "LC(s)" means the official currency of the Russian
Federation.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (i)the
Project, (ii) the business, operations, prospects, condition
(financial or otherwise), or property of the Company, the Sponsors,
or any other Person whose continuing viability, because of its
guaranty or other undertaking, is essential to the Project, (iii)
the ability of the Company or any other party to perform in a timely
manner its material obligations under any of the Financing
Documents, (iv)the validity or enforceability of any material
provision of any Financing Document, (v) the rights and remedies of
OPIC, if any, under any of the Financing Documents, or (vi) the
Liens provided to OPIC under the Security Documents.
"NET INCOME" means, with respect to any Person for any fiscal period, the
net income of such Person for such period after Taxes but before
extraordinary items, determined in accordance with U.S. GAAP.
"NOTE" means any promissory note issued by the Company pursuant to this
Agreement substantially in the form of Exhibit A.
"NOTE INTEREST RATE" has the meaning set forth in Section 2.04.
"OPIC" means Overseas Private Investment Corporation, an agency of the
United States of America.
"OPIC PLAINTIFF" has the meaning set forth in Section 8.10.
"OPIC SPREAD" means (i) two and three quarters percent (2.75%) per annum
on the outstanding balance of the Loan prior to Project Completion
and five and one eighth percent (5.125%) per annum on the
outstanding balance of the Loan subsequent to Project Completion.
"OVERSIGHT GROUP" has the meaning set forth in Section 5.12.
<PAGE> 11
-7-
"PAYING AGENT" means a banking corporation designated as Paying Agent
under the Funding Documents, or any successor or successors thereto.
"PAYMENT DATE" means each June 15, and December 15 after the date hereof
until the Loan and all amounts due hereunder or under the Note are
paid in full, unless such date is not a Business Day, in which case
the Payment Date will be the next succeeding Business Day.
"PERSON" means and includes (i) an individual, (ii) a legal entity,
including but not limited to, a partnership, a joint venture, a
corporation, a trust, and an unincorporated organization, and (iii)
a government or any department or agency thereof.
"PGI" means The Pioneer Group, Inc.
"PLACEMENT SPREAD" means the number of basis points in excess of the
Interest Rate required in connection with the Funding Documents, as
set forth in the Note.
"PREPAYMENT PREMIUM" has the meaning set forth in Section 2.06.
"PROCEEDS" means the Company's proceeds from the export of raw logs and
timber.
"PROJECT" means the development of a forestry tract and the construction
of a jetty facility in the Siziman area, north east of Komsomolsk in
the Khabarovsk administrative division of the Russian Federation, as
more fully described in the Application and the items set forth in
Schedule 1.01.
"PROJECT COMPLETION" has the meaning set forth in Section 3 of the Project
Completion Agreement.
"PROJECT COMPLETION AGREEMENT" means the Project Completion Agreement
among the Sponsors, the Company, and OPIC, dated December 21, 1995,
a copy of which is attached hereto as Exhibit F.
"PROJECT DOCUMENTS" has the meaning set forth in Section 4.06.
"RUSSIAN BANK ACCOUNTS" means one or more Russian bank accounts opened and
maintained by the Company with a Russian financial institution or a
successor thereto, in either case acceptable to OPIC, and subject to
a pledge in favor of OPIC.
"SECURITY DOCUMENTS" has the meaning set forth in Section 4.06.
<PAGE> 12
-8-
"SECURITY AND ACCOUNTS DEED" means an agreement among the Company, OPIC
and the Escrow Agent, substantially in the form attached hereto as
Exhibit H, providing, among other things, for the deposit of the
Company's Proceeds into the Timber Proceeds Account, for the deposit
of the Cash Collateral Amount into the Cash Collateral Account, for
the payment of all amounts payable by the Company hereunder or under
the Notes from a Designated Account and establishing a first
priority security interest in favor of OPIC over the Designated
Accounts.
"SELF-MONITORING QUESTIONNAIRE" means the Annual Self-Monitoring
Questionnaire attached hereto as Exhibit E, as the same may be
revised and supplemented by OPIC from time to time.
"SHAREHOLDERS" means the Sponsors; Goskomsever; Sovgavan Complex Timber
Industry, Vanino District Foundation and other local minority
shareholders.
"SPONSORS" means The Pioneer Group, Inc., a corporation organized and
existing under the laws of Delaware, and International Joint-Stock
Company "Starma Holding", a joint-stock company organized and
existing under the laws of the Russian Federation.
"SUBORDINATED LENDER" means PGI and/or a substitute financial institution,
pursuant to an agreement with PGI, satisfactory to OPIC in form and
substance (such agreement to include the provisions set forth in the
Subordination Agreement attached hereto as Exhibit G unless the
Subordinated Lender is a party to the Subordination Agreement).
"SUBORDINATED LOAN" means the aggregate amount (principal and interest)
outstanding from time to time to the Subordinated Lender pursuant to
the Subordinated Promissory Note.
"SUBORDINATED PROMISSORY NOTE" means one or more promissory notes issued
by the Company to the Subordinated Lender, substantially in the form
of Exhibit I, or such other forms of note or evidence of
indebtedness as agreed to by the Company and the Subordinated
Lender, pursuant to which the Subordinated Lender shall make the
Subordinated Loan to the Company.
"SUBORDINATION AGREEMENT" means the Subordination Agreement among the
State Street Bank and Trust Company, PGI, Starma Holding, OPIC and
the Company dated December 21, 1995, a copy of which is attached
hereto as Exhibit G.
"TAXES" has the meaning set forth in Section 2.09.
<PAGE> 13
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"TIMBER PROCEEDS ACCOUNT" means a Dollar Designated Account into which the
Company shall deposit the Proceeds.
"TREASURY COST" means, with respect to any amount, the fixed borrowing
cost that would be charged to OPIC for such amount by the United
States Department of Treasury (which will approximate the interest
rate on U.S. Treasury notes with a similar maturity.)
"U.S. GAAP" means generally accepted accounting principles in the United
States of America in effect from time to time, applied on a
consistent basis both as to classification of items and amounts.
"U.S. SPONSOR" means PGI.
SECTION 1.02. INTERPRETATION.
In this Agreement, unless otherwise indicated or otherwise required by the
context:
(a) Reference to and the definition of any document (including this
Agreement) shall be deemed a reference to such document as it may be amended,
supplemented, revised, or modified from time to time;
(b) All references to an "Article", "Section", "Schedule", or "Exhibit"
are to an Article or Section hereof or to a Schedule or an Exhibit attached
hereto and made a part hereof;
(c) The table of contents, article and section headings, and other
captions in this Agreement are for the purpose of reference only and do not
limit or affect its meaning;
(d) Defined terms in the singular shall include the plural and vice
versa, and the masculine, feminine or neuter gender shall include all genders;
(e) Accounting terms used herein but not defined in Section 1.01 shall
have the respective meanings given to them under U.S. GAAP; and
(f) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement.
<PAGE> 14
-10-
SECTION 1.03. PROJECT COST; FINANCIAL PLAN.
The total cost of the Project (including provisions for contingencies) is
estimated to be the equivalent of $28,400,000, based on the financial plan set
forth in Schedule 1.03 (the "FINANCIAL PLAN").
ARTICLE II.
AMOUNT AND TERMS OF THE LOAN
SECTION 2.01. AMOUNT AND DISBURSEMENT.
(a) COMMITMENT. Subject to the terms and conditions hereof, OPIC agrees
to guarantee, and the Company agrees to accept, a Loan for the Project in the
principal amount of not more than $9,300,000. Disbursements of the Loan
hereunder shall only be made from the date hereof through the end of the
Commitment Period.
(b) DISBURSEMENT TERM. Subject to the satisfaction of the conditions
set forth in Article IV, the Company may request a Disbursement of the Loan by
delivering a Disbursement Request to OPIC not less than 20 Business Days prior
to the Closing Date. The Disbursement shall be evidenced by one or more (as OPIC
may specify) Notes aggregating the principal amount of the Disbursement and
dated the Closing Date. All Notes shall be issued for a term ending on or before
the Loan Maturity Date. The amount of the Loan shall not exceed the amount of
the Commitment.
(c) NUMBER AND AMOUNT OF DISBURSEMENTS. The Loan hereunder shall be
disbursed in not more than one Disbursement in an amount of not less than
$9,300,000, upon certification to OPIC's satisfaction that the contributions of
equity and subordinated loans set forth in the Financial Plan have been made and
satisfaction of the conditions set forth in Article IV.
SECTION 2.02. COMMITMENT FEE.
Commencing from the date hereof and continuing through the Commitment
Period, a commitment fee (the "COMMITMENT FEE") shall accrue on a daily basis at
the rate of one half of one percent (0.5%) per annum on the difference,
calculated for each day during such period, between (i) the amount of the
Commitment, and (ii) the aggregate amount of the Loan outstanding on such day.
The Commitment Fee shall be payable in arrears to OPIC on each Payment Date and
on the date of expiration of the Commitment Period.
<PAGE> 15
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SECTION 2.03. CANCELLATION OF THE COMMITMENT.
The Company may cancel all or any part of the Commitment at any time upon
payment to OPIC at the time of such cancellation of a fee (the "Cancellation
Fee") equal to one percent (1%) of the amount of the Commitment then cancelled.
Any part of the Commitment not disbursed at the end of the Commitment Period
shall be deemed to have been cancelled and the Cancellation Fee shall apply.
SECTION 2.04. INTEREST. (a) NOTE INTEREST RATE. On each Payment Date the
Company shall pay interest in arrears to the order of OPIC on the daily
outstanding principal balance of each Note at the rate specified in such Note,
PROVIDED that the first Payment Date for the payment of interest shall be June
17, 1996. Such rate shall be at a rate per annum equal to the sum of the
following (the "NOTE INTEREST RATE"):
(i) the Interest Rate;
(ii) the Placement Spread; and
(iii) the OPIC Spread.
(b) DEFAULT INTEREST. If the Company fails to pay in full when due any
amount of principal or interest on any Note, the Company shall on demand pay
OPIC default interest on such unpaid amount (in lieu of the Interest Rate) at a
rate equal to the sum of (i) the Treasury Cost, (ii) the OPIC Spread, and (iii)
two percent (2.0%) (to the extent permitted by applicable law) from the date of
such payment default until the date on which such defaulted amount is paid in
full.
SECTION 2.05. REPAYMENT OF THE LOAN.
The Company shall repay the Loan in fifteen (15) equal installments
payable on each Payment Date commencing on December 15, 1996 and ending on the
Loan Maturity Date.
SECTION 2.06. VOLUNTARY PREPAYMENT.
In addition to any requirements set forth in the Funding Documents, on any
date following the last day of the Commitment Period, the Company may, upon 20
(twenty) Business Days' prior notice to OPIC, prepay the Loan in whole or in
part upon the payment to OPIC of a prepayment premium (the "PREPAYMENT PREMIUM")
of (i) three percent (3%) of the Loan amount prepaid during the twenty-four
month period immediately following the last day of the Commitment Period,
(ii) two percent (2%) of the Loan amount prepaid during the twenty-four month
period immediately following the third anniversary of the last day of the
Commitment Period, and (iii) no Prepayment Premium shall be payable thereafter.
The amount of any such voluntary prepayment shall be applied to the repayment
schedule provided for in Section 2.05 in the inverse order of maturity.
<PAGE> 16
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SECTION 2.07. MANDATORY PREPAYMENT.
The Company shall reduce the amount of the Loan:
(a) in the event that, and in the amount by which, the aggregate amount
of insurance proceeds received by the Company for or in respect of its
properties or assets during any Fiscal Year in excess of $500,000 is not applied
or committed within 180 days after the receipt thereof to the repair or
replacement of such assets; and
(b) in the event that the aggregate amount of dividends or distributions
or payment or compensation of any type made during any Fiscal Year to a Sponsor,
Shareholder or an Affiliate of either of the foregoing exceeds fifty percent
(50%) of the Company's Net Income for the preceding Fiscal Year, as reflected in
the Company's audited Financial Statements, by an amount equal to fifty percent
(50%) of such excess.
The Loan prepayment resulting from this Section 2.07 shall have the same
effect as if such prepayment occurred pursuant to Section 2.06, except that
solely with respect to Section 2.07(a) no Prepayment Premium shall be due.
SECTION 2.08. FACILITY FEE.
The Company shall pay OPIC a facility fee (the "FACILITY FEE") in the
amount of one percent (1%) of the amount of the Commitment or $93,000, of which
$70,000 has previously been paid to OPIC. The outstanding balance of $23,000
shall be due and payable upon the execution and delivery of this Agreement by
the Company.
SECTION 2.09. TAXES.
(a) All sums payable by the Company hereunder or under the Notes,
whether of principal, interest, fees, expenses or otherwise, shall be paid in
full, free of any deductions or withholdings for any and all present and future
taxes, levies, imposts, stamps, duties, fees, assessments, deductions,
withholdings, and other governmental charges, and all liabilities with respect
thereto (collectively referred to as "TAXES"). In the event that the Company is
prohibited by law from making payments hereunder or under the Notes free of such
deductions or withholdings, then the Company shall pay such additional amount as
may be necessary in order that the actual amount received after such deduction
or withholding shall equal the full amount stated to be payable hereunder or
under the Notes.
(b) The Company shall pay directly to all appropriate taxing authorities
any and all present and future Taxes, and all liabilities with respect thereto
imposed by law or by any taxing
<PAGE> 17
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authority on or with regard to any aspect of the transactions contemplated by
this Agreement or the execution and delivery of this Agreement or the Notes,
except for any Taxes or other liabilities that the Company is contesting in good
faith by appropriate proceedings, PROVIDED that the Company hereby indemnifies
OPIC and holds OPIC harmless from and against any and all liabilities, fees or
additional expense with respect to or resulting from any delay in paying, or
omission to pay, Taxes. Within 30 days after the payment by the Company of any
Taxes, the Company shall furnish OPIC with the original or a certified copy of
the receipt evidencing payment thereof, together with any other information OPIC
may reasonably require to establish to its satisfaction that full and timely
payment of such Taxes has been made.
(c) OPIC shall notify the Company of any payment of Taxes required or
requested of it and shall give due consideration to any advice or recommendation
given in response thereto by the Company, and upon notice from OPIC that Taxes
or any liability relating thereto (including penalties and interest) have been
paid, the Company shall pay or reimburse OPIC therefor within 30 days of such
notice.
(d) Without prejudice to the survival of any other agreement of the
Company hereunder, the agreements and obligations of the Company contained in
this Section 2.09 shall survive the payment in full of principal and interest
hereunder and under the Notes.
SECTION 2.10. MISCELLANEOUS.
(a) PAYMENT OR REIMBURSEMENT OF EXPENSES. The Company shall pay or
reimburse OPIC, promptly upon receipt of OPIC's request, OPIC's reasonable
out-of-pocket costs and expenses incurred in connection with the negotiation,
preparation, execution and delivery, and implementation of this Agreement, the
Notes, and the other Financing Documents, including, without limitation, (i)the
reasonable fees and expenses of outside legal counsel and business consultants
and (ii)the reasonable costs of communications and travel expenses, the
preparation of any documents, the authentication, registration and recordation
of any of the Financing Documents, the preparation of bound volumes of the
Financing Documents for OPIC's use, and the termination of the Liens created
pursuant to the Security Documents. The Company shall also reimburse OPIC,
promptly upon demand, for all reasonable costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses and the reasonable cost of
travel) incurred by OPIC in preserving in full force and effect or enforcing its
rights hereunder or under any of the Financing Documents or incurred in
connection with the modification, amendment or waiver of any provision of any
such document, including but not limited to release of the Liens in favor of
OPIC arising under the Security Documents.
(b) CURRENCY AND PLACE OF PAYMENT. All payments required hereunder shall
be made in Dollars in immediately available funds without any offset or
deduction for Taxes or otherwise to the Paying Agent as provided for in the
Funding Documents or, as the case may be, to OPIC at the following address:
<PAGE> 18
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By wire transfer (via a United States domestic bank):
U.S. Treasury Department
ABA No. 0210-3000-4 TREASNYC/CTR/BNF=AC71000001
OBI=OPIC Loan No. 118-94-162-IG
(c) COMPUTATION OF INTEREST ON NOTES AND FEES. Except as otherwise
provided herein or in the Funding Documents or in any Note, interest (including
the Interest Index, the Placement Spread, and the OPIC Spread), default
interest, the Commitment Fee and any other fees shall accrue on a daily basis in
the Interest Period and shall be computed on the basis of the Day Count Fraction
for such Interest Period.
(d) APPLICATION OF PAYMENTS TO OPIC. Payments received by OPIC under
this Agreement or with respect to any Note shall be applied to amounts due under
this Agreement and under the Notes in such manner as OPIC in its sole discretion
may determine to be appropriate, notwithstanding any instruction to the contrary
from the Company.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
The Company represents, covenants, and warrants to OPIC that:
SECTION 3.01. EXISTENCE AND POWER OF THE COMPANY.
The Company is a closed joint-stock company, validly existing, and in good
standing under the laws of the Russian Federation. The Company is duly
authorized to do business in each jurisdiction in which its business makes such
authorization necessary, has the requisite power to own and operate its
properties, to carry on its business and the Project, to borrow money and create
a charge on its properties and to execute, deliver, and perform this Agreement,
the Notes, and each of the other Financing Documents to which it is or will be a
party.
SECTION 3.02. AUTHORITY OF THE COMPANY.
The Company's execution, delivery, and performance of this Agreement, the
Notes, and each of the other Financing Documents to which it is or will be a
party: (i) have been duly authorized by all necessary corporate action; (ii)
will not violate any applicable regulation or ruling of any governmental
authority, violation of which, individually or in the aggregate, is reasonably
likely to have a Material Adverse Effect; and (iii) will not breach, or result
in the
<PAGE> 19
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imposition of any Lien upon any of its assets (except as permitted by Section
6.01) under, any of its Charter Documents or any agreement or other requirement
by which it or any of its properties may be bound or affected. The execution and
delivery by the Company of this Agreement, the Notes, and each of the other
Financing Documents to which it is or will be a party will cause each such
respective instrument to constitute a legal, valid, and binding obligation of
the Company enforceable in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
or other similar laws affecting the enforcement of creditors' rights generally
or general principles of equity (regardless of whether such enforcement is
Considered in a proceeding in equity or at law). Except for consents referred to
in Section 3.10, no consent of any other Person, including the Shareholders, is
required in connection with the execution, delivery, performance, validity, or
enforceability of any of the Financing Documents or for the construction and
operation of the Project. The Company's obligations hereunder and under the
Notes will rank not less than pari passu with all of the Company's other
Indebtedness and obligations.
SECTION 3.03. FINANCIAL CONDITION.
The Company's audited Financial Statements, dated December 31, 1994, which
have been furnished to OPIC, are complete and correct and fairly present, in all
material respects, its financial condition and results of its operations for the
period then ended. It has no contingent obligation, liability for Taxes,
material or long-term commitment, or outstanding Indebtedness of any kind except
as disclosed in such Financial Statements. There has been no change in the
Company's financial condition or prospects from that set forth in such Financial
Statements that is reasonably likely to have a Material Adverse Effect, and
since the date thereof no dividend or other distribution has been declared or
paid to its shareholders.
SECTION 3.04. CAPITALIZATION OF THE COMPANY.
The authorized capital of the Company consists of 1,500 shares of common
stock, par value 1000 Roubles per share, of which 1,500 shares are issued and
outstanding. All such capital stock of the Company has been duly authorized and
validly issued, and is fully paid and nonassessable. There are no outstanding
subscriptions, options, warrants, calls, agreements, preemptive rights,
acquisition rights, redemption rights or any other rights or claims of any
character that restrict the transfer of, require the issuance of, or otherwise
relate to any class of the capital stock of the Company. The capital stock of
the Company is owned of record as follows:
<PAGE> 20
-16-
<TABLE>
<CAPTION>
SHARES PERCENTAGE
------ ----------
<S> <C> <C>
Pioneer Group, Inc. 750 55%
Starma Holding Company 345 18%
Sovgavan Complex Timber Industry Enterprise 9O 6%
Goskomsever 90 6%
Vanino District Foundation 45 3%
Other Local Minority Shareholders 180 12%
----- ----
Total 1,500 100%
</TABLE>
In addition, capital stock of the Company is owned beneficially by PGI through
its thirty-two percent (32%) holding of the capital stock of Starma Holding
Company.
SECTION 3.05. SUBSIDIARIES.
The Company does not own or otherwise control any voting stock of, or have
any ownership interest in, any other Person, including any other corporation or
partnership.
SECTION 3.06. LIENS.
The Security Documents are, or upon filing and registration will be,
effective to create in favor of OPIC legal, valid, and enforceable first Liens
on all of the Company's assets intended to be covered thereby, to the extent
permitted under Russian law with respect to the Security Documents governed by
Russian law and English law with respect to the Security Documents governed by
English law. The Company does not have outstanding, nor is it contractually
bound to create, any Lien on or with respect to, any of its properties, rights
or revenues, except as permitted in Section 6.01.
SECTION 3.07. TAXES AND REPORTS.
All tax returns and reports of the Company required by law to be filed in
the Russian Federation, and each governmental subdivision thereof, have been
duly filed for periods ending prior to the date of this Agreement, and all
Taxes, assessments, fees and other governmental charges due or reasonably
anticipated to become due in respect of the Company, or any assets, income, or
franchises of the Company, that if not paid is reasonably likely to have a
Material Adverse Effect, have been duly paid or have been adequately provided
for on the books of the Company.
<PAGE> 21
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SECTION 3.08. DEFAULTS.
No Event of Default, and no event or condition that with the passage of
time or the giving of notice, or both, could constitute an Event of Default, has
occurred and is continuing. Neither the Company nor any other party, to the
knowledge of the Company, is in breach of any provision of any contract to which
the Company is a party, which breach is reasonably likely to have a Material
Adverse Effect.
SECTION 3.09. LITIGATION.
No action, suit, other legal proceeding, arbitral proceeding or
investigation is pending by or before any domestic or foreign court or
governmental authority or in any arbitral or other forum or, to the knowledge of
the Company, is threatened, against the Company or any of its properties or
rights that (i) relates to any of the transactions contemplated by this
Agreement or any other Financing Document, or (ii) has, or if adversely
determined is reasonably likely to have, a Material Adverse Effect.
SECTION 3.10. COMPLIANCE WITH LAW.
The Company is conducting its business in compliance in all material
respects with all applicable laws, regulations and authorizations of all
relevant governmental authorities, non-compliance with which is reasonably
likely to have a Material Adverse Effect, and in compliance with its Charter
Documents. The Company has duly obtained all material consents, licenses,
approvals and authorizations and has effected all declarations, filings and
registrations necessary for the due execution and delivery of this Agreement and
each of the other Financing Documents to which it is or will be a party and for
the construction and operation of the Project.
SECTION 3.11. EASEMENTS, PROPERTY INTERESTS, UTILITIES, ETC.
All easements, leasehold and other property interests, and all utility and
other services, means of transportation, facilities, other materials and other
fights that can reasonably be expected to be necessary for the construction,
completion and operation of the Project in accordance with applicable
requirements of law and the Financing Documents (including, without limitation,
gas, electrical, water and sewage services and facilities), have been procured
or axe commercially available to the Project, and, to the extent appropriate,
arrangements have been made on commercially reasonable terms for such easements,
interests, services, means of transportation, facilities, materials and rights.
No material licenses, trademarks, patents or other similar agreements are
necessary for the construction, ownership, operation and maintenance of the
Project.
<PAGE> 22
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SECTION 3.12. ENVIRONMENTAL MATTERS.
(a) The Company has duly complied with in all material respects, and its
business, operations, assets, equipment, property, leaseholds, and other
facilities are materially in compliance with, the provisions of all
environmental, health and safety laws, codes and ordinances applicable to the
Project, and all rules and regulations promulgated thereunder. The Company
(x) has been issued and will maintain all required permits, licenses,
certificates and approvals relating to, and (y) has received no complaint,
order, directive, claim, citation or notice by any governmental authority or any
Person with respect 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
applicable to the Project.
(b) The Company has duly complied with the provisions of Schedule 5.12.
SECTION 3.13. PROJECT COST AND PROJECT COMPLETION.
The Company's good faith estimate of the total cost of the Project
(including provisions for contingencies) is the equivalent of $28,400,000 based
on the Financial Plan set forth in Schedule 1.03, and the Company's good faith
estimate of the date on which it will achieve Project Completion is March 31,
1996.
SECTION 3.14. DISCLOSURE.
All documents, reports or other written information pertaining to the
Project (including, without limitation, the Application, this Agreement, and the
other Financing Documents) that have been furnished to OPIC are true and correct
in all material respects and do not contain any material misstatement of fact or
omit to state a material fact or any fact necessary to make the statements
contained herein or therein not materially misleading. There is no fact known to
the Company, that has not been disclosed to OPIC in writing, the existence of
which is reasonably likely to have a Material Adverse Effect. No condition has
arisen since the date of the Application that has or is reasonably likely to
have a Material Adverse Effect.
SECTION 3.15. CHARTER DOCUMENTS.
The Company's Charter Documents (i) provide that Indebtedness of the
Company (other than the OPIC Loan, the Subordinated Loan and an amount not to
exceed $150,000) shall require approval by a two-thirds majority vote of the
Company's Board of Directors and (ii) prohibit Indebtedness of the Company other
than Indebtedness permitted by this Agreement and Liens on the Company's assets
other than Liens permitted by this Agreement.
<PAGE> 23
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ARTICLE IV.
CONDITIONS PRECEDENT TO DISBURSEMENT
Unless OPIC otherwise agrees in writing, the obligation of OPIC to make
the Disbursement of the Loan is subject to the prior fulfillment, to OPIC's
satisfaction in its sole discretion, of the following conditions precedent and
to their continued fulfillment on the date of the Disbursement:
SECTION 4.01. CORPORATE AUTHORIZATION.
OPIC shall have received a certificate of an Authorized Officer of the
Company, dated the Closing Date, substantially in the form of Exhibit C:
(a) attaching a copy of each of the Charter Documents of the Company, as
amended to date, certifying that the attached copies are true and complete and
in full force and effect as of the Closing Date, together with evidence
satisfactory to OPIC that such documents have been approved by the competent
governmental agencies and authorities in the Russian Federation.
(b) attaching a copy of the resolutions of the Board of Directors of the
Company, and of all documents evidencing any other necessary corporate action
(each such resolution and document satisfactory to OPIC in form and substance),
authorizing it to execute, deliver and perform this Agreement, the Notes, and
each of the other Financing Documents to which it is or will be a party and to
engage in the transactions herein contemplated, and certifying that the attached
copies are true and complete and in full force and effect as of the Closing
Date; and
(c) certifying the names, titles and specimen signatures of the Persons
who are authorized to execute and deliver on behalf of the Company this
Agreement, the Notes, each of the other Financing Documents to which it is or
will be a party and all other notices or instruments contemplated hereunder.
SECTION 4.02. REPRESENTATIONS AND DEFAULTS.
The representations and warranties set forth in Article III shall be true
and correct on the date of the Disbursement as if made on such date, and on such
date no Event of Default, and no event or condition that with the passage of
time or the giving of notice, or both, could constitute an Event of Default,
shall have occurred and be continuing.
<PAGE> 24
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SECTION 4.03. CHANGE IN CIRCUMSTANCES.
At the time of the Disbursement, no circumstance shall exist, and no
change of law or regulation of any governmental authority shall have occurred,
that in OPIC's reasonable judgment is reasonably likely to have a Material
Adverse Effect.
Section 4.04. Certification.
The Company shall have furnished OPIC with a certificate of an Authorized
Officer of the Company, dated the date of the Disbursement, substantially in the
form of Exhibit D (i) certifying the satisfaction of each of the conditions set
forth in Sections 4.02 and 4.03, and (ii) setting forth the Project costs to
which the Disbursement will be applied and certifying that the proceeds of the
Disbursement are presently needed for these purposes, or that the Company or a
Sponsor has advanced funds in connection with which it requests the
Disbursement.
SECTION 4.05. FUNDING ARRANGEMENTS.
Suitable arrangements shall have been made for funding the Loan (all
agreements and documents required in connection with such funding arrangements
are collectively referred to herein as the "FUNDING DOCUMENTS," which Funding
Documents shall be satisfactory to OPIC in form and substance), which funding
arrangements shall be satisfactory to OPIC in form and substance, including
without limitation satisfaction by the Company of all conditions precedent to
the obligations of any other party to the Funding Documents and performance by
the Company of all other obligations on its part to be performed prior to the
making of the first Disbursement pursuant to any Financing Document.
SECTION 4.06. FINANCING DOCUMENTS.
OPIC shall have received the following documents, each of which shall be
satisfactory to OPIC in form and substance, each of which shall have been duly
executed by the parties thereto and each of which shall be in full force and
effect in accordance with its terms without default:
(a) OPIC shall have received duly executed originals (or, AT OPIC's sole
discretion, a true and complete copy) of each of the following agreements and
documents (the "LOAN DOCUMENTS").
(i) this Agreement;
(ii) any Notes issued in connection with the Disbursement;
(iii) the Project Completion Agreement;
(iv) the Security and Accounts Deed;
(v) and the Subordination Agreement.
<PAGE> 25
-21-
(b) OPIC shall have received duly executed originals (or, at OPIC's sole
discretion, a true and complete copy) of agreements and documents (the
"SECURITY DOCUMENTS"), satisfactory to OPIC in form and substance, whereby the
payment of all amounts due or to become due hereunder and under the Notes
(including but not limited to principal, interest and fees) is secured by valid
and enforceable first Liens on all of the Company's assets set forth below (to
the extent permitted under Russian law with respect to Security Documents
governed by Russian law and English law with respect to Security Documents
governed by English law):
(i) all of the Company's real property, fixtures and equipment,
both now owned and hereafter acquired, and in the proceeds thereof, and
the Company's leasehold interest in real property, fixtures, and
equipment, and in the proceeds thereof;
(ii) all of the Company's movable assets, including equipment,
inventory, and accounts receivable, both now owned and hereafter acquired,
and in the proceeds thereof;
(iii) all of the Company's intellectual property;
(iv) the Designated Accounts and the Russian Bank Accounts and;
(v) all such other agreements, documents or actions which in the
opinion of special legal counsel to OPIC are necessary or advisable to
secure the payment of all amounts due or to become due hereunder and under
the Notes with valid and enforceable first Liens on all of the Company's
assets.
Each of the Security Documents shall be in full force and effect and shall have
been duly filed and registered, notarized or recorded in every jurisdiction in
which such filing, registration, notarization or recording is necessary to make
valid and effective the Liens intended to be created thereby, and the rights of
OPIC thereunder, and OPIC shall have received evidence satisfactory to it that
such filing and registration or recording has been made.
(c) OPIC shall have received duly executed originals (or, at OPIC's sole
discretion, a true and complete copy) of a share pledge agreement (the "CONTRACT
OF PLEDGE OF SHARES"), satisfactory to OPIC in form and substance, whereby the
Sponsors' ownership interests in the Company are pledged in favor of OPIC.
(d) OPIC shall have received copies of the following agreements, each of
which shall be satisfactory to OPIC in form and substance, shall have been duly
executed by the parties thereto and shall have been certified by an Authorized
Officer of the Company as being true and
<PAGE> 26
-22-
complete and in full force and effect in accordance with its terms without
default (the "PROJECT DOCUMENTS"):
(i) the Harvesting Plan;
(ii) all contracts for the lease of equipment or facilities for
the Project exceeding value of $1,000,000; and
(iii) all contracts to provide services to the Project exceeding
a value of $1,000,000.
(e) OPIC shall have received duly executed originals (or, at OPIC's sole
discretion, a true and complete copy) of each of the Funding Documents.
The Loan Documents, the Security Documents, the Project Documents, the Contract
of Pledge of Shares and the Funding Documents, together with any other
agreements or instruments pursuant to which the Loan or any portion thereof is
made to the Company, are collectively referred to herein as the "FINANCING
DOCUMENTS."
SECTION 4.07. SPONSOR INVESTMENT; SUBORDINATED LOAN.
OPIC shall have received satisfactory evidence, which evidence shall
include certificates of the Company's independent accountants and certified
copies of relevant stock certificates, that (i) the Sponsors, directly or
indirectly, have made an advance of the Subordinated Loan to the Company in the
amount of $5,400,000 in accordance with the Financial Plan and (ii) the
Shareholders hold the legal and beneficial title to the equity of the Company in
the percentages set forth in Section 3.04.
SECTION 4.08. HARVESTING PLAN.
OPIC shall have received a copy of the Company's 10 year harvesting plan
(1992-2002) approved by the Khabarovsk Kray Forest Natural Resources Authority
(the "Harvesting Plan").
SECTION 4.09. GOVERNMENT APPROVALS.
OPIC shall have received copies, certified by an Authorized Officer of the
Company as true and complete and in full force and effect, of all material
registrations, declarations, filings, governmental consents, licenses,
approvals, authorizations, or permits required by the Government of Russia or
obtained in compliance with Section 3.10, all of which registrations and
governmental consents are listed in Schedule 4.09 (as may be amended prior to
the Disbursement) and all of which are, in the opinion of special legal counsel
to OPIC, necessary or advisable for (i) the approval of the Project by the
Government of Russia for purposes of OPIC's guaranty under the Funding
Documents, (ii) the registration of the Loan with the Central Bank of Russia and
the
<PAGE> 27
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receipt of all foreign exchange consents necessary for the payment of all
amounts due under this Agreement, (iii) the receipt of all foreign exchange
consents necessary in connection with the Security and Accounts Deed, the Loan,
the Note(s), and the other Financing Documents, and the payment of all amounts
due or to become due with respect thereto, not to be subject to any Taxes,
(iv) the construction and operation of the Project, and (v) the performance by
the Company of this Agreement, the Notes, and each of the other Financing
Documents to which it is or will be a party.
SECTION 4.10. LAND.
OPIC shall have received evidence in form and substance satisfactory to it
that the Company, either directly or indirectly, has acquired complete, good and
valid title or complete, good and valid leasehold rights to the land necessary
for the Project, subject only to Liens permitted hereunder.
SECTION 4.11. INSURANCE.
OPIC shall have received from the insurer a copy of the insurance policy
or policies required by Section 5.05, showing OPIC's endorsement as additional
insured, together with evidence that such policy or policies is in full force
and effect without default.
SECTION 4.12. FINANCIAL INFORMATION AND CONSTRUCTION PROGRESS.
Not less than 10 Business Days before the Closing Date, OPIC shall have
received: (i) any Financial Statements, reports, and other information that the
Company, pursuant to Section 5.07, would otherwise be required to furnish to
OPIC on or before the Closing Date, and (ii) evidence, satisfactory to OPIC in
form and substance, that sufficient progress has been made in the construction
of the Project to proceed with such Disbursement.
SECTION 4.13. APPOINTMENT OF AGENT.
OPIC shall have received evidence that: (i) the agent for service of
process referred to in Section 7.03(b) has been duly appointed and holds such
appointment without reservation until six months after the Loan Maturity Date,
together with evidence of the prepayment in full of the fees of such agent; and
(ii) the agent for service of process referred to in the other Loan Documents,
the Funding Documents, the Security Documents and the Contract of Pledge of
Shares has been duly appointed and holds such appointment without reservation
until six months after the Loan Maturity Date, together with evidence of the
prepayment in full of the fees of such agent.
<PAGE> 28
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SECTION 4.14. LEGAL OPINIONS.
OPIC shall have received written opinions, dated the Closing Date,
satisfactory to OPIC in form and substance, (i) of Freshfields, OPIC's special
legal counsel, (ii) of Hale and Dorr, the Company's and PGI's legal counsel in
the United States, and (iii) of Lex International, the Company's legal counsel
in Russia.
SECTION 4.15. PAYMENT OR REIMBURSEMENT OF EXPENSES.
All fees and other amounts due to OPIC with respect to the making of the
Loan, and all other amounts payable or reimbursable by the Company in connection
with the making of the Loan, shall have been paid, including, but not limited
to, (i) the Commitment Fee, (ii) the Facility Fee, (iii) any Taxes payable
pursuant to Section 2.09, and (iv) any amounts payable pursuant to Section
2.10(a), including the fees and expenses of OPIC legal counsel and business
consultants and the costs of registration and recordation of any of the
Financing Documents.
SECTION 4.16. OTHER DOCUMENTS.
OPIC shall have received such other certificates, opinions, agreements and
documents, each satisfactory to OPIC in form and substance, as it may reasonably
request.
ARTICLE V.
AFFIRMATIVE COVENANTS
Unless OPIC otherwise agrees in writing, so long as the Commitment shall
remain outstanding and until all amounts due and to become due hereunder and
under the Notes shall have been paid in full, the Company covenants and agrees
as follows:
SECTION 5.01. PROJECT COMPLETION.
The Company shall construct and implement the Project promptly, shall
apply the proceeds of the Loan and the Subordinated Loan exclusively to the
Project and shall use its diligent, good faith efforts to cause Project
Completion to be achieved on or prior to March 31, 1996. If the Company becomes
unable to achieve the completion undertakings set out in the preceding sentence,
or becomes unable to meet its other obligations prior to Project Completion, the
Company shall promptly so notify OPIC.
<PAGE> 29
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SECTION 5.02. COMPANY OPERATIONS.
The Company shall duly and punctually perform its obligations under this
Agreement, the Notes, and each of the other Financing Documents to which it is a
party. The Company shall conduct its operations on the basis of customary
commercial practice and arm's-length arrangements, with due diligence and
efficiency and under the supervision of qualified and experienced management.
The Company shall repair, replace and protect each of its assets so that its
business can be conducted properly at all times.
SECTION 5.03. MAINTENANCE OF RIGHTS AND COMPLIANCE WITH LAWS.
The Company shall (i) whenever in its power to do so, acquire, maintain
and renew all rights, contracts, powers, privileges, leases, lands, sanctions
and franchises necessary for the conduct of its business and the performance of
its Obligations hereunder and under the other Financing Documents; (ii) conduct
its business in compliance in all material respects with all applicable laws and
directives of governmental authorities having force of law, including applicable
environmental standards; and (iii) duly pay before they become overdue all
Taxes, assessments and other government charges levied or imposed in any
jurisdiction upon its property, earnings or business, that if not paid is
reasonably likely to have a Material Adverse Effect, except amounts being
contested in good faith by appropriate proceedings diligently pursued for which
adequate reserves shall have been established.
SECTION 5.04. GOVERNMENT APPROVALS; FOREIGN EXCHANGE CONSENTS.
(a) The Company shall obtain, and shall at all times maintain in full
force and effect, all material registrations, declarations, filings,
governmental consents, licenses, approvals, authorizations, and permits
(including, but not limited to, those listed in Schedule 4.09) necessary for the
performance by the Company of this Agreement, the Notes, and each of the other
Financing Documents to which it is or will be a party.
(b) Following the Disbursement of the Loan, the Company shall promptly
cause such disbursed portion of the Loan to be duly registered or recorded with
the Central Bank of Russia and shall take all other steps necessary to secure
the foreign exchange consents required for the payment of all amounts due
hereunder and under the Notes. The Company shall furnish OPIC with a copy of
each such registration, recording and consent.
SECTION 5.05. MAINTENANCE OF INSURANCE.
(a) The Company (or the U.S. Sponsor on behalf of the Company) shall
maintain or cause to be maintained in effect insurance with respect to the
Project, against such hazards (including, without limitation, fire, lightning,
collapse, wind and hail, explosion, smoke, aircraft
<PAGE> 30
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and vehicles, riot, civil commotion, vandalism, other extended coverage risks,
flood and earthquake, environmental impairment liability and environmental
remediation (to the extent insurance for environmental impairment liability and
environmental remediation is available on commercially reasonable terms), and
any other hazards to the extent that properties of a nature similar to those
included in the Project and in the same or similar localities are usually
insured), in such form (including the form of the loss payable clauses) and with
such insurers as shall be selected by the Company (or the U.S. Sponsor on behalf
of the Company) and approved by OPIC (such approval not to be withheld
unreasonably), such insurance to be in such amount as the Company would, in the
prudent management of its property, maintain, or would be maintained by others
similarly situated in respect of property similar to the Project, PROVIDED that
(i) the amount of such insurance with respect to the Project shall not at any
time be less than the greater of the total cost of the construction and
acquisition of the Project (other than the cost of the land underlying the
Project) or the amount of all obligations of the Company from time to time owing
to OPIC under this Agreement or any other Loan Document, whether for principal,
interest, fees, expenses or otherwise and (ii) such insurance shall be on a "no
co-insurance/agreed-amount" basis.
The Company (or the U.S. Sponsor on behalf of the Company) shall also
carry workmen's compensation insurance, disability benefits insurance, and such
other form of insurance which the Company is required by law to provide,
coveting loss resulting from injury, sickness, disability, or death of the
employees of the Company, except, subject to OPIC's approval, to the extent the
Company can become a qualified self-insurer under relevant statutes.
The Company (or the U.S. Sponsor on behalf of the Company) shall also
carry business interruption insurance covering risk of loss as a result of the
cessation or material interruption of the business of the Company for a period
of 9 months or any part thereof and providing for payments during a period of 9
months of not less than $5,000,000.
All insurance policies required hereby covering loss or damage to the
Project shall name the Company and OPIC as additional insureds as their
interests may appear and, shall provide that any payment thereunder for any loss
or damage shall be made to OPIC (unless otherwise approved by OPIC), except that
such policies may provide that any payment of less than $500,000 made in respect
of any single casualty or other occurrence may be paid solely to the Company.
OPIC shall apply all such proceeds as a prepayment of the Loans pursuant to
Section 2.07, PROVIDED that OPIC shall forthwith remit to the Company any
proceeds paid to OPIC, (i) upon certification by the Company that the property
damaged or lost has been fully repaired or replaced, or (ii) if, within 60 days
of the event giving rise to such payment of proceeds, OPIC shall have approved a
plan submitted by the Company whereby the property damaged or destroyed by such
event is to be fully repaired or replaced, and PROVIDED further that if an Event
of Default shall have occurred and be continuing, OPIC shall apply such amount
in accordance with Section 7.02. Any other permitted payee of such insurance
proceeds shall also apply all such proceeds as a prepayment of the Loan pursuant
to Section 2.07, PROVIDED that, if within 60 days of
<PAGE> 31
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the event giving rise to such payment of proceeds, OPIC shall have approved a
plan submitted by the Company whereby the property damaged or destroyed by such
event is to be fully repaired or replaced, then such application of such
proceeds shall not be required.
To the extent available on commercially reasonable terms, all policies
shall insure the interests of OPIC regardless of any breach or violation by the
Company (or the U.S. Sponsor) of warranties, declarations or conditions
contained in such policies or any action or inaction of the Company (or the U.S.
Sponsor) or others; each such policy shall expressly provide that all provisions
thereof, except the limits of liability, shall operate in the same manner as if
there were a separate policy coveting each such insured. Each such policy shall
waive any right of subrogation of the insurers to any rights of the Company (or
the U.S. Sponsor) or OPIC in respect of any liability of the Company (or the
U.S. Sponsor) or OPIC; and shall waive any right of the insurers to any setoff
or counterclaim or any other deduction, whether by attachment or otherwise, in
respect of any liability of the Company (or the U.S. Sponsor) or OPIC; each such
policy shall provide that, if such insurance is canceled, terminated or
materially changed for any reason whatsoever (other than non-payment of
premium), the insurers will promptly notify the Company (and the U.S. Sponsor)
and OPIC and any such cancellation, termination or change shall not be effective
as to the Company (or the U.S. Sponsor) or OPIC for 30 days after receipt of
such notice, and appropriate certification shall be made to the Company (or the
U.S. Sponsor) by each insurer with respect thereto; and each such policy shall
provide, or each insurer shall agree with OPIC, that the insurer shall give OPIC
35 days' prior notice of the expiration of insurance under such policy in
accordance with its terms if the Company (or the U.S. Sponsor) has failed by
such time to pay any premium due in respect of the renewal of insurance under
such policy.
(b) The Company (or the U.S. Sponsor on behalf of the Company) shall,
without cost to OPIC, maintain or cause to be maintained in effect insurance
policies with respect to the Project insuring against liability for death of, or
loss, injury or damage to, the person or property of others from such risks, in
such form and with such insurers as shall (in the case of such risks, form and
insurers) be selected by the Company (or the U.S. Sponsor) and approved by OPIC
(which approval shall not be unreasonably withheld) and in such amounts as the
Company would in the prudent management of its property maintain, or would be
maintained by others similarly situated in respect of property similar to the
Project. Each of the insurance policies maintained in accordance with this
Section 5.05(b) shall name the Company and OPIC as additional insureds
thereunder with respect to the Project and, to the extent possible on
commercially reasonable terms, shall insure the interests of OPIC regardless of
any breach of or violation by the Company (or the U.S. Sponsor) of, any
declarations or conditions contained in such policies. Each such insurance
policy shall, to the extent possible on commercially reasonable terms, expressly
provide that all of the provisions thereof, except the limits of liability
(which shall be applicable to all insureds as a group) and liability for
premiums (which shall be solely a liability of the Company) shall operate in the
same manner as if there were a separate policy covering each insured, and shall
provide that such insurance, as to the interest of OPIC therein, shall not be
invalidated by the use or operation of the Project for purposes which are not
permitted by such policy.
<PAGE> 32
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(c) On or before the date of the Disbursement hereunder and thereafter
at intervals of not more than twelve calendar months (or less at the request of
OPIC) until all obligations of the Company under the Loan Documents shall have
been paid in full, the Company (or the U.S. Sponsor on behalf of the Company)
shall furnish to OPIC a certificate signed by a duly authorized representative
of each insurer, showing the insurance then maintained by the Company (or the
U.S. Sponsor on behalf of the Company) pursuant to this Section 5.05 and stating
that such insurance complies with the terms hereof. The Company (or the U.S.
Sponsor) shall cause the insurers with whom it maintains such insurance to agree
to advise the Company (and the U.S. Sponsor) and OPIC in writing promptly of any
default in the payment of any premiums or any other act or omission on the part
of the Company (or the U.S. Sponsor) of which they have knowledge and which
might invalidate or render unenforceable, in whole or in part, any such
insurance.
(d) In the event the Company (or the U.S. Sponsor on behalf of the
Company) fails to take out or maintain the full insurance coverage required by
this Agreement or fails to keep the Project in good order and repair and in as
reasonably safe condition as its operations permit, OPIC, upon thirty days'
written notice (unless ,the aforementioned insurance would lapse within such
period or such other event as would lessen the security for the Loans would
occur, in which event notice should be given as soon as reasonably possible) to
the Company (and the U.S. Sponsor) of any such failure on its part, may (but
shall not be obligated to) take out the required policies of insurance and pay
the premiums on the same, pay such taxes or other charges or complete the
Project or make such repairs, renewals and replacements as may be necessary to
maintain the Project in good order and repair and in as reasonably safe
conditions as the Company's operations permit. All amounts so advanced therefor
by OPIC shall become an additional obligation of the Company to OPIC, and the
Company will forthwith pay such amounts to OPIC, together with interest thereon
at the default rate specified in Section 2.04(b) from the date so advanced.
SECTION 5.06. ACCOUNTING AND FINANCIAL MANAGEMENT.
(a) The Company shall (i) maintain adequate management information and
cost control systems, (ii) maintain a system of accounting, (iii) prepare its
annual Financial Statements in accordance with U.S. GAAP, (iv) engage Arthur
Andersen & Co., or other independent internationally-recognized accountants
satisfactory to OPIC, (vi) notify OPIC of any change in such accountants and the
reason therefor, and (vii) upon OPIC's reasonable request to the Company, shall
instruct such accountants to communicate directly with OPIC regarding the
Company's accounts and operations.
(b) The Company shall make arrangements satisfactory to OPIC for
overseeing the financial operations of the Company, including its cash
management, accounting and financial reporting, and for overseeing the Company's
relationship with its lenders and independent
<PAGE> 33
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accountants; such arrangements may include, but shall not be limited to,
employing a chief financial officer to oversee the financial operations of the
Company.
SECTION 5.07. FINANCIAL STATEMENTS AND OTHER INFORMATION.
At its cost the Company shall furnish to OPIC each of the following
documents:
(a) Within 45 days after the end of each fiscal quarter of each Fiscal
Year, its unaudited Financial Statements, and a comparison between such
Financial Statements and the projections for such fiscal quarter furnished
pursuant to Section 5.07(e) below, all certified by the chief financial officer
of the Company as being complete and correct in all material respects, together
with such officer's certificate that his or her review has not disclosed the
existence of an Event of Default, or an event or condition that with the passage
of time or the giving of notice, or both, could constitute an Event of Default,
or, if any such event or condition then exists, specifying the nature and period
of existence thereof and what action the Company has taken or proposes to take
with respect thereto;
(b) Within 100 days after the end of each Fiscal Year, its audited
Financial Statements, together with a certificate by the independent accountants
reporting thereon describing briefly the scope of their examination (which shall
include a review of the relevant terms of this Agreement) and certifying whether
their examination has disclosed the existence of an Event of Default, or an
event or condition that with the passage of time or the giving of notice, or
both, could constitute an Event of Default, and if so, specifying the nature and
period of existence thereof;
(c) Until the Company shall have achieved Project Completion, a report
within 45 days after the end of each fiscal quarter certified by an Authorized
Officer setting forth in reasonable detail the progress of the Project,
including (i) expenditures of funds, (ii) estimated future costs, (iii)
unexpended funds available to the Company, (iv) the progress and percentage of
completion of the major phases of Project construction and the total
construction work of the Project, (v) the acquisition of fixtures and equipment,
and (vi) any material variation order, amendment or waiver relating to the
Construction Contract;
(d) Within 45 days after the end of each Fiscal Year, a report certified
by an Authorized Officer setting forth in reasonable detail all transactions
between (x) the Company and (y) a Sponsor, a Shareholder or an Affiliate of any
of the foregoing;
(e) Not later than 30 days prior to the beginning of each Fiscal Year,
an annual operating forecast for the Company, including its projected quarterly
Financial Statements for such Fiscal Year, together with a statement of the
assumptions on which such forecast is based;
(f) Within 90 days after the end of each Fiscal Year, the
Self-Monitoring Questionnaire, certified by an Authorized Officer of the
Company as true and complete; and
<PAGE> 34
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(g) Copies of all other annual or interim audit reports submitted to the
Company by its independent accountants and such other information and data with
respect to its operations (including supporting information as to compliance
with this Agreement) as OPIC may reasonably request from time to time.
SECTION 5.08. ACCESS TO RECORDS; INSPECTION; MEETINGS.
The Company shall give and/or the Shareholders shall cause the Company to
give, upon request of OPIC, to any representatives of OPIC, access during normal
business hours to, and permit them to examine, copy and make extracts from, any
and all records and documents in the possession or subject to the control of the
Company relating to its operations and financial affairs, and to inspect any of
its facilities or properties. If OPIC so requests, the Company shall give OPIC
not less than 15 days' notice of, and shall permit an Authorized Officer of OPIC
to attend, each meeting of its shareholders and of its directors. Subject to all
applicable law, OPIC shall treat the information contained in such records and
documents and received in such meetings, or otherwise received from the Company,
as confidential information not to be disclosed to other Persons.
SECTION 5.09. NOTICE OF DEFAULT AND OTHER MATTERS.
The Company shall immediately notify OPIC of (i) the occurrence of each
Event of Default and of each event or condition known to any of its officers
that with the passage of time or the giving of notice, or both, could constitute
an Event of Default, (ii) any actions, suits, other legal proceedings or
arbitral proceedings against the Company that involve claims aggregating more
than the equivalent of $250,000, and (iii) the occurrence of any other condition
or event (including government action) that is reasonably likely to have a
Material Adverse Effect.
SECTION 5.10. SECURITY DOCUMENTS.
(a) The Company at its cost shall take all actions necessary to
establish and maintain each of the Security Documents in full force and effect
and enforceable in accordance with its terms, to the extent permitted under
Russian law with respect to Security Documents governed by Russian law and
English law with respect to Security Documents governed by English law,
including all (i) filings and recordations, (ii) payment of costs and expenses
and other charges relating to notarization, registration or other procedures,
(iii) issuance of supplemental documentation, including continuation statements,
(iv) discharge of all claims or other Liens adversely affecting the rights of
OPIC in the property subject to any Security Document, (v) publication or other
delivery of notice to third parties, (vi) deposit of title documents, and (vii)
taking all actions necessary to ensure that all after-acquired property of the
Company is
<PAGE> 35
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subject to a valid and enforceable first-ranking Lien in favor of OPIC, to the
extent permitted under Russian law or English law, as applicable.
(b) The Company shall use its best efforts to obtain a letter of
acknowledgment from Tumminsky Leskhoz on the license granted to the Company
substantially in the form of Exhibit J.
(c) Without limiting the Company's obligations under Section 5.10(a),
the Company and OPIC shall consult annually and determine what actions, if any,
the Company shall take in accordance with Section 5.10(a).
SECTION 5.11. FINANCIAL RATIOS.
The Company shall maintain the following financial ratios:
(a) WORKING CAPITAL: After Project Completion, the Company shall not
permit the ratio of Current Assets to Current Liabilities to be less
than 1.4 to 1.
(b) OTHER FINANCIAL COVENANTS: The Company shall:
(i) maintain a ratio of Indebtedness (excluding the Subordinated
Loan) to Adjusted Net Worth of 1.857 to 1; and
(ii) after Project Completion, maintain a Debt Service Ratio of at
least 1.2 to 1.
For the purposes of the financial covenants set forth in this Section 5.11, the
Subordinated Loan shall be calculated as equity of the Company.
SECTION 5.12. ENVIRONMENTAL COMPLIANCE.
(a) The Company shall 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 Company 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 applicable to the Project.
(b) The Company shall annually obtain a logging ticket from the
Khabarovsk Kray Forest Natural Resources Authority and duly comply with the
provisions of Schedule 5.12. The
<PAGE> 36
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Company shall appoint an independent environmental advisory committee (the
"OVERSIGHT GROUP"), to be composed of three members chosen by the Company, with
OPIC's prior approval (such approval not to be unreasonably withheld) and one
representative of the Company. The Oversight Group shall annually monitor the
Company's compliance with the Harvesting Plan and Schedule 5.12 and provide a
report to OPIC.
SECTION 5.13. DESIGNATED ACCOUNTS AND RUSSIAN BANK ACCOUNTS.
(a) The Company shall open and maintain the Designated Accounts pursuant
to the Security and Accounts Deed. The Company shall (i) receive the
Disbursement in the Funding Account, (ii) deposit the Proceeds into the Timber
Proceeds Account and (iii) maintain, in U.S. Dollars, the Cash Collateral Amount
in the Cash Collateral Account, so long as any amount remains outstanding under
the Loan or any fees are due to OPIC and operate the Designated Accounts as
provided in the Security and Accounts Deed and the license issued by the Russian
Central Bank. The Cash Collateral Amount may be used by OPIC to cure a payment
default, with full replenishment obligations by the Company within 10 days of
such use.
(b) The Company shall open and maintain one or more Russian Bank
Accounts.
ARTICLE VI.
NEGATIVE COVENANTS
Unless OPIC otherwise agrees in writing, so long as the Commitment shall
remain outstanding and until all amounts due and to become due hereunder and
under the Notes shall have been paid in full, the Company covenants and agrees
as follows:
SECTION 6.01. LIENS.
The Company shall not create, assume or otherwise permit to exist any Lien
on any of its properties or assets, whether now owned or hereafter acquired, or
in any proceeds or income therefrom, except for:
(a) the Liens created under the Security Documents or pursuant to the
Subordination Agreement;
(b) Liens for Taxes or other statutory Liens that are being contested or
litigated in good faith and for which adequate reserves have been established;
and
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(c) any mechanic's, worker's or other like Liens arising by mandatory
provision of law securing obligations incurred in the ordinary course of
business that are not yet overdue or that are being contested or litigated in
good faith; and
(d) subject to OPIC's prior written consent, vendor Liens.
SECTION 6.02. INDEBTEDNESS.
The Company shall not incur, assume, guarantee, or permit to exist or
otherwise become liable for Indebtedness except:
(a) the Loan;
(b) Indebtedness arising under the Subordinated Loan, subordinated to
the Loan pursuant to the terms of the Subordination Agreement;
(c) Indebtedness fully subordinated to the Loan arising under the
Project Completion Agreement;
(d) Indebtedness consisting of unsecured trade credit from suppliers of
goods and services incurred in the ordinary course of business and on terms
requiring payment in full in not more than 90 days; and
(e) Indebtedness which, when incurred, will not cause the Company's
ratio of Indebtedness (excluding the Subordinated Loan) to Adjusted Net Worth to
exceed 1.857 to 1, and (y) its Adjusted Net Worth to be less than $3,200,000,
and provided, that no Event of Default under the Finance Agreement then exists
or would exist after such Indebtedness is incurred.
SECTION 6.03. NO ALTERATION OF AGREEMENTS.
(a) The Company shall not terminate, amend or grant any waiver of, or
assign any of the respective duties or obligations under, any of its Charter
Documents or any provision of any of the Financing Documents to which it is a
party (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 Person's fights or obligations, provided that the Company promptly gives
OPIC notice of such amendment or waiver).
(b) The Company shall not approve any variation or change order under,
or amend or grant any waiver of, any provision of, the Construction Contract,
the effect of which, individually or in aggregate, could be to increase the cost
of the Project ten percent (10%) above the cost set forth in the Financial Plan
and referred to in Section 3.13.
<PAGE> 38
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SECTION 6.04. DIVIDENDS AND SHARE REDEMPTIONS AND SUBORDINATED LOAN PAYMENTS.
The Company shall not and the Shareholders shall cause the Company to not
declare or pay any dividends or make any other distributions on any shares of
any class of its capital stock, or purchase, acquire, redeem or retire (directly
or indirectly through any subsidiary of the Company) any of such shares, or make
payments of principal or interest on the Subordinated Loan, until all amounts
due or to become due hereunder or under the Notes shall have been paid in full;
PROVIDED, HOWEVER, that after the Company shall have (x) achieved Project
Completion and (y) begun to repay the Loan in accordance with Section 2.05, the
Company may (subject to the mandatory prepayment provisions set forth in Section
2.07(b)) pay such dividends or redemptions or make Subordinated Loan payments,
but only if, after giving effect to each such dividend or redemption or payment:
(i) no Event of Default, and no event or condition that with the passage of time
or the giving of notice, or both, could constitute an Event of Default, shall
have occurred and be continuing; (ii) the Company shall be in compliance with
the financial ratios set forth in Section 5.11; (iii) its Adjusted Net Worth
would not be less than $3,200,000 and (iv) the aggregate amount of all such
dividends or redemptions or Subordinated Loan payments paid in any Fiscal Year
does not exceed fifty percent (50%) of the Company's Net Income for the prior
Fiscal Year, unless the Company shall have made a mandatory prepayment of the
Loan in an amount equal to one-half of such excess pursuant to Section 2.07.
SECTION 6.05. CONDUCT OF BUSINESS WITH SPONSORS AND SHAREHOLDERS.
(a) The Company shall not conduct any business with, or enter into any
business transaction involving, a Sponsor, Shareholder or an Affiliate of any of
the foregoing, except on an arm's length basis and subject to the reporting
requirement set forth in Section 5.07(d).
(b) Except for mounts permitted under Section 6.04, the Company shall
not pay, or incur or assume any obligation to pay, any amount to a Sponsor,
Shareholder or an Affiliate of any of the foregoing, including without
limitation salaries, bonuses, commissions, management fees, consulting fees,
technical assistance fees and debt service; PROVIDED, HOWEVER, that after the
Company shall have (x) achieved Project Completion and (y) begun to repay the
Loan in accordance with Section 2.05, the Company may (subject to the mandatory
prepayment provisions set forth in Section 2.07(b)) make such payments, but only
if, after giving effect to each such payment: (i) no Event of Default, and no
event or condition that with the passage of time or the giving of notice, or
both, could constitute an Event of Default, shall have occurred and be
continuing; (ii) the Company shall be in compliance with the financial ratios
set forth in Section 5.11; (iii) its Adjusted Net Worth would not be less than
$3,200,000 and (iv) the aggregate amount of all such payments or obligations in
any Fiscal Year does not exceed fifty percent (50%) of the Company's Net Income
for the prior Fiscal Year, unless the Company shall have made a mandatory
prepayment of the Loan in an amount equal to one-half of such excess.
<PAGE> 39
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(c) The Company shall not, without OPIC's prior approval, pay any
salary, bonus, management fee, commission or other compensation to any officer,
director, or partners of a Sponsor, Shareholder or an Affiliate, or any employee
of the Company, in any Fiscal Year, in excess of $150,000 per person.
SECTION 6.06. SALE OF ASSETS; MERGERS.
The Company shall not:
(a) sell, assign, convey, lease or otherwise dispose of all or a
substantial part of its assets or properties, whether now owned or hereafter
acquired, except for the replacement of a capital asset with an asset of equal
or greater value;
(b) dissolve, liquidate or otherwise cease to do business;
(C) create any subsidiaries;
(d) acquire by purchase or otherwise any of the shares of capital stock
or assets of another Person; or
(e) merge or consolidate with any Person.
SECTION 6.07. LEASE OBLIGATIONS.
The Company shall not enter into any agreement or arrangement to acquire
by lease the use of any property or equipment of any kind, if the annual rental
payable under such lease, when aggregated with the annual rentals payable under
all other leases already entered into by the Company, would exceed $100,000 or
its equivalent in any Fiscal Year.
SECTION 6.08. HEDGING ARRANGEMENTS.
The Company shall not, without the prior written consent of 0PIC, enter
into any Hedging Arrangement, if as a result of such Hedging Arrangement the
Company might incur or otherwise become liable for any Indebtedness, whether in
respect of any cost of modifying the terms of such Hedging Arrangement or in
respect of any cost of terminating such Hedging Arrangement.
SECTION 6.09 ORDINARY CONDUCT OF BUSINESS.
The Company shall not and the Shareholders shall not allow the Company to:
<PAGE> 40
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(a) engage in any business other than its present business activities,
those related to the Project and other activities similar thereto;
(b) materially change the nature or scope of the Project;
(c) change its Charter Documents in a manner that would be inconsistent
with the provisions of any of the Financing Documents;
(d) change its name or take any other action that might adversely affect
the Liens created by the Security Documents;
(e) enter into any partnership, profit-sharing or royalty agreement or
other similar arrangement whereby the Company's income or profits are, or might
be, shared with any other Person;
(f) purchase any equity securities off make or permit to exist any loans
or advances to, invest or acquire any interest whatsoever in, or assume,
guarantee, endorse or otherwise become directly or contingently liable for any
obligation or Indebtedness of, any Person, other than the endorsement of
negotiable instruments for collection in the ordinary course of business and the
prudent investment of idle surplus funds in readily marketable
Dollar-denominated debt securities; or
(g) fail to maintain its corporate existence and its right to carry on
its operations.
SECTION 6.10. WORKER RIGHTS.
The Company shall not take any action to prevent its employees from
lawfully exercising their right of free association and their right to organize
and bargain collectively. The Company 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 Company is not responsible under this
Section 6.10 for the actions of a government.
ARTICLE VII.
DEFAULTS AND REMEDIES
SECTION 7.01. EVENTS OF DEFAULT.
The occurrence and continuation of any of the following events or
circumstances shall constitute an "EVENT OF DEFAULT" hereunder:
<PAGE> 41
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(a) The Company fails to pay when due any principal or interest payable
pursuant to any Note or any other amount payable pursuant to this Agreement;
(b) The Company fails to pay when due any principal of or interest on
any of its Indebtedness other than the Loan, and such failure continues beyond
the grace period, if any, applicable thereto; or a default occurs under any
agreement or instrument evidencing, or under which the Company has outstanding
at the time, any such Indebtedness and such default continues beyond the grace
period, if any, applicable thereto, if the effect of such default is to
accelerate, or to permit the acceleration of, the maturity of such Indebtedness;
(c) Any representation or warranty made by or on behalf of the Company
in this Agreement, or in any notice or other certificate, document, Financial
Statement or other statement delivered pursuant hereto, proves to have been
incorrect in when made;
(d) The Company fails to comply with any covenant or provision set forth
in Section 5.09, 5.13 or Article VI, or the Sponsors fail to perform their
obligations under the Project Completion Agreement;
(e) The Company fails to comply with or perform any agreement or
covenant contained herein other than those referred to in Sections 7.01(a), (b),
(c) and (d) above, and such failure continues for 30 days after the occurrence
thereof;
(f) Any authorization, consent or approval of any governmental agency or
public authority necessary for the execution, delivery or performance of this
Agreement, the Notes, or any of the other Financing Documents or for the
validity or enforceability of any of the Company's obligations under this
Agreement, the Notes or any of the other Financing Documents, is not effected or
given or is withdrawn or ceases to remain in full force and effect;
(g) This Agreement, the Notes, or any of the other Financing Documents
at any time for any reason ceases to be in full force and effect, or is declared
to be void or is repudiated, or the validity or enforceability hereof or thereof
is at any tune contested by the Company, or, in the case of the Security
Documents, ceases to give or provide the respective Liens, fights, titles,
remedies, powers, or privileges intended to be created thereby;
(h) Any governmental authority condemns, nationalizes, seizes or
otherwise expropriates any substantial portion of the assets or the capital
stock of the Company, revokes any foreign exchange license of the Company
necessary for the payment of amounts due hereunder and under the Notes or the
Cutting License of the Company or takes any action that would prevent the
Company from carrying on any material part of its business or operations;
<PAGE> 42
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(i) The Company or any other party fails to comply with or perform any
of its material obligations or undertakings set forth in any Financing Document
(other than this Agreement and the ProJect Completion Agreement) and such
failure continues for 30 days after the occurrence thereof;
(j) The Company or, prior to Project Completion, the U.S. Sponsor (or
any successor in interest thereto), (i) applies for, or consents to the
appointment of, a receiver, trustee, custodian, intervenor or liquidator of
itself or of all or a substantial part of its assets, (ii) files a voluntary
petition in bankruptcy, admits in writing that it is unable to pay its debts as
they become due or generally fails to pay its debts as they become due, (iii)
makes a general assignment for the benefit of creditors, (iv) files a petition
or answer seeking reorganization or arrangement with creditors or to take
advantage of any bankruptcy or insolvency laws, (v) files an answer admitting
the material allegations of, or consents to, or defaults in answering, a
petition filed against it in any bankruptcy, reorganization or insolvency
proceeding where such action or failure to act will result in a determination of
bankruptcy or insolvency against it;
(k) Without its application, approval or consent, a proceeding is
instituted in any court of competent jurisdiction or by or before any government
or governmental agency of competent jurisdiction, seeking in respect of the
Company or, prior to Project Completion, the U.S. Sponsor (or any successor in
interest thereto): adjudication in bankruptcy, reorganization, dissolution,
winding up, liquidation, a composition or arrangement with creditors, a
readjustment of Indebtedness, the appointment of a trustee, receiver, liquidator
or the like of it or of all or any substantial part of its property or assets,
or other like relief in respect of it under any bankruptcy, reorganization or
insolvency law; and, if such proceeding is being contested by it in good faith,
the same continues undismissed for a period of 60 days;
(l) Any final judgment or judgments for the payment of money in an
aggregate amount in excess of $250,000 or its equivalent in another currency is
rendered against the Company, and such judgment or judgments is not satisfied or
discharged within 60 days of entry;
(m) The U.S. Sponsor ceases to hold the legal and beneficial title to
the equity of the Company in the percentages set forth in the Financial Plan or
the U.S. Sponsor ceases to retain management control of the Company; or
(n) Any environmental claim shall have been asserted against the Company
or any other party to the Financing Documents, and such claim is reasonably
likely to have a Material Adverse Effect; or
(o) Any event shall have occurred that, in the reasonable judgment of
OPIC, is reasonably likely to have a Material Adverse Effect; or
<PAGE> 43
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(p) The Company falls to comply with the Harvesting Plan and Schedule
5.12 for the applicable Fiscal Year.
SECTION 7.02. REMEDIES UPON EVENT OF DEFAULT.
(a) Except as otherwise provided in Section 7.02(b), if any Event of
Default has occurred and is continuing, OPIC may at any time in its sole
discretion do any one or more of the following: (i) suspend or terminate the
Commitment, (ii) declare, by written demand for payment to the Company, any
portion or all of the Loan to be due and payable, whereupon such portion of the
Loan, together with interest accrued thereon and all other amounts due under
this Agreement, the Notes, and the other Financing Documents, shall immediately
mature and become due and payable, without any other presentment, demand,
diligence, protest, notice of acceleration, or other notice of any kind, all of
which the Company hereby expressly waives, or (iii) without notice of default or
demand, proceed to protect and enforce its fights and remedies by appropriate
proceedings, whether for damages or the specific performance of any provision of
this Agreement, any Note, or any other Financing Document, or in aid of the
exercise of any power granted in this Agreement, any Note, any other Financing
Document, or by law, or may proceed to enforce the payment of any Note. '
(b) Upon the occurrence of an Event of Default referred to in Sections
7.01(j) or (k), (i) the Commitment shall automatically be terminated, and
(ii) the Loan, together with interest accrued thereon and all other amounts due
under this Agreement, the Notes, and the other Financing Documents, shall
immediately mature and become due and payable, without any other presentment,
demand, diligence, protest, notice of acceleration, or other notice of any kind,
all of which the Company hereby expressly waives.
SECTION 7.03. JURISDICTION AND CONSENT TO SUIT.
(a) Without prejudice to OPIC's right to bring suit in any appropriate
domestic or foreign jurisdiction, any proceeding to enforce this Agreement, any
Note, or any other Financing Document to which the Company is a party (unless
otherwise specified) may be brought by OPIC in any state or federal court of
competent jurisdiction in the District of Columbia of the United States of
America or in any other jurisdiction where the Company or any of its property
may be found. The Company hereby irrevocably waives any present or future
objection to any such venue, and irrevocably consents and submits
unconditionally to the non-exclusive jurisdiction for itself and in respect of
any of its property of any such court. The Company further agrees that final
judgment against it in any such action or proceeding arising out of or relating
to this Agreement shall be conclusive and may be enforced in any other
jurisdiction within or outside the United States of America by suit on the
judgment, a certified or exemplified copy of which shall be conclusive evidence
of the fact and. of the amount of its obligation.
<PAGE> 44
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(b) Prior to the first Closing Date, the Company shall irrevocably
designate and appoint an agent satisfactory to OPIC for service of process in
the District of Columbia as its authorized agent to receive, accept, and
acknowledge on its behalf service of process in any such proceeding, and shall
provide OPIC with evidence of the prepayment in full of the fees of such agent.
The Company agrees that service of process, writ, judgment, or other notice of
legal process upon said agent shall be deemed and held in every respect to be
effective personal service upon it. The Company shall maintain such appointment
(or that of a successor satisfactory to OPIC) continuously in effect at all
times while the Company is obligated under the Finance Agreement or any Note.
Nothing hereto shall affect OPIC's right to serve process in any other manner
permitted by applicable law.
Section 7.04. Arbitration.
(a) ARBITRATION; RULES; VENUE; LANGUAGE. Any dispute, controversy, or
claim arising out of, or relating to, or in connection with, this Agreement, any
Note, or any other Financing Document to which the Company and OPIC are parties,
(including the breach, termination or validity hereof or thereof), and any
dispute concerning the scope of this arbitration clause, may, at the option of
OPIC and upon written notice to the Company, be referred to for final settlement
by arbitration. Such arbitration proceedings shall be conducted in accordance
with the International Arbitration Rules of the International Chamber of
Commerce ("ICC") in effect on the date on which the arbitration commences (the
"RULES"). The seat of the arbitration shall be the City of New York, New York,
unless OPIC directs that the place of arbitration shall instead be Washington,
D.C. The arbitration shall be conducted in the English language. Upon the
Company's receipt of a notice from OPIC of its election to settle by arbitration
any dispute, controversy or claim pursuant to this Section 7.04, the Company
shall be obligated to settle such dispute, controversy or claim as provided in
this Section 7.04. If any dispute, controversy or claim is referred to
arbitration by OPIC, the Company hereby agrees to the jurisdiction of the
arbitral panel with respect to such dispute, controversy or claim to the
exclusion of the courts of the Russian Federation or any other jurisdiction.
(b) ARBITRATORS; SELECTION; QUALIFICATIONS. The arbitration shall be
conducted by three arbitrators. OPIC and the Company shall appoint one
arbitrator, and each shall notify the other of the name of its appointee within
60 days of the date of OPIC's notice to the Company. The two arbitrators
appointed by OPIC and the Company shall together, within 60 days after the date
on which the first two arbitrators were required to be appointed, appoint the
third, presiding arbitrator. If OPIC and the Company fail to appoint any
arbitrator within the time limits provided hereunder, such arbitrators shall
upon the written request of OPIC or the Company, be appointed by the President
of the ICC. Each arbitrator shall be fluent in the English language, shall be a
disinterested person, and shall be an attorney qualified to practice law in the
State of New York or the District of Columbia for a minimum of 5 years, with
experience in representing lenders and borrowers in international project
finance lending to private sector borrowers. OPIC or the Company may, within 10
days of notice of an appointment, challenge the appointment of an
<PAGE> 45
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arbitrator as lacking the qualifications set forth in the preceding sentence
pursuant to the procedures prescribed by the Rules. Any determination by the ICC
as to qualifications shall be final and binding and not subject to judicial
review. If an arbitrator must be replaced for any reason, the appointing party
shall endeavour to appoint a substitute arbitrator within a reasonable time.
(c) LAW. Each arbitral panel established hereunder shall make its
decisions entirely on the basis of this Agreement, the relevant Note or the
relevant Financing Document, as applicable, the governing law provisions
provided herein or therein, and the Rules.
(d) STATEMENTS OF CLAIM AND DEFENSE: Representation: Proceedings. OPIC
shall communicate its statement of claim in writing to the Company and the
arbitral panel within a period of time to be determined by the panel. The
Company shall file a statement of defense in writing following receipt of OPIC's
statement of claim within a period of time to be determined by the panel. The
parties may be represented or assisted by legal counsel of their choice. The
arbitral panel shall determine a date on which it shall commence taking
evidence, which date shall not be less than 60 days after the Company's
submission of its statement of defense, unless OPIC directs otherwise. Where the
Rules do not provide for a particular situation, the arbitral panel shall by a
majority, in its absolute discretion, determine the course of action to be
followed and its decision shall be final.
(e) AWARDS. The arbitral panel shall issue a written decision and award
within 60 days after the conclusion of the relevant proceedings. Any award of
the arbitral panel shall be final and binding, and judgment upon any arbitral
award may be entered and enforced by any court or judicial authority of
competent jurisdiction. Any money award shall be made and shall be payable in
Dollars. The award shall be limited to the scope of the submission and in no
circumstance shall the arbitral panel render an award EX AEQUO ET BONO or as
AMIABLE COMPOSITEUR. If either party wishes to submit a request that the
arbitral panel interpret the award or correct any clerical, typographical or
computation errors, or make an additional award as to claims presented but
omitted from the award, such request shall be submitted to the arbitral panel
and the other party within 10 days after the award. If the panel considers such
request justified, after considering the contention of the parties, the panel
shall promptly comply with such request. The arbitral panel, OPIC or the Company
shall not be entitled to seek from any judicial authority or take any interim
measures or provide any preaward relief against OPIC or the Company,
notwithstanding any contrary provisions in the Rules.
(f) COSTS. Fees and Expenses. Each party shall pay its own costs, fees
and expenses.
(g) NO WAIVER. In invoking any arbitration pursuant to this Section
7.04, OPIC shall not be deemed to have waived any fights, immunities or
privileges to which it or any of its directors, officers or employees are
entitled. By submitting to arbitration, OPIC shall not be
<PAGE> 46
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deemed to have submitted to the jurisdiction of any court other than the United
States Court of Claims in Washington, D.C.
SECTION 7.05. JUDGMENT CURRENCY.
This is an international loan transaction in which the specification of
Dollars is of the essence, and such currency shall be the currency of account in
all events. The payment obligation of the Company hereunder and under the Notes
shall not be discharged by an amount paid in another currency, whether pursuant
to a judgment or otherwise, to the extent that the amount so paid on prompt
conversion to Dollars in the United States of America under normal banking
procedures does not yield the amount of Dollars then due. In the event that any
payment by the Company, whether pursuant to a judgment or otherwise, upon
conversion and transfer, does not result in the payment of such amount of
Dollars at the place such amount is due, OPIC shall be entitled to demand
immediate payment of, and shall have a separate cause of action against the
Company for, the additional amount necessary to yield the amount of Dollars then
due. In the event OPIC, upon the conversion of such judgment into Dollars, shall
receive (as a result of currency exchange rate fluctuations) an amount greater
than that to which it was entitled, the Company shall be entitled to immediate
reimbursement of the excess amount.
SECTION 7.06. Immunity.
The Company represents and warrants that it is subject to civil and
commercial law with respect to its obligations under this Agreement, the Notes,
and each of the other Financing Documents to which it is a party, that the
making and performance of this Agreement, the Notes, and such other Financing
Documents and the borrowings by the Company pursuant hereto constitute private
and commercial acts rather than governmental or public acts and that neither the
Company nor any of its properties or revenues has any fight of immunity from
suit, court jurisdiction, attachment prior to judgment, attachment in aid of
execution of a judgment, set-off, execution of a judgment or from any other
legal process with respect to its obligations under this Agreement, the Notes,
and such other Financing Documents. To the extent that the Company may hereafter
be entitled, in any jurisdiction in which judicial proceedings may at any time
be commenced with respect to this Agreement, any Note or any other Financing
Document to which it is a party, to claim for itself or its revenues or assets
any such immunity, and to the extent that in any such jurisdiction there may be
attributed to the Company such an immunity (whether or not claimed), the Company
hereby irrevocably agrees not to claim and hereby irrevocably waives such
immunity. The foregoing waiver of immunity shall have effect under the United
States Foreign Sovereign Immunities Act of 1976.
<PAGE> 47
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ARTICLE VIII.
MISCELLANEOUS
SECTION 8.01. NOTICES.
Each notice, demand, report, or other communication relating to this
Agreement shall be in writing, shall be hand-delivered or sent by mail (postage
prepaid), telegram or facsimile transmission (with a copy by mail to follow,
receipt of which copy shall not be required to effect notice), and shall be
deemed duly given when sent to the following addresses, or to such other address
or number as each party shall have last specified by notice to the other
parties:
To the Company:
UL. KOPROVAYA, 4
KOMSOMOLSK - NA - AMURE
681005
RUSSIAN FEDERATION
(Attn: the President)
(Facsimile: 0117-4217246855)
with a copy to:
David Sylvester, Esq.
Hale and Dorr
Suite 1000
1455 Pennsylvania Avenue, N.W.
Washington D.C. 20004
(Facsimile: 1-202-942-8484)
<PAGE> 48
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To OPIC:
Overseas Private Investment Corporation
1100 New York Avenue, N.W.
Washington, D.C. 20527
United States of America
(Attn: Vice President, Finance
with a copy to Treasurer)
(Facsimile: 1-202-408-9859)
Either party may, by written notice to the other, change the address to which
such communications should be sent to it.
SECTION 8.02. ENGLISH LANGUAGE.
All documents to be furnished or communications to be given or made under
this Agreement, the Notes, and each of the other Financing Documents to which
the Company is a party shall be in the English language or, if in another
language, shall be accompanied by a translation into English certified by an
Authorized Officer of the Company, which translation shall be the governing
version between the Company and OPIC.
SECTION 8.03. GOVERNING LAW.
THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE DISTRICT OF COLUMBIA, UNITED STATES OF AMERICA,
WITHOUT REGARD TO ITS CONFLICT OF LAWS PROVISIONS.
SECTION 8.04. SUCCESSION.
This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of the parties hereto, provided that the Company shall
not, without the prior written consent of OPIC, assign or delegate all or any
part of its interest herein or obligations hereunder.
SECTION 8.05. SURVIVAL OF AGREEMENTS.
Each agreement, representation, warranty and covenant contained or
referred to in this Agreement shall survive any investigation at any time made
by OPIC and shall survive the Disbursement of the Loan, except for changes
permitted hereby, and, save as otherwise provided
<PAGE> 49
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in Section 2.09, shall terminate only when all amounts due or to become due
under this Agreement and the Notes are paid in full.
SECTION 8.06. INTEGRATION; AMENDMENTS.
This Agreement embodies the entire understanding of the parties hereto,
and supersedes all prior negotiations, understandings and agreements between
them with respect to the subject matter hereof. The provisions of this Agreement
may be waived, supplemented or amended only by an instrument in writing signed
by Authorized Officers of the Company and OPIC.
SECTION 8.07. SEVERABILITY.
If any provision of this Agreement is prohibited or held to be invalid,
illegal or unenforceable in any jurisdiction, the parties hereto agree to the
fullest extent permitted by law that (i) the validity, legality and
enforceability of the other provisions in such jurisdiction shall not be
affected or impaired thereby, and (ii) any such prohibition, invalidity,
illegality or unenforceability shall not render such provision prohibited,
invalid, illegal, or unenforceable in any other jurisdiction.
SECTION 8.08. NO WAIVER.
(a) No failure or delay by OPIC in exercising any right, power or remedy
shall operate as a waiver thereof or otherwise impair any of its rights, powers
or remedies. No single or partial exercise of any such right shall preclude any
other or further exercise thereof or the exercise of any other legal right. No
waiver of any such right shall be effective unless given in writing.
(b) The rights or remedies provided for herein are cumulative and are
not exclusive of any other rights, powers or remedies provided by law. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion of any other appropriate right or remedy.
SECTION 8.09. WAIVER OF JURY TRIAL.
The Company and OPIC each hereby irrevocably waives, to the fullest extent
permitted by law, any right to have a jury participate in resolving any dispute
arising out of, in connection with, related to, or incidental to the
relationship between them established by this Agreement, the Notes, any other
Financing Document and any other instrument, document or agreement entered into
in connection with this Agreement or the transactions contemplated hereby.
<PAGE> 50
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SECTION 8.10. WAIVER OF LITIGATION PAYMENTS.
In the event that any action or lawsuit is initiated by or on behalf of
OPIC in Russia or elsewhere against the Company or any other party to any
Financing Document, the Company, to the fullest extent permissible under
applicable law, irrevocably waives its right to, and agrees not to request,
plead, or claim that OPIC and its successors, transfers, and assigns (any such
Person, an "OPIC PLAINTIFF") post, pay, or offer, any cautio judicaturm solvi
bond, litigation bond, or any other bond, fee, payment, or security measure
provided for by any provision of law applicable to such action or lawsuit (any
such bond, fee, payment, or measure, a "LITIGATION PAYMENT"), and the Company
further waives any objection that it may now or hereafter have to an OPIC
Plaintiffs claim that such OPIC Plaintiff should be exempt or immune from
posting, paying, making or offering any such Litigation Payment.
SECTION 8.11. INDEMNITY.
To the extent permitted by law, the Company hereby indemnifies and holds
harmless OPIC and its directors, officers, employees, agents, counsel,
subsidiaries and Affiliates (the "INDEMNIFIED PERSONS") from and against any
arid all losses, liabilities, obligations, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever that may be imposed on, incurred by or asserted against any
Indemnified Person in any way relating to or arising out of this Agreement, the
Financing Documents or any of them or any of the transactions contemplated
hereby or thereby; PROVIDED, HOWEVER, that the Company shall not be liable to
any Indemnified Person for any losses, liabilities, obligations, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements that
resulted from the gross negligence or willful misconduct of such Indemnified
Person.
SECTION 8.12. FURTHER ASSURANCES.
From time to time, the Company shall execute and deliver to OPIC such
additional documents as OPIC may require to carry out the purposes of this
Agreement or the Financing Documents or to preserve and protect OPIC's rights as
contemplated herein or therein.
SECTION 8.13. COUNTERPARTS.
This Agreement may be executed in counterparts, each of which when so
executed and delivered shall be deemed an original and all of which together
shall constitute one and the same instrument.
<PAGE> 51
IN WITNESS WHEREOF, each of the parties has has this Agreement to be
executed and delivered on its behalf by its Authorized Officer as of the date
first above written.
CLOSED JOINT STOCK COMPANY
FOREST STARMA
By: /s/ /s/
------------------------------ --------------------------------
[SEAL]
Its:
------------------------------ --------------------------------
OVERSEAS PRIVATE INVESTMENT CORPORATION
By: /s/ John P. Harper
------------------------------
Its: Manager, Project Finance
------------------------------
[Exhibits Intentionally Omitted]
<PAGE> 1
Exhibit 10.2
- --------------------------------------------------------------------------------
PROJECT COMPLETION AGREEMENT
AMONG
CLOSED JOINT-STOCK COMPANY
"FOREST STARMA",
THE PIONEER GROUP, INC.,
INTERNATIONAL JOINT-STOCK COMPANY
"STARMA HOLDING"
AND
OVERSEAS PRIVATE INVESTMENT CORPORATION
DATED AS OF DECEMBER 21, 1995
- --------------------------------------------------------------------------------
<PAGE> 2
PROJECT COMPLETION AGREEMENT
TABLE OF CONTENTS
Page
Section 1. Definitions ...................................................1
Section 2. Interpretation ................................................2
Section 3. Project Completion ............................................2
Section 4. Nature of Obligations .........................................6
Section 5. Waiver ........................................................8
Section 6. Reinstatement of Guaranty .....................................8
Section 7. Payments Free and Clear of Taxes, Etc .........................8
Section 8. Representations and Warranties ................................9
Section 9. Covenants of the U.S. Sponsor ................................10
Section 10. Subrogation and Subordination ...............................11
Section 11. Payments ....................................................11
Section 12. Remedies; No Waiver .........................................12
Section 13. Arbitration ................... .............................12
Section 14. Time of Essence .............................................12
Section 15. Jurisdiction and Consent to Suit ............................12
Section 16. Arbitration .................................................12
Section 17. Successors and Assigns ......................................13
Section 18. Benefits of Agreement .......................................13
Section 19. Notices .....................................................14
Section 20. Governing Law ...............................................15
Section 21. Jury Trial Waiver ...........................................15
Section 22. Severability ................................................15
Section 23. Amendments ..................................................15
Section 24. Waiver of Litigation Payments ...............................15
Section 25. Indemnity ...................................................15
Section 26. Counterparts ................................................15
Section 27. Termination .................................................16
<PAGE> 3
PROJECT COMPLETION AGREEMENT
PROJECT COMPLETION AGREEMENT ("Agreement"), dated as of December 21, 1995,
by and among CLOSED JOINT-STOCK COMPANY "FOREST STARMA", a joint stock company
of the closed type, organized and existing under the legislation of the Russian
Federation (the "Company"), THE PIONEER GROUP, INC., a corporation organized and
existing under the laws of the state of Delaware (the" U.S. Sponsor"),
INTERNATIONAL JOINT-STOCK COMPANY "STARMA HOLDING", a closed joint stock
company, organized and existing under the legislation of the Russian Federation
(the "Russian Sponsor") and OVERSEAS PRIVATE INVESTMENT CORPORATION, an agency
of the United States of America ("OPIC").
WITNESSETH:
----------
WHEREAS, the Sponsors together own beneficially and of record seventy-three
percent (73%) of the shares of capital stock of the Company and the U.S. Sponsor
owns beneficially additional shares of capital stock of the Company through its
32% holding of the capital stock of the Russian Sponsor;
WHEREAS, under a Finance Agreement with the Company, dated as of the date
hereof (the "Finance Agreement"), OPIC will guarantee a loan of up to $9,300,000
(the "Loan") to the Company upon condition, among other things, that the
Sponsors enter into and perform this Agreement;
WHEREAS, the Sponsors desire to induce OPIC to consent to the advance of the
Loan, and, therefore, are willing to cause the Company to achieve Project
Completion (as defined below) and in the interim to guarantee (on the terms set
forth herein) the Company's obligations and the repayment of the Loan; and
WHEREAS, all things have been done that are necessary to constitute this
Agreement a valid contract;
NOW, THEREFORE, in consideration of the premises and of the agreements
contained herein, it is hereby agreed as follows:
SECTION 1. DEFINITIONS.
(a) Terms of this Agreement beginning with capital letters shall have the
definitions given in the Finance Agreement, unless the context otherwise
requires or specifies.
<PAGE> 4
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(b) In addition, as used herein, the following terms shall have the
following meanings:
"COMPLETION CERTIFICATE" shall have the meaning ascribed thereto in Section
3(b)(vi).
"COMPLETION DATE" shall have the meaning ascribed thereto in Section 3(b).
"INDEMNIFIED PERSONS" shall have the meaning ascribed thereto in Section 24.
"NET OPERATING CASH FLOW" shall mean, during the relevant Fiscal Year, (1)
the aggregate of all gross revenues of the Company, plus (or minus) (2) any
net foreign exchange transaction gains (or losses) and any net capital gains
(or losses) realized by the Company, minus (3) the aggregate of (without
duplication): (a) operating costs of the Company; (b) interest, fees and
other amounts payable by the Company (other than amounts payable on the OPIC
Loan), including transfers by the Company to the Cash Collateral Account;
(c) interest payable by the Company with respect to capital leases or
similar arrangements; (d) Taxes payable by the Company; (e) fees and
commissions payable by the Company, pursuant to applicable laws, in
connection with any mandatory conversion of Dollars or other currencies into
Roubles or re-conversion of such Roubles into Dollars or other currencies
(and unavoidable currency exchange losses in connection with such
re-conversion), all in the ordinary course of business and at the optimal
exchange rate.
"PCA CALL" shall have the meaning ascribed thereto in Section 3(c)(i).
"PCA CALL AMOUNT" shall have the meaning ascribed thereto in Section
3(c)(i).
"PCA SUBORDINATED LOAN" shall have the meaning ascribed thereto in Section
3(d).
"POSITIVE CASH FLOW" shall mean, with respect to a Fiscal Year, a positive
Net Operating Cash Flow.
"PROJECT COMPLETION" shall have the meaning ascribed thereto in Section
3(b).
"SPONSORS" means the U.S. Sponsor and the Russian Sponsor, together, and the
term "Sponsor" means either of the U.S. Sponsor or the Russian Sponsor,
individually.
"TEST" shall have the meaning ascribed thereto in Section 3(b)(ii)(A).
<PAGE> 5
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SECTION 2. INTERPRETATION.
The rules of interpretation for this Agreement and the Exhibits hereto set
forth in Section 1.02 of the Finance Agreement shall apply mutatis mutandis to
this Agreement and the Exhibits hereto as if set forth in full in this Section
2.
SECTION 3. PROJECT COMPLETION.
(a) SPONSORS' OBLIGATIONS. Subject to the terms and conditions hereof, each
of the Sponsors hereby agrees, jointly and severally, (i) to cause the Company
to fulfill all of the requirements needed to achieve Project Completion, (ii) up
to the Completion Date, to unconditionally and irrevocably 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) upon a PCA Call from OPIC at any time or from
time to time prior to the Completion Date, to make payment in full of the PCA
Call Amount demanded from the Sponsors under the terms and conditions specified
herein.
(b) PROJECT COMPLETION DEFINED. "PROJECT COMPLETION" shall be deemed to mean
and to occur on the date (the "COMPLETION DATE") that OPIC notifies the Sponsors
and the Escrow Agent that the following conditions have been accomplished to the
reasonable satisfaction of OPIC as of the date of the Completion Certificate:
(i) PHYSICAL COMPLETION TESTS: all buildings, jetties, equipment,
physical facilities, and necessary infrastructure for the Project shall have
been procured, constructed, and installed utilizing first-class standards of
workmanship and materials and in accordance with the Project plans and
specifications, shall be operational and in good working condition, and shall
meet manufacturers' specifications and the terms of applicable construction
agreements;
(ii) OPERATIONAL COMPLETION TESTS: following commencement of its timber
logging operations and the giving of notice to OPIC by the Company of the date
of commencement of a time period (the "Test Period"), the Company shall have
achieved one of the following tests:
(A) during a Test Period of 90 consecutive days, the Company shall have
produced a minimum of 25,000 cubic meters of timber, shipped and invoiced the
timber to clients and deposited the proceeds therefrom in the Timber Proceeds
Account; or
(B) in the event that the Company has failed to meet the test set forth in
(A) above, after electing to continue the Test Period for an additional 90
consecutive days, the Company shall have produced, during a period of 180
consecutive days (including the initial 90 day period), a minimum of 55,000
cubic meters of timber from its operations, shipped and invoiced the timber to
clients and deposited the proceeds therefrom in the Timber Proceeds Account.
<PAGE> 6
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(iii) Legal conditions:
----------------
(A) the Company shall have valid surface rights to the forestry tract
covered by its cutting license, a valid Harvesting Plan, and 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 referred to above, and to all other
facilities now or then known to be required for the Project;
(B) 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;
(c) all obligations of any kind of the Company through the Completion Date,
including, without limitation, payment of all amounts at any time to become due
up to Project Completion under contracts for construction, procurement,
installation, and improvement of land, buildings, equipment, and facilities for
the Project shall,have been met or waived; and
(D) each Financing Document and each other document identified in the
Finance Agreement as being necessary for the Project, including all relevant
consents, licenses, approvals and authorizations shall be in full force and
effect, to the extent applicable;
(E) the Company shall have obtained all material consents, licenses,
approvals and authorizations necessary for execution of the Financing Documents
and for the construction and operation of the Project; all of which are listed
in Schedule 4.09 of the Finance Agreement and all of which have been obtained
as of the date hereof, with the exception of the following, which shall be
obtained prior to Project Completion:
A license under Article 18 of the Russian Law on Environmental
Protection dated December 19, 1991, and an environmental agreement with the
relevant regulatory authority at the local or regional level (it being
understood that at present no procedures exist whereby such a license or
agreement can be obtained but that the Company will be required to obtain such a
license and agreement if the relevant procedures are put in place by the
regional or local authorities).
(F) no Event of Default (or condition or event that, with the giving of
notice, or lapse of time, or both, could constitute an Event of Default) under
the Finance Agreement shall then exist;
(iv) Financial tests:
---------------
(A) the ratio of the Company's Current Assets to Current Liabilities shall
be no less than 1.5 to 1;
<PAGE> 7
-5-
(B) the ratio of the Company's Indebtedness to Adjusted Net Worth shall not
exceed 1.857 to 1;
(c) the Company shall have an Debt Service Ratio of at least 1.2 to 1; and
(D) the Company shall have made at least one principal repayment on the Loan as
and when due from cash flow generated from the Project;
(D) the Company shall have demonstrated a positive cash flow and a ratio of
Net Operating Cash Flow to net sales of at least 30% for a period of six
consecutive months (to be certified by an internationally recognized independent
accounting firm); and
(E) the Company shall have maintained the Cash Collateral Amount.
(v) ENVIRONMENTAL COMPLETION TESTS: The IEAC (as defined in the Finance
Agreement) shall have certified the compliance of the Project and the Company's
Harvesting Plan with Schedule 5.12 of the Finance Agreement, in accordance with
and as set forth in the Finance Agreement.
(vi) COMPLETION CERTIFICATE DELIVERY: (A) the U.S. Sponsor shall have
furnished OPIC with a certificate substantially in the form of Exhibit A (the
"COMPLETION CERTIFICATE") certifying on behalf of the Sponsors that each of the
requirements set forth in clauses (i) through (v) above has been satisfied as of
the date of the Completion Certificate; and
(B) following receipt of the Completion Certificate, OPIC
shall have determined that each of the requirements set forth in clauses (i)
through (vi) above has been satisfied and shall have so notified the Sponsors in
writing; PROVIDED, HOWEVER, that:
(1) OPIC may require confirmation, at the Sponsors' reasonable expense, of
any provision of such Completion Certificate, including by requesting delivery
to OPIC of an independent consultant's report or an opinion of counsel
satisfactory to OPIC; and
(2) OPIC shall have the right to make reasonable requests for additional
information or documents from the Sponsors to substantiate the accuracy or
completeness of the Completion Certificate.
Unless within ninety (90) days following receipt by OPIC of the Completion
Certificate, OPIC notifies the U.S. Sponsor that either OPIC objects to the
Completion Certificate or that such Certificate is inaccurate or incomplete and
sets forth the basis for such objection or determination, as the case may be,
OPIC shall be deemed to have notified the U.S. Sponsor that Project Completion
and the Completion Date occurred on the last day of such ninety (90)-day period.
(c) Calls for Completion Funds.
--------------------------
<PAGE> 8
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(i) If, from time to time, prior to the Completion Date, in the opinion
of OPIC, the Company has insufficient funds to achieve Project Completion or to
meet its obligations as they become due and payable, whether at stated maturity,
by acceleration or otherwise (including, without limitation, all obligations due
under or with respect of the Finance Agreement or the Notes, and any expenses
(including reasonable attorneys' fees and expenses) incurred by OPIC in
enforcing any rights under this Agreement), OPIC shall have the right to give
written notice (each such notice shall be referred to herein as a "PCA CALL") to
both of the Sponsors demanding payment of the amount of such deficiency (the
"PCA CALL AMOUNT").
(ii) Each of the Sponsors, jointly and severally, agrees that it shall
make payment, or cause payment to be made, no later than ten (10) Business Days
following the date of a PCA Call sent to it, of the full PCA Call Amount
demanded from it in Dollars in immediately available funds.
(iii) Payment of any PCA Call Amount shall be made as directed by OPIC
in the PCA Call, whether to OPIC, or to the Company, or for application to any
other obligations of the Company as OPIC may specify in its sole discretion. The
Company hereby authorizes OPIC to establish an escrow account, if OPIC in its
reasonable judgment and in good faith considers it necessary, on the Company's
behalf, at a financial institution selected by OPIC for receipt of such funds to
be advanced by any Sponsor, and each Sponsor agrees, if so directed by OPIC, to
deposit the funds to be advanced by it in such escrow account. The Company
hereby irrevocably authorizes and directs OPIC to charge from time to time such
escrow account for amounts deemed necessary or desirable by OPIC, in its sole
discretion, to be expended to cause the Company to achieve Project Completion or
pay any or all debts or liabilities of the Company, including without
limitation, principal, interest, or other amounts due under the Finance
Agreement or the Notes, which have become due and payable (by stated maturity,
acceleration, or otherwise) prior to the Completion Date or to protect OPIC's
Liens. The Company hereby grants OPIC an irrevocable Power of Attorney, coupled
with an interest, to execute all checks, drafts, receipts, instruments,
instructions, or other documents to establish and operate such escrow account.
The Sponsors and the Company agree that OPIC shall not incur any liability in
connection with or arising from its exercise of such Power of Attorney or of the
rights assigned to OPIC pursuant to this paragraph.
(d) Investment of Funds.
-------------------
(i) Each advance of funds directed by OPIC to be made to the Company
hereunder by a Sponsor shall be a subordinated loan (a "PCA SUBORDINATED LOAN").
(ii) All PCA Subordinated Loans shall be subject to the terms of the
Subordination Agreement.
<PAGE> 9
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(iii) An advance under a PCA Subordinated Loan shall be: (A) evidenced
by promissory notes or other documents or agreements of the Company satisfactory
to OPIC making express reference to this Agreement and to the subordination
provisions of the Subordination Agreement and dated the date of such advance;
(B) shall be repayable in accordance with the terms of the Subordination
Agreement; (c) shall bear interest, which shall be payable subject to the
provisions of the Subordination Agreement; and (D) shall be junior and
subordinate in right of payment and in liquidation to the prior payment in full
of all amounts due or to become due under the Finance Agreement or the Notes, as
set forth in the Subordination Agreement.
(v) Each of the Sponsors and the Company hereby agree to take all
actions and execute all documents required by OPIC to implement each PCA
Subordinated Loan in accordance with this Agreement.
SECTION 4. NATURE OF OBLIGATIONS.
(a) The obligations of the Sponsors under this Agreement are joint and
several, direct, absolute, unconditional, and irrevocable and shall not to any
extent or in any way be reduced, limited, terminated, discharged, impaired, or
otherwise affected by any of the following:
(i) the Company's failure to pay a fee or provide other consideration
to the Sponsors in consideration of its entering into this Agreement;
(ii) the invalidity, lack of regularity, or unenforceability of any PCA
Call or the absence of any action to enforce the same (except to the extent that
such invalidity, or unenforceability arises is the result of a failure by OPIC
to fulfill its obligations under the OPIC Guaranty);
(iii) the occurrence or continuance of any Event of Default under the
Finance Agreement or the Notes or any acceleration or required prepayment of the
Indebtedness of the Company under or in respect of the Finance Agreement or the
Notes as a result thereof or otherwise;
(iv) any lack of validity or enforceability of, or any
misrepresentation, irregularity, or other defect in, the Finance Agreement, the
Notes, or any other agreement entered into in connection therewith;
(v) any failure by OPIC to take any steps to preserve its rights to any
Lien or in any Security Document securing the Loan, or any failure by OPIC to
perfect or keep perfected its Liens in any collateral relating to the Loan, the
Finance Agreement, or the Notes;
(vi) any right, claim or defense, waiver, surrender, or compromise that
any Sponsor may have under or in respect of this Agreement or otherwise;
<PAGE> 10
-8-
(vii) any failure to pay Taxes that may have been payable in respect of
the issuance or transfer of the Notes or to register the same with any
governmental agency or instrumentality or to obtain any governmental order,
license, or permit in connection with such issuance or transfer;
(viii) any modification or amendment (whether material or otherwise)
of, or waiver, or consent, or other action taken with respect to, the Finance
Agreement, the Notes, or any other agreement or document delivered pursuant to
the terms of the Finance Agreement, including, without limitation, any
forbearance, indulgence in, or extension of time for the payment by the Company
of any amount payable under or in connection with the Finance Agreement, or any
Note, or for the performance of any of the other obligations of the Company
thereunder (any of which modifications, amendments, waivers, or consents may be
agreed to or granted without the approval or consent of the Sponsors);
(ix) any law, regulation, decree, or judgment now or hereafter in
effect which may in any manner affect any of the Company's obligations under the
Finance Agreement or any Note or any of OPIC's rights thereunder, whether or not
the Company has a defense valid against OPIC and whether or not other guarantors
of such obligations, if any, contribute to such payments;
(x) the voluntary or involuntary liquidation, sale, or other
disposition of all or any portion of the Company's assets, or the receivership,
insolvency, bankruptcy, reorganization, or similar proceedings affecting the
Company or its assets, or the release or discharge of the Company from any of
its obligations under the Finance Agreement, or any Note, or the consolidation
or merger of the Company;
(xi) the recovery of any judgment against any Sponsor or any action to
enforce the same, the insolvency or bankruptcy of any Sponsor, or any discharge,
stay, injunction, or modification of the obligation to pay a PCA Call;
(xii) any change of circumstances, whether or not foreseeable, and
whether or not any such change does or might vary the risk of any Sponsor
hereunder; or
(xiii) any other circumstances, whether similar or dissimilar to the
foregoing, that might otherwise constitute a defense available to, or a legal or
equitable discharge of, a Sponsor in respect of any of its obligations under
this Agreement, the Company, or any guarantor or surety of any of their
respective obligations under any of the Financing Documents.
(b) This Agreement is a guaranty of payment and not of collection. OPIC may
require payment by the Sponsor jointly and severally and enforce the obligations
of the Sponsors hereunder without first being required to:
<PAGE> 11
-9-
(i) enforce OPIC's claims against the Company, any Sponsor
individually, or any other Person, firm, corporation, governmental authority, or
other entity; or
(ii) resort to any security or other guaranty for the Loan or the PCA
Call Amount; or
(iii) take any action except as provided in Section 3(c)(i) prior to
receiving payment hereunder.
(c) Notwithstanding anything to the contrary in this Agreement, each Sponsor
agrees that OPIC may, at any time and from time to time, either before or after
the maturity of the Loan, without notice to or further consent of such Sponsor,
extend the time of payment of, exchange, or surrender any collateral for, or
renew the Loan, and that OPIC may also make any agreement with the Company, the
other Sponsor, or with any other party to or Person liable on the Loan or
interested therein, for the extension, renewal., payment, compromise, discharge
or release thereof, in whole or in part, or for any modification; Waiver,
discharge, release, or settlement of the terms thereof or of any agreement
between OPIC, the Company, and/or the other Sponsor (including, without
limitation, this Agreement) or any other party or Person, without in any way
impairing or affecting the obligations and liabilities of such Sponsor under
this Agreement or requiring the written agreement or consent of such Sponsor and
the Company, as the case may be.
SECTION 5. WAIVER.
Each Sponsor hereby unconditionally waives presentment, demand, diligence,
filing of claims with a court in the event of insolvency or bankruptcy of the
Company, and any right to require a proceeding first against any Sponsor or the
Company, and waives protest, notice (including notice of default of the
Company), and all demands whatsoever of any kind to which such Sponsor might
otherwise be entitled under applicable law with respect to the PCA Call Amounts.
Each Sponsor hereby unconditionally agrees that its guaranty hereunder will not
be discharged except by complete performance of the obligations contemplated
under Section 3 or payment in full of all amounts due and to become due under
the Finance Agreement or the Notes. Each Sponsor also waives all notices of the
existence, creation, or incurring of any new or additional Indebtedness by the
Company under the Financing Documents.
SECTION 6. REINSTATEMENT OF GUARANTY.
The payment obligations of the Sponsors pursuant to this Agreement shall
remain in full force and effect or shall be reinstated, as the case may be, if
and to the extent that at any time any payment by the Company of any amount due
and guaranteed hereunder is rescinded or must be returned, in whole or in part,
in case of the bankruptcy, insolvency, or reorganization of the Company or
otherwise, as if such payment had never been made by the Company.
<PAGE> 12
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SECTION 7. PAYMENTS FREE AND CLEAR OF TAXES, ETC.
Any and all sums payable by a Sponsor hereunder shall be paid in full, free
of any deductions or withholdings for any and all present and future Taxes. If a
Sponsor shall be required by law to deduct any Taxes from or in respect of any
sum payable to OPIC (i) the sum payable shall be increased as may be necessary
so that after making all required deductions OPIC receives an amount equal to
the sum it would have received had no such deductions been required, (ii) such
Sponsor shall make such deductions, and (iii) such Sponsor shall pay the full
amount deducted to the relevant taxation authority or other authority in
accordance with applicable law. If OPIC pays any Taxes, such Sponsor, or at the
option of the other Sponsor, the other Sponsor, shall, upon demand from OPIC,
promptly reimburse OPIC in full for such payments.
SECTION 8. REPRESENTATIONS AND WARRANTIES.
A. Each Sponsor represents and warrants to OPIC that:
(a) As of the date hereof, the Sponsors own of record and beneficially, 73 %
(seventy-three percent) of the issued and outstanding shares of capital stock of
the Company and the U.S. Sponsor owns beneficially additional issued and
outstanding shares of capital stock of the Company through its 32% holding of
the capital stock of the Russian Sponsor.
(b) It is a corporation duly organized, validly existing, and in good
standing under the laws of its jurisdiction of incorporation referred to in the
introductory paragraph of this Agreement, and has all requisite power and
authority, corporate, partnership or otherwise, to execute, deliver and perform
this Agreement in accordance with the terms hereof.
(c) All necessary corporate actions to authorize its execution, delivery,
and performance of this Agreement have been taken.
(d) This Agreement has been duly executed and delivered by it and
constitutes its legal, valid, and binding obligation enforceable against it in
accordance with the terms hereof, except as the enforceability hereof may be
limited by bankruptcy, insolvency, reorganization, or other similar laws
affecting the enforcement of creditors' rights generally or general principles
of equity (regardless of whether such enforcement is considered in a proceeding
in equity or at law).
(e) All governmental approvals that are necessary for the execution and
delivery by it of this Agreement and the performance of its obligations
hereunder have been duly obtained and are in full force and effect.
<PAGE> 13
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(f) Neither it nor any of its properties has any immunity (or right to claim
that it has any immunity) from the jurisdiction of any court or from any legal
process (whether through service, notice, attachment prior to judgment,
attachment in aid of execution, or otherwise).
(g) The execution, delivery, and performance by it of this Agreement do not
require the consent or approval of any of its creditors and will not conflict
with or constitute a breach or default under or violate any provision of its
Charter Documents or any agreement, law, rule, regulation, order, writ,
judgment, injunction, decree, determination, or award applicable to it.
(h) Each representation and warranty made by the Company to OPIC in the
Finance Agreement is, to the knowledge of the Sponsor, true and correct in all
material respects, and all material constituting the Application is true and
correct in all material respects and accurately and completely describes the
business and financial prospects of the Company and does not contain any
material misstatement of fact or omit to state any material fact necessary to
make the statements contained therein, in light of the circumstances under which
they were made, not misleading.
(i) No Event of Default, and no event or condition that with the passage of
time or the giving of notice, or both, could constitute an Event of Default
under the Finance Agreement or under any agreement or instrument evidencing any
Indebtedness of the U.S. Sponsor that gives the holder thereof the right to
accelerate payment of such Indebtedness prior to its scheduled maturity, has
occurred and is continuing, and no such event will occur upon its execution,
delivery, or performance of this Agreement.
(j) No action, suit, other legal proceeding, arbitral proceeding, or
investigation is pending by or before any domestic or foreign court or
governmental authority or in any arbitral or other forum, or, to its knowledge,
is threatened, against it or any of its properties or rights that (i) relates to
any of the transactions contemplated by this Agreement or any other Financing
Document, or (ii) has, or if adversely determined is reasonably likely to have,
a Material Adverse Effect.
B. The U.S. Sponsor represents and warrants to OPIC that:
(a) Its balance sheet as at December 31, 1994, and the related statement of
its income and retained earnings for the fiscal year then ended, certified by
independent public accountants, copies of which have been furnished to OPIC,
fairly present in all material respects the financial condition of the U.S.
Sponsor as at such date and the results of its operations for the period ended
on such date, all in accordance with U.S. GAAP, and since such date, there has
been no change in its financial condition that is reasonably likely to have a
Material Adverse Effect.
<PAGE> 14
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(b) Since the date of the U.S. Sponsor's most recent Financial Statements
delivered to OPIC hereunder, there has been no change in its financial condition
from that set forth in such Financial Statements that is reasonably likely to
have a Material Adverse Effect.
SECTION 9. COVENANTS OF THE SPONSORS.
Unless OPIC otherwise agrees in writing each Sponsor covenants and agrees,
until the Completion Date, as follows:
(a) Each Sponsor shall promptly notify OPIC of each event that constitutes,
or which with the lapse of time or the giving of notice or both could
constitute, an Event of Default under the Finance Agreement, and of the
occurrence of any other condition or event that is reasonably likely to have a
Material Adverse Effect.
(b) The U.S. Sponsor shall, upon request of OPIC, give, or cause to be given
to, any representatives of OPIC access during normal business hours, and permit
them to examine, copy, and make extracts from, any and all records and documents
in the possession or subject to the control of such Sponsor relating to its
operations and financial affairs in connection with the Project.
(c) The U.S. Sponsor shall furnish to OPIC on or before the 60th day after
the close of each quarter of each of its fiscal years, its consolidated and
consolidating balance sheets as at the close of such quarter and its income
statement and statement of changes in financial position for such quarter,
prepared in accordance with U.S. GAAP, certified by its chief financial officer
as being complete and correct and fairly presenting the financial condition of
the U.S. Sponsor as at the close of such quarter and the results of its
operations for such quarter.
(d) The U.S. Sponsor shall furnish to OPIC on or before the 100th day after
the end of each of its fiscal years, its consolidated and consolidating balance
sheets as at the close of such fiscal year and its income statement and
statement of changes in financial position for such fiscal year, prepared in
accordance with U.S. GAAP, certified by a finn of independent accountants
(selected by it and acceptable to OPIC) as fairly presenting the financial
condition of the U.S. Sponsor as at the close of such fiscal year and the
results of its operations for such fiscal year.
(e) Each Sponsor agrees to vote or to cause to be voted all of the shares of
the Company presently held by it, as well as any other shares that it may
directly or indirectly acquire or control in the future, in such manner, and
take or cause to be taken any actions, corporate or otherwise, as shall be
necessary to achieve the prompt and effective implementation and performance of
all of the provisions of this Agreement.
(f) The U.S. Sponsor shall furnish to OPIC from time to time such other
statements and information as OPIC may reasonably request.
<PAGE> 15
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SECTION 10. SUBROGATION AND SUBORDINATION.
Until all amounts .due or that may become due under or in respect of the
Finance Agreement or the Notes have been paid in full, all PCA Subordinated
Loans shall be subject to the provisions of the Subordination Agreement. In the
event that a Sponsor receives any payment or distribution from the Company with
respect to such interest in contravention of the Subordination Agreement or this
Agreement, such Sponsor shall hold such payment or distribution in trust (as
property of OPIC) and immediately pay over such amount or deliver to OPIC (with
any necessary endorsement), such payment for application against the Loan.
SECTION 11. PAYMENTS.
Any payments hereunder directed by OPIC to be paid (a) to OPIC, shall be
paid to OPIC at the address set forth in Section 2.10(b) of the Finance
Agreement, and for application in accordance with Section 2.10(d) of the Finance
Agreement, or (b) to the Company, shall be made at the address set forth in
Section 18 hereof, or (c) to any other Person, shall be paid as OPIC may
otherwise direct in the PCA Call.
SECTION 12. REMEDIES; NO WAIVER.
(a) OPIC may proceed to protect and enforce its rights hereunder in any
court or other tribunal by an action at law, suit in equity, or other
appropriate proceedings, whether for damages, for the specific performance of
any term hereof, or otherwise, or in aid of the exercise of any power granted
hereby or by law. Each Sponsor hereby agrees, jointly and severally, to pay to
OPIC on demand such amount in Dollars as shall be sufficient to cover OPIC's
reasonable costs and expenses of any action or such remedies, including, without
limitation, reasonable attorneys' fees, expenses, and disbursements.
(b) No failure or delay by OPIC in exercising any right, power or remedy
shall operate as a waiver thereof or otherwise impair any of its rights, powers,
or remedies. No single or partial exercise of any such right shall preclude any
other or further exercise thereof or the exercise of any other legal fight. No
waiver of any such fight shall be effective unless given in writing.
(c) The rights or remedies provided for herein are cumulative and are not
exclusive of any other rights, powers, or remedies provided by law. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion of any other appropriate right or remedy.
SECTION 13. TIME OF ESSENCE.
The parties hereto agree that time shall be of the essence of this
Agreement.
<PAGE> 16
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SECTION 14. JURISDICTION AND CONSENT TO SUIT.
(a) Without prejudice to the rights of OPIC to bring suit in any appropriate
domestic or foreign jurisdiction, any proceeding to enforce this Agreement may
be brought by OPIC in any state or federal court of competent jurisdiction in
the District of Columbia of the United States of America or in any other
jurisdiction where a Sponsor or any of its property may be found. Each Sponsor
hereby irrevocably waives any present or future objection to any such venue, and
irrevocably consents and submits unconditionally to the non-exclusive
jurisdiction for itself and in respect of any of its property of any such court.
Each Sponsor hereby further irrevocably waives any claim in any such court that
any such action, suit, or proceeding brought therein has been brought in an
inconvenient foram. Each Sponsor further agrees that final judgment against it
in any such action or proceeding arising out of or relating to this Agreement
shall be conclusive and may enforced in any other jurisdiction within or outside
the United States of America by suit on the judgment, a certified or exemplified
copy of which shall be conclusive evidence of the fact and of the amount of its
obligation.
(b) Prior to the fast Closing Date, each Sponsor shall irrevocably designate
and appoint an agent satisfactory to OPIC for service of process in the District
of Columbia as its authorized agent to receive, accept, and acknowledge on its
behalf service of process in any such proceeding, and shall provide OPIC with
evidence of the prepayment in full of the fees of such agent. Each Sponsor
agrees that service of process upon said agent shall be deemed and held in every
respect to be effective personal service upon it. Each Sponsor shall maintain
such appointment (or that of a successor satisfactory to OPIC) continuously in
effect at all times while the Company is obligated under the Finance Agreement
or any Note. Nothing herein shall affect OPIC's right to serve process in any
other manner permitted by applicable law.
SECTION 15. ARBITRATION.
(a) ARBITRATION: RULES: VENUE: LANGUAGE. Any dispute, controversy, or claim
arising out of, or relating to, or in connection with, this Agreement, and any
dispute concerning the scope of this arbitration clause, may, at the option of
OPIC and upon written notice to the Company and the Sponsors, be referred to for
final settlement by arbitration. Such arbitration proceedings shall be conducted
in accordance with the International Arbitration Rules of the International
Chamber of Commerce ("ICC") in effect on the date on which the arbitration
commences (the "RULES"). The seat of the arbitration shall be the City of New
York, New York, unless OPIC directs that the place of arbitration shall instead
be Washington, D.C. The arbitration shall be conducted in the English language.
Upon the Company's and the Sponsors' receipt of a notice from OPIC of its
election to settle by arbitration any dispute, controversy or claim pursuant to
this Section 7.15, the Company and the Sponsors shall be obligated to settle
such dispute, controversy or claim as provided in this Section 15. If any
dispute, controversy or claim is referred to arbitration by
<PAGE> 17
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OPIC, the Company and the Sponsors hereby agree to the jurisdiction of the
arbitral panel with respect to such dispute, controversy or claim to the
exclusion of the courts of the Russian Federation or any other jurisdiction.
(b) ARBITRATORS: SELECTION: QUALIFICATIONS. The arbitration shall be
conducted by three arbitrators. OPIC shall appoint one arbitrator and the
Company and the Sponsors shall appoint one arbitrator, and each shall notify the
other of the name of its appointee within 60 days of the date of OPIC's notice
to the Company and the Sponsors. The two arbitrators appointed by OPIC and the
Company and the Sponsors shall together, within 60 days after the date on which
the first two arbitrators were required to be appointed, appoint the third,
presiding arbitrator. If OPIC and the Company and the Sponsors fail to appoint
any arbitrator within the time limits provided hereunder, such arbitrators shall
upon the written request of OPIC or the Company and the Sponsors, be appointed
by the President of the ICC. Each arbitrator shall be fluent in the English
language, shall be a disinterested person, and shall be an attorney qualified to
practice law in the State of New York or the District of Columbia for a minimum
of 5 years, with experience in representing lenders and borrowers in
international project finance lending to private sector borrowers. OPIC, the
Company or the Sponsors may, within 10 days of notice of an appointment,
challenge the appointment of an arbitrator as lacking the qualifications set
forth in the preceding sentence pursuant to the procedures prescribed by the
Rules. Any determination by the ICC as to qualifications shall be final and
binding and not subject to judicial review. If an arbitrator must be replaced
for any reason, the appointing party shall endeavour to appoint a substitute
arbitrator within a reasonable time.
(c) LAW. Each arbitral panel established hereunder shall make its decisions
entirely on the basis of this Agreement, the governing law provisions provided
herein or therein, and the Rules.
(d) STATEMENTS OF CLAIM AND DEFENSE: Representation: Proceedings. OPIC shall
communicate its statement of claim in writing to the Company and the Sponsors
and the arbitral panel within a period of time to be determined by the panel.
The Company and/or the Sponsors shall file a statement of defense in writing
following receipt of OPIC's statement of claim within a period of time to be
determined by the panel. The parties may be represented or assisted by legal
counsel of their choice. The arbitral panel shall determine a date on which it
shall commence taking evidence, which date shall not be less than 60 days after
the Company's and/or the Sponsors' submission of a statement of defense, unless
OPIC directs otherwise. Where the Rules do not provide for a particular
situation, the arbitral panel shall by a majority, in its absolute discretion,
determine the course of action to be followed and its decision shall be final.
(e) AWARDS. The arbitral panel shall issue a written decision and award
within 60 days after the conclusion of the relevant proceedings. Any award of
the arbitral panel shall be final and binding, and judgment upon any arbitral
award may be entered and enforced by any court or judicial authority of
competent jurisdiction. Any money award shall be made and shall be
<PAGE> 18
-16-
payable in Dollars. The award shall be limited to the scope of the submission
and in no circumstance shall the arbitral panel render an award EX AEQUO ET BONO
or as AMIABLE COMPOSITEUR. If either party wishes to submit a request that the
arbitral panel interpret the award or correct any clerical, typographical or
computation errors, or make an additional award as to claims presented but
omitted from the award, such request shall be submitted to the arbitral panel
and the other party within 10 days after the award. If the panel considers such
request justified, after considering the contention of the parties, the panel
shall promptly comply with such request. The arbitral panel, OPIC, the Company
or the Sponsors shall not be entitled to seek from any judicial authority or
take any interm measures or provide any preaward relief against OPIC, the
Company, or the Sponsors, notwithstanding any contrary provisions in the Rules.
(f) COSTS, FEES AND EXPENSES. Each party shall pay its own costs, fees and
expenses.
(g) NO WAIVER. In invoking any arbitration pursuant to this Section 15, OPIC
shall not be deemed to have waived any rights, immunities or privileges to which
it or any of its directors, officers or employees are entitled. By submitting to
arbitration, OPIC shall not be deemed to have Submitted to the jurisdiction of
any court other than the United States Court of Claims in Washington D.C.
SECTION 16. SUCCESSORS AND ASSIGNS.
This Agreement shall bind the successors and assigns of the Company and the
Sponsors and shall inure to the benefit of OPIC, its successors, and assigns.
Neither the Company nor any Sponsor may assign any of its obligations hereunder
without the prior written consent of OPIC or its successors or assigns.
SECTION 17. BENEFITS OF AGREEMENT.
Nothing in this Agreement, express or implied, shall give to any Person,
other than the parties hereto and their successors and permitted assigns
hereunder and under the Finance Agreement, any benefit or any legal or equitable
right or remedy under this Agreement.
SECTION 18. NOTICES.
Each notice, demand, report, or communication relating to this Agreement
shall be in writing in the English language, shall be hand-delivered or sent by
mail (postage prepaid), telegram, or facsimile transmission (with a copy by mail
to follow, which copy shall not be required to effect notice), and shall be
deemed duly given when sent to the following addresses, or to such other address
or number as each party shall have last specified by notice to the other
parties.
<PAGE> 19
-17-
TO THE U.S. SPONSOR
The Pioneer Group, Inc.
60 State Street,
Boston, MA 02109-1820
(Attn: Donald Hunter)
Facsimile: (617)422-4296
with a copy to David Sylvester, Esq.
Hale and Dorr
Suite 1000
1455 Pennsylvania Avenue, N.W.
Washington D.C. 20004
Facsimile: 1-202-942-8484
TO THE COMPANY
UL. KOPROVAYA, 4
KOMSOMOLSK - NA - AMURE
681005
RUSSIAN FEDERATION
(Attn: The President)
Facsimile: 0117-42172-46855
with a copy to:
David Sylvester, Esq.
Hale and Dorr
Suite 1000
1455 Pennsylvania Avenue, N.W.
Washington D.C. 20004
Facsimile: 1-202-942-8484
<PAGE> 20
-18-
TO THE RUSSIAN SPONSOR
UL. KOPROVAYA, 4
KOMSOMOLSK - NA - AMURE
681005
RUSSIAN FEDERATION
(Attn: The President)
Facsimile: 0117-42172-46855
TO OPIC (Attn.: Vice President and Treasurer, with a copy to the Vice
President for Finance):
Overseas Private Investment Corporation
1100 New York Avenue, N.W.
Washington, D.C. 20527
United States of America
Facsimile: 1-202-408-9862
SECTION 19. GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
SUBSTANTIVE LAWS OF THE DISTRICT OF COLUMBIA, UNITED STATES OF AMERICA, WITHOUT
REGARD TO THE CONFLICTS OF LAW RULES THEREOF.
SECTION 20. JURY TRIAL WAIVER.
The Sponsors and OPIC each hereby waives any right to have a jury
participate in resolving any dispute arising out of, in connection with, related
to, or incidental to the relationship established between them in connection
with this Agreement, any other financing document, or any other instrument,
document, or agreement executed or delivered in connection herewith or therewith
or the transactions related thereto.
SECTION 21. SEVERABILITY.
If any provisions of this Agreement shall be invalid, illegal, or
unenforceable in any jurisdiction, the parties hereto agree to the fullest
extent they may effectively do so that the validity, legality, and
enforceability of such provision in other jurisdictions, and the validity,
<PAGE> 21
-19-
legality, and enforceability of the other provisions in such jurisdiction, shall
not in any way be affected or impaired thereby.
SECTION 22. AMENDMENTS.
The provisions hereof may be waived, supplemented, or amended only by an
instrument in writing signed by a duly authorized representative of each of the
parties hereto.
SECTION 23. WAIVER OF LITIGATION PAYMENTS.
In the event that any action or lawsuit is initiated by or on behalf of OPIC
hereunder against the Company, any Sponsor, or any other party to any Financing
Document, each Sponsor, to the fullest extent permissible under applicable law,
irrevocably waives its right to, and agrees not to request, plead, or claim that
an OPIC Plaintiff post, pay, or offer, any Litigation Payment, and each Sponsor
further waives any objection it may now or hereafter have to an OPIC Plaintiff's
claim that such OPIC Plaintiff should be exempt or immune from posting, making,
or offering any such Litigation Payment.
SECTION 24. INDEMNITY.
To the extent permitted by law, each Sponsor hereby indemnifies and holds
harmless OPIC and its directors, officers, employees, agents, counsel,
subsidiaries, and Affiliates (the "INDEMNIFIED PERSONS") from and against any
and all losses, liabilities, obligations, damages, penalties, actions,
judgments, suits, costs, expenses, or disbursements of any kind or nature
whatsoever that may be imposed on, incurred by, or asserted against any
Indemnified Person in any way relating to or arising out of this Agreement, the
Financing Documents, or any of them or any of the transactions contemplated
hereby or thereby; PROVIDED, HOWEVER, that (i) no Sponsor shall be liable to any
Indemnified Person for any losses, liabilities, obligations, damages, penalties,
actions, judgments, suits, costs, expenses, or disbursements that resulted from
the gross negligence or willful misconduct of such Indemnified Person and (ii)
to the extent that the loss, claim, damage, liability or other expense results
from a failure by OPIC to fulfill its obligations under the OPIC Guaranty.
Further, the Sponsors' indemnity obligations hereunder (i) shall not apply to
the extent that the loss, claim, damage, liability or other expense arises from
the Company's failure to pay its financial obligations under the Finance
Agreement (with the exception of fraud); (ii) shall not in the aggregate exceed
the amount of the loan; and (iii) shall end on the Project Completion Date.
<PAGE> 22
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SECTION 25. COUNTERPARTS.
This Agreement may be executed in separate counterparts, each of which when
so executed and delivered shall be deemed an original, and all of which together
shall constitute one and the same instrument.
SECTION 26. TERMINATION.
Notwithstanding anything in this Agreement or elsewhere to the contrary, the
obligations of the Sponsors hereunder shall terminate upon the earlier of the
Completion Date, or the date on which all principal, interest, fees, and
expenses due pursuant to the Finance Agreement or under the Notes have been
indefeasibly paid in full and the Company has no further right to request
Disbursements of the Loan or to cause Notes to be issued.
<PAGE> 23
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed and delivered as of the day and year first above written.
THE PIONEER GROUP, INC.
/s/ John F. Cogan, Jr.
----------------------------------
By John F. Cogan, Jr.
-------------------------------
Its President
------------------------------
CLOSED JOINT-STOCK COMPANY
"FOREST STARMA"
/s/
----------------------------------
By
-------------------------------
Its
------------------------------
/s/
----------------------------------
By
-------------------------------
Its
------------------------------
INTERNATIONAL JOINT-STOCK COMPANY
"STARMA HOLDING"
/s/
----------------------------------
By
-------------------------------
Its
------------------------------
/s/
----------------------------------
By
-------------------------------
Its
------------------------------
OVERSEAS PRIVATE INVESTMENT CORPORATION
/s/
----------------------------------
By
-------------------------------
Its Finance Investment Officer
------------------------------
<PAGE> 24
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EXHIBIT A
[FORM OF COMPLETION CERTIFICATE]
COMPLETION CERTIFICATE
DATE: ______________
TO: Overseas Private Investment Corporation ("OPIC")
1100 New York Avenue, N.W.
Washington, D.C. 20527
Attn.: Vice President and Treasurer, and [Finance - Regional Manager]
This Completion Certificate is submitted to OPIC pursuant to Section 3(b)(v) of
the Project Completion Agreement, dated as of , 1995 (the "Project
Completion Agreement"), among Closed Joint-Stock Company "Forest Starma", a
closed joint-stock company, organized and existing under the legislation of the
Russian Federation (the Company"), The Pioneer Group, Inc., a corporation
organized and existing under the laws of the state of Delaware (the "U.S.
Sponsor"), International Joint-Stock Company "Starma Holding", a closed joint
stock company, organized and existing under the legislation of the Russian
Federation (the "Russian Sponsor") and OPIC.
All capitalized terms used herein and not otherwise defined shall have their
respective meanings set forth in the Project Completion Agreement.
[Each of] the undersigned hereby certifies that [he][she] is an Authorized
Officer of the [U.S. Sponsor][the Russian Sponsor], and further certifies that
as of the date hereof each of the requirements set forth below has been
satisfied as of the date hereof:
1. As required by Section 3(b)(i)(PHYSICAL COMPLETION TESTS), all buildings,
jetties, equipment, facilities, and necessary infrastructure for the Project
have been procured, constructed, and installed utilizing first-class standards
of workmanship and materials and in accordance with the Project plans and
specifications, are operational and in good working condition, and meet
manufacturers' specifications and the terms of applicable construction
agreements.
Evidence of the foregoing is attached hereto and made a part hereof as Schedule
1 [attach relevant supporting evidence][NOTE: Relevant supporting evidence may
include an independent consultant's report, accountants' certificate, opinions
of counsel, Authorized Officer's Certificate from the Sponsor(s) and/or the
Company, audited Financial Statements, etc.].
<PAGE> 25
- 23 -
2. As required by Section 3(b)(ii)(A)(OPERATIONAL COMPLETION TESTS), the Company
has demonstrated the following: (A) following commencement of its timber logging
operations and the giving of notice to OPIC by the Company of the date of
commencement of a time period (the "Test Period"), the Company has achieved one
of the following tests: (1) during a Test Period of 90 consecutive days, the
Company shall has produced a minimum of 25,000 cubic meters of timber, shipped
and invoiced the timber to clients and deposited the proceeds therefrom in the
Timber Proceeds Account; or (2) after electing to continue the Test Period for
an additional 90 consecutive days, the Company has produced, in the total of 180
consecutive days, a minimum of 55,000 cubic meters of timber from its
operations, shipped and invoiced the timber to clients and deposited the
proceeds therefrom in the Timber Proceeds Account;
(B) the Company has demonstrated a positive cash flow and a ratio of net
operating cash flow to net sales of at least 30% for a period of six consecutive
months; and
(c) the Company has maintained the Cash Collateral Amount.
Evidence of the foregoing is attached hereto and made a part hereof as Schedule
2A [attach relevant supporting evidence].
3. As required by Section 3(b)(iii)(A)(LEGAL CONDITIONS), the Company has valid
surface rights to the forestry tract covered by its cutting license and 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 referred to above, and to all other
facilities now known to be required for the Project.
Evidence of the foregoing is attached hereto and made a part hereof as Schedule
3A [attach relevant supporting evidence].
As required by Section 3(b)(iii)(B)(LEGAL CONDITIONS), the Company has 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.
Evidence of the foregoing is attached hereto and made a part hereof as Schedule
3B [attach relevant supporting evidence].
As required by Section 3(b)(iii)(C)(LEGAL CONDITIONS), all obligations of any
kind of the Company through the Completion Date, including, without limitation,
payment of all amounts at any time to become due up to Project Completion under
contracts for construction, procurement, installation, and improvement of land,
buildings, equipment, and facilities for the Project shall have been met or
waived.
<PAGE> 26
- 24 -
Evidence of the foregoing is attached hereto and made a part hereof as Schedule
3C [attach relevant supporting evidence].
As required by Section 3(b)(iii)(D)(LEGAL CONDITIONS), each Financing Document
and each other document identified in the Finance Agreement as being necessary
for the Project, including all relevant licenses, remains in full force and
effect, to the extent applicable.
Evidence of the foregoing is attached hereto and made a part hereof as Schedule
3D [attach relevant supporting evidence].
As required by Section 3(b)(iii)(E)(LEGAL CONDITIONS), no Event of Default (or
condition or event that, with the giving of notice, or lapse of time, or both,
could constitute an Event of Default) under the Finance Agreement exists as of
the date hereof.
Evidence of the foregoing is attached hereto and made a part hereof as Schedule
3E [attach relevant supporting evidence].
4. As required by Section 3(b)(iv)(A)(FINANCIAL TESTS), the ratio of the
Company's Current Assets to Current Liabilities is no less than 1.5 to I; (B)
the ratio of the Company's Indebtedness to Adjusted Net Worth does not exceed
1.857 to 1; and (C) the Company has an Indebtedness Service Ratio of at least
1.2 to 1; and (D) the Company has made at least one principal repayment on the
Loan as and when due from cash flow generated from the Project;
Evidence of the foregoing is attached hereto and made a part hereof as Schedule
4A [attach relevant supporting evidence].
5. As required by Section 3(b)(v)(ENVIRONMENTAL COMPLETION TESTS), the IEAC (as
defined in the Finance Agreement) has certified the compliance of the Project
and the Company's harvesting plan with the Guidelines Schedule in accordance
with and as set forth in the Finance Agreement.
Evidence of the foregoing is attached hereto and made a part hereof as Schedule
5A [attach relevant supporting evidence].
The undersigned further certifies that the documents and materials attached
hereto as Schedules are true, correct, and complete originals or copies.
The undersigned understands that Section 237(n) of the Foreign Assistance Act of
1961, as amended, provides for imprisonment, as well as fines, for knowingly
submitting false statements or reports or willfully overvaluing any land,
property, or security for the purpose of influencing in any way the actions of
OPIC with respect to an OPIC-financial project.
<PAGE> 27
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IN WITNESS WHEREOF, [each of] the undersigned has hereunto set [his][her] hand
on this ___ day of __________, 199_.
----------------------------------
[PRINTED NAME OF AUTHORIZED OFFICER]
[TITLE OF AUTHORIZED OFFICER]
THE PIONEER GROUP, INC.
----------------------------------
[PRINTED NAME OF AUTHORIZED OFFICER]
[TITLE OF AUTHORIZED OFFICER]
INTERNATIONAL JOINT-STOCK COMPANY
"STARMA HOLDING"
Attachments
<PAGE> 1
EXHIBIT 10.3
CLOSED JOINT-STOCK COMPANY "FOREST-STARMA"
PROMISSORY NOTE
NO. 1 JULY 1, 1996
----------
FOR VALUE RECEIVED, CLOSED JOINT-STOCK COMPANY "FOREST-STARMA", a
corporation organized and existing under the laws of the Russian Federation (the
"Company"), hereby promises to pay to the order of the Overseas Private
Investment Corporation, an agency of the United States of America ("OPIC"), or
any subsequent registered holder of this Promissory Note (the "Noteholder"), the
Principal Amount hereof, together with interest at the Note Interest Rate as
hereinafter provided, in lawful currency of the United States of America and in
immediately available funds, at the office of The Chase Manhattan Bank (National
Association), as paying agent (together with its successors and assigns, the
("Paying Agent") specified in the Funding and OPIC Guaranty Agreement dated
as of December 21, 1995 (as may be amended, supplemented or modified from time
to time, the "Funding Agreement") among the Company, the Paying Agent and OPIC.
As used herein, the following capitalized terms shall have the meanings
specified:
Principal Amount Nine Million, Three Hundred Thousand and
00/100 United States Dollars (U.S.
$9,300,000)
Scheduled Principal Payment Six Hundred, Twenty Thousand and 00/100
United States Dollars (U.S. $620,000)
Principal Payment Dates semi-annually on the 15th day of June and
December of each year, from and including
December 15, 1996 to and including the
Maturity Date
Maturity Date December 15, 2003
Interest Payment Dates semi-annually on the 15th day of June and
December of each year from and including
June 17, 1996 to and including the Maturity
Date
<PAGE> 2
Note Interest Rate The rate per annum equal to the sum of the
Certificate Interest Rate plus the OPIC Spread;
PROVIDED, however, that if OPIC shall have made
payment pursuant to the OPIC Guaranty to Holders
of Certificates of Participation (an "OPIC
Guaranty Payment") of any principal, interest or
other Guaranteed Amount with respect to the Loan
(an "OPIC Guaranty Payment Amount"), then at
OPIC's option the Note Interest Rate with respect
to such OPIC Guaranty Payment Amount from the
date of such OPIC Guaranty Payment to the date of
payment in full to OPIC of such OPIC Guaranty
Payment Amount may be converted to a fixed rate of
interest equal to the sum of (i) OPIC's cost of
funds for such OPIC Guaranty Payment Amount, plus
(ii) the OPIC Spread (including any applicable
Default Spread)
Certificate Interest Rate seven and one fifth percent (7.20%) per annum
[The rate per annum equal to the sum of the
Interest Rate plus the Placement Spread]
Interest Rate six and sixty five one hundredth percent (6.65%)
per annum
Placement Spread fifty five one hundredth percent (0.55%) per annum
OPIC Spread two and three quarters percent (2.75%) per annum
on the outstanding balance of the Loan prior to
Project Completion and five and one eighth percent
(5.125%) per annum on the outstanding balance of
the Loan subsequent to Project Completion plus any
applicable Default Spread
Default Spread two percent (2.00%) per annum
Day Count Fraction 360-day years consisting of twelve 30-day months
Business Day Any day except a Saturday, Sunday or other day on
which commercial banks in The City of New York or
Washington, D.C. are authorized by law to close
Prepayment Premium and
Makewhole Premium On any date following the last day of the
Commitment Period, the Company may, upon 20
(twenty) Business Days' prior notice to OPIC,
prepay the Principal Amount, in whole or in part,
in advance of its stated maturity, together with
accrued interest thereon, upon the payment of (A)
a
2
<PAGE> 3
Prepayment Premium to OPIC of (i) three percent
(3%) of the amount prepaid during the twenty-four
month period immediately following the last day of
the Commitment Period, (ii) 2% of the amount
prepaid during the twenty-four month period
immediately following the third anniversary of the
last day of the Commitment Period, and (iii) no
Prepayment Premium thereafter; and (B) a
Makewhole Premium (as hereinafter defined) to each
Certificateholder. The "Makewhole Premium" with
respect to any amount of the Principal Amount
being paid in advance of its stated maturity shall
equal the amount, if any, by which the present
value of the scheduled interest and principal
payments on this Note exceeds the amount of the
Principal Amount being prepaid. The present value
of the scheduled interest and principal payments
on this Note shall be computed in accordance with
generally accepted financial practice on a
semi-annual basis at a discount rate equal to the
Treasury Rate (as hereinafter defined) plus the
Placement Spread. "TREASURY RATE" shall mean the
yield of a fully taxable, marketable debt
obligation of the United States Treasury having a
maturity date nearest in time to the then weighted
average life of the remaining scheduled interest
and principal payments on this Note. The maturity
date and yield of such debt obligation shall be
determined by the Paying Agent on the basis of
quotations published in the WALL STREET JOURNAL on
the fifth Business Day prior to the date of such
prepayment. The Paying Agent shall notify the
Certificateholder, the Company and OPIC of the
Make Whole Premium on the next Business Day after
such determination date, which notice shall set
forth in reasonable detail the computation
thereof. The Make Whole Premium set forth in such
notice shall be binding absent manifest error. Any
partial prepayment of this Note shall be applied
to the principal installments due hereunder in
inverse order of maturity.
All other capitalized terms used herein and not otherwise defined shall have
their respective meanings set forth in the Finance Agreement between the Company
and OPIC dated as of December 21, 1995 (the "Finance Agreement") and the Funding
Agreement.
1. PRINCIPAL PAYMENTS. The Principal Amount hereof shall be due and payable
in consecutive equal installments, each in the amount of a Scheduled Principal
Payment, on the respective Principal Payment Dates; PROVIDED, however, that the
last such installment shall be due
3
<PAGE> 4
on the Maturity Date and shall be in the amount necessary to repay in full the
unpaid principal amount hereof.
2. INTEREST PAYMENTS. The Company shall pay to the Paying Agent interest at
the Note Interest Rate in arrears on each Interest Payment Date, commencing with
the first such date after the date hereof, on the Principal Amount hereof from
time to time outstanding, accruing from and including the date hereof until
payment in full, and in accordance with the terms of the Funding Agreement the
Paying Agent shall pay (i) to the holder (a "Certificateholder") of each
Certificate of Participation (as defined below) in accordance with the terms
thereof, the portion of such interest equal to interest at the Certificate
Interest Rate, and (ii) to OPIC, the remaining portion of such interest equal to
interest at the OPIC Spread.
3. COMPUTATION OF INTEREST. Interest shall accrue at the Note Interest Rate
(including the OPIC Spread) and be computed on the basis of the Day Count
Fraction, for each period (an "Interest Period") from and including the Closing
Date or the day following the immediately preceding Interest Payment Date, as
the case may be, to and including the next succeeding Interest Payment Date or,
if earlier, the Maturity Date.
4. METHOD AND APPLICATION OF PAYMENT. All payments hereunder shall be by
wire transfer of immediately available funds in accordance with written
instructions given by the Noteholder to the Paying Agent. Whenever any Payment
Date under this Promissory Note shall fall on any day that is not a Business
Day, the payment due on such Payment Date shall be made on the next succeeding
Business Day. All payments shall be applied in the order of priority set forth
in the Funding Agreement.
5. ADDITIONAL PROVISIONS. This Promissory Note is issued under and is
subject to the provisions of (i) the Finance Agreement and (ii) the Funding
Agreement. No reference herein to the Finance Agreement or to the Funding
Agreement and no provision of this Promissory Note, the Finance Agreement or the
Funding Agreement shall alter or impair the obligation of the Company to pay the
principal of, interest on, and all other amounts due pursuant to this Promissory
Note as provided herein.
6. PRINCIPAL PREPAYMENTS AND PREMIUMS. The Company may make voluntary
prepayments of the Loan, and shall make mandatory prepayments of the Loan, on
the terms and conditions set forth in the Finance Agreement.
7. GROSS-UP FOR COVERED TAXES. All Guaranteed Amounts payable hereunder
shall be paid in full, free of any deduction or withholding for any present or
future taxes, levies, imposts, stamp duties, fees, deductions, charges,
withholdings or other liabilities with respect thereto, excluding income,
franchise or AD VALOREM taxes imposed by any jurisdiction as a direct
consequence of any Certificateholder being organized and existing, qualified to
do business, or maintaining a permanent establishment in such jurisdiction
(collectively, "Covered Taxes"). If the Company is prohibited by law from making
payments hereunder free of such Covered Taxes, then the Company shall pay to the
Paying Agent such additional amount as may be necessary in
4
<PAGE> 5
order that the actual amount received after deduction or withholding of Covered
Taxes shall equal the full mount payable hereunder.
8. DEFAULT PREMIUM TO OPIC. With respect to any principal and interest not
paid when due, the OPIC Spread shall be increased automatically to include the
Default Spread, and interest shall accrue from the date on which such amount
became due and payable (whether at stated maturity, by acceleration, or
otherwise) at an increased Note Interest Rate including such Default Spread and
shall be payable on the last day of each month succeeding such due date and on
the date when such defaulted amount is paid in full.
9. AMENDMENTS AND MODIFICATIONS. The provisions of this Promissory Note may
be amended, supplemented or modified only by an instrument in writing signed by
duly authorized representatives of the Noteholder (if other than OPIC), OPIC and
the Company.
10. GOVERNING LAW. This Promissory Note shill be governed by, and
construed and enforced in accordance with, the laws of the State of New York
without regard to its conflict of laws provision.
IN WITNESS WHEREOF, the Company acting by its duly authorized
representative has caused this Promissory Note to be executed and delivered on
the date first above written.
CLOSED JOINT-STOCK COMPANY "FOREST-STARMA"
By: /s/
-----------------------------------
Its:
-----------------------------------
By: /s/
-----------------------------------
Its:
-----------------------------------
5
<PAGE> 1
EXHIBIT 10.4
AMENDMENT TO FINANCE AGREEMENT
AMENDMENT (the "Amendment"), dated as of June 24, 1996, between CLOSED
JOINT-STOCK COMPANY "FOREST STARMA", (the "Company"), a closed joint-stock
company organized and existing under the laws of the Russian Federation, and
OVERSEAS PRIVATE INVESTMENT CORPORATION, an agency of the United States of
America ("OPIC").
WITNESSETH:
WHEREAS, the Company entered into a finance agreement (the "Finance
Agreement") dated as of December 21, 1995, whereby OPIC has agreed to provide a
credit facility to the Company in an amount of up to $9,300,000, pursuant to
Section 234(b) of the Foreign Assistance Act of 1961, as amended; and
WHEREAS, OPIC and the Company desire to amend the Finance Agreement as set
forth herein.
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants, provisions and undertakings herein and in the Finance Agreement and
for good and valuable consideration, the receipt and adequacy of which is hereby
acknowledged by the parties hereto, OPIC and the Company agree as follows:
1. Amendments.
-----------
(a) The definition of "Adjusted Cash Flow" in Section 1.01 of the Finance
Agreement is hereby deleted and the following inserted:
"ADJUSTED CASH FLOW" means, as of any date, the sum of the following
amounts for the preceding twelve months: (i) Net Income of the
Company; (ii) all depreciation, amortization, deferred taxes and other
non-cash charges of the Company, excluding bad and doubtful debts; and
(iii) interest payments made by the Company on all loans and all fees
due to OPIC for the next succeeding Fiscal Year.
<PAGE> 2
-2-
(b) Section 3.13 of the Finance Agreement is hereby deleted and the
following inserted in its stead:
SECTION 3.13. PROJECT COST AND PROJECT COMPLETION.
The Company's good faith estimate of the total cost of the
Project (including provisions for contingencies) is the equivalent of
$33,887,000 based on the Financial Plan set forth in Schedule 1.03,
and the Company's good faith estimate of the date on which it will
achieve Project Completion is June 30, 1997.
(c) The words "MARCH 31, 1996" in the third and fourth lines of Section
5.01 of the Finance Agreement are hereby deleted and "JUNE 30, 1997" inserted.
(d) The words "100 DAYS" in the first line of Section 5.07(b) of the
Finance Agreement are hereby deleted and "120 DAYS" inserted.
(e) Schedule 1.03 of the Finance Agreement is hereby deleted and Schedule
1.03 attached hereto as Exhibit 1 is inserted.
2. REPRESENTATION AND WARRANTY. The Company hereby represents and
warrants that:
(a) This Amendment constitutes a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms.
(b) All representations and warranties made by the Company in the Finance
Agreement are true and accurate as of the date hereof.
3. RATIFICATION AND CONFIRMATION. As amended hereby, all the terms and
provisions of the Finance Agreement are hereby ratified and confirmed in all
respects and shall apply in full force and effect.
4. NO WAIVER. The Company acknowledges and agrees that OPIC, in executing
and delivering this Amendment, has not and shall not be deemed to have waived,
released or modified any right or power that it may have under the Finance
Agreement, as amended herein, to claim that any "Event of Default" (as defined
in the Finance Agreement) has occurred or is occurring, and the execution and
delivery of this Amendment shall not be deemed to be a waiver by OPIC of any
such Event of Default.
<PAGE> 3
-3-
5. EFFECTIVE DATE. This Amendment shall be effective as of June 24, 1996.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized representatives as of the day and year first
above written.
CLOSED JOINT-STOCK COMPANY
"FOREST STARMA"
By: /s/
----------------------------------
Its:
----------------------------------
By: /s/
----------------------------------
Its:
----------------------------------
OVERSEAS PRIVATE INVESTMENT
CORPORATION
By: /s/
----------------------------------
Its: Senior Investment Officer
----------------------------------
<PAGE> 4
EXHIBIT 1
---------
Schedule 1.03
-------------
Project Cost
------------
<TABLE>
<CAPTION>
Cost
(U.S.)
------
<S> <C>
Working capital $10,061,500
Fixed assets $ 7,670,752
Interest $ 2,922,017
Constructions costs $ 6,443,355
Consulting and salaries $ 3,478,879
Legal $ 893,388
Travel and entertainment $ 791,070
Insurance $ 885,240
Other $ 741,535
Total project financing
as of 5/31/96 $33,887,736
===========
</TABLE>
Project Financing
-----------------
<TABLE>
<CAPTION>
Amount
(U.S.)
------
<S> <C>
Equity $ 945
Senior Debt
OPIC $ 9,300,000
Subordinated Debt
State Street Bank $24,586,791
Total project financing
as of 5/31/96 $33,887,736
===========
</TABLE>
<PAGE> 1
EXHIBIT 10.5
THE PIONEER GROUP, INC.
CREDIT AGREEMENT
Amendment No. 1
---------------
This Agreement, dated as of April 23, 1997, is among The Pioneer Group,
Inc., a Delaware corporation (the "Company"), certain of its subsidiaries listed
on the signature pages hereto, the Lenders (as defined in the Credit Agreement
referenced below) and The First National Bank of Boston, as agent (the "Agent")
for itself and the other Lenders. The parties agree as follows:
1. REFERENCE TO CREDIT AGREEMENT; DEFINITIONS. Reference is made to the Credit
Agreement dated as of June 6, 1996, (the "Credit Agreement"), among the Company,
certain of its subsidiaries, the Lenders and the Agent. Terms defined in the
Credit Agreement as amended hereby (the "Amended Credit Agreement") and not
otherwise defined herein are used herein with the meanings so defined. Except as
the context otherwise explicitly requires, the capitalized terms "Section" and
"Exhibit" refer to sections hereof and exhibits hereto.
2. AMENDMENTS TO CREDIT AGREEMENT. Subject to all of the terms and conditions
hereof and in reliance upon the representations and warranties set forth in
Section 3, the Credit Agreement is amended as follows, effective upon the date
(the "Amendment Date") that the conditions specified in Section 4 are satisfied,
which conditions must be satisfied no later than April 24, 1997 or this
Agreement shall be of no force or effect:
2.1. AMENDMENT TO SECTION 1.9. Section 1.9 of the Credit Agreement is
amended to read in its entirety as follows:
"1.9. "B SHARE CONVERSION DATE" means the earlier of April 22, 1998 or
such later date as determined in accordance with Section 2.2.3."
2.2. AMENDMENT TO SECTION 1.124. Section 1.124 of the Credit Agreement is
amended to read in its entirety as follows:
"1.124. "STATED MAXIMUM AMOUNT OF B SHARE REVOLVING CREDIT" means the
lesser of (i) $60,000,000 or such lesser amount to which the lending
commitment of the Lenders may be reduced pursuant to Section 4, and (ii)
such amount (in a minimum amount of $10,000,000 and an integral multiple of
$1,000,000) less than the Maximum Amount of B Share Revolving Credit then
in effect as specified by irrevocable notice from the Company to the
Agent."
2.3. AMENDMENT TO EXHIBIT 11.1. Exhibit 11.1 of the Credit Agreement is
amended as provided on Exhibit 2.2 hereto.
<PAGE> 2
3. REPRESENTATIONS AND WARRANTIES. In order to induce the Lenders to enter into
this Agreement, the Company represents and warrants to each of the Lenders that:
3.1. LEGAL EXISTENCE, ORGANIZATION. Each of the Company and its
Subsidiaries is duly organized and validly existing and in good standing under
the laws of the jurisdiction of its incorporation, with all power and authority,
corporate or otherwise, necessary to (a) enter into and perform this Agreement,
the Amended Credit Agreement and each other Credit Document to which it is party
and (b) own its properties and carry on the business now conducted or proposed
to be conducted by it. Each of the Company and its subsidiaries has taken, or
shall have taken on or prior to the Amendment Date, all corporate or other
action required to make the provisions of this Agreement, the Amended Credit
Agreement and each other Credit Document to which it is party the valid and
enforceable obligations they purport to be.
3.2. ENFORCEABILITY. The Company and each of its subsidiaries which are
signatories hereto has duly executed and delivered this Agreement. Each of this
Agreement and the Amended Credit Agreement is the legal, valid and binding
obligation of the Company and such subsidiaries and is enforceable in accordance
with its terms.
3.3. NO LEGAL OBSTACLE TO AGREEMENTS. Neither the execution, delivery or
performance of this Agreement, nor the performance of the Amended Credit
Agreement, nor the consummation of any other transaction referred to in or
contemplated by this Agreement, nor the fulfillment of the terms hereof or
thereof, has constituted or resulted in or will constitute or result in:
(a) any breach or termination of the provisions of any agreement,
instrument, deed or lease to which the Company or any Subsidiary is a party
or by which it is bound, or of the Charter or By-laws of the Company or any
Subsidiary;
(b) the violation of any law, judgment, decree or governmental order,
rule or regulation applicable to the Company or any Subsidiary;
(c) the creation under any agreement, instrument, deed or lease of any
Lien upon any of the assets of the Company or any Subsidiary; or
(d) any redemption, retirement or other repurchase obligation of the
Company or any Subsidiary under any Charter, By-law, agreement, instrument,
deed or lease.
No approval, authorization or other action by, or declaration to or filing with,
any governmental or administrative authority or any other Person is required to
be obtained or made by the Company or any Subsidiary in connection with the
execution, delivery and performance of this Agreement or the performance of the
Amended Credit Agreement, or the consummation of the transactions contemplated
hereby or thereby.
-2-
<PAGE> 3
3.4. NO DEFAULT. Immediately before and after giving effect to the
amendments set forth in Section 2, no Default will exist.
3.5. INCORPORATION OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties set forth in Section 8 of the Amended Credit Agreement are true
and correct on the date hereof as if originally made on and as of the date
hereof (except to the extent any representation or warranty refers to a specific
earlier date).
4. CONDITIONS. The effectiveness of this Agreement shall be subject to the
satisfaction of the following conditions:
4.1. OFFICER'S CERTIFICATE. The representations and warranties contained in
Section 3 shall be true and correct as of the Amendment Date with the same force
and effect as though originally made on and as of such date; no Default shall
exist on the Amendment Date prior to or immediately after giving effect to this
Agreement; as of the Amendment Date, no Material Adverse Change shall have
occurred; and the Company shall have furnished to the Agent on the Amendment
Date a certificate to these effects, in substantially the form of Exhibit 4.1,
signed by an Executive Officer or a Financial Officer.
4.2. PROPER PROCEEDINGS. All proper corporate proceedings shall have been
taken by each of the Company and the Subsidiaries to authorize this Agreement,
the Amended Credit Agreement and the transactions contemplated hereby and
thereby. The Agent shall have received copies of all documents, including legal
opinions of counsel and records of corporate proceedings which the Agent may
have requested in connection therewith, such documents, where appropriate, to be
certified by proper corporate or governmental authorities.
4.3. EXECUTION BY LENDERS. Each of the Lenders shall have executed and
delivered this Agreement to the Company.
5. FURTHER ASSURANCES. Each of the Company and the Subsidiaries will, promptly
upon request of the Agent from time to time, execute, acknowledge and deliver,
and file and record, all such instruments and notices, and take all such action,
as the Agent deems necessary or advisable to carry out the intent and purposes
of this Agreement.
6. GENERAL. The Amended Credit Agreement and all of the other Credit Documents
are each confirmed as being in full force and effect. This Agreement, the
Amended Credit Agreement and the other Credit Documents referred to herein or
therein constitute the entire understanding of the parties with respect to the
subject matter hereof and thereof and supersede all prior and current
understandings and agreements, whether written or oral, with respect to such
subject matter. The invalidity or unenforceability of any provision hereof shall
not affect the validity or enforceability of any other term or provision hereof.
The headings in this Agreement are for convenience of reference only and shall
not alter, limit or otherwise affect the meaning hereof. Each of this Agreement
and the Amended Credit Agreement is a Credit
-3-
<PAGE> 4
Document and may be executed in any number of counterparts, which together shall
constitute one instrument, and shall bind and inure to the benefit of the
parties and their respective successors and assigns, including as such
successors and assigns all holders of any Note. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS (OTHER THAN THE CONFLICT OF LAWS
RULES) OF THE COMMONWEALTH OF MASSACHUSETTS.
-4-
<PAGE> 5
Each of the undersigned has caused this Agreement to be executed and
delivered by its duly authorized officer as an agreement under seal as of the
date first above written.
THE PIONEER GROUP, INC. PIONEERING SERVICES CORP.
By /s/ William H. Keough By /s/ William H. Keough
------------------------------ -----------------------------
Title: Senior Vice President Title: Treasurer
Chief Financial Officer
& Treasurer
60 State Street 60 State Street
Boston, Massachusetts 02109-1820 Boston, Massachusetts 02109-1820
PIONEERING MANAGEMENT
CORPORATION
By /s/ William H. Keough
------------------------------
Title: Treasurer
60 State Street
Boston, Massachusetts 02109-1820
PIONEER MANAGEMENT (IRELAND)
LTD.
By /s/ John F. Lawlor
------------------------------
Title: Director
60 State Street
Boston, Massachusetts 02109-1820
PIONEER FUNDS DISTRIBUTOR, INC.
By /s/ William H. Keough
------------------------------
Title: Treasurer
60 State Street
Boston, Massachusetts 02109-1820
-4-
<PAGE> 6
THE FIRST NATIONAL BANK OF BOSTON
By /s/ Stewart Neff
---------------------------------
Title: Managing Director
Financial Institutions Division
100 Federal Street - 15th Floor
Boston, Massachusetts 02110
Telecopy: (617) 434-1537
Telex: 940581
THE BANK OF NEW YORK
By /s/
---------------------------------
Title: Vice President
One Wall Street, OWS-1
Securities Industry Division
New York, NY 10286
Telecopy: (212) 809-9566
Telex:
SOCIETE GENERALE
By /s/ D.E. Littefield
---------------------------------
Title: Vice President and Manager
1221 Avenue of the Americas
New York, New York 10020
Telecopy: (212) 278-7153
-5-
<PAGE> 7
STATE STREET BANK & TRUST COMPANY
By /s/
--------------------------------
Title: Vice President
225 Franklin Street, 8th Floor
Asset-Based Finance
Boston, MA 02110
Telecopy: (617) 338-4041
BANQUE NATIONALE DE PARIS
By /s/ William Shaheen
--------------------------------
Title: Vice President
By /s/ Laurent Vanderzyppe
--------------------------------
Title: Assistant Vice President
499 Park Avenue, 7th Floor
New York, 10022
Telecopy: (212) 415-9707
MELLON BANK, N.A.
By /s/ Susan M. Whitewood
--------------------------------
Title: Assistant Vice President
One Mellon Bank Center
Mail Code: 1510370
Pittsburgh, PA 15258
Telecopy: (412) 234-8087
-6-
<PAGE> 8
Exhibit 2.2
-----------
<TABLE>
PERCENTAGE INTERESTS
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
Lender Total Commitment B Share Loan Revolving Loan Percentage Interest
- ------ ---------------- ------------ -------------- -------------------
<S> <C> <C> <C> <C>
The First National $36,521,739.15 $15,652,173.93 $20,869,565.22 26.087%
Bank of Boston
- ---------------------------------------------------------------------------------------------------------------
Mellon Bank, N.A. $30,434,782.61 $13,043,478.26 $17,391,304.35 21.739%
- ---------------------------------------------------------------------------------------------------------------
State Street Bank & $24,347,826.09 $10,434,782.61 $13,913,043.48 17.391%
Trust Company
- ---------------------------------------------------------------------------------------------------------------
The Bank of New $18,260,869.56 $ 7,826,086.95 $10,434,782.61 13.043%
York
- ---------------------------------------------------------------------------------------------------------------
Societe Generale $18,260,869.56 $ 7,826,086.95 $10,434,782.61 13.043%
- ---------------------------------------------------------------------------------------------------------------
Banque Nationale $12,173,913.04 $ 5,217,391.30 $ 6,956,521.74 8.696%
de Paris
- ---------------------------------------------------------------------------------------------------------------
TOTAL $140,000,000.00 $60,000,000.00 $80,000,000.00 100.000%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
-8-
<PAGE> 9
Exhibit 4.1
-----------
OFFICER'S CERTIFICATE
Pursuant to Section 4.1 of Amendment No. 1 to Credit Agreement dated as of
April __, 1997 (the "Amendment") among The Pioneer Group, Inc., a Delaware
corporation (the "Company"), certain of its subsidiaries signatories thereto,
the Lenders and the First National Bank of Boston, as agent (the "Agent") for
itself and the other Lenders, which amends the Credit Agreement dated as of June
6, 1996 (the "Credit Agreement"), among the Company, certain of its subsidiaries
signatories thereto, the Lenders and the Agent, the Company hereby certifies
that the representations and warranties contained in Section 3 of the Amendment
are true and correct on and as of the Amendment Date with the same force and
effect as though originally made on and as of the Amendment Date; no Default
exists on the Amendment Date or will exist immediately after giving effect to
the Amendment; and as of the Amendment Date, no Material Adverse Change has
occurred.
Terms defined in the Amendment and not otherwise defined herein are used
herein with the meanings so defined.
This certificate has been executed by a duly authorized Executive Officer
or Financial Officer this _____ day of April, 1997.
THE PIONEER GROUP, INC.
By
------------------------------
Name:
Title:
<PAGE> 1
Exhibit 11
THE PIONEER GROUP
COMPUTATION OF EARNINGS PER SHARE (UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
COMPUTATION FOR CONSOLIDATED
STATEMENT OF INCOME THREE MONTHS ENDED MARCH 31,
- ------------------- ----------------------------
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
NET INCOME(1) $ 7,309 $ 5,114
=========== ===========
SHARES
Weighted average number of
common shares outstanding 25,129,000 24,924,000
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 374,000 515,000
WEIGHTED AVERAGE NUMBER OF SHARES
outstanding as adjusted (1) 25,503,000 25,439,000
=========== ===========
EARNINGS PER SHARE (1) $ 0.29 $ 0.20
=========== ===========
</TABLE>
(1) These amounts agree with the related amounts in the Consolidated Statement
of Income.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
Exhibit 27
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1.00000
<CASH> 42,532
<SECURITIES> 31,497
<RECEIVABLES> 53,713
<ALLOWANCES> 0
<INVENTORY> 25,639
<CURRENT-ASSETS> 164,648
<PP&E> 234,762
<DEPRECIATION> (74,710)
<TOTAL-ASSETS> 530,097
<CURRENT-LIABILITIES> 114,235
<BONDS> 153,359
0
0
<COMMON> 2,515
<OTHER-SE> 165,412
<TOTAL-LIABILITY-AND-EQUITY> 530,097
<SALES> 0
<TOTAL-REVENUES> 69,710
<CGS> 0
<TOTAL-COSTS> 61,499
<OTHER-EXPENSES> (7,356)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,614
<INCOME-PRETAX> 13,953
<INCOME-TAX> 6,644
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,309
<EPS-PRIMARY> 0.290
<EPS-DILUTED> 0.290
</TABLE>
