<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE THREE MONTHS ENDED JUNE 30, 1999
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 the past 90 days. Yes [ ] No [ ]
------------------------
As of June 30, 1999, there were 26,431,369 shares of the Registrant's Common
Stock,
$.10 par value per share, issued and outstanding.
================================================================================
<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>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents, at cost which approximates fair
value..................................................... $ 29,297 $ 44,212
Restricted cash............................................. 4,705 5,512
Investment in marketable securities, at fair value.......... 3,046 3,638
Receivables:
From securities brokers and dealers for sales of mutual
fund shares............................................ 17,357 14,072
From Pioneer Family of Mutual Funds..................... 19,752 17,334
For securities sold..................................... 645 1,089
Other................................................... 10,711 15,247
Timber inventory............................................ 5,975 3,585
Other current assets........................................ 10,934 13,310
Current assets net of current liabilities of discontinued
operations................................................ -- 1,011
-------- --------
Total current assets................................ 102,422 119,010
-------- --------
NONCURRENT ASSETS:
Cost of acquisition in excess of net assets (net of
accumulated amortization of $15,973 in 1999 and $14,900 in
1998)..................................................... 15,732 16,572
Long-term venture capital investments, at fair value (cost
$55,970 in 1999 and $117,547 in 1998)..................... 49,749 129,560
Long-term investments, at lower of cost or fair value....... 7,076 7,006
Timber operations:
Timber equipment and facilities (net of accumulated
depreciation of $6,635 in 1999 and $5,346 in 1998)..... 19,108 18,800
Deferred timber development costs (net of accumulated
amortization of $3,046 in 1999 and $2,841 in 1998)..... 8,134 19,031
Building (net of accumulated amortization of $1,736 in 1999
and $1,413 in 1998)....................................... 24,405 25,136
Furniture, equipment, and leasehold improvements (net of
accumulated depreciation and amortization of $16,137 in
1999 and $13,146 in 1998)................................. 18,726 20,169
Other noncurrent assets..................................... 32,550 15,016
Noncurrent assets net of noncurrent liabilities of
discontinued operations................................... 59,830 68,918
-------- --------
Total noncurrent assets............................. 235,310 320,208
-------- --------
$337,732 $439,218
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Payable to funds for shares sold............................ $ 17,336 $ 14,053
Accounts payable............................................ 8,237 9,162
Accrued expenses............................................ 40,886 30,621
Brokerage liabilities....................................... 4,053 5,669
Accrued income taxes........................................ 1,467 19,647
Current portion of notes payable............................ 1,349 1,818
Current liabilities net of current assets of discontinued
operations................................................ 14,467 --
-------- --------
Total current liabilities........................... 87,795 80,970
-------- --------
NONCURRENT LIABILITIES:
Notes payable, net of current portion....................... 64,576 99,035
-------- --------
Total noncurrent liabilities........................ 64,576 99,035
-------- --------
Total liabilities................................... 152,371 180,005
-------- --------
Minority interest........................................... 61,607 104,411
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $0.10 par value; authorized 60,000,000
shares; issued 26,436,177 shares in 1999 and 26,134,103
shares in 1998......................................... 2,644 2,613
Paid-in capital......................................... 45,810 30,110
Retained earnings....................................... 87,282 133,013
Treasury stock at cost, 4,808 shares in 1999 and 11,303
shares in 1998......................................... (105) (265)
Cumulative translation adjustment....................... (2,534) (1,855)
-------- --------
133,097 163,616
Less -- Deferred cost of restricted common stock
issued................................................. (9,343) (8,814)
-------- --------
Total stockholders' equity.......................... 123,754 154,802
-------- --------
$337,732 $439,218
======== ========
</TABLE>
The Company's Annual Report on Form 10-K should be read in conjunction with
these financial statements.
2
<PAGE> 3
THE PIONEER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues and sales:
Investment management fees.............................. $ 36,384 $ 37,110 $ 71,659 $ 70,741
Underwriting commissions and distribution fees.......... 3,979 7,844 8,069 14,509
Shareholder services fees............................... 10,825 7,898 21,910 15,494
Revenues from brokerage activities...................... 655 1,287 870 2,068
Trustee fees and other income........................... 7,514 7,587 14,608 13,149
----------- ----------- ----------- -----------
Revenues from financial services businesses............. 59,357 61,726 117,116 115,961
Timber sales............................................ 4,276 2,598 4,276 2,882
----------- ----------- ----------- -----------
Total revenues and sales............................ 63,633 64,324 121,392 118,843
----------- ----------- ----------- -----------
Costs and expenses:
Management, distribution, shareholder service and
administrative expenses............................... 49,718 52,426 99,641 97,422
Timber operating costs and expenses..................... 4,709 10,088 5,071 12,074
----------- ----------- ----------- -----------
Total costs and expenses............................ 54,427 62,514 104,712 109,496
----------- ----------- ----------- -----------
Other (income) expense:
Unrealized and realized (gains) losses on venture
capital and marketable securities investments, net.... (410) (6,906) 2,882 (13,044)
Equity in (earnings) losses of affiliated companies..... 5,167 -- 7,635 (51)
Interest expense........................................ 1,635 2,818 3,862 5,581
----------- ----------- ----------- -----------
Total other (income) expense........................ 6,392 (4,088) 14,379 (7,514)
----------- ----------- ----------- -----------
Income (loss) from continuing operations before provision
for income taxes and minority interest.................... 2,814 5,898 2,301 16,861
----------- ----------- ----------- -----------
Provision for income taxes.................................. 3,093 4,814 3,768 9,163
----------- ----------- ----------- -----------
Income (loss) from continuing operations before minority
interest.................................................. (279) 1,084 (1,467) 7,698
----------- ----------- ----------- -----------
Minority interest........................................... 98 1,576 1,314 1,699
----------- ----------- ----------- -----------
Net income (loss) from continuing operations before
cumulative effect of change in accounting principle....... (377) (492) (2,781) 5,999
Loss from discontinued operations........................... (24,794) (11,638) (30,838) (12,782)
Cumulative effect of change in accounting principle,
(start-up costs, net of income taxes of $261)............. -- -- (12,112) --
----------- ----------- ----------- -----------
Net income (loss)........................................... $ (25,171) $ (12,130) $ (45,731) $ (6,783)
=========== =========== =========== ===========
Basic earnings (loss) per share:
Continuing operations................................... $ (0.01) $ (0.02) $ (0.11) $ 0.24
Discontinued operations................................. (0.96) (0.46) (1.19) (0.51)
Cumulative effect of change in accounting principle..... -- -- (0.47) --
----------- ----------- ----------- -----------
Total basic earnings (loss) per share............... $ (0.97) $ (0.48) $ (1.77) $ (0.27)
=========== =========== =========== ===========
Diluted earnings (loss) per share:
Continuing operations................................... $ (0.01) $ (0.02) $ (0.11) $ 0.24
Discontinued operations................................. (0.96) (0.46) (1.19) (0.51)
Cumulative effect of change in accounting principle..... -- -- (0.47) --
----------- ----------- ----------- -----------
Total diluted earnings (loss) per share............. $ (0.97) $ (0.48) $ (1.77) $ (0.27)
=========== =========== =========== ===========
Dividends per share......................................... -- $ 0.10 -- $ 0.20
=========== =========== =========== ===========
Basic shares outstanding.................................... 25,885,000 25,042,000 25,838,000 24,967,000
=========== =========== =========== ===========
Diluted shares outstanding.................................. 25,885,000 25,042,000 25,838,000 25,408,000
=========== =========== =========== ===========
</TABLE>
The Company's Annual Report on Form 10-K should be read in conjunction with
these financial statements.
3
<PAGE> 4
THE PIONEER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $(45,731) $ (6,783)
Less net income (loss) of discontinued operations......... (30,838) (12,782)
Less cumulative effect of change in accounting
principle............................................... (12,112) --
-------- --------
Net income (loss) from continuing operations.............. $ (2,781) $ 5,999
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization........................... 8,744 13,387
Unrealized and realized (gains) losses on venture
capital, marketable securities, and long term
investments, net....................................... 2,882 (13,044)
Equity in (earnings) losses of affiliated companies..... 7,635 (209)
Restricted stock plan expense........................... 1,470 1,443
Deferred income taxes................................... (4,165) 869
Minority interest....................................... 1,314 (1,130)
Changes in operating assets and liabilities:
Investments in marketable securities, net............... 642 (17,966)
Receivable from securities brokers and dealers for sales
of mutual fund shares.................................. (3,285) (11,207)
Receivables for securities sold......................... 444 2,707
Receivables from Pioneer Family of Mutual Funds and
other.................................................. 1,905 (4,144)
Timber inventory........................................ (2,390) 331
Other current assets.................................... 555 (4,759)
Other noncurrent assets................................. (619) (1,233)
Payable to funds for shares sold........................ 3,283 11,171
Accrued expenses and accounts payable................... 8,555 2,808
Brokerage liabilities................................... (1,616) (935)
Accrued income taxes.................................... (17,717) (1,385)
-------- --------
Total adjustments and changes in operating assets
and liabilities..................................... 7,637 (23,296)
-------- --------
Net cash provided by (used in) continuing operating
activities.......................................... 4,856 (17,297)
-------- --------
Net cash provided by discontinued operating
activities.......................................... 2,671 14,375
-------- --------
Net cash provided by (used in) operating
activities.......................................... 7,527 (2,922)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to furniture, equipment and leasehold
improvements............................................ (3,628) (5,872)
Building.................................................. 408 (17)
Long-term venture capital investments..................... (884) (26,496)
Proceeds from sale of long-term venture capital
investments............................................. 909 16,091
Proceeds from sale of domestic venture capital
operations.............................................. 34,945 --
Deferred timber development costs......................... -- (244)
Purchase of timber equipment and facilities............... (1,597) (1,011)
Other investments......................................... (502) (2,102)
Proceeds from sales of other investments.................. -- 1,103
Cost of acquisition in excess of net assets acquired...... (43) --
Deconsolidation of pension company subsidiary............. (10,070) --
Purchase of long-term investments......................... -- (800)
Proceeds from sale of long-term investments............... 342 3,829
-------- --------
Net cash provided by (used in) continuing investing
activities.......................................... 19,880 (15,519)
-------- --------
Net cash used in investing activities, discontinued
operations.......................................... (4,006) (2,386)
-------- --------
Net cash provided by (used in) investing
activities.......................................... 15,874 (17,905)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid............................................ -- (5,081)
Liquidation of venture capital partnership................ (1,972) --
Distributions to limited partners of venture capital
subsidiary.............................................. (1,288) (68)
Amounts raised by venture capital investment
partnerships............................................ -- 18,193
Sale of stock by subsidiary............................... 555 --
Employee stock purchase plan.............................. 349 474
Exercise of stock options................................. 782 252
Restricted stock plan award............................... 16 17
Dealer advances........................................... -- (13,595)
Revolving credit agreement (repayments) borrowings, net... (30,000) 9,000
Repayments of notes payable............................... (4,928) (4,476)
Reclassification of restricted cash....................... 807 (1,474)
-------- --------
Net cash (used in) provided by continuing financing
activities.......................................... (35,679) 3,242
-------- --------
Net cash (used in) financing activities,
discontinued operations............................. (2,403) (9,925)
-------- --------
Net cash (used in) financing activities............. (38,082) (6,683)
-------- --------
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS.......................................... (234) (253)
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (14,915) (27,763)
-------- --------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 44,212 50,421
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 29,297 $ 22,658
======== ========
</TABLE>
The Company's Annual Report on Form 10-K should be read in conjunction with
these financial statements.
4
<PAGE> 5
THE PIONEER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1999
NOTE 1 -- 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, 1998. The footnotes to the financial statements reported
in the 1998 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 1998
consolidated financial statements to conform with the 1999 presentation.
During the first quarter of 1999, the Company adopted the provisions of the
American Institute of Certified Public Accountants (the "AICPA") SOP 98-5,
"Reporting on the Costs of Start-Up Activities." The new standard requires that
entities expense costs of start-up activities as those costs are incurred. The
Company had capitalized certain pre-operating costs in connection with its
natural resource operations, and had capitalized organizational costs associated
with its financial services operations. Adoption of this statement resulted in a
write-off of unamortized start-up costs of $12.1 million, or $0.47 per share,
which is reflected in the accompanying consolidated financial statements as a
change in accounting principle. The amount of pro forma net income in the first
quarter of 1998 did not differ materially from the amount reported after giving
effect to the change in accounting principle.
In April 1999, the Company reached agreement with Nationwide Global
Holdings, Inc. to sell newly issued shares of its Polish pension company
subsidiary resulting in a 30% interest for $20 million. As a result of the
transaction, which received Polish regulatory approval on June 9, 1999, the
Company recognized a gain of approximately $12 million which was reflected as a
credit to stockholders' equity in the second quarter of 1999. In addition, the
Company deconsolidated the Polish pension company as control is shared with
Nationwide and is accounting for its investment in the pension company under the
equity method retroactive to January 1, 1999. The effect of this transaction is
reflected in the accompanying Consolidated Statements of Cash Flows as
deconsolidation of pension company subsidiary.
Income taxes paid were $22,263,000 and $7,556,000 for the six months ended
June 30, 1999, and June 30, 1998, respectively. In addition, interest paid was
$5,437,000 for the six months ended June 30, 1999, and $5,024,000 for the six
months ended June 30, 1998.
NOTE 2 -- EARNINGS PER SHARE
The following table details the calculation of basic and diluted earnings
per share ("EPS"). Basic EPS is computed by dividing reported earnings available
to stockholders by weighted average shares outstanding not including
contingently issuable shares. Diluted EPS includes the effect of the
contingently issuable shares and other common stock equivalents, if not
antidilutive.
<TABLE>
<CAPTION>
NET EARNINGS/
INCOME/ (LOSS)
(LOSS) SHARES PER SHARE
--------- ------- ----------
(DOLLARS AND SHARES IN THOUSANDS
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
FOR THE THREE MONTHS ENDED 6/30/99
Basic earnings per share calculation:
Continuing operations.................... $ (377) 25,885 $(0.01)
Discontinued operations.................. $(24,794) 25,885 $(0.96)
-------- ------ ------
Total.................................. $(25,171) 25,885 $(0.97)
======== ====== ======
Options.................................. --
Restricted stock......................... --
</TABLE>
5
<PAGE> 6
THE PIONEER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
JUNE 30, 1999
<TABLE>
<CAPTION>
NET EARNINGS/
INCOME/ (LOSS)
(LOSS) SHARES PER SHARE
--------- ------- ----------
(DOLLARS AND SHARES IN THOUSANDS
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Diluted earnings per share calculation:
Continuing operations.................... $ (377) 25,885 $(0.01)
Discontinued operations.................. $(24,794) 25,885 $(0.96)
-------- ------ ------
Total.................................. $(25,171) 25,885 $(0.97)
======== ====== ======
FOR THE THREE MONTHS ENDED 6/30/98
Basic earnings per share calculation:
Continuing operations.................... $ (492) 25,042 $(0.02)
Discontinued operations.................. $(11,638) 25,042 $(0.46)
-------- ------ ------
Total.................................. $(12,130) 25,042 $(0.48)
======== ====== ======
Options.................................. --
Restricted stock......................... --
Diluted earnings per share calculation:
Continuing operations.................... $ (492) 25,042 $(0.02)
Discontinued operations.................. $(11,638) 25,042 $(0.46)
-------- ------ ------
Total.................................. $(12,130) 25,042 $(0.48)
======== ====== ======
</TABLE>
<TABLE>
<CAPTION>
NET EARNINGS/
INCOME/ (LOSS)
(LOSS) SHARES PER SHARE
--------- ------- ----------
(DOLLARS AND SHARES IN THOUSANDS
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
FOR THE SIX MONTHS ENDED 6/30/99
Basic earnings per share calculation:
Continuing operations.................... $ (2,781) 25,838 $(0.11)
Discontinued operations.................. $(30,838) 25,838 $(1.19)
Cumulative effect of change in accounting
principle.............................. $(12,112) 25,838 $(0.47)
-------- ------ ------
Total.................................. $(45,731) 25,838 $(1.77)
======== ====== ======
Options.................................. --
Restricted stock......................... --
Diluted earnings per share calculation:
Continuing operations.................... $ (2,781) 25,838 $(0.11)
Discontinued operations.................. $(30,838) 25,838 $(1.19)
Cumulative effect of change in accounting
principle.............................. $(12,112) 25,838 $(0.47)
-------- ------ ------
Total.................................. $(45,731) 25,838 $(1.77)
======== ====== ======
FOR THE SIX MONTHS ENDED 6/30/98
Basic earnings per share calculation:
Continuing operations.................... $ 5,999 24,967 $ 0.24
Discontinued operations.................. $(12,782) 24,967 $(0.51)
-------- ------ ------
Total.................................. $ (6,783) 24,967 $(0.27)
======== ====== ======
Options.................................. 373
Restricted stock......................... 68
-------- ------ ------
Diluted earnings per share calculation:
Continuing operations.................... $ 5,999 25,408 $ 0.24
Discontinued operations.................. $(12,782) 25,408 $(0.51)
-------- ------ ------
Total.................................. $ (6,783) 25,408 $(0.27)
======== ====== ======
</TABLE>
6
<PAGE> 7
THE PIONEER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
JUNE 30, 1999
NOTE 3 -- COMPREHENSIVE INCOME
The Company adopted SFAS 130, "Reporting Comprehensive Income" in the first
quarter of 1998. SFAS 130 establishes standards for the reporting of
comprehensive income and its components. Comprehensive income, as defined,
includes all changes in equity during a period from non-owner sources. The
Company's foreign currency translation adjustments, which are excluded from net
income, are included in comprehensive income. The following table reports
comprehensive income for the six months ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
1999 1998
---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net income (loss)................................. $(45,731) $(6,783)
Other comprehensive income (expense):
Foreign currency translation adjustments........ (679) (699)
-------- -------
Other comprehensive income (expense).............. (679) (699)
-------- -------
Comprehensive (loss)/income....................... $(46,410) $(7,482)
======== =======
</TABLE>
NOTE 4 -- 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. Net capital may fluctuate on a daily basis. PFD's net capital,
as computed under Rule 15c3-1, was $1,217,356 at June 30, 1999, which exceeded
required net capital of $250,000 by $967,356.
PFD is exempt from the reserve requirements of Rule 15c3-3, since its U.S.
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 5 -- NOTES PAYABLE
Notes payable of the Company exclusive of amounts related to discontinued
operations consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Revolving Credit Agreement.................................. $40,000 $ 70,000
Senior note payable to a commercial lender, principal
payable on August 15, 2004, interest payable at 8.95%..... 20,000 20,000
Small Business Administration ("SBA") financing, notes
payable to a bank......................................... -- 3,750
Note payable to a bank, interest and principal payable
monthly at the one-month Warsaw Bank rate plus 1.75%
through August 2002....................................... 345 447
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.................................................. -- 456
Project financing, guaranteed by OPIC, payable in
semi-annual installments of $620,000 through December 15,
2003, interest payable at 9.95%........................... 5,580 6,200
------- --------
65,925 100,853
Less: Current portion....................................... (1,349) (1,818)
------- --------
$64,576 $ 99,035
======= ========
</TABLE>
7
<PAGE> 8
THE PIONEER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
JUNE 30, 1999
Maturities of notes payable at June 30, 1999, for each of the next five
years and thereafter are as follows (dollars in thousands):
<TABLE>
<S> <C>
7/1/99-6/30/00.............................................. $ 1,349
7/1/00-6/30/01.............................................. 41,379
7/1/01-6/30/02.............................................. 1,337
7/1/02-6/30/03.............................................. 1,240
7/1/03-6/30/04.............................................. 620
Thereafter.................................................. 20,000
-------
$65,925
=======
</TABLE>
At June 30, 1999, the Company had $40 million of debt attributable to its
discontinued gold mining operations. Scheduled debt service for the remainder of
1999 is expected to aggregate $7.5 million, of which $5.9 million represents
principal payments.
In June 1996, the Company entered into an agreement with a syndicate of
commercial banks for a senior credit facility (the "Credit Facility"). Under the
Credit Facility, the Company could borrow up to $80 million for general
corporate purposes (the "Corporate Revolver"). In June 1999, the Credit Facility
was amended. The amendment included changes to certain financial covenants. As
of June 30, 1999, the Company was in compliance with all applicable covenants.
In addition, the amendment included a reduction on the ceiling of the Corporate
Revolver from $80 million to $65 million and a shortening of the maturity date
to March 31, 2001. At June 30, 1999, the Company had borrowed $40 million under
the Corporate Revolver.
As of June 30, 1999, the Company had two five-year interest rate swap
agreements with a member of the Company's banking syndicate which have
effectively fixed the interest rate on notional amounts totaling $60 million.
Under these agreements, the Company will pay the bank a weighted average fixed
rate of 6.90%, plus the applicable margin of 2.25% on the notional principal.
The bank will pay the Company interest on the notional principal at the current
variable rate stated under the Credit Facility. The Company had incurred
approximately $704,000 and $600,000 of interest expense on these swap agreements
during the six months ended June 30, 1999 and June 30, 1998, respectively.
During June 1999, the Company settled $40 million of overhedged swaps and
recognized $426,000 of income on the transaction. At June 30, 1999, the Company
had $20 million of overhedged swaps and recognized approximately $305,000 of
expense during the six months ended June 30, 1999, in accordance with generally
accepted accounting principles, related to these swaps. At June 30, 1999, the
fair value of the swaps was ($1,276,000), compared to a book value of
($407,000). If the Company were to terminate these agreements, it would be
required to pay an amount approximating fair value.
For the six months ended June 30, 1999 and June 30, 1998, the weighted
average interest rate on the borrowings under the Credit Facility and Note
Agreement was 9.31% and 7.93%, respectively.
NOTE 6 -- DISCONTINUED OPERATIONS
In the third quarter of 1998, the Company decided to liquidate its Russian
banking operations. Accordingly, the operating results for the bank have been
segregated from the results from the continuing operations and reported as a
separate line on the consolidated statements of operations for all periods
presented. In December 1998, the Company sold its stock in its Russian banking
operations to an unrelated
8
<PAGE> 9
THE PIONEER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
JUNE 30, 1999
third party. The sale is subject to certain regulatory approvals. The following
is an unaudited summary of the results of discontinued operations for the six
months ended June 30, 1998:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1998
----------------
(AMOUNTS
IN THOUSANDS)
<S> <C>
Revenues from banking activities......................... $ 2,150
-------
Income before income taxes and minority interest......... (9,064)
Income tax benefit....................................... (349)
-------
Loss from discontinued operations before minority
interest............................................... (8,715)
-------
Minority interest........................................ (2,806)
-------
Loss from discontinued operations........................ $(5,909)
-------
</TABLE>
In the second quarter of 1999, the Company reflected the gold mining
segment as a discontinued operation. Accordingly, the operating results for gold
mining have been segregated from the results of continuing operations and
reported as a separate line on the consolidated statements of operations for all
periods presented. Losses from discontinued gold mining operations in the six
months ended June 30, 1999 include $17.6 million from the estimated loss on the
disposition of the gold mining segment, principally from a provision for future
operating losses during the phaseout period (through September 30, 1999 for
Pioneer Goldfields Limited ("PGL")), closing costs associated with the
transaction, income taxes payable from the transaction and the write-off of
goodwill. In this regard, the Company may record gains or incur additional
losses, if any, as details, timing, and other events associated with the
transaction unfold. There can be no assurance as to the price, timing, terms or
completion of the proposed sale of PGL. In addition, the Company intends to
dispose of its powdered metals business. Losses included $1.0 million from the
estimated loss on the disposition of the powdered metals business, including
closing costs associated with the disposition and a provision for future
operating losses. The following is an unaudited summary of the loss from
operations of the gold mining and powdered metals segments for the six months
ended June 30, 1999 and 1998, respectively:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1999
----------------------------
NET INCOME EARNINGS/(LOSS)
/(LOSS) PER SHARE
---------- ---------------
(DOLLARS IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Loss from operations of discontinued gold mining
segment, net of taxes of ($266)................ $(11,805) $(0.46)
Estimated loss on disposal of gold mining
segment........................................ (17,600) (0.68)
Loss from operations of discontinued powdered
metals business, net of taxes of ($166)........ (408) (0.01)
Estimated loss on disposal of powdered metals
business....................................... (1,025) (0.04)
-------- ------
Total loss from discontinued operations.......... $(30,838) $(1.19)
-------- ------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1998
----------------------------
NET INCOME EARNINGS/(LOSS)
/(LOSS) PER SHARE
---------- ---------------
(DOLLARS IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Loss from operations of discontinued gold mining
segment, net of taxes of ($3,199)............... $(6,873) $(0.27)
------- ------
</TABLE>
9
<PAGE> 10
THE PIONEER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
JUNE 30, 1999
The following is an unaudited summary of the results of discontinued gold
mining operations for the six months ended June 30, 1999 and 1998, respectively:
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1998
---------------- ----------------
(AMOUNTS (AMOUNTS
IN THOUSANDS) IN THOUSANDS)
<S> <C> <C>
Revenues from gold mining activities...... $ 37,182 $40,632
-------- -------
Income before income taxes and minority
interest................................ (13,191) (10,764)
Income tax expense (benefit).............. (266) (3,199)
-------- -------
Loss from discontinued operations before
minority interest....................... (12,925) (7,565)
-------- -------
Minority interest......................... (1,120) (692)
-------- -------
Loss from discontinued operations......... $(11,805) $(6,873)
-------- -------
</TABLE>
The results of discontinued gold mining operations for the six months ended
June 30, 1999 include an allocation of directly attributable corporate interest
expense of $814,000 and $194,000 for the six months ended June 30, 1998.
Interest has been allocated based upon the intercompany financing provided to
the gold mining operations.
NOTE 7 -- FINANCIAL INFORMATION BY BUSINESS SEGMENT
Pursuant to SFAS 131, "Disclosures about Segments of an Enterprise and
Related Information" the Company presents segment information using the
management approach. The management approach is based on the way that management
organizes the segments within a Company for making operating decisions and
assessing performance. The Company's operating segments are organized around
services and products provided, as well as geographic regions. The intersegment
transactions are for management services and the secondment of employees. These
transactions are generally priced on a cost or cost plus basis.
10
<PAGE> 11
THE PIONEER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1999
NOTE 7 -- FINANCIAL INFORMATION BY BUSINESS SEGMENT (CONTINUED)
The following details total revenues and income (loss) by business segment
and geographic region for continuing operations, (dollars in thousands):
<TABLE>
<CAPTION>
PIONEER - SUBTOTAL -
INTERNATIONAL FINANCIAL SERVICES PIONEER
PIONEER ------------------------------------ INTERNATIONAL
INVESTMENT CZECH FINANCIAL
MANAGEMENT RUSSIA POLAND REPUBLIC ASIA SERVICES
---------- ------- ------- -------- ----- -------------
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1999
Gross revenues and sales......... $ 104,631 $ 6,970 $ 8,036 $ 738 $ -- $15,744
========= ======= ======= ===== ===== =======
Intersegment eliminations........ $ (3,544) $ (512) $ (532) $ -- $ -- $(1,044)
========= ======= ======= ===== ===== =======
Net revenues and sales........... $ 101,087 $ 6,458 $ 7,504 $ 738 $ -- $14,700
========= ======= ======= ===== ===== =======
Income (loss) before income
taxes, minority interest and
cumulative effect of accounting
change......................... $ 26,686 $ (418) $(8,503) $(492) $(300) $(9,713)
========= ======= ======= ===== ===== =======
Income taxes..................... $ 9,116 $ (598) $ (88) $(119) $(105) $ (910)
========= ======= ======= ===== ===== =======
Minority interest................ $ -- $ 485 $ (88) $ -- $ -- $ 397
========= ======= ======= ===== ===== =======
Net income (loss) from continuing
operations before cumulative
effect of accounting change.... $ 17,570 $ (305) $(8,327) $(373) $(195) $(9,200)
========= ======= ======= ===== ===== =======
Cumulative effect of change in
accounting principle........... $ (205) $ (521) $ -- $ (14) $ -- $ (535)
========= ======= ======= ===== ===== =======
Net income (loss)................ $ 17,365 $ (826) $(8,327) $(387) $(195) $(9,735)
========= ======= ======= ===== ===== =======
Depreciation and amortization.... $ 6,550 $ 1,397 $ 572 $ 51 $ -- $ 2,020
========= ======= ======= ===== ===== =======
Interest expense................. $ -- $ 10 $ 31 $ -- $ -- $ 41
========= ======= ======= ===== ===== =======
Capital expenditures............. $ 3,286 $ 70 $ -- $ -- $ -- $ 70
========= ======= ======= ===== ===== =======
Gross identifiable assets at June
30, 1999....................... $ 275,320 $46,135 $10,849 $ 756 $ -- $57,740
========= ======= ======= ===== ===== =======
Intersegment eliminations........ $(160,602) $ (375) $ -- $ -- $ -- $ (375)
========= ======= ======= ===== ===== =======
Net identifiable assets at June
30, 1999....................... $ 114,718 $45,760 $10,849 $ 756 $ -- $57,365
========= ======= ======= ===== ===== =======
<CAPTION>
PIONEER GLOBAL INVESTMENTS
----------------------------------------
CENT. &
EAST. - SUBTOTAL -
REAL U.S. EUROPE PIONEER
ESTATE VENTURE VENTURE RUSSIAN GLOBAL
SERVICES CAPITAL CAPITAL TIMBER INVESTMENTS OTHER TOTAL
-------- -------- ------- -------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1999
Gross revenues and sales......... $ 811 $ 109 $ 536 $ 4,276 $ 5,732 $ 5,533 $ 131,640
======= ======== ======= ======== ======== ======= =========
Intersegment eliminations........ $ -- $ -- $ (127) $ -- $ (127) $(5,533) $ (10,248)
======= ======== ======= ======== ======== ======= =========
Net revenues and sales........... $ 811 $ 109 $ 409 $ 4,276 $ 5,605 $ -- $ 121,392
======= ======== ======= ======== ======== ======= =========
Income (loss) before income
taxes, minority interest and
cumulative effect of accounting
change......................... $(2,536) $ (4,151) $ (779) $ (3,306) $(10,772) $(3,900) $ 2,301
======= ======== ======= ======== ======== ======= =========
Income taxes..................... $ (622) $ (1,867) $ (25) $ (597) $ (3,111) $(1,327) $ 3,768
======= ======== ======= ======== ======== ======= =========
Minority interest................ $ -- $ 1,374 $ (457) $ -- $ 917 $ -- $ 1,314
======= ======== ======= ======== ======== ======= =========
Net income (loss) from continuing
operations before cumulative
effect of accounting change.... $(1,914) $ (3,658) $ (297) $ (2,709) $ (8,578) $(2,573) $ (2,781)
======= ======== ======= ======== ======== ======= =========
Cumulative effect of change in
accounting principle........... $ (115) $ (183) $ (382) $(10,692) $(11,372) $ -- $ (12,112)
======= ======== ======= ======== ======== ======= =========
Net income (loss)................ $(2,029) $ (3,841) $ (679) $(13,401) $(19,950) $(2,573) $ (14,893)
======= ======== ======= ======== ======== ======= =========
Depreciation and amortization.... $ 66 $ (129) $ 148 $ 1,494 $ 1,579 $ 65 $ 10,214
======= ======== ======= ======== ======== ======= =========
Interest expense................. $ 9 $ 234 $ -- $ 685 $ 928 $ 2,893 $ 3,862
======= ======== ======= ======== ======== ======= =========
Capital expenditures............. $ (145) $ -- $ 3 $ 1,597 $ 1,455 $ 6 $ 4,817
======= ======== ======= ======== ======== ======= =========
Gross identifiable assets at June
30, 1999....................... $ 1,652 $ 24,616 $50,377 $ 43,376 $120,021 $14,823 $ 467,904
======= ======== ======= ======== ======== ======= =========
Intersegment eliminations........ $ -- $(23,564) $ -- $ -- $(23,564) $(5,461) $(190,002)
======= ======== ======= ======== ======== ======= =========
Net identifiable assets at June
30, 1999....................... $ 1,652 $ 1,052 $50,377 $ 43,376 $ 96,457 $ 9,362 $ 277,902
======= ======== ======= ======== ======== ======= =========
</TABLE>
11
<PAGE> 12
THE PIONEER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
JUNE 30, 1999
<TABLE>
<CAPTION>
PIONEER - SUBTOTAL -
INTERNATIONAL FINANCIAL SERVICES PIONEER
PIONEER ------------------------------------ INTERNATIONAL
INVESTMENT CZECH FINANCIAL
MANAGEMENT RUSSIA POLAND REPUBLIC ASIA SERVICES
---------- ------- ------- -------- ----- -------------
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1998
Gross revenues and sales.......... $ 105,024 $ 6,091 $ 5,897 $ 765 $ -- $12,753
========= ======= ======= ====== ===== =======
Intersegment eliminations......... $ (3,373) $ -- $ -- $ -- $ -- $ --
========= ======= ======= ====== ===== =======
Net revenues and sales............ $ 101,651 $ 6,091 $ 5,897 $ 765 $ -- $12,753
========= ======= ======= ====== ===== =======
Income (loss) before income taxes
and minority interest........... $ 29,945 $(2,549) $ (692) $ (482) $(442) $(4,165)
========= ======= ======= ====== ===== =======
Income taxes...................... $ 10,859 $ (781) $ (183) $ (70) $(172) $(1,206)
========= ======= ======= ====== ===== =======
Minority interest................. $ -- $ 10 $ (3) $ -- $ -- $ 7
========= ======= ======= ====== ===== =======
Net income (loss)................. $ 19,086 $(1,778) $ (506) $ (412) $(270) $(2,966)
========= ======= ======= ====== ===== =======
Depreciation and amortization..... $ 11,061 $ 1,133 $ 303 $ 137 $ -- $ 1,573
========= ======= ======= ====== ===== =======
Interest expense.................. $ 1,546 $ 242 $ 11 $ -- $ -- $ 253
========= ======= ======= ====== ===== =======
Capital expenditures.............. $ 4,619 $ 1,212 $ -- $ 22 $ -- $ 1,234
========= ======= ======= ====== ===== =======
Gross identifiable assets at June
30, 1998........................ $ 310,260 $80,616 $13,941 $1,304 $ -- $95,861
========= ======= ======= ====== ===== =======
Intersegment eliminations......... $(150,475) $(2,435) $ -- $ (86) $ -- $(2,521)
========= ======= ======= ====== ===== =======
Net identifiable assets at June
30, 1998........................ $ 159,785 $78,181 $13,941 $1,218 $ -- $93,340
========= ======= ======= ====== ===== =======
<CAPTION>
PIONEER GLOBAL INVESTMENTS
---------------------------------------
CENT. &
EAST. - SUBTOTAL -
REAL U.S. EUROPE PIONEER
ESTATE VENTURE VENTURE RUSSIAN GLOBAL
SERVICES CAPITAL CAPITAL TIMBER INVESTMENTS OTHER TOTAL
-------- ------- ------- -------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1998
Gross revenues and sales.......... $ 404 $ 894 $3,978 $ 2,882 $ 8,158 $ 8,266 $ 134,201
======= ======= ======= ======== ======== ======== =========
Intersegment eliminations......... $ -- $ -- $(3,719) $ -- $ (3,719) $ (8,266) $ (15,358)
======= ======= ======= ======== ======== ======== =========
Net revenues and sales............ $ 404 $ 894 $ 259 $ 2,882 $ 4,439 $ -- $ 118,843
======= ======= ======= ======== ======== ======== =========
Income (loss) before income taxes
and minority interest........... $(1,742) $8,664 $(2,100) $(11,596) $ (6,774) $ (2,145) $ 16,861
======= ======= ======= ======== ======== ======== =========
Income taxes...................... $ (583) $2,602 $(1,282) $ (354) $ 383 $ (873) $ 9,163
======= ======= ======= ======== ======== ======== =========
Minority interest................. $ -- $2,332 $ (640) $ -- $ 1,692 $ -- $ 1,699
======= ======= ======= ======== ======== ======== =========
Net income (loss)................. $(1,159) $3,730 $ (178) $(11,242) $ (8,849) $ (1,272) $ 5,999
======= ======= ======= ======== ======== ======== =========
Depreciation and amortization..... $ 31 $ 111 $ 71 $ 1,596 $ 1,809 $ 387 $ 14,830
======= ======= ======= ======== ======== ======== =========
Interest expense.................. $ -- $ 191 $ -- $ 2,074 $ 2,265 $ 1,517 $ 5,581
======= ======= ======= ======== ======== ======== =========
Capital expenditures.............. $ -- $ 8 $ -- $ 1,011 $ 1,019 $ 28 $ 6,900
======= ======= ======= ======== ======== ======== =========
Gross identifiable assets at June
30, 1998........................ $ 5,421 $80,314 $44,227 $ 48,509 $179,641 $ 34,742 $ 620,504
======= ======= ======= ======== ======== ======== =========
Intersegment eliminations......... $ (272) $ (7) $(1,504) $ -- $ (1,783) (27,634) $(182,413)
======= ======= ======= ======== ======== ======== =========
Net identifiable assets at June
30, 1998........................ $ 5,149 $80,307 $42,723 $ 48,509 $177,858 $ 7,108 $ 438,601
======= ======= ======= ======== ======== ======== =========
</TABLE>
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The consolidated financial statements of The Pioneer Group, Inc. (the
"Company") include the Company's three strategic business units. Pioneer
Investment Management includes the investment management, marketing,
distribution and servicing of the Company's mutual funds based in the United
States and offshore funds based in Ireland. This business unit also provides
investment management services for institutional investors. Pioneer
International Financial Services includes the Company's investment management
and financial services businesses in Poland, the Czech Republic, Russia and
India. Pioneer Global Investments includes the Company's worldwide venture
capital, real estate and timber operations. The Company is in the process of
disposing of its gold mining operations and, as such, reported these operations
as discontinued in the second quarter of 1999. Management's Discussion and
Analysis of Financial Condition and Results of Operations is presented in four
sections: Results of Operations, Liquidity and Capital Resources-General, Future
Operating Results and Year 2000.
RESULTS OF OPERATIONS
CONSOLIDATED OPERATIONS
The Company reported a second quarter loss of $25.2 million, or $0.97 per
share, consisting of losses from continuing operations of $0.4 million, or $0.01
per share, and losses from discontinued gold mining and powdered metals
operations of $24.8 million, or $0.96 per share. See the section entitled
"Discontinued Operations" later in this report. During the second quarter of
1998, the Company reported a loss of $12.1 million, or $0.48 per share,
consisting of losses from continuing operations of $0.5 million, or $0.02 per
share, losses from discontinued gold mining operations of $5.7 million, or $0.23
per share, and losses from discontinued Russian banking operations of $5.9
million, or $0.23 per share. Revenues from continuing operations were $63.6
million in the second quarter of 1999 compared to $64.3 million in the second
quarter of 1998.
The Company reported a first half loss of $45.7 million, or $1.77 per
share, including losses from continuing operations of $2.8 million, or $0.11 per
share, and losses from discontinued gold mining and powdered metals operations
of $30.8 million, or $1.19 per share. Also included in the loss from continuing
operations is the one-time $3.4 million first quarter 1999 loss on the sale of
the Company's U.S. venture capital operations. First half results also included
the impact of the first quarter write-off of unamortized capitalized start-up
costs of $12.1 million, or $0.47 per share, as a result of the required change
in accounting principle. During the six months ended June 30, 1998, the Company
reported a loss of $6.8 million, or $0.27 per share, consisting of net income
from continuing operations of $6.0 million, or $0.24 per share, losses from
discontinued gold mining and powdered metals operations of $6.9 million, or
$0.28 per share, and losses from discontinued Russian banking operations of $5.9
million, or $0.23 per share. Revenues from continuing operations were $121.4
million in the first half of 1999 and $118.9 million in the first half of 1998.
Worldwide assets under management were approximately $24.5 billion at June
30, 1999, compared to $23.4 billion at December 31, 1998.
13
<PAGE> 14
The following table details revenues and net income (loss) by business
segment for the three months and six months ended June 30, 1999, and 1998,
respectively.
REVENUES AND NET INCOME (LOSS)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
NET INCOME NET INCOME
REVENUES (LOSS) REVENUES (LOSS)
---------------- ---------------- ---------------- ---------------
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
---------------- ---------------- ---------------- ---------------
BUSINESS SEGMENT 1999 1998 1999 1998 1999 1998 1999 1998
- ---------------- ----- ----- ------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pioneer Investment Management.............. $51.4 $53.8 $ 9.4 $ 9.6 $101.0 $101.6 $ 17.5 $19.1
----- ----- ------ ------ ------ ------ ------ -----
Pioneer International Financial Services:
Russia................................... 3.2 3.8 (0.1) (0.9) 6.5 6.1 (0.3) (1.8)
Central and Eastern Europe............... 4.1 3.2 (5.7) (0.8) 8.3 6.7 (8.7) (0.9)
Asia..................................... -- -- (0.1) (0.2) -- -- (0.2) (0.3)
----- ----- ------ ------ ------ ------ ------ -----
7.3 7.0 (5.9) (1.9) 14.8 12.8 (9.2) (3.0)
----- ----- ------ ------ ------ ------ ------ -----
Pioneer Global Investments:
Venture Capital.......................... 0.2 0.7 (0.1) 1.6 0.5 1.2 (3.9) 3.6
Real Estate.............................. 0.4 0.2 (0.9) (0.7) 0.8 0.4 (1.9) (1.2)
Timber................................... 4.3 2.6 (1.8) (8.5) 4.3 2.9 (2.7) (11.2)
----- ----- ------ ------ ------ ------ ------ -----
4.9 3.5 (2.8) (7.6) 5.6 4.5 (8.5) (8.8)
----- ----- ------ ------ ------ ------ ------ -----
Interest Expense and Other Expenses........ -- -- (1.1) (0.6) -- -- (2.6) (1.3)
----- ----- ------ ------ ------ ------ ------ -----
Total From Continuing Operations Before
Accounting Change........................ $63.6 $64.3 $ (0.4) $ (0.5) $121.4 $118.9 $ (2.8) $ 6.0
----- ----- ------ ------ ------ ------ ------ -----
Discontinued Operations.................... -- -- (24.8) (11.6) -- -- (30.8) (12.8)
----- ----- ------ ------ ------ ------ ------ -----
Cumulative Effect of Change in Accounting
Principle (Start-up Costs)............... -- -- -- -- -- -- (12.1) --
----- ----- ------ ------ ------ ------ ------ -----
Totals............................. $63.6 $64.3 $(25.2) $(12.1) $121.4 $118.9 $(45.7) $(6.8)
===== ===== ====== ====== ====== ====== ====== =====
</TABLE>
PIONEER INVESTMENT MANAGEMENT
Pioneer Investment Management ("PIM") recorded second quarter net income of
$9.4 million compared to net income of $9.6 million in the second quarter of
1998. PIM recorded net income of $17.5 million for the six months ended June 30,
1999, compared to $19.1 million for the six months ended June 30, 1998. The $1.6
million earnings decline was attributable primarily to higher expenses incurred
to strengthen the investment management team, broaden and expand distribution,
and enhance technology capabilities.
PIM's assets under management at June 30, 1999 were approximately $24.1
billion compared to $23.0 billion at December 31, 1998. In the second quarter of
1999, sales of U.S. registered mutual funds (including reinvested dividends)
were $1.1 billion, slightly below sales in the second quarter of 1998. Net sales
were $0.1 billion, compared to net sales of $0.5 billion in the second quarter
of 1998. For the six months ended June 30, 1999, sales of U.S. registered mutual
funds (including reinvested dividends) were $2.0 billion, slightly below sales
in the comparable 1998 period. Net sales were $0.1 billion, compared to net
sales of $0.9 billion in the first six months of 1998.
Revenues of $51.4 million in the second quarter of 1999 decreased by $2.4
million, or 4%. Management fee revenues of $34.4 million decreased by $0.2
million. Revenues from underwriting commissions, distribution fees, and
shareholder servicing fees decreased by $2.1 million to $13.7 million, as
increased shareholder service fees partially offset lower distribution fees. In
September 1998, the Company sold its rights to receive future distribution fees
and deferred sales charges from the distribution of Class B shares of Pioneer
Mutual Funds. Since October 1, 1998, the Company has sold each month at a
premium additional rights arising from sales of Class B shares. As a result,
distribution fees have decreased significantly in 1999 as premiums were $1.0
million in the second quarter of 1999 compared to distribution fees of $4.4
million in the second quarter of 1998. In addition, the Company also experienced
decreased expenses of $3.0 million as it no longer amortizes dealer advances.
14
<PAGE> 15
Revenues of $101.0 million in the first six months of 1999 decreased by
$0.6 million, or 1%. Management fee revenues of $67.7 million increased by $1.9
million. Revenues from underwriting commissions, distribution fees, and
shareholder servicing fees decreased by $2.7 million to $27.5 million, as
increased shareholder service fees partially offset lower distribution fees.
Costs and expenses decreased by $1.7 million in the second quarter of 1999
to $37.3 million principally from lower expenses associated with the
amortization of dealer advances. For the six months ended June 30, 1999, costs
and expenses of $74.3 million increased by $2.6 million. The expense increase
resulted principally from higher payroll costs, mutual fund distribution
expenses and higher costs related to additional office space.
PIM's effective tax rate for the second quarter of 1999 was 33.3% compared
to 35.5% in the second quarter of 1998. For the six months ended June 30, 1999,
PIM's effective tax rate was 34.4% compared to 36.3% in the first six months of
1998. The decrease resulted principally from a change in Massachusetts' tax law
that provided certain tax incentives to Massachusetts-based mutual fund
companies which maintain and grow their Massachusetts employee base.
PIONEER INTERNATIONAL FINANCIAL SERVICES
During the second quarter of 1999, Pioneer International Financial Services
("PIFS") lost $5.9 million on revenues of $7.3 million compared to a loss of
$1.9 million on revenues of $7.0 million in the second quarter of 1998. A
substantial portion ($5.6 million) of the second quarter 1999 loss occurred in
Poland, of which $5.2 million was related to the Company's pension subsidiary
that was established in conjunction with the Polish government's pension reform
program. The pension subsidiary initiated efforts to solicit pension accounts by
commencing an advertising campaign, hiring and training personnel, and incurring
registration fees for its brokers. During the six months ended June 30, 1999,
PIFS lost $9.2 million on revenues of $14.8 million compared to a loss of $3.0
million on revenues of $12.8 million in the six months ended June 30, 1998. Most
of the first half loss ($8.3 million) occurred in Poland and was related to the
Company's pension subsidiary.
In April 1999, the Company reached agreement with Nationwide Global
Holdings, Inc. to sell to it, for $20 million, a 30% interest in the Company's
Polish pension subsidiary. As a result of the transaction, which received Polish
regulatory approval in June 1999, the Company recognized a gain of approximately
$12 million which was reflected as a credit to stockholders' equity in the
second quarter. In addition, the Company has deconsolidated the Polish pension
company as control is shared with Nationwide and has accounted for its
investment in the pension company under the equity method retroactive to January
1, 1999. In the fourth quarter of 1998, when the pension company was formed, the
Company reported losses of $0.2 million under the consolidation method.
Under the Polish government's pension privatization program, eligible
Polish citizens may select a private pension company (those under 30 years old
must select a private pension company), such as Pioneer's subsidiary, before the
end of 1999. Competition for these accounts, and the future asset growth
associated with them, is fierce, with 18 companies currently competing for
market share. In this market, customer acquisition costs will be very high in
the first year, especially for advertising and commission expenses.
The Company expects that the Polish pension company's quarterly rate of
loss will decline substantially over the third and fourth quarters, primarily
because (i) the Company will record only 70% of the pension company's operating
results going forward, (ii) costs associated with establishing the current
infrastructure will not be repeated, (iii) the advertising campaign will slow,
and (iv) revenues will begin to grow.
Year 2000 results for the pension company business are dependent upon the
number and quality of the accounts, which will be finalized at year end, and the
related commission expenses, which are amortized over a two year period. In
2000, however, the Company expects to incur substantially lower customer
acquisition costs and, to a lesser degree lower general management and
administrative expenses, than in 1999.
The Company believes that the pension company has adequate capital
resources to execute its business plan and does not expect to invest additional
capital in this business for the foreseeable future.
15
<PAGE> 16
PIONEER GLOBAL INVESTMENTS
In the second quarter, Pioneer Global Investments lost $2.8 million on
revenues of $4.9 million compared to losses of $7.6 million on revenues of $3.5
million in the second quarter of 1998. Timber losses were $6.7 million lower,
more than offsetting a $1.7 million reduction in venture capital earnings.
In the first half of 1999, Pioneer Global Investments lost $8.5 million on
revenues of $5.6 million compared to losses of $8.8 million on revenues of $4.5
million in the first half of 1998. Timber losses were $8.5 million lower, more
than offsetting the lower venture capital earnings of $7.5 million. The Company
sold its U.S. venture capital operations in the first quarter of 1999 resulting
in a loss of $3.4 million.
TIMBER BUSINESS
The results of the timber business are substantially attributable to the
operations of Forest-Starma, the Company's indirect wholly owned subsidiary.
Forest-Starma harvests timber in the Khabarovsk Territory of Russia under a
49-year lease comprising 390,100 hectares (approximately 964,000 acres) in the
aggregate with annual cutting rights of 555,000 cubic meters. Forest-Starma has
developed a modern logging camp, including a harbor, from which it exports
timber to markets in the Pacific Rim.
RESULTS OF OPERATIONS. For the three and six months ended June 30, 1999,
the timber business lost $1.8 million and $2.7 million, respectively. During the
corresponding periods in 1998, the timber business lost $8.5 million and $11.2
million, respectively. The decrease in losses was attributable principally to
higher prices and production, and lower interest expense associated with an
intercompany debt-to-equity conversion.
TIMBER PRODUCTION AND SALES. Production during the three and six months
ended June 30, 1999, was 72,000 and 158,000 cubic meters, respectively. This
represents increases of 60% and 63%, respectively, compared with corresponding
periods in 1998. Production costs for the second quarter of 1999 were
approximately $56 per cubic meter, including approximately $10 per cubic meter
of depreciation and amortization. Production costs were $100 per cubic meter in
the second quarter of 1998. As a result of an increase in low grade saw logs and
pulpwood in inventory, a $1.2 million lower of cost or market write-down of
inventory was recorded at the end of the second quarter of 1999. During the
second quarter of 1999, Forest-Starma shipped 99,000 cubic meters of timber at
an average realized price of $43 per cubic meter. There were no shipments in the
first quarter of 1999. During the three and six months ended June 30, 1998,
Forest-Starma shipped 73,000 cubic meters and 82,000 cubic meters, respectively,
at average realized prices of $36 per cubic meter and $35 per cubic meter,
respectively.
THIRD PARTY DEBT. Forest-Starma had $5.6 million of external debt
outstanding at June 30, 1999. The Company is subject to recourse on this
borrowing. Scheduled third-party debt service for the remainder of the year is
expected to aggregate $0.9 million.
RECENT DEVELOPMENTS. The Company is continuing discussions with several
potential strategic partners as participants in its timber business.
16
<PAGE> 17
DISCONTINUED OPERATIONS
The following table summarizes discontinued operations for the three and
six months ended June 30, 1999 and June 30, 1998:
LOSSES FROM DISCONTINUED OPERATIONS
($ IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
1999 1998 1999 1998
------- ------- ------ ------
<S> <C> <C> <C> <C>
Discontinued gold mining................... $(23.5) $ (5.7) $(29.4) $ (6.9)
Discontinued powdered metals............... (1.3) -- (1.4) --
Discontinued Russian banking............... -- (5.9) -- (5.9)
------ ------ ------ ------
Total............................ $(24.8) $(11.6) $(30.8) $(12.8)
====== ====== ====== ======
</TABLE>
GOLD MINING
In October 1998, the Company engaged the services of an investment banking
firm to sell Pioneer Goldfields Limited ("PGL"), including its African
exploration rights and its 90% equity interest in Teberebie Goldfields Limited
("TGL"), PGL's operating subsidiary. An offering document, which incorporated a
new mine plan and revised reserve estimates, was circulated in the second
quarter of 1999 to a select group of potential buyers. Several of these
potential buyers began conducting due diligence efforts during July.
During the second quarter of 1999, the Company reflected the gold mining
segment as a discontinued operation. In addition to PGL and TGL, the Company
intends to dispose of Closed Joint-Stock Company "Tas-Yurjah Mining Company"
("Tas-Yurjah"), the Company's majority owned (95%) Russian subsidiary, within
one year. Losses from discontinued gold mining operations in the second quarter
of 1999 were $23.5 million, including $5.9 million from second quarter 1999
operations and $17.6 million from the estimated loss on the disposition of the
gold mining segment, principally from a provision for future operating losses
during the phaseout period (through September 30, 1999 for PGL), closing costs
associated with the transaction, income taxes payable from the transaction and
the write-off of goodwill. The above referenced losses are management's best
estimates of the current value of the gold mining operations. In this regard,
the Company may record gains or incur additional losses, if any, as details,
timing, and other events associated with the transaction unfold. There can be no
assurance as to the price, timing, terms or completion of the proposed sale of
PGL. Losses from discontinued gold mining operations were $5.7 million in the
second quarter of 1998.
Losses from discontinued gold mining operations in the first half of 1999
were $29.4 million, including $11.8 million from first half 1999 operations and
$17.6 million from the estimated loss on the disposition of the gold mining
segment. Losses from discontinued gold mining operations in the first half of
1998 were $6.9 million.
The following summarizes the operations of TGL during the second quarter
and six months ended June 30, 1999, compared to the second quarter and six
months ended June 30, 1998.
GOLD SALES. Revenues decreased by $0.1 million to $17.2 million in the
second quarter of 1999 compared with 1998 as a $37 decrease in the average
realized price of gold to $271 per ounce was largely offset by a 7,500 ounce, or
13%, increase in gold shipments to 63,500 ounces. Revenues decreased by $3.4
million to $37.2 million during the first half of 1999 compared with 1998 as a
11% decrease in the average realized gold price to $278 per ounce was offset
partially by a 3% increase in gold sales to 133,600 ounces. During the second
quarter and first half of 1998, the average realized price of gold included
proceeds of $10 per ounce and $17 per ounce, respectively, from the sale of
floor program options.
17
<PAGE> 18
GOLD PRODUCTION AND COSTS. The table below provides production results and
compares TGL's cash costs and total costs per ounce for the three and six months
ended June 30, 1999, with the comparable periods in 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- INCREASE/ ------------------- INCREASE/
1999 1998 (DECREASE) 1999 1998 (DECREASE)
-------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Production & shipment
(ounces)...................... 63,500 56,000 7,500 133,600 129,500 4,100
======= ======= ====== ======== ======== ======
Cash costs per ounce............ 232 320 (88) 236 268 (32)
------- ------- ------ -------- -------- ------
Total costs per ounce...... $ 363 $ 457 $ (94) $ 367 $ 390 $ (23)
======= ======= ====== ======== ======== ======
</TABLE>
THIRD-PARTY DEBT. At the end of the first half of 1999, third-party debt
aggregated $40 million, including $14.2 million from the Overseas Private
Investment Corporation ("OPIC") for which the Company is subject to limited
recourse, and $0.2 million from other sources which the Company guarantees.
Scheduled third-party debt service for the remainder of 1999 is expected to
aggregate $7.5 million, of which $5.9 million represents principal payments.
POWDERED METALS
The Company intends to dispose of its powdered metals operations. Losses of
$1.3 million for the second quarter and $1.4 million for the six months ended
June 30, 1999 included $1.0 million from the estimated loss on the disposition
of this business, including closing costs associated with the disposition and a
provision for future operating losses.
RUSSIAN BANKING OPERATIONS
In the third quarter of 1998, the Company decided to liquidate its Russian
banking operations. Accordingly, losses of $5.9 million ($0.23 per share) for
the three months and six months ended June 30, 1998 have been reported as
discontinued operations. In December 1998, the Company sold its stock in the
bank to an unrelated third party.
OTHER
The Company had net interest expense and other expenses of $1.1 million in
the second quarter of 1999 compared to $0.6 million in the second quarter of
1998. For the six months ended June 30, 1999, net interest and other expenses
were $2.6 million compared to $1.3 million in the first six months of 1998. The
increased expenses for both periods resulted from corporate overhead no longer
allocated to discontinued operations, corporate interest no longer allocated to
the timber business as a result of the intercompany debt-to-equity conversion
and mark-to-market adjustments on the Company's interest rate protection
agreements.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998, the American Institute of Certified Public Accountants (the
"AICPA") issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities." The new standard, which the Company adopted in the first quarter of
1999, required that entities expense costs of start-up activities as those costs
are incurred. The Company had capitalized certain pre-operating costs in
connection with its natural resource operations, and had capitalized certain
organizational costs associated with its financial services operations. In the
first quarter of 1999, as a result of this new standard, the Company recorded a
cumulative effect of a change in accounting principle of approximately $12.1
million related principally to its timber operations.
LIQUIDITY AND CAPITAL RESOURCES -- GENERAL
The Company's liquid assets consisting of cash and marketable securities
decreased by $15.5 million in the first half of 1999 to $32.3 million
principally related to the payment of current federal taxes arising from
18
<PAGE> 19
the Company's 1998 sale of its rights to receive future distribution fees and
deferred sales charges from the distribution of Class B shares of its U.S. based
mutual funds.
During the second quarter of 1999, the Company and its commercial banking
syndicate amended its senior credit facility, which, among other things,
reduced, at the Company's request, the availability under the facility from $80
million to $65 million and shortened the maturity date to March 31, 2001. For a
description of the Company's $65 million senior credit facility and $20 million
senior notes, including interest rates and applicable covenants, see Note 5
(Notes Payable) to Notes to the Company's Consolidated Financial Statements
included elsewhere in this Quarterly Report. At June 30, 1999, the Company had
borrowed $40 million under the senior credit facility and had $20 million of
senior notes outstanding.
------------------------
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.
FUTURE OPERATING RESULTS
Certain of the information contained in this Quarterly Report, including,
without limitation, information with respect to the Company's plans and
strategies for its domestic and international financial services and global
investment business units, liquidity and capital resources and Year 2000 plans,
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. All forward-looking statements are based on
currently available information and management expectations that involve
substantial risks and uncertainties that could cause actual results to differ
materially from expectations. Important factors that could cause actual results
to differ materially from those indicated by the forward-looking statements made
in this Quarterly Report and presented elsewhere by management from time to time
include, but are not limited to, the following as well as the factors presented
below under Year 2000 and in the Company's most recent Annual Report on Form
10-K:
The Company derives a significant portion of its revenues from investment
management fees and underwriting 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 result in
increased assets under management, which, in turn, generate higher management
fees. 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. In addition, investment performance is affected in part by
economic and market conditions which are beyond the control of the Company.
Finally, four of the Company's mutual funds (including three of the four 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 and is undergoing
substantial consolidation. 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. Many of the Company's
competitors have more products and product lines and substantially greater
assets under management and financial resources.
The Company and its domestic investment management business unit are
primarily dependent upon their contractual relationships with the Company's U.S.
mutual funds. In the event any of these agreements were canceled or not renewed
on similarly favorable terms, the Company would be substantially adversely
affected.
Pioneer Investment Management is subject to extensive regulation in the
United States, including by the Securities and Exchange Commission and the
National Association of Securities Dealers, Inc. The Company is also subject to
the laws of non-U.S. jurisdictions and non-U.S. regulatory agencies or bodies.
The failure of the Company and its subsidiaries to comply with applicable laws
or regulations could result in fines,
19
<PAGE> 20
suspensions of personnel or other sanctions. Changes in laws or regulations or
in government policies could have a material adverse effect on the Company.
The Company has a significant number of operations and investments located
outside of the U.S., including the timber operations in the Russian Far East and
the financial services operations in Eastern and Central Europe. Foreign
operations and investments may be adversely affected by exchange controls,
currency fluctuations, taxation, political and economic instability, ineffective
regulatory oversight and laws or policies of the particular countries in which
the Company may have operations. There is no assurance that the Company can
obtain permits, authorizations, regulatory approvals and agreements to implement
plans at its foreign projects under conditions or within time frames that make
such plans economically feasible. Also, there can be no assurance that
applicable laws or the governing political authorities will not change
unfavorably or that such changes will not result in the Company having to incur
material additional expenditures.
The commercial feasibility of Forest-Starma is dependent upon a number of
factors which are not within the control of the Company including the price of
timber, weather conditions, political stability in Russia and the strength of
the Japanese and Korean economies, the primary markets for Forest-Starma's
timber. While the Company continues to believe that the project will achieve
commercial feasibility in the long term, there can be no assurance that it will
do so.
YEAR 2000
SUMMARY. The Company has for some time been addressing actively the
potential impact of the Year 2000 problem to its businesses and has largely
completed a comprehensive project to help ensure that all of its business units
will be able to function normally before, during and after the century date
rollover. Furthermore, the Company is aware that Year 2000 issues have the
potential to impact the capital markets and macroeconomic conditions globally.
While the Company is monitoring the threat of such impact and is taking measures
reasonably designed to protect the investments of its fund shareholders and
corporate investors, there can be no assurance that factors outside its control
will not disrupt the Company's operations.
MANAGEMENT. The Company is executing and managing its Year 2000 project
activities at several levels within the organization, including:
- Regular senior-level management briefings.
- Regular Company Audit Committee briefings.
- Oversight subcommittee established by the Trustees of the Company's U.S.
mutual funds.
- Year 2000 Steering Committee comprised of representatives from all
operational areas empowered to review progress and ensure the successful
completion of the Year 2000 project.
- Year 2000 project office responsible for centralized monitoring,
reporting and support of project activities.
- Managers throughout the Company responsible for executing local Year 2000
plans.
The Company is separately tracking the Year 2000 readiness of each of its
operating units and has created comprehensive reporting for each project team
worldwide. The Company has developed reports to monitor risk management and
project status for both systems and vendors and has utilized the services of
outside companies and consultants specializing in Year 2000 issues.
APPROACH AND STATUS. The Company's Year 2000 initiative addresses
hardware, software, embedded systems and vendor systems and consists of the
following six phases:
- Awareness -- communicating management's commitment to identify and
resolve Year 2000 issues.
- Inventory, Assessment, and Planning -- identifying all systems and
vendors with potential Year 2000 problems, rating the business
criticality of each, and planning for all project tasks.
- Repair -- executing all necessary system remediation plans.
20
<PAGE> 21
- Testing -- ensuring that all remediated systems function correctly in
both current date and future date environments.
- Contingency Planning -- developing contingency plans and business
continuity strategies for each business unit.
- Vendor Analysis -- working closely with all important third parties to
ensure that their systems and business process have been evaluated and
corrected adequately for any potential Year 2000 issues.
The Company has completed the awareness, assessment and repair phases of
the project with respect to all of its core systems. To date, the Company has
performed stand-alone testing on all of its core information technology
applications. During the second quarter of 1999, the Company conducted an
integrated test of all systems critical to the domestic mutual fund business.
This test successfully validated that the data flow among the Company's systems
would function properly in a future-dated scenario. The Company also
participated in industry-wide testing sponsored by the Securities Industry
Association. In this testing, performed in conjunction with the National
Securities Clearing Corporation and other key third parties, the Company
successfully processed mutual fund transactions in a future-dated environment.
The contingency planning phase has been ongoing and will continue throughout
1999. The Company has assessed the Year 2000 readiness of all critical third
parties but will continue to monitor the status of these external parties
through the end of the project.
CERTAIN RISKS AND CONTINGENCY PLANNING. The Company segregates Year 2000
risks into four areas: (i) systems, (ii) vendors, (iii) capital markets
infrastructure and (iv) basic infrastructure.
Systems. Although the majority of the Company's most critical "core"
applications are provided by third parties, most of these applications are
relatively new and all have been certified as Year 2000 compliant. As a result
of successful testing, the Company believes that their systems will operate
properly after January 1, 2000.
Vendors. The Company has been monitoring closely the Year 2000 progress of
all critical third parties and to date has not identified a need to replace any
of these providers.
Capital markets infrastructure. Particularly in the U.S., the Company is
heavily reliant upon functional capital markets (trading, clearing and
settlement). The successful industry-wide tests mitigated the Company's concerns
regarding the Year 2000 readiness of the domestic trading and settlement
infrastructure.
Basic infrastructure. The Company expects to be able to react
appropriately to short term or isolated disruptions of basic infrastructure
services (such as telecommunications, electricity, water and transportation)
based on its contingency plans. In the event of long term or pervasive failures,
however, the Company's risk is as significant as that of any other firm or
entity that relies upon such services.
Internationally, the outlook is less certain with respect to the Year 2000
readiness of third parties and infrastructure elements. The Company has
indigenous operations in a number of foreign countries, and these countries have
demonstrated various levels of awareness and readiness with respect to Year 2000
issues. The Company is preparing its systems and evaluating its vendors in each
of these operations in the same manner as in the U.S. Nevertheless, the Company
is subject to risks imposed by infrastructure failures beyond its control in the
countries in which it has operations.
As part of its normal business procedures, the Company has disaster
recovery plans in place to address potential infrastructure failures, including
basic services such as electrical power and telecommunications. The Company is
leveraging and enhancing those plans to address potential Year 2000 scenarios.
With respect to Year 2000 issues, the Company's approach to contingency planning
has two additional components: (i) ensuring the Company's ability to achieve
Year 2000 compliance, even in the event of a vendor failure in 1999 and (ii)
preparing business continuity plans for various potential failure scenarios
which, despite the Company's best efforts, could occur on or around January 1,
2000.
Since mid-1998, the Company has had Year 2000 contingency plans in place to
address century transition issues with respect to all of its primary systems and
operations. To date, substantially all of the Company's
21
<PAGE> 22
operating units have developed contingency plans. The Company and its
subsidiaries continue to review these plans to ensure their adequacy as internal
systems and/or business conditions evolve. Contingency planning is an inherently
complex and dynamic process that must adapt to changes affecting the Company's
operations. The Company has announced internally that from October 1, 1999
through February 1, 2000, there will be a freeze on the introduction of any new
computer code. Because there will be no significant system changes during this
period, the Company does not foresee a need to alter any of its contingency
plans to accommodate system changes. Nonetheless, the Company will continue to
monitor business conditions and infrastructure elements affecting its primary
systems and operations to ensure that no changes on these levels necessitate
revisions to the existing contingency plans. If the Company identifies any
significant changes, it will refine its contingency plans.
COSTS. Total Year 2000 project costs are based on currently available
information and management's estimates with respect to the costs of repairing
and replacing software, hardware, embedded systems and vendor systems and are
subject to change. For this purpose, the Company defines costs as incremental
expenditures, and cost estimates include both period costs and disbursements
that typically would be treated as capital. Estimates do not include overhead
with respect to the portion of certain employees' time allocated to the Year
2000 project or opportunity costs associated with other projects that may have
been delayed by the Year 2000 project.
As of June 30, 1999, the Company had incurred and expensed approximately
$1.9 million in connection with its Year 2000 project. The Company estimates its
total remaining costs to be approximately $500,000, which will be expensed as
incurred during 1999. All Year 2000 project costs have been and, the Company
believes, will continue to be funded from operating cash flows.
Year 2000 project costs are relatively minimal primarily because the
Company owns little internally developed code. The result of the Company's
strategy of outsourcing technology-based operations is that it has only a small
base of proprietary code that it must analyze and remediate. Consequently, the
cost of the Year 2000 compliance efforts are not expected to be material to the
Company's financial position. The Company also believes that it will not incur
significant Year 2000 related costs on behalf of third parties from which it
purchases technology or outsourced technology-based functions.
GENERAL. The Company's ability to complete its Year 2000 project by the
dates projected and the total costs incurred to accomplish those efforts are
based on estimates of the Company's management in reliance on certain
assumptions. Such assumptions include, among others, the Company's ability to
locate and identify all potential Year 2000 issues in the systems it uses,
successful remediation efforts by the Company's vendors and other third parties
upon which it relies, the continued availability of personnel capable of
carrying out the Year 2000 project efforts and the availability of suitable
alternative software and systems. There can be no assurances that management's
reliance on such assumptions will prove to be valid. The failure of any of these
assumptions to hold true or the existence of additional significant
uncertainties could result in the inaccurateness of any of the foregoing
estimates. As a result, actual completion of the Company's Year 2000 project
could be later than anticipated or involve costs materially higher than those
estimated. Finally, investors in the Company's funds who are concerned about the
Year 2000 problem could withdraw their investments, which in turn would reduce
assets under management and related management fee revenues. The Company's
financial condition could be adversely affected if it experienced any of the
problems associated with the risks described above.
The impact of any such failures on the Company's customers or other third
parties could vary significantly, as could such customers' or third parties'
definitions of Year 2000 compliance. Therefore, the extent of any claims
resulting from such failures is difficult to estimate. There can be no assurance
that the costs of resolving any such claims will not materially affect the
Company's business, financial condition or results of operations.
22
<PAGE> 23
PART II -- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
The 1999 Annual Meeting of Stockholders (the "Annual Meeting") was held on
May 18, 1999. At the Annual Meeting, the following persons were elected to serve
as directors until the next Annual Meeting of Stockholders and thereafter until
successors are duly elected and qualified: Robert L. Butler, John F. Cogan, Jr.,
Maurice Engelman, Alan J. Strassman, Jaskaran S. Teja, David D. Tripple and John
H. Valentine.
At the Annual Meeting, the stockholders approved an amendment to the
Company's 1997 Stock Incentive Plan (the "Plan") to increase the number of
shares of the Company's common stock reserved for issuance under the Plan from
1,500,000 shares to 3,000,000 shares.
The stockholders also voted at the Annual Meeting to ratify the selection
of Arthur Andersen LLP as the Company's independent accountants for the 1999
fiscal year.
<TABLE>
<CAPTION>
ELECTION OF DIRECTORS FOR WITHHELD
- --------------------- ---------- ---------
<S> <C> <C>
Robert L. Butler............................................ 22,375,686 873,038
John F. Cogan, Jr........................................... 22,355,337 893,387
Maurice Engleman............................................ 22,423,436 825,288
Alan J. Strassman........................................... 22,450,760 797,964
Jaskaran S. Teja............................................ 22,184,570 1,064,154
David D. Tripple............................................ 22,453,525 795,199
John H. Valentine........................................... 22,423,328 825,396
</TABLE>
<TABLE>
<CAPTION>
BROKER
FOR AGAINST ABSTAIN NON-VOTES
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Approval of amendment to the 1997 Stock Incentive
Plan.............................................. 14,529,684 4,680,283 1,075,174 2,963,583
Ratification of Arthur Andersen LLP as Independent
Accountants for the 1999 Fiscal Year.............. 22,929,189 273,175 46,360 0
</TABLE>
ITEM 5. OTHER INFORMATION
Stockholder Proposals for 2000 Annual Meeting
As set forth in the Company's Proxy Statement for its 1999 Annual Meeting
of Stockholders, stockholder proposals submitted pursuant to Rule 14a-8 under
the Securities Exchange Act of 1934 for inclusion in the Company's proxy
materials for its 2000 Annual Meeting of Stockholders (the "2000 Annual
Meeting") must be submitted in writing to the attention of the Company's Chief
Financial Officer at the Company's principal office no later than December 15,
1999.
In addition, the Company's By-laws require that the Company be given
advance notice of stockholder nominations for election to the Company's Board of
Directors and of other matters that the Stockholders wish to present for action
at an annual meeting of stockholders (other than matters included in the
Company's proxy statement in accordance with Rule 14a-8). The required notice
must be made in writing, include the information required by the By-laws, be
delivered or mailed by first class United States mail, postage prepaid to the
Chief Financial Officer of the Company at the principal offices of the Company,
and be received not less than 60 days nor more than 90 days prior to the 2000
Annual Meeting; provided, however, that if less than 70 days notice or prior
public disclosure of the date of the meeting is given to stockholders, such
nomination or other proposal shall have been mailed or delivered to the Chief
Financial Officer of the Company not later than the close of business on the
10th day following the date on which the notice of the meeting was mailed or
such public disclosure was made, whichever occurs first. The Company currently
expects to hold its 2000 Annual Meeting on May 16, 2000. Assuming that this date
does not change, in order to comply with the time period set forth in the
Company's By-laws, notice of a stockholder proposal or director nomination would
need to be made no earlier than February 15, 2000 and no later than March 17,
2000.
23
<PAGE> 24
ITEM 6. EXHIBITS AND REPORTS ON FORM 10-K
(a) Exhibits
The Exhibits filed with this Quarterly Report on Form 10-Q are listed on
the "Exhibit Index" below and incorporated by reference herein.
(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: August 11, 1999
THE PIONEER GROUP, INC.
/s/ ERIC W. RECKARD
------------------------------------
Eric W. Reckard,
Executive Vice President
Chief Financial Officer and
Treasurer
24
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- ------------------------------------------------------------
<C> <S>
10.1 Amendment No. 8 to Credit Agreement dated as of June 30,
1999, by and among the Company, certain of its subsidiaries,
the Lenders and BankBoston, N.A. f/k/a The First National
Bank of Boston.
10.2 Supplemental Agreement No. 4 to Note Agreement dated as of
June 30, 1999, by and between the Company and Travelers
Insurance Company.
10.3 Amendment to Finance Agreement dated as of June 3, 1999
between Closed Joint-Stock Company "Forest-Starma" and
Overseas Private Investment Corporation.
10.4 Amendment to Project Completion Agreement dated as of June
3, 1999 among Closed Joint-Stock Company "Forest-Starma",
the Company, Pioneer Forest, Inc., International Joint-Stock
Company "Starma-Holding" and Overseas Private Investment
Corporation.
10.5 Agreement with respect to Project Completion Agreement dated
as of June 3, 1999 among Closed Joint-Stock Company
"Forest-Starma", Pioneer Forest, Inc. and Overseas Private
Investment Corporation.
10.6 Contract of Pledge of Shares in Closed Joint Stock Company
"Forest-Starma" dated as of June 3, 1999 between Pioneer
Forest, Inc. and Overseas Private Investment Corporation.
27.99 Financial Data Schedule.
27.98 Financial Data Schedule.
</TABLE>
25
<PAGE> 1
EXHIBIT 10.1
THE PIONEER GROUP, INC.
CREDIT AGREEMENT
Amendment No. 8
---------------
This Agreement, dated as of June 30, 1999, 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 BankBoston, N.A., f/k/a 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, among the Company, certain of its
subsidiaries, the Lenders and the Agent (as amended, modified and in effect
prior to giving effect to this Agreement, the "Credit Agreement"). 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 June 30, 1999 or
this Agreement shall be of no force or effect:
2.1. AMENDMENT TO SECTION 1.5. Section 1.5 of the Credit Agreement
is amended to read in its entirety as follows:
"1.5. "APPLICABLE RATE" means, at any date,
(1) with respect to any Loan
(a) for each portion of any Loan subject to a Pricing
Option, the sum of the Eurodollar Rate with respect
to such Pricing Option PLUS the Applicable Margin;
and
(b) for each other portion of any Loan, the Base Rate
PLUS the Applicable Margin;
<PAGE> 2
PLUS (2) in each case, an additional 2% effective on
the day the Agent notified (which notice the Agent
shall be required to give upon the written request
of the Required Lenders) the Company that the
interest rates hereunder are increasing as a result
of the occurrence of an Event of Default until the
earlier of such time as (i) such Event of Default is
no longer continuing or (ii) such Event of Default
is deemed no longer to exist, in each case pursuant
to Section 9.3."
2.2. AMENDMENT TO SECTION 1.26. Section 1.26 of the Credit
Agreement is amended to read in its entirety as follows:
"1.26. "BORROWER SUBSIDIARY" means Pioneer Investment Management,
Inc. (F/K/A PIONEERING MANAGEMENT CORPORATION) and Pioneer Management
(Ireland) Ltd., each of their Wholly Owned Subsidiaries and any other
Wholly Owned Subsidiary from time to time designated by the Company
and approved by the Required Lenders."
2.3. AMENDMENT TO SECTION 1.51. Section 1.51 of the Credit
Agreement is amended to read in its entirety as follows:
"1.51. "CORE MUTUAL FUND SUBSIDIARIES" means each of Pioneer
Investment Management, Inc. (F/K/A PIONEERING MANAGEMENT CORPORATION),
Pioneer Funds Distributor, Inc., Pioneering Services Corporation,
Pioneer Management (Ireland) Ltd., and any other Borrower Subsidiary
and any other Person which becomes a Subsidiary of the Company after
the date of this Agreement if such Person engages in activities
similar or related to the business conducted by any Core Mutual Fund
Subsidiary and is approved by the Required Lenders."
2.4. AMENDMENT TO SECTION 1.101. Section 1.101 of the Credit
Agreement is amended to read in its entirety as follows:
"1.101. "MAXIMUM AMOUNT OF REVOLVING CREDIT" means the lesser of (i)
$65,000,000 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
$5,000,000) less than the Maximum Amount of Revolving Credit then in
effect as specified by irrevocable notice from the Company to the
Agent."
2.5. ADDITION OF SECTION 1.111A. A new Section 1.111A is added to
the Credit Agreement immediately following Section 1.111 of the Credit Agreement
to read in its entirety as follows:
"1.111A. "PGH NEBRASKA, INC." means a newly incorporated Delaware
company and a Wholly Owned Subsidiary, which principally shall purchase
assets from and lease such assets back to Pioneering Services
Corporation."
-2-
<PAGE> 3
2.6. AMENDMENT TO SECTION 1.112. Section 1.112 of the Credit
Agreement is amended to read in its entirety as follows:
"1.112. "PIONEER GOLDFIELDS ENTITIES" means Pioneer Goldfields
Holdings, Inc., Pioneer Goldfields II Limited, PGH Nebraska, Inc.,
Pioneer Goldfields Trust, Pioneer Goldfields Limited and Teberebie
Goldfields Limited."
2.7. ADDITION OF SECTIONS 1.112A AND 1.112B. New Sections 1.112A
and 1.112B are added to the Credit Agreement immediately following Section 1.112
of the Credit Agreement each to read in its entirety as follows:
"1.112A. "PIONEER GOLDFIELDS II LIMITED" means a newly incorporated
Channel Islands company to be domesticated in the United States and a
Wholly Owned Subsidiary."
"1.112B. "PIONEER GOLDFIELDS TRUST" means a newly formed Massachusetts
business investment trust and a Wholly Owned Subsidiary."
2.8. AMENDMENT TO SECTION 1.120. Section 1.120 of the Credit
Agreement is amended to read in its entirety as follows:
"1.120. "REVOLVING FINAL MATURITY DATE" means March 31, 2001."
2.9. AMENDMENT TO SECTION 7.4.3. Section 7.4.3 of the Credit
Agreement is amended to read in its entirety as follows:
"(h) As soon as prepared and in any event within five days of the end
of each week or five Banking Days of the end of each month, as
applicable, updated actual and forecasted weekly cash flows (or monthly
cash flows if requested by the Agent) for the period commencing July 1,
1999 through March 31, 2001, or such earlier end date as determined by
the Agent."
2.10. AMENDMENT TO SECTION 7.5.3. Section 7.5.3 of the Credit
Agreement is amended to read in its entirety as follows:
"7.5.3. CONSOLIDATED TANGIBLE NET WORTH. Consolidated Tangible Net
Worth shall:
(a) on June 30, 1999, equal or exceed $120,000,000, increased
by an amount equal to 50% of the after-tax gain on the sale or
disposition of assets or capital stock of Pioneer Goldfields Entities;
(b) on and after July 1, 1999, and through December 30, 1999,
at all times equal or exceed $120,000,000; PROVIDED, HOWEVER, that on
the first day of each fiscal
-3-
<PAGE> 4
quarter of the Company beginning with the fiscal quarter ending
September 30, 1999, such dollar amount shall be increased by an amount
equal to 50% of the sum of (i) the Consolidated Net Income (only if in
excess of zero) for each of the fiscal quarters ended since July 1,
1999 and (ii) the after-tax gain on the sale or disposition of assets
or capital stock of Pioneer Goldfields Entities,
(c) on and after December 31, 1999, and through June 29, 2000,
at all times equal or exceed the greater of (i) $125,000,000 or (ii)
$120,000,000, increased on the first day of each fiscal quarter of the
Company beginning with the fiscal quarter ending December 31, 1999, by
an amount equal to 50% of the sum of (A) the Consolidated Net Income
(only if in excess of zero) for each of the fiscal quarters ended since
July 1, 1999 and (B) the after-tax gain on the sale or disposition of
assets or capital stock of Pioneer Goldfields Entities, and
(d) on and after June 30, 2000, and through March 31, 2001, at
all times equal or exceed the greater of (i) $130,000,000 or (ii)
$120,000,000, increased on the first day of each fiscal quarter of the
Company beginning with the fiscal quarter ending June 30, 2000, by an
amount equal to 50% of the sum of (A) the Consolidated Net Income (only
if in excess of zero) for each of the fiscal quarters ended since July
1, 1999 and (B) the after-tax gain on the sale or disposition of assets
or capital stock of Pioneer Goldfields Entities."
2.11. AMENDMENT TO SECTION 7.9.1. Section 7.9.1 of the Credit
Agreement is amended to read in its entirety as follows:
"7.9.1. Investments of the Company and each Subsidiary of the Company
that is not a Core Mutual Fund Subsidiary; PROVIDED, HOWEVER, that
immediately before and after giving effect to such Investment, no
Default exists; PROVIDED, FURTHER, that (a) on and after July 1, 1999
and through March 31, 2000, the Company and any Subsidiary will only
have outstanding, acquire, commit itself to acquire or hold any new
Investments, including Guarantees permitted by Section 7.7, in the
Company's or any Subsidiary's international operations that in the
aggregate will not exceed $20,000,000 and (b) on and after April 1,
2000 and through March 31, 2001, the Company and any Subsidiary will
only have outstanding, acquire, commit itself to acquire or hold any
new Investments (in addition to the new Investments permitted under the
foregoing clause (a)), including Guarantees permitted by Section 7.7,
in the Company's or any Subsidiary's international operations that in
the aggregate will not exceed $20,000,000."
2.12. AMENDMENT TO SECTION 7.9.7. Section 7.9.7 of the Credit
Agreement is amended to read in its entirety as follows:
-4-
<PAGE> 5
"7.9.7. Guarantees permitted by Section 7.7; PROVIDED, HOWEVER, that on
and after July 1, 1999 and through March 31, 2000, the Company and any
Subsidiary will only have outstanding, acquire, commit itself to
acquire or hold any new Guarantees in the Company's or any Subsidiary's
international operations that in the aggregate, together with other new
Investments, will not exceed $20,000,000; PROVIDED, FURTHER, that on
and after April 1, 2000 and through March 31, 2001, the Company and any
Subsidiary will only have outstanding, acquire, commit itself to
acquire or hold any new Guarantees (in addition to the new Guarantees
permitted under the foregoing proviso) in the Company's or any
Subsidiary's international operations that in the aggregate, together
with other new Investments, will not exceed $20,000,000."
2.13. AMENDMENT TO SECTION 7.11.3. Section 7.11.3 of the Credit
Agreement is amended to read in its entirety as follows:
"7.11.3. Subject to Section 9.1.13, any of the Pioneer
Goldfields Entities may be merged with or liquidated into the Company,
or may be merged with, liquidated into or contributed to any of the
other Pioneer Goldfields Entities."
2.14. AMENDMENT TO SECTION 7.11.4. Section 7.11.4 of the Credit
Agreement is amended to read in its entirety as follows:
"7.11.4. Other than as provided in Section 7.11.6, the Company
and each Subsidiary of the Company which is not a Core Mutual Fund
Subsidiary or a Pioneer Goldfields Entity may enter into a merger,
consolidation, sale, lease, sale and leaseback, sublease or other
disposition of its assets, PROVIDED that immediately before and after
giving effect to such transaction, no Default exists; and PROVIDED
FURTHER that any sale of equity interests in any of the Pioneer
Goldfields Entities shall be in accordance with Section 7.11.5."
2.15. ADDITION OF SECTION 7.11.6. A new Section 7.11.6 is added to
the Credit Agreement (Mergers, Consolidations and Dispositions of Assets)
immediately after Section 7.11.5 of the Credit Agreement to read in its entirety
as follows:
"7.11.6. Pioneering Services Corporation, a Wholly Owned
Subsidiary, may enter into a sales and lease back transaction with PGH
Nebraska, Inc., a Wholly Owned Subsidiary."
2.16. AMENDMENT TO EXHIBIT 8.1. Exhibit 8.1 of the Credit Agreement
(The Pioneer Group and its Subsidiaries) is amended to read in its entirety as
set forth on Exhibit 8.1 hereto.
2.17. AMENDMENT TO EXHIBIT 11.1. Exhibit 11.1 of the Credit
Agreement (Percentage Interests) is amended to read in its entirety as set forth
on Exhibit 11.1 hereto.
-5-
<PAGE> 6
3. REPRESENTATIONS AND WARRANTIES. In order to induce the Lenders to enter
into this Agreement, each of the Company and the Guarantors 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 (i) enter into and perform this Agreement,
the Amended Credit Agreement and each other Credit Document to which it is party
and (ii) 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 have 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 or the Amended Credit Agreement, nor the
fulfillment of the terms hereof or thereof, has constituted or resulted in or
will constitute or result in:
(1) 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;
(2) the violation of any law, judgment, decree or governmental
order, rule or regulation applicable to the Company or any Subsidiary;
(3) the creation under any agreement, instrument, deed or
lease of any Lien upon any of the assets of the Company or any
Subsidiary; or
(4) 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
-6-
<PAGE> 7
performance of this Agreement or the performance of the Amended Credit
Agreement, or the consummation of the transactions contemplated hereby or
thereby.
3.4. NO DEFAULT. Immediately prior to 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 Credit Agreement,
or in the case of the Guarantors, Section 6.6 of the 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 immediately prior to and 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. The Lenders owning at least a majority
of the Percentage Interests under the Credit Agreement shall have executed and
delivered this Agreement to the Company.
4.4. FEES.
(a) In consideration for entering into this Agreement, the Company
shall have paid to the Agent for the account of the Lenders, in accordance with
the Lenders' Percentage Interests, an amount equal to 0.25% of the Maximum
Amount of Revolving Credit.
(b) The Company shall have paid all fees due to the Agent or other
lenders and all reasonable fees and disbursements of Ropes & Gray, special
counsel to the Lenders.
-7-
<PAGE> 8
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 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 Notes. 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.
(The rest of this page left intentionally blank)
-8-
<PAGE> 9
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 CORPORATION
By /s/ Eric W. Reckard By /s/ Eric W. Reckard
Title: Exec. VP, CFO and Treasurer Title: Treasurer
60 State Street 60 State Street
Boston, Massachusetts 02109-1820 Boston, Massachusetts 02109-1820
PIONEER INVESTMENT MANAGEMENT, INC.
By /s/ Eric W. Reckard
Title: Treasurer
60 State Street
Boston, Massachusetts 02109-1820
PIONEER MANAGEMENT (IRELAND) LTD.
By /s/ John F. Cogan, Jr.
Title: Director
60 State Street
Boston, Massachusetts 02109-1820
PIONEER FUNDS DISTRIBUTOR, INC.
By /s/ Eric W. Reckard
Title: Treasurer
60 State Street
Boston, Massachusetts 02109-1820
-9-
<PAGE> 10
BANKBOSTON, N.A.
By /s/ Stewart P. 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/ Scott H. Buitekant
Title: Vice President
One Wall Street, 17th Floor
Mutual Fund Banking Division
New York, NY 10286
Telecopy: (212) 635-6348
Telex:
SOCIETE GENERALE
By /s/ Dabney G. Treacy
Title: Vice President
1221 Avenue of the Americas
New York, New York 10020
Telecopy: (212) 278-7153
-10-
<PAGE> 11
STATE STREET BANK & TRUST COMPANY
By: /s/ Michael St. Jean
Title: Vice President
225 Franklin Street, 8th Floor
Asset-Based Finance
Boston, MA 02110
Telecopy: (617) 338-4041
BANQUE NATIONALE DE PARIS
By: /s/ Marguerite L. Lebon /s/ Laurent Vanderzyppe
Title: Asst VP Vice President
499 Park Avenue, 2nd Floor
New York, 10022
Telecopy: (212) 415-9707
MELLON BANK, N.A.
By: /s/ John R. Cooper
Title: Vice President
One Mellon Bank Center
Mail Code: 1510370
Pittsburgh, PA 15258
Telecopy: (412) 234-8087
-11-
<PAGE> 12
OFFICER'S CERTIFICATE
Pursuant to Section 4.1 of Amendment No. 8 to Credit Agreement dated as
of June 30, 1999 (the "Amendment") among The Pioneer Group, Inc., a Delaware
corporation (the "Company"), certain of its subsidiaries signatories thereto,
the Lenders and BankBoston, N.A., f/k/a 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 (as amended, modified and in effect after
giving effect to the Amendment, 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 date hereof
with the same force and effect as though originally made on and as of the date
hereof; no Default exists on the date hereof or will exist after giving effect
to the Amendment; as of the date hereof, no Material Adverse Change has
occurred; and, as of the date hereof, the aggregate investment assets under
management by the Company and its Subsidiaries equals or exceeds
$15,000,000,000.
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 30th day of June, 1999.
THE PIONEER GROUP, INC.
By _________________________________
Name:
Title:
<PAGE> 13
<TABLE>
<CAPTION>
JURISDICTION OF
NAME(1) INCORPORATION ADDRESS JURISDICTION(S)
------- --------------- ------- ---------------
<S> <C> <C> <C>
The Pioneer Group, Inc. Delaware 60 State Street Massachusetts
Boston, Massachusetts 02109
Pioneer Investment Delaware 60 State Street Massachusetts
Management, Inc. (f/k/a Boston, Massachusetts 02109
Pioneering Management
Corporation)(2)
Pioneer Funds Distributor, Inc.(3) Massachusetts 60 State Street Massachusetts
Boston, Massachusetts 02109
Pioneering Services Corporation(4) Massachusetts 60 State Street Massachusetts
Boston, Massachusetts 02109
Pioneer Capital Corporation Massachusetts 60 State Street Massachusetts
(in liquidation) Boston, Massachusetts 02109
Pioneer SBIC Corporation Massachusetts 60 State Street Massachusetts
(in liquidation) Boston, Massachusetts 02109
Pioneer Associates, Inc. Massachusetts 60 State Street Massachusetts
(in liquidation) Boston, Massachusetts 02109
Pioneer Plans Corporation Delaware 60 State Street Massachusetts
Boston, Massachusetts 02109
PIOGlobal Corporation Delaware 60 State Street Massachusetts
Boston, Massachusetts 02109
Pioneer Metals and Technology, Delaware 60 State Street Massachusetts
Inc. Boston, Massachusetts 02109
Pioneer Investments Corporation Massachusetts 60 State Street Massachusetts
Boston, Massachusetts 02109
Pioneer International Corporation Delaware 60 State Street Massachusetts
Boston, Massachusetts 02109 Switzerland
Moscow, Russia
Pioneer Ventures Limited Massachusetts 60 State Street Massachusetts
Partnership (in liquidation) Boston, Massachusetts 02109
Pioneer Global Funds Bermuda Cedar House Bermuda
Distributor, Ltd.(5) 41 Cedar Avenue
Hamilton
Bermuda
</TABLE>
<PAGE> 14
<TABLE>
<CAPTION>
JURISDICTION OF
NAME(1) INCORPORATION ADDRESS JURISDICTION(S)
------- --------------- ------- ---------------
<S> <C> <C> <C>
Pioneer Real Estate Advisors, Delaware 60 State Street Massachusetts
Inc. Boston, Massachusetts 02109 Moscow, Russia
Pioneer Explorer, Inc. Delaware 60 State Street Massachusetts
Boston, Massachusetts 02109
Pioneer Omega, Inc. Delaware 60 State Street Massachusetts
Boston, Massachusetts 02109
Pioneer First Russia, Inc. Delaware 60 State Street Massachusetts
Boston, Massachusetts 02109
Luscinia, Inc. Delaware 60 State Street Massachusetts
Boston, Massachusetts 02109
Theta Enterprises, Inc. Delaware 60 State Street Massachusetts
Boston, Massachusetts 02109
Pioneer Forest, Inc. Delaware 60 State Street Massachusetts
Boston, Massachusetts 02109
Pioneer Goldfields Holdings, Delaware c/o Belfing, Lyons & Shuyman Delaware
Inc.(6) 200 West Ninth Street Plaza
Box 2105
Wilmington, Delaware 19899
PGH Nebraska, Inc.(7) Delaware 60 State Street Delaware
Boston, Massachusetts 02109 Nebraska
PGIA Corp. Delaware 60 State Street Massachusetts
Boston, Massachusetts 02109
Pioneer Goldfields Limited(8) Guernsey, 7 New Street Guernsey,
Channel Islands St. Peter Port Channel Islands
Guernsey GYI 4BZ
Channel Islands
Pioneer Goldfields Trustees Guernsey, 7 New Street Guernsey,
Limited (in liquidation) Channel Islands St. Peter Port Channel Islands
Guernsey GYI 4BZ
Channel Islands
Teberebie Goldfields Limited(9) Republic of Ghana P.O. Box 6 Republic of Ghana
Tarkwa--Wassaw
Ghana, West Africa
</TABLE>
<PAGE> 15
<TABLE>
<CAPTION>
JURISDICTION OF
NAME(1) INCORPORATION ADDRESS JURISDICTION(S)
------- --------------- ------- ---------------
<S> <C> <C> <C>
PIOGlobal Insurance Bermuda c/o Skandia International Bermuda
Company Limited Front Street
Hamilton
Bermuda
Pioneer Fonds Marketing Germany Platzl 4 Germany
GmbH 80331 Munich
Germany
Pioneer Management Ireland 2/4 Ely Place Ireland
(Ireland) Limited(10) Dublin 2 Germany
Ireland
Pioneer First Polish Poland Intraco Building Poland
Investment Fund Joint-Stock ul.Stawki 2, 29 Pietro
Company, s.a. 00-193 Warsaw
Poland
Pioneer Real Estate Poland Intraco Building Poland
Advisors Sp z.o.o ul.Stawki 2,29 Pietro
00-193 Warsaw
Poland
Pioneer Financial Services Poland ul.Wynalazek 6 Poland
Limited 02-677 Warsaw
Poland
Pioneer Czech Investment Czech Republic Betlem Palais Czech Republic
Company, a.s. ul.Husova 5
110-00 Prague 1
Czech Republic
Closed Joint Stock Russian Federation Vasilevsky Island Russian
Company "Pioneer Metals 21st Line, 8a Federation
International" St. Petersburg 199026
Russian Federation
Closed Joint-Stock Russian Federation 1 Alleya Truda Russian
Company "Forest-Starma" Komsomolsk-on-Amur Federation
Khabarovsk Territory 681000
Russian Federation
Closed Joint-Stock Russian Federation 1 Chekhov Street Russian
Company "Starma-Port" Apt. 3 Federation
Vanino 682860
Khabarousk Territory
Russian Federation
</TABLE>
<PAGE> 16
<TABLE>
<CAPTION>
JURISDICTION OF
NAME(1) INCORPORATION ADDRESS JURISDICTION(S)
------- --------------- ------- ---------------
<S> <C> <C> <C>
Closed Joint-Stock Russian Federation 8 Leo Tolstoy Street Russian
Company "Dalplaz" Khabarousk territory 680000 Federation
Russian Federation
Closed Joint-Stock Russian Federation 4 Koprovaya Street Russian
Company "Starma-Holding" Komsomalsk-on-Amur Federation
Khabarousk territory 681005
Russian Territory
Closed Joint-Stock Russian Federation Briakan Village Russian
Company "Amgun-Forest" Polino Osipenko Region Federation
Khabarovsk Territory 680000
Russian Federation
Closed Joint-Stock Russian Federation Udinsk Village Russian
Company "Udinskoye" Polina Osipenko Region Federation
Khabarovsk Territory 682391
Russian Federation
Closed Joint Stock Russian Federation Leo Tolstoy Street Russian
Company "Tas-Yurjah" Khabarovsk Territory 680000 Federation
Mining Company Russian Federation
Closed Joint-Stock Russian Federation Repina Street, 6 Russian
Company "Pioneer Starma Khabarovsk Territory 680003 Federation
Equipment" Russian Federation
"Pioneer Investments" Russian Federation Gazetny per., 5 Russian
Building 3 Federation
Moscow 103918
Russian Federation
Closed Joint Stock Russian Federation Meridian Commercial Tower Russian
Company "Pioneer Securities" ul.Smolnaya 24D Federation
Moscow 125445
Russian Federation
Closed Joint Stock Company Russian Federation Meridian Commercial Tower Russian
Management Company ul.Smolnaya 24D Federation
Moscow 125445
Russian Federation
First Investment Fund Russian Federation Trubnikovsky per., 2 1/2 Russian
Moscow, 121069 Federation
Russian Federation
</TABLE>
<PAGE> 17
<TABLE>
<CAPTION>
JURISDICTION OF
NAME(1) INCORPORATION ADDRESS JURISDICTION(S)
------- --------------- ------- ---------------
<S> <C> <C> <C>
Closed Joint Stock Company Russian Federation Meridian Commercial Tower Russian
"Pioneer Services" ul.Smolnaya 24D Federation
Moscow 125445
Russian Federation
Pioneering Management (Jersey) Jersey, Channel Islands c/o Abacus Asset Management Ltd. Jersey, Channel Islands
Limited La Motte Chambers Poland
St. Helier
Jersey JE1 1BJ
Channel Islands
Pioneer Poland U.S. Jersey, Channel Islands c/o Abacus Asset Management Ltd. Jersey, Channel Islands
(Jersey) Limited La Motte Chambers Poland
St. Helier
Jersey JE1 1BJ
Channel Islands
UKS Securities Ltd. United Kingdom c/o Brobeck Hale & Dorr United Kingdom
International
Veritas House
125 Finsbury Pavement
London EC2A 1NQ
England
AS Holdings, Inc. Delaware 60 State Street Massachusetts
Boston, Massachusetts 02109
Pioneer Polski Dom Poland Intraco Building Poland
Maklerski, S.A. ul. Stawki 2, 29 Pietro
00-193 Warsaw
Poland
Pioneer Investments Poland Poland Intraco Building Poland
Limited ul. Stawki 2, 29 Pietro
00-193 Warsaw
Poland
</TABLE>
<PAGE> 18
<TABLE>
<CAPTION>
JURISDICTION OF
NAME(1) INCORPORATION ADDRESS JURISDICTION(S)
------- --------------- ------- ---------------
<S> <C> <C> <C>
Mercury Facilities Russian Federation Meridian Commercial Tower Russian
Management Limited ul.Smolnaya 24D Federation
(Joint Stock Company) Moscow 125445
Russian Federation
Pioneer Poland GP Delaware c/o Pioneer Poland Delaware
Limited Partnership U.S. Jersey Limited
c/o Abacus Asset Management Ltd.
La Motte Chambers
St. Helier
Jersey JE1 1BJ
Channel Islands
ISC Holdings, Inc. Delaware 60 State Street Massachusetts
Boston, Massachusetts 02109
ISC (Ireland) Limited Ireland 2/4 Ely Place Ireland
(in liquidation) Dublin
Ireland
Closed Joint Stock Company Russian Federation Vasilevsky Island Russian
"Gradient" 21st Line, 8a Federation
St. Petersburg 199026
Russian Federation
Pioneer Czech Financial Company, Czech Republic Betlem Palais Czech Republic
s.r.o. ul.Husova 5
110-00 Prague 1
Czech Republic
Pioneer Goldfields II Limited(11) Channel Islands c/o Carey & Langlois Channel Islands
Delaware 7 New Street Delaware
St. Peter Port
Guernsey Channel Islands
Pioneer Goldfields Trust(12) Massachusetts 60 State Street Massachusetts
Boston, MA 02109
Beijing Pioneer Zhong People's Republic Suite 502-2 People's Republic
Investment Consulting of China Hua Cheng Mansion of China
Co., Ltd. No. 2 Da Hua Road
Beijing
China 10005
</TABLE>
(1) Unless otherwise noted, each corporation conducts business under its own
name.
(2) 2,000 shares of Common Stock authorized, 1,999 shares issued and
outstanding. All shares issued to The Pioneer Group, Inc.
(3) 100,000 shares of Common Stock authorized, 100 shares issued and
outstanding. All shares issued to Pioneer Investment Management, Inc.
(4) 15,000 shares of Common Stock authorized, 1,000 shares issued and
outstanding. All shares issued to The Pioneer Group, Inc.
(5) 12,000 shares of Common Stock, $1.00 per share, authorized and
outstanding. All shares issued to Pioneer Funds Distributor, Inc.
(6) 1,000 shares of Common Stock, $0.01 per share, authorized, issued and
outstanding. All shares issued to The Pioneer Group, Inc.
(7) 1,000 shares of Common Stock, $0.01 per share, authorized; 100 shares issued
and outstanding. All shares issued to The Pioneer Group, Inc.
<PAGE> 19
(8) 75,000,000 Ordinary Shares authorized, issued and outstanding, 74,997,000
shares issued to Pioneer Goldfields Holdings, Inc. and 3,000 shares issued
to C.L. Nominees Limited as nominee for Pioneer Goldfields Holdings, Inc.
(9) 10,000,000 Ordinary Shares authorized, consisting of 9,000,000 authorized
Class "A" Shares and 1,000,000 authorized Class "B" shares. 1,860,000 Class
"A" Shares issued to Pioneer Goldfields Limited and 206,667 Class "B"
Shares issued to the Government of Ghana.
(10) 1,000,000 Ordinary Shares authorized, 700,000 shares issued and
outstanding, 699,999 shares issued to The Pioneer Group, Inc. and 1 share
to Lower Mount Limited as nominee for The Pioneer Group, Inc.
(11) US $10.00 divided into 1,000 shares of US $0.01 each. Two shares issued to
PGH Nebraska, Inc.
(12) 100 units authorized, issued and outstanding. All units issued to PGH
Nebraska, Inc.
<PAGE> 20
<TABLE>
<CAPTION>
CURRENT PROPOSED
BANK % of COMMITMENT COMMITMENT
NAME COMMITMENT ($) ($)
---- ---------- --- ---
<S> <C> <C> <C>
BankBoston 26.08696% 20,869,565.21 16,956,521.73
Mellon 21.73913% 17,391,304.35 14,130,434.78
State Street 17.39130% 13,913,043.48 11,304,347.83
Societe Generale 13.04348% 10,434,782.61 8,478,260.87
Bank of New York 13.04348% 10,434,782.61 8,478,260.87
Banque Nationale de Paris 8.69565% 6,956,521.74 5,652,173.91
---------- ------------- -------------
Total 100.00000% 80,000,000 65,000,000
</TABLE>
<PAGE> 1
================================================================================
EXHIBIT 10.2
THE PIONEER GROUP, INC.
------------------------
SUPPLEMENTAL AGREEMENT NO. 4
Dated as of June 30, 1999
amending the
Note Agreement dated as of August 14, 1997
(as amended)
------------------------
8.95% Senior Notes due 2004
================================================================================
<PAGE> 2
THE PIONEER GROUP, INC.
SUPPLEMENTAL AGREEMENT NO. 4
as of June 30, 1999
Re: 8.95% Senior Notes due 2004
The Travelers Insurance Company
One Tower Square
Hartford, CT 06183-2030
Ladies and Gentlemen:
THE PIONEER GROUP, INC., a Delaware corporation (the
"COMPANY"), hereby agrees with you as follows:
SECTION 1. AMENDMENTS. Pursuant to the Note Agreement dated as
of August 14, 1997, as amended by Supplemental Agreement No. 1 and Supplemental
Agreement No. 2, each dated as of September 30, 1998 and Supplemental Agreement
No. 3, dated as of December 29, 1998 (as so amended, the "NOTE AGREEMENT"),
entered into by the Company with The Travelers Insurance Company, the Company
issued and sold $20,000,000 aggregate principal amount of its Senior Notes due
2004 (the "NOTES"). Unless the context otherwise requires, capitalized terms
used herein without definition have the respective meanings ascribed thereto in
the Note Agreement. The Notes originally bore an interest rate of 7.95% per
annum. Pursuant to Supplemental Agreement No. 1, such interest rate was changed
to a floating rate of interest as therein described. Pursuant to Supplemental
Agreement No.3, such interest rate was changed to a fixed rate of 8.95% per
annum. The Company has requested you, as the holder of all of the outstanding
Notes, further to amend the Note Agreement. Subject to this Supplemental
Agreement No. 4 (this "SUPPLEMENTAL Agreement") becoming effective as
hereinafter provided, the Company and the holder of the Notes do hereby agree
that the Note Agreement is amended pursuant to Section 11.1 of the Note
Agreement as follows:
<PAGE> 3
2
A. Section 1 of the Note Agreement is amended by:
1. deleting the definitions of "Core Mutual Fund Subsidiary",
"Pioneer Goldfield Entities" and "Subsidiary Guarantors" in their
entirety and replacing them with the following new definitions:
"'CORE MUTUAL FUND SUBSIDIARY' means each of Pioneer
Investment Management, Inc. (f/k/a Pioneering Management
Corporation), Pioneer Funds Distributor, Inc., Pioneering
Services Corporation, Pioneer Management (Ireland) Ltd. and
any other Borrower Subsidiary (as defined in the Bank Credit
Facility) and any other Person which becomes a Subsidiary of
the Company after the date of this Agreement if such Person
engages in activities similar or related to the business
conducted by any Core Mutual Fund Subsidiary and is approved
by the Required Holders."
* * * *
"'PIONEER GOLDFIELD ENTITIES' means Pioneer Goldfields
Holdings, Inc., Pioneer Goldfields II Limited, PGH Nebraska,
Inc., Pioneer Goldfields Trust, Pioneer Goldfields Limited and
Teberebie Goldfields Limited."
* * * *
"'SUBSIDIARY GUARANTORS' means Pioneer Management (Ireland)
Ltd., Pioneer Investment Management, Inc. (f/k/a Pioneering
Management Corporation) and Pioneering Services Corporation,
each of their Wholly Owned Subsidiaries and any other Wholly
Owned Subsidiary from time to time so designated by the
Company and approved by the Required Holders."
2. adding the following new definitions:
"'PGH NEBRASKA, INC.' means a newly-incorporated Delaware
corporation and a Wholly-Owned Subsidiary, which principally
shall purchase assets from and lease such assets back to
Pioneering Services Corporation."
<PAGE> 4
3
"'PIONEER GOLDFIELDS II LIMITED' means a newly-incorporated
Channel Islands company to be domesticated in the United
States and a Wholly Owned Subsidiary."
"'PIONEER GOLDFIELDS TRUST' means a newly-formed
Massachusetts business investment trust and a Wholly Owned
Subsidiary."
B. Section 7.5.3 is amended to read in its entirety as
follows:
"7.5.3. CONSOLIDATED TANGIBLE NET WORTH.
Consolidated Tangible Net Worth shall:
(a) on June 30, 1999, equal or exceed $120,000,000,
increased by an amount equal to 50% of the after-tax gain on
the sale or disposition of assets or capital stock of Pioneer
Goldfields Entities;
(b) on and after July 1, 1999, and through December 30,
1999, at all times equal or exceed $120,000,000; provided,
however, that on the first day of each fiscal quarter of the
Company beginning with the fiscal quarter ending September 30,
1999, such dollar amount shall be increased by an amount equal
to 50% of the sum of (i) the Consolidated Net Income (only if
in excess of zero) for each of the fiscal quarters ended since
July 1, 1999 and (ii) the after-tax gain on the sale or
disposition of assets or capital stock of Pioneer Goldfields
Entities;
(c) on and after December 31, 1999, and through June 29,
2000, at all times equal or exceed the greater of (i)
$125,000,000 or (ii) $120,000,000, increased on the first day
of each fiscal quarter of the Company beginning with the
fiscal quarter ending December 31, 1999, by an amount equal to
50% of the sum of (A) the Consolidated Net Income (only if in
excess of zero) for each of the fiscal quarters ended since
July 1, 1999 and (B) the after-tax gain on the sale or
disposition of assets or capital stock of Pioneer Goldfields
Entities; and
(d) on and after June 30, 2000, at all times equal or
exceed the greater of (i) $130,000,000 or (ii)
<PAGE> 5
4
$120,000,000, increased on the first day of each fiscal
quarter of the Company beginning with the fiscal quarter
ending June 30, 2000, by an amount equal to 50% of the sum of
(A) the Consolidated Net Income (only if in excess of zero)
for each of the fiscal quarters ended since July 1, 1999 and
(B) the after-tax gain on the sale or disposition of assets or
capital stock of Pioneer Goldfields Entities."
C. Section 7.9.1 is amended to read in its entirety as
follows:
"7.9.1. Investments of the Company and each Subsidiary of the
Company that is not a Core Mutual Fund Subsidiary; provided, however,
that immediately before and after giving effect to such Investment, no
Default exists; provided, further that (a) on and after July 1, 1999
and through March 31, 2000, the Company and any Subsidiary will only
have outstanding, acquire, commit itself to acquire or hold any new
Investments, including Guarantees permitted by Section 7.7, in the
Company's or any Subsidiary's international operations that in the
aggregate will not exceed $20,000,000 and (b) on and after April 1,
2000 and through March 31, 2001, the Company and any Subsidiary will
only have outstanding, acquire, commit itself to acquire or hold any
new Investments (in addition to the new Investments permitted under the
foregoing clause (a)), including Guarantees permitted by Section 7.7,
in the Company's or any Subsidiary's international operations that in
the aggregate will not exceed $20,000,000."
D. Section 7.9.7 is amended to read in its entirety as
follows:
"7.9.7. Guarantees permitted by Section 7.7, provided,
however, that on and after July 1, 1999 and through March 31, 2000, the
Company and any Subsidiary will only have outstanding, acquire, commit
itself to acquire or hold any new Guarantees in the Company's or any
Subsidiary's international operations that in the aggregate, together
with other new Investments, will not exceed $20,000,000; provided,
further, that on and after April 1, 2000 and through March 31, 20001,
the Company and any Subsidiary will only have outstanding, acquire,
commit itself to acquire or hold any new Guarantees Investments (in
addition to the new
<PAGE> 6
5
Guarantees permitted under the foregoing proviso) in the Company's or
any Subsidiary's international operations that in the aggregate,
together with other new Investments, will not exceed $20,000,000."
E. Section 7.11.3 is amended to read in its entirety as
follows:
"7.11.3. Subject to Section 9.1.13, any of the Pioneer
Goldfields Entities may be merged with or liquidated into the Company,
or may be merged with, liquidated into or contributed to any of the
other Pioneer Goldfields Entities."
F. Section 7.11.4 is amended to read in its entirety as
follows:
"7.11.4. Other than as provided in Section 7.11.6, the Company
and each Subsidiary of the Company which is not a Core Mutual Fund
Subsidiary or a Pioneer Goldfields Entity may enter into a merger,
consolidation, sale, lease, sale and leaseback, sublease or other
disposition of its assets, provided that immediately before and after
giving effect to such transaction, no Default exists; and provided
further that any sale of equity interests in any of the Pioneer
Goldfields Entities shall be in accordance with Section 7.11.5."
G. A new Section 7.11.7 is hereby added to the Note Agreement
to read as follows:
"7.11.7. Pioneering Services Corporation, a Wholly
Owned Subsidiary, may enter into a sales and lease back
transaction with PGH Nebraska, Inc., a Wholly Owned
Subsidiary, as heretofore described to the holders of the
Notes."
H. AMENDMENT TO EXHIBIT 8.1. Exhibit 8.1 of the Note
Agreement, entitled "the Company and its Subsidiaries," is deleted in its
entirety and replaced with Exhibit A hereto.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represe nts and warrants to you as follows:
A. ORGANIZATION, AUTHORIZATION, ETC. The Company and each of
its Subsidiaries is a corporation duly organized, validly
<PAGE> 7
6
existing and in good standing under the laws of the State of its organization,
and has all requisite power and authority to execute, deliver and perform its
obligations under the Note Agreement as amended by this Supplemental Agreement.
The execution, delivery and performance of this Supplemental
Agreement has been duly authorized by all necessary corporate and, if required,
stockholder action on the part of the Company and each Subsidiary Guarantor, as
applicable. This Supplemental Agreement is a legal, valid and binding obligation
of the Company and the Subsidiary Guarantors, as applicable, enforceable against
the Company or such Subsidiary Guarantors in accordance with its terms, except
as enforceability may be limited by bankruptcy, insolvency, reorganization,
fraudulent transfer, moratorium or other similar laws relating to or affecting
creditors' rights generally and by general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
B. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC. The
execution, delivery and performance by the Company or the Subsidiary Guarantors
of this Supplemental Agreement does not and will not (A) contravene, result in
any breach of, or constitute a default under, or result in the creation of any
Lien in respect of any property of the Company or any Subsidiary under any
indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease,
corporate charter or by-laws, or any other agreement or instrument to which the
Company or any Subsidiary is bound or by which the Company or any Subsidiary or
any of their respective properties may be bound or affected, (B) conflict with
or result in a breach of any of the terms, conditions or provisions of any
order, judgment, decree, or ruling of any court, arbitrator or Governmental
Authority applicable to the Company or any Subsidiary or (C) violate any
provision of any statute or other rule or regulation of any Governmental
Authority applicable to the Company or any Subsidiary.
C. GOVERNMENTAL AUTHORIZATIONS, ETC. No consent, approval or
authorization of, or registration, filing or declaration with, any Governmental
Authority is required in connection with the execution, delivery or performance
by the Company or any Subsidiary Guarantor of this Supplemental Agreement.
<PAGE> 8
7
D. NO DEFAULT, ETC. No Event of Default or Default has
occurred and is continuing, and neither the Company nor any Core Mutual Fund
Subsidiary is in default (whether or not waived) in the performance or
observance of any of the terms, covenants or conditions contained in any
instrument evidencing any Indebtedness and there is no pending request by the
Company (except pursuant to this Supplemental Agreement) or any such Subsidiary
for any amendment or waiver in respect of any contemplated or possible default
with respect to such Indebtedness and no event has occurred and is continuing
which, with notice or lapse of time or both, would become such a default.
E. NO UNDISCLOSED FEES. The Company has not, directly or
indirectly, other than with respect to the payment of consideration disclosed to
the Noteholders, paid or caused to be paid any consideration (as supplemental or
additional interest, a fee or otherwise) to any party to the Bank Credit
Facility in order to induce such party to enter into an agreement substantially
similar to this Supplemental Agreement, nor has the Company agreed to made any
such payment.
SECTION 3. REPRESENTATION OF THE NOTEHOLDER. You represent to
the Company that you are the beneficial owner of Notes in an aggregate principal
amount of $20,000,000.
SECTION 4. EFFECTIVENESS OF THIS SUPPLEMENTAL AGREEMENT. This
Supplemental Agreement shall become effective on the date (the "EFFECTIVE DATE")
on which all of the following conditions precedent shall have been satisfied:
A. PROCEEDINGS. All proceedings taken by the Company and the
Subsidiary Guarantors in connection with the transactions contemplated hereby
and all documents and papers incident thereto shall be satisfactory to you, and
you and your special counsel shall have received all such counterpart originals
or certified or other copies of such documents and papers, all in form and
substance satisfactory to you, as you or they may reasonably request in
connection therewith.
B. REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 of this Supplemental Agreement
shall be true on and as of the Effective Date as though such representations and
warranties had been made on and as of the Effective Date, and you
<PAGE> 9
8
shall have received a certificate of a senior financial officer of the Company,
dated the Effective Date, to such effect.
C. PAYMENT OF FEES. The Company shall have paid you an
amendment fee equal to 0.25% of the unpaid principal amount of the Notes and an
administrative fee of $25,000. The Company shall have also paid the fees and
disbursements of your special counsel as contemplated by Section 5 of this
Supplemental Agreement.
SECTION 5. EXPENSES. Without limiting the generality of
Section 5.8 of the Note Agreement, the Company agrees, whether or not the
transactions contemplated hereby are consummated, to pay the reasonable fees and
disbursements and other charges of Willkie Farr & Gallagher, your special
counsel, for their services rendered in connection with such transactions and
with respect to this Supplemental Agreement and any other document delivered
pursuant to this Supplemental Agreement and reimburse you for your out-of-pocket
expenses in connection with the foregoing.
SECTION 6. RATIFICATION. Except as amended hereby, the Note
Agreement is in all respects ratified and confirmed and the provisions thereof
shall remain in full force and effect, and the Subsidiary Guarantors hereby
ratify their obligations thereunder and under the Subsidiary Guarantees to which
they are a party.
SECTION 7. COUNTERPARTS. This Supplemental Agreement may be
executed in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
SECTION 8. GOVERNING LAW. This Supplemental Agreement shall
be governed by and construed in accordance with the laws of the State of New
York.
<PAGE> 10
9
If you are in agreement with the foregoing, please sign the
form of acceptance in the space below provided, whereupon this Supplemental
Agreement shall become a binding agreement between you and the Company, with the
approval of the Subsidiary Guarantors, subject to becoming effective as
hereinabove provided.
THE PIONEER GROUP, INC.
By /s/ John F. Cogan, Jr.
Title: President and CEO
60 State Street
Boston, MA 02109-1820
SUBSIDIARY GUARANTORS
PIONEER INVESTMENT MANAGEMENT, INC.
By /s/ Eric W. Reckard
Title: Treasurer
60 State Street
Boston, MA 02109-1820
PIONEER MANAGEMENT (IRELAND) LTD.
By /s/ John F. Cogan, Jr.
Title: Director
60 State Street
Boston, MA 02109-1820
PIONEERING SERVICES CORPORATION
By /s/ Eric W. Reckard
Title: Treasurer
60 State Street
Boston, MA 02109-1820
ACCEPTED
THE TRAVELERS INSURANCE COMPANY
By /s/ Pamela Westmoreland
Title: Investment Officer
<PAGE> 11
10
[EXHIBITS INTENTIONALLY OMITTED]
<PAGE> 1
EXHIBIT 10.3
AMENDMENT TO FINANCE AGREEMENT AND LIMITED WAIVER
AMENDMENT (the "Amendment"), dated as of June 3, 1999, 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 and OPIC are parties to a finance agreement dated
as of December 21, 1995, as amended, March 6, 1996, March 26, 1996, May 29, 1996
and June 24, 1996 (the "Finance Agreement");
WHEREAS, all capitalized terms used herein and not otherwise defined
herein shall have their respective meanings set forth in the Finance Agreement;
WHEREAS, PGI has acquired additional shares of capital stock of the
Company and has transferred such shares and all other shares of capital stock of
the Company owned by PGI to Pioneer Forest, Inc, a wholly owned Delaware
subsidiary of PGI ("PFI");
WHEREAS, PFI has acquired shares of the capital stock of the Company in
addition to the capital stock of the Company transferred from PGI to PFI, such
that as result of these transactions (the "Recapitalization") PFI will own 99%,
and may own 100%, of the shares of capital stock of the Company and
International Joint-Stock Company "Starma Holding", a joint-stock company
organized and existing under the laws of the Russian Federation ("Starma
Holding"), would no longer be a shareholder of the Company; and
WHEREAS, in order that PGI may proceed with the Recapitalization, the
Company and PGI have requested that OPIC agree with the Company to amend certain
provisions of the Finance Agreement and to waive certain other provisions of the
Finance Agreement, and, in addition, have requested certain other waivers under
Section 6.05 of the Finance Agreement in order to permit the Company to repay
certain Subordinated Debt and to pay certain fees as hereinafter provided, all
in accordance with Section 8.06 of the Finance Agreement; and OPIC is willing to
do so.
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants, provisions and undertakings herein and in the Finance Agreement and
for other good and valuable consideration, the receipt and and adequacy of which
is hereby acknowledged by the parties hereto, OPIC and the Company agree as
follows:
<PAGE> 2
1. AMENDMENTS.
(a) The following definition is hereby added after the definition
of "Person" in Section 1.01 of the Finance Agreement:
"PFI" means Pioneer Forest, Inc. a Delaware corporation.
(b) The words "June 30, 1997" in the third and fourth lines of
Section 5.01 of the Finance Agreement are hereby deleted and
the words "June 30, 2001" inserted.
(c) Paragraph (m) of Section 7.01 of the Finance Agreement is hereby
revised to read in its entirety as follows:
(m) The U.S. Sponsor ceases to hold 100% of the legal and
beneficial title to the equity of PFI or PFI ceases to hold at
least 97% of the equity of the Company or the U.S. Sponsor ceases
to retain management control of the Company; or
2. WAIVER. The Company has requested that Opic waive:
(a) any Event of Default under paragraphs (i) or (m) Section 7.01 of
the Finance Agreement arising out of the acquisition of equity of the
Company by PGI or PFI in connection with the Recapitalization as set
forth in Exhibit A annexed hereto and made a part hereof.
(b) the Company's obligation to comply with Section 6.04 and paragraph
(b) of Section 6.05 of the Finance Agreement to the extent necessary to
permit the Company to increase its authorized capital by up to
$45,000,000 and to accept a capital contribution from PFI with a value
of up to $45,000,000, which capital contribution shall be applied by
the Company immediately, and in its entirety, to repayment of up to
$45,000,000 in principal amount of, and accrued interest on, the
Subordinated Loan.
(c) the Company's obligation to comply with the requirement of clause
(x) of the proviso of Section 6.05 (b) of the Finance Agreement with
respect to Project Completion to the extent necessary to permit the
Company to pay (i) to PGI a fee not to exceed $75,000 per month
pursuant to the Services Agreement dated January 5, 1994, and all
supplemental agreements thereto, between the Company and PGI, (ii) to
Starma Holding in 1996, 1997 and 1998, a fee of $50,000 per month for
various support services provided in 1996, 1997 and 1998 and (iii) to
PIOGlobal Corporation, a Delaware corporation, in 1996 only a monthly
fee of $105,000, and in subsequent years a monthly fee equal to 105% of
actual expenditures, for the provision of specialist expatriate
employees pursuant to the Services and Professional Personnel
Secondment Agreement dated as of April 1, 1996, and all supplemental
agreements thereto, between PIOGlobal Corporation and the
<PAGE> 3
Company, so long as the Company is in compliance with all other
requirements of Section 6.05(b), including without limitation, the
other requirements of the aforesaid proviso, and such agreements are
not amended without the prior written consent of OPIC.
OPIC hereby waives any such Events of Default and such compliance with
Section 6.05(b); provided, however, that the waiver contained in
paragraph (a) of this Section 2 shall not be effective unless and until
OPIC shall have received one or more of an amended, restated or
additional Contract of Pledge of Shares, in form and substance
satisfactory to OPIC, and an opinion, in form and substance
satisfactory to OPIC, from counsel satisfactory to OPIC, with respect
to OPIC's security interest in shares of capital stock of the Company
pledged to OPIC.
3. REPRESENTATIONS AND WARRANTIES. The Company 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,
except that the record and beneficial ownership of the capital
stock of the Company set forth in Section 3.04 of the Finance
Agreement has changed, or will change, as a result of the
Recapitalization as set forth in Exhibit A annexed hereto.
4. 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.
5. NO WAIVER. The Company acknowledges and agrees that except as
expressly provided in Section 2 of this Amendment, 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 has occurred or
is occurring, and the execution and delivery of this Amendment shall not be
deemed a waiver by OPIC of any such Event of Default.
6. EFFECTIVE DATE. This Amendment shall be effective as of the date
hereof, except as otherwise expressly provided herein.
<PAGE> 4
7. COUNTERPARTS. This Amendment 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.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
by their authorized representatives as of the day and year first above written.
CLOSED JOINT-STOCK COMPANY "FOREST-STARMA"
By: /s/ Donald H. Hunter
Its: Authorized Officer
By: /s/ Catherine V. Mannick
Its: Authorized Officer
By: /s/ Inna Verdini
Its: Chief Accountant
OVERSEAS PRIVATE INVESTMENT CORPORATION
By: /s/ Steven S. Smith
Its: Investment Officer
[EXHIBIT INTENTIONALLY OMITTED]
<PAGE> 1
EXHIBIT 10.4
AMENDMENT TO PROJECT COMPLETION AGREEMENT
AMENDMENT (the "Amendment"), dated as of June 3, 1999, 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"), PIONEER FOREST, INC., a
corporation organized and existing under the laws of the state of Delaware and a
wholly owned subsidiary of the U.S. Sponsor (the "U.S. Subsidiary 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 Company, the U.S. Sponsor, the Russian Sponsor and OPIC
are parties to a Project Completion Agreement dated as December 21, 1995 (the
"Project Completion Agreement");
WHEREAS, all capitalized terms used herein and not otherwise defined
herein shall have their respective meanings set forth in the Finance Agreement
dated December 21, 1995, as amended, between the Company and OPIC or in the
Project Completion Agreement;
WHEREAS, as a result of the Recapitalization, the U.S. Subsidiary
Sponsor now owns 97% of the shares of capital stock of the Company and the
Russian Sponsor no longer holds any capital stock of the Company; and
WHEREAS, the parties wish to substitute the U.S. Subsidiary Sponsor for
the Russian Sponsor, as a party to and under the terms of, the Project
Completion Agreement.
NOW, THEREFORE, the parties agree as follows:
1. AMENDMENTS.
(a) The U.S. Subsidiary Sponsor is hereby substituted for
the Russian Sponsor as a party to the Project Completion
Agreement and the words "U.S.Subsidiary Sponsor" are
hereby subsituted for the words "Russian Sponsor" in
each instance in the definition of Sponsors in Section
1(b) of the Project Completion Agreement. The U.S.
Sponsor shall remain a party to the Project Completion
Agreement and its obligations thereunder shall not be
affected by such substitution.
<PAGE> 2
2
(b) Section 24 of the Project Completion Agreement is hereby
amended by the addition of the following paragraph:
"Notwithstanding the foregoing, the U.S. Sponsor
hereby indemnifies and holds harmless 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 (Losses) that may be imposed on,
incurred by, or asserted against any Indemnified
Person in any way relating to the Contract of
Pledge of Shares between the U.S. Subsidiary
Sponsor and OPIC on the Recapitalization, if such
Losses would not have occurred had the U.S. Sponsor
and the Russian Sponsor not transferred their
shares of the Company, directly or indirectly, to
the U.S. Subsidiary Sponsor in connection with the
Recapitalization. In particular, but without
limitation, this indemnity extends to any Losses
incurred by an Indemnified Person as a result of
the bankruptcy of the U.S. Subsidiary Sponsor or
due to the existence of any contract for pledge of
shares in the Company which the U.S. Subsidiary
Sponsor may have entered into, and having priority
to, the contract for the Pledge of Shares with
OPIC."
2. REPRESENTATIONS AND WARRANTIES.
(a) Each of the Company, the U.S. Sponsor, the U.S.
Subsidiary Sponsor and the Russian Sponsor represents
and warrants to OPIC that this Amendment consititutes a
legal, valid and binding obligation of it, enforceable
against it in accordance with its terms. (b) Each of the
U.S. Sponsor and the U.S. Subsidiary Sponsor represents
and warrants to OPIC, jointly and severally that: (i) As
of the effective date hereof the U.S. Subsidiary Sponsor
owns of record and beneficially, and the U.S. Sponsor
owns beneficially, 97% of the issued and outstanding
shares of capital stock of the Company, and the U.S.
Sponsor owns of record and beneficially all of the
issued and outstanding shares of capital stock of the
U.S. Subsidiary Sponsor; (ii) As of the date hereof each
of the representation and warranties of the Sponsors in
paragraphs (b) through (j) of Section 8.A of the Project
Completion Agreement are true and accurate.
3. UNDERTAKING OF U.S. SUBSIDIARY SPONSOR. The U.S. Subsidiary
Sponsor hereby agrees to be bound by the terms of Project
Completion Agreement as amended by this Amendment and to
appoint an agent for service of process satisfactory to OPIC
in compliance with Section 14(b) of the Project Completion
Agreement and give written notice thereof to OPIC within 30
days after the date hereof. Notices to the U.S. Subsidiary
Sponsor pursuant to
<PAGE> 3
3
Section 18 of the Project Completion Agreement may be given
to it at the following address:
60 State Street
Boston, MA 02109
Tel: 617-742-7825
Fax: 617-422-4286
4. RATIFICATION AND CONFIRMATION. As amended hereby, all the
terms and provisions of the Project Completion Agreement are
hereby ratified and confirmed and shall apply in full force
and effect.
5. EFFECTIVE DATE. This Amendment shall be effective as of the
date hereof.
6. COUNTERPARTS. This Amendment may be executed in counterparts,
each of which when so executed and delivered shall be deemed
an original and all of which shall constitute one and the same
instrument.
IN WITNESS whereof, the parties hereto have caused this Amendment to be
executed by their authorized representatives as of the day and year first
above written.
CLOSED JOINT-STOCK COMPANY "FOREST-STARMA"
By: /s/ Donald H. Hunter
Its: Authorized Officer
By: /s/ Catherine V. Mannick
Its: Authorized Officer
By: /s/ Inna Verdini
Its: Chief Accountant
THE PIONEER GROUP, INC.
By: /s/ Eric W. Reckard
Its: Executive Vice President, CFO and Treasurer
PIONEER FOREST, INC.
By: /s/ Stephen G. Kasnet
Its: President
<PAGE> 4
4
INTERNATIONAL JOINT-STOCK COMPANY "STARMA HOLDING"
By: /s/ Donald H. Hunter
Its: Authorized Officer
By: /s/ Inna Verdini
Its: Chief Accountant
OVERSEAS PRIVATE INVESTMENT CORPORATION
By: /s/ Steven S. Smith
Its: Investment Officer
<PAGE> 1
EXHIBIT 10.5
AGREEMENT WITH RESPECT TO PROJECT COMPLETION AGREEMENT
AGREEMENT (the "Agreement"), dated as of June 3, 1999, 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"), PIONEER FOREST, INC., a corporation
organized and existing under the laws of the state of Delaware and a wholly
owned subsidiary of the U.S. Sponsor (the "U.S. Sponsor Subsidiary"), and
OVERSEAS PRIVATE INVESTMENT CORPORATION, an agency of the United States of
America ("OPIC").
WITNESSETH:
WHEREAS, the Company, the U.S. Sponsor, International Joint Stock
Company "Starma Holding" (the "Russian Sponsor") and OPIC are parties to a
Project Completion Agreement dated as December 21, 1995 (the "Project Completion
Agreement");
WHEREAS, all capitalized terms used herein and not otherwise defined
herein shall have their respective meanings set forth in the Finance Agreement
dated December 21, 1995, as amended to and including the date hereof, between
the Company and OPIC or in the Project Completion Agreement;
WHEREAS, as a result of the Recapitalization, the U.S. Sponsor
Subsidiary will own 99%, and may own 100%, of the shares of capital stock of the
Company and the Russian Sponsor no longer holds any capital stock of the
Company; and
NOW, THEREFORE, the parties agree as follows:
1. INDEMNITY.
The U.S. Sponsor hereby indemnifies and holds harmless 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 (Losses) that may be imposed on, incurred by, or
asserted against any Indemnified Person in any way relating to the
Contract of Pledge of Shares between the U.S. Sponsor Subsidiary
and OPIC or the Recapitalization, if such Losses would not have
occurred had the U.S. Sponsor and the Russian Sponsor not
transferred their shares of the Company, directly or indirectly,
to the U.S. Sponsor Subsidiary in connection with the
Recapitalization. In particular, but without limitation, this
indemnity extends to any Losses incurred by an Indemnified Person
as a result of the bankruptcy
<PAGE> 2
2
of the U.S. Sponsor Subsidiary or due to the existence of any
contract for pledge of shares in the Company which the U.S.
Sponsor Subsidiary may have entered into, and having priority to,
the contract for the Pledge of Shares with OPIC."
2. REPRESENTATIONS AND WARRANTIES.
(a) Each of the Company, the U.S. Sponsor, the U.S. Sponsor
Subsidiary represents and warrants to OPIC that this
Agreement constitutes a legal, valid and binding obligation
of it, enforceable against it in accordance with its terms.
(b) Each of the U.S. Sponsor and the U.S. Sponsor Subsidiary
represents and warrants to OPIC, jointly and severally that:
(i) As of the effective date hereof the U.S. Sponsor
Subsidiary owns of record and beneficially, and the
U.S. Sponsor owns beneficially, 97%, and upon
completion of the Recapitalization will so own
beneficially at least 99%, of the issued and
outstanding shares of capital stock of the Company,
and the U.S. Sponsor owns of record and beneficially
all of the issued and outstanding shares of capital
stock of the U.S. Sponsor Subsidiary;
(ii) As of the date hereof each of the representation and
warranties of the Sponsors in paragraphs (b) through
(j) of Section 8.A of the Project Completion
Agreement are true and accurate.
3. UNDERTAKING OF U.S. SPONSOR SUBSIDIARY. The U.S. Sponsor
Subsidiary hereby agrees to be bound by, and jointly and severally
responsible and liable for all obligations and liabilities of the
U.S. Sponsor under, the terms of Project Completion Agreement and
to appoint an agent for service of process satisfactory to OPIC in
connection with this undertaking in compliance with the terms of
Section 14(b) of the Project Completion Agreement and give written
notice thereof to OPIC within 30 days after the date hereof.
Notices to the U.S. Sponsor Subsidiary may be given to it at the
following address:
60 State Street
Boston, MA 02109
Tel: 617-742-7825
Fax: 617-422-4286
4. RATIFICATION AND CONFIRMATION. All the terms and provisions of the
Project Completion Agreement are hereby ratified and confirmed by
the U.S. Sponsor and the U.S. Sponsor Subsidiary and shall apply
in full force and effect.
5. EFFECTIVE DATE. This Agreement shall be effective as of the date
hereof.
6. 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 shall constitute one and the same
instrument.
<PAGE> 3
3
IN WITNESS whereof, the parties hereto have caused this Agreement to be
executed by their authorized representatives as of the day and year first
above written.
CLOSED JOINT-STOCK COMPANY "FOREST-STARMA"
By: /s/ Donald H. Hunter
Its: Authorized Officer
By: /s/ Catherine V. Mannick
Its: Authorized Officer
By: /s/ Inna Verdini
Its: Chief Accountant
THE PIONEER GROUP, INC.
By: /s/ Eric W. Reckard
Its: Executive Vice President, CFO and Treasurer
PIONEER FOREST, INC.
By: /s/ Stephen G. Kasnet
Its: President
OVERSEAS PRIVATE INVESTMENT CORPORATION
By: /s/ Steven S. Smith
Its: Investment Officer
<PAGE> 1
EXHIBIT 10.6
JUNE 3, 1999
PIONEER FOREST, INC.
OVERSEAS PRIVATE INVESTMENT CORPORATION
=================================
CONTRACT OF PLEDGE OF SHARES IN
CLOSED JOINT STOCK COMPANY
"FOREST-STARMA"
=================================
<PAGE> 2
CONTENTS
CLAUSE PAGE
1. INTERPRETATION.............................................................4
Definitions................................................................4
Interpretation.............................................................5
Headings...................................................................6
2. ACKNOWLEDGEMENT OF INDEBTEDNESS OF THE COMPANY.............................6
3. PLEDGE.....................................................................6
Pledge.....................................................................6
Assurance..................................................................7
4. PLEDGE IN ACCORDANCE WITH THIS CONTRACT AND OTHER RIGHTS...................7
5. DUTIES OF THE PLEDGOR......................................................7
Duties.....................................................................7
Warranty..................................................................10
Rights....................................................................10
6. RIGHTS OF OPIC............................................................10
Failure to Perform Conditions of Finance Agreement........................10
Exercise of Rights........................................................10
Levy of execution.........................................................11
7. APPLICATION OF PROCEEDS...................................................11
Accounts..................................................................12
8. PROTECTION OF RIGHTS OF OPIC..............................................12
9. ADDITIONAL ASSURANCES AND POWER OF ATTORNEY...............................12
Additional Assurances.....................................................12
Powers of Attorney........................................................13
10. OBLIGATIONS IN ACCORDANCE WITH THIS CONTRACT SHALL NOT LEAD TO
MERGER OR COMBINING OF RIGHTS OF PLEDGE...................................13
11. CHANGE OF NAME............................................................14
12. AVOIDANCE OF PAYMENTS.....................................................14
<PAGE> 3
13. NOTIFICATIONS AND DEMANDS.................................................14
14. CONCLUDING PROVISIONS.....................................................14
Evidence of Indebtedness..................................................14
Supplementary Nature of Rights; Waiver of Right...........................15
Consequences of Invalidity of Any Provision of this Contract..............15
15. APPLICABLE LAW............................................................15
16. ARBITRATION AND JURISDICTION..............................................15
Arbitration; Rules; Venue; Language.......................................15
Arbitrators; Selection; Qualification.....................................16
Law.......................................................................16
Statements of Claim and Defence; Representation; Proceedings..............16
Awards....................................................................17
Costs, Fees and Expenses..................................................17
No Waiver.................................................................17
17. COUNTERPARTS..............................................................18
ANNEX 1.......................................................................19
ANNEX 2.......................................................................20
ANNEX 3.......................................................................21
Page 3
<PAGE> 4
CONTRACT OF PLEDGE OF SHARES IN CLOSED JOINT STOCK COMPANY
Concluded on June 3, 1999 between:
PIONEER FOREST, INC., a company organised and existing under the laws of the
State of Delaware in the United States of America (hereinafter the PLEDGOR); and
OVERSEAS PRIVATE INVESTMENT CORPORATION (hereinafter called OPIC).
The Pledgor and OPIC have come to the following agreement:
INTERPRETATION
DEFINITIONS
1.1 For the purposes of this Contract the terms defined in the Finance Agreement
shall have the same meaning as if they had been used in this Contract and the
following terms shall have the following meaning unless the context and content
of this Contract require otherwise:
ACCELERATION EVENT means any one of the events specified in Section 7.1 of the
Finance Agreement and any event which, with lapse of time or notice and lapse of
time, may become such an event;
COMPANY means Closed Joint-Stock Company "FOREST-STARMA", a closed joint-stock
company, (registered by Decree No. 349 of the Head of Administration of
Khabarovsky Krai dated 21 July 1992), registered and operating in conformity
with the legislation of the Russian Federation, whose legal address is at ul.
Chekhova, d.l, apt.3, Vanino Settlement, Khabarovsk Territory, Russian
Federation 682860;
FINANCE AGREEMENT means the Finance Agreement of 21 December 1995 between the
Company and OPIC and any promissory note drawn up on the basis of the Finance
Agreement, including in each instance any changes and additions thereto,
including any changes in accordance with which obligations of the Company grow
or increase or are affected in any other way;
Page 4
<PAGE> 5
MEANS OF SECURING OBLIGATIONS means any method of securing obligations by way of
mortgage, hypotheque, pledge, pawn, possessory lien, right of set-off of
obligations or any other way in accordance with the law of any State or the
agreement of the parties;
PLEDGE means the pledge created by this Contract;
PLEDGED SHARES means all of the shares, listed and described in Annex 1 to this
Contract, all and any of the rights under or in relation to the shares, listed
and described in Annex 1 to this Contract, and all other shares of the Company,
issued or which are to be issued by the Company and which the Pledgor will
acquire or has the right to acquire in its ownership;
RIGHTS means with respect to OPIC its powers, discretions, and rights in
accordance with this Contract, the Finance Agreement and Russian law;
SECURED AMOUNTS means:
(a) money and other obligations which the Company is obliged to pay or to
fulfil under the Finance Agreement and other documents related to the
Finance Agreement as acknowledged by the Pledgor under Section 2 below;
and
(b) the obligations of the Pledgor to OPIC under this Contract and/or any
other Financing Documents to which the Pledgor is party,
and where the context so requires references to Secured Amounts shall include
references to any such obligations.
INTERPRETATION
1.2 In this Contract and Annexes thereto in all instances except those when
the context requires otherwise:
(a) references and/or mentions of OPIC, the Pledgor and the Company include
respectively references and/or mentions of their legal successors and
persons to whom by legal means the rights and duties of OPIC, the
Pledgor and the Company have passed;
(b) references to a document shall include any document possessing legal
force (including this Contract), any securities, statements,
certificates, notices, or any other documents; in so doing the
references to a document shall mean those references to a document or
any provision thereof in changed,
Page 5
<PAGE> 6
supplemented, or otherwise renewed form, or substituted by consent of
the parties (in whole or in part);
(c) references to any law or normative act shall mean references to the law
or normative act in changed or supplemented form or to a newly adopted
law or normative act replacing a previous law or normative act; and
(d) references to any specific Section, paragraph, or Annex shall mean
references to the specific Section, paragraph of, or Annex to this
Contract.
HEADINGS
1.3 Headings in this Contract have been included exclusively for the convenience
of work with the text and shall not affect the interpretation of the provisions
of this Contract.
ACKNOWLEDGEMENT OF INDEBTEDNESS OF THE COMPANY
2. The Pledgor acknowledges (without thereby becoming a guarantor or surety in
respect thereof) that the Company has agreed to repay to OPIC the principal debt
comprising $9,300,000 (nine million three hundred thousand) US dollars (or such
lesser amount as may be outstanding from time to time) and interest thereon by
15 December 2003 in accordance with the Finance Agreement; to fulfil all
financial, as well as all other, obligations with respect to OPIC which
periodically are subject to performance or which arise (either before or after
the demand of OPIC for payment) on the basis of the Finance Agreement and/or on
the basis of other Financing Documents to which the Company and OPIC are
parties.
PLEDGE
PLEDGE
3.1 As a means of securing obligations of the Company to pay the Secured Amounts
and to secure the Pledgor's obligations in favour of OPIC on the basis of this
Contract and/or other agreements related to the Finance Agreement, the Pledgor
pledges the Pledged Shares and all the rights under or in relation to the
Pledged Shares to OPIC in accordance with the Law on Pledge No. 2872-1 of 29 May
1992 and the Civil Code of the Russian Federation of 21 October 1994. The Pledge
hereby created is a pledge of rights.
Page 6
<PAGE> 7
ASSURANCE
3.2 The Pledgor assures OPIC and confirms that the Pledged Shares are not the
subject of pledge to the benefit of other persons and no demands whatever have
been made by anyone in the respect of the Pledged Shares other than OPIC and
that OPIC becomes the exclusive pledgeholder of first ranking with respect to
the Pledged Shares.
3.3 The Pledgor assures OPIC and confirms that it holds full ownership rights to
all of the Pledged Shares as at the date of this Contract.
PLEDGE IN ACCORDANCE WITH THIS CONTRACT AND OTHER RIGHTS
4. This Pledge shall be without prejudice and in addition to any other Means of
Securing Obligations whatsoever which may be held by OPIC or granted to OPIC by
the Pledgor or the Company or any person for or in respect of the whole or part
of the Secured Amounts; and the charges, covenants and provisions contained
herein shall remain in force as continuing security to OPIC until the Secured
Amounts have been paid in full. When the Secured Amounts have been repaid in
full, and subject to OPIC being satisfied that no payment received by OPIC may
be avoided or adjusted in the circumstances described in Section 12 hereof, OPIC
shall upon the request of the Pledgor issue an absolute and unconditional
release of this Pledge.
DUTIES OF THE PLEDGOR
DUTIES
5.1 Until the Secured Amounts have been paid in full and the Company has been
released by OPIC from its related obligations, the Pledgor shall be obliged:
(a) not to use the Pledged Shares as the subject of securing other
obligations, nor to create, or permit to be created, a pledge
(irrespective of the ranking thereof), a trust, or any other right of
demand with respect to or in connection with the Pledged Shares,
whether by virtue of law or any other legally binding act or by virtue
of a contract to the benefit of anyone whatever except for OPIC;
(b) without receiving the prior written consent of OPIC, not to transfer,
sell, or transfer rights or otherwise alienate, or terminate its
possession or management, or perform actions leading to or which might
lead to the transfer, sale or transfer of rights or alienation or
termination of possession
Page 7
<PAGE> 8
or management of the Pledged Shares by the Pledgor or to the
termination or change of any rights of the Pledgor to the Pledged
Shares in any form;
(c) to make payment without delay and to ensure the payment of all taxes,
duties, obligatory payments for authorisations, rights and licences
granted, registration payments and duties, insurance payments, and also
any other payments calculated in connection with or relating in any way
to the Pledged Shares and/or to this contract, and at first demand to
provide certificates and evidence to OPIC of all the said payments
being made;
(d) immediately communicate to OPIC in writing any and all notices and
information received by the Pledgor or the Company and affecting:
(i) any proposals concerning the obligatory acquisition by anyone
of all or any of the Pledged Shares, or proposals concerning
the obligatory transfer to anyone of the right of ownership to
all or any of the Pledged Shares;
(ii) any proposals concerning the obligatory termination or
restrictions of any nature on payment of dividends on all or
any of the Pledged Shares;
(iii) any court proceeding (or any other proceeding or bringing of
suits or claims which might lead to a court proceeding) with
respect to all or any of the Pledged Shares;
and exclusively at the expense of the Pledgor to take measures and
undertake such actions with respect to the aforesaid proposals,
applications, court proceedings, other proceeding, suits, claims and
the like which OPIC may, at its discretion, reasonably demand of the
Pledgor;
(e) except for instances of receiving the prior consent of OPIC, which will
not be refused without reasonable grounds therefor, not to conduct
negotiations nor to settle any suits or claims to receive compensation
pertaining to the Pledged Shares (including in accordance with any
regulatory acts and in all other instances), or any suits or claims
with regard to any insurance agreements relative to all or any part or
parts of the Pledged Shares, or any other material compensation or
insurance payments pertaining thereto;
(f) to fulfil in a timely way all obligations which by virtue of law have
or might have preference to the obligations under this Contract;
Page 8
<PAGE> 9
(g) to maintain a record of this Pledge as required by Section 18 of the
Law on Pledge No. 2872-1 of 29 May 1992 and allow third persons to be
aware of the existence of this Pledge in accordance with applicable
law;
(h) pay to OPIC, upon demand, the amount of all expenses which it may incur
in, about or with a view to registering or enforcing this Pledge or
otherwise in connection with this Pledge;
(i) promptly pay all calls, installments and other payments which may be
made or become due in respect of the Pledged Shares;
(j) forthwith sign, seal, deliver and complete all transfers, proxies,
mandates, assignments and documents and do all acts and things which
OPIC may, in its absolute discretion, at any time and from time to time
specify:
(i) for enabling or assisting OPIC to improve its rights to and
security over the Pledged Shares;
(ii) to exercise (or enable its nominee or nominees to exercise)
any rights or powers attaching to the Pledged Shares;
(iii) (in accordance with Section 6 below) to sell or dispose of
the Pledged Shares; or
(iv) otherwise to enforce any of the rights of OPIC under or in
connection with this Pledge;
(k) forward to OPIC all material notices, reports, accounts, circulars and
other documents relating to the Pledged Shares or which are sent to the
holders of the Pledged Shares as soon as they are received;
(l) after an Acceleration Event has occurred and OPIC has sent to the
Company a demand for payment of the Secured Amounts (or part thereof)
take such action as OPIC may in its absolute discretion direct, in
respect of any proposed compromise, arrangement, capital
reorganisation, exchange, repayment or take-over offer affecting or in
respect of the Pledged Shares or any of them or any proposal made for
varying or abrogating any rights attaching to the Pledged Shares or any
of them;
(m) indemnify OPIC (and any of their nominees) on demand from and against
any claims by third parties which any of them may incur as holders of
the Pledged Shares or any interest in the Pledged Shares while the
Pledged
Page 9
<PAGE> 10
Shares are held as security hereunder and resulting from any claim
which arose while held as security hereunder; and
(n) promptly on execution of this Contract to give notice to the Company in
the form set out in Annex 2 to this Contract, and procure that a
confirmation in the form set out in Annex 3 is delivered to OPIC.
WARRANTY
5.2 The Pledgor warrants that it has complied with and will comply with all the
necessary registration requirements in relation to the registration and issuance
of the Pledged Shares.
RIGHTS
5.3 Notwithstanding anything expressed or implied in Section 5.1 or elsewhere in
this Contract, until any of the events or circumstances specified in Section 6
of the Finance Agreement occur and OPIC has sent to the Company a demand for
payment of the Secured Amounts (or part thereof), the Pledgor shall be entitled
to exercise all voting and other rights and powers (by statute or otherwise)
attached to or conferred on the Pledged Shares and to receive and retain all
dividends and other distributions paid or distributed in respect of the Pledged
Shares.
RIGHTS OF OPIC
FAILURE TO PERFORM CONDITIONS OF FINANCE AGREEMENT
6.1 If an Acceleration Event occurs, OPIC shall have the right (but in no event
is it obliged to take nor does it bear responsibility for taking the measures
enumerated below and without prejudice to any rights of OPIC whatever) in the
name of the Company or otherwise to ensure the fulfilment of the obligations of
the Company and to take such measures which OPIC in its discretion considers
appropriate to rectify the existing situation.
EXERCISE OF RIGHTS
6.2 If an Acceleration Event occurs, and OPIC has sent to the Company a demand
for payment of the Secured Amounts (or part thereof), then:
(a) all and any dividends and other distributions accruing on or deriving
from the Pledged Shares which are thereafter paid or distributed
(notwithstanding that they may have accrued in respect of an earlier
period) shall:
Page 10
<PAGE> 11
(i) if received by the Pledgor (or any nominee of the Pledgor) be
held on trust and forthwith paid and transferred to OPIC; and
(ii) when and if received by OPIC (or their nominee) shall form
part of the Pledged Shares and be held by OPIC on the terms of
this Pledge as additional security (and, if cash, be paid into
a cash collateral deposit account and may be applied by OPIC
at any time and from time to time thereafter in or towards the
discharge of the Secured Amounts as OPIC thinks fit);
(b) OPIC may from time to time exercise (and may from time to time direct
the exercise of) all voting and other rights and powers (by statute or
otherwise) attached to or conferred on the Pledged Shares in such
manner as OPIC (in their absolute discretion) thinks fit and the
Pledgor shall, and shall procure that any nominee of the Pledgor shall,
comply with any such directions of OPIC;
(c) the Pledgor shall (and shall procure that any nominee of the Pledgor
shall) forthwith agree to accept instruction or order for and to attend
all or any meetings of the holders of the Pledged Shares, to appoint
proxies and exercise all voting and other rights and powers which may
at any time be exercisable by the holders of the Pledged Shares as OPIC
may from time to time direct.
LEVY OF EXECUTION
6.3 If an Acceleration Event occurs and OPIC has sent to the Company a demand
for payment of the Secured Amounts (or part thereof), then OPIC may levy
execution on the Pledged Shares in accordance with the procedure established by
Russian law. To the extent that the parties are free to choose the tribunal to
commence execution proceedings, the parties choose arbitration in accordance
with Section 16.
APPLICATION OF PROCEEDS
7.1 All cash assets received as a result of the exercise of the rights of OPIC
pursuant to this Contract and all other cash assets received by OPIC in
connection with this Pledge after handing over to the Company a demand for
payment of the Secured Amounts (taking into account the need to satisfy other
demands which might have priority ahead of the obligations under this Contract)
shall be applied to make payments in the following order:
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(a) the amount of all expenses, costs, demands for payment, obligations,
and the like paid, incurred or presented for payment to OPIC and which
are Secured Amounts;
(b) all other amounts comprising Secured Amounts, in the order determined
by OPIC;
(c) payments to the benefit of the Company if OPIC is not required to make
any payments in favour of other persons in accordance with the laws of
any State.
ACCOUNTS
7.2 Notwithstanding Section 7.1, all and any cash assets coming to OPIC from the
Pledgor or the Company or from any other person making payments with regard to
obligations or in connection with obligations of the Company or the Pledgor or
otherwise relating to the realisation or the exercise of the rights with respect
to the Pledged Shares in accordance with this Contract may be credited by OPIC
as a whole or in any proportion at the discretion of OPIC to any account or item
of account or may be applied by OPIC to cover obligations of the Company and the
Pledgor with regard to any other transactions and, without limitation, OPIC may
at its discretion at any time insofar as all Secured Amounts have not been paid
to OPIC credit in a separate or a suspense account as collateral security any
cash assets received by OPIC from the Company or the Pledgor or other persons in
connection with this Contract for so long and in the manner as OPIC considers
acceptable, and such may be applied by OPIC at any time and from time to time
thereafter in or towards discharge of the Secured Amounts as OPIC thinks fit.
PROTECTION OF RIGHTS OF OPIC
8. OPIC shall not bear responsibility for any loss, causing of damage or harm
which is the result of the exercise, or the intention to exercise, or the
failure to exercise, or the impossibility to exercise, any of the respective
Rights.
ADDITIONAL ASSURANCES AND POWER OF ATTORNEY
ADDITIONAL ASSURANCES
9.1 The Pledgor agrees that at any time (and for the purposes designated in
paragraph (a) below even if OPIC has not sent demands to make payment of the
Secured Amounts or the performance of other obligations) at the first demand of
OPIC, at the expense of the Company, to sign any legally binding document or to
undertake legally binding actions which:
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<PAGE> 13
(a) OPIC may direct for the purposes of ensuring the validity, legality,
and ranking of the Pledge or any other Means of Securing Obligations
received or which should have been received in accordance with this
Contract; or
(b) OPIC may direct and which are reasonably necessary in the opinion of
OPIC in order to exercise any of the Rights.
POWERS OF ATTORNEY
9.2 For the purposes of securing the Rights of OPIC to the Pledged Shares and
the performance of obligations and duties of the Pledgor to OPIC both under this
Contract and others, the Pledgor shall be obliged upon the first demand of OPIC
to appoint (by a power of attorney, the form and content of which must be
approved by OPIC) OPIC to be the representative (possessing the full right to
appoint deputies and the right to further delegate any powers, including the
right to transfer powers to a person appointed by a deputy, to make further
appointments, in all instances with respect to all or part of the Pledged
Shares) of the Pledgor (the Pledgor shall be obliged also to renew such power of
attorney or powers of attorney when this is necessary in order to ensure their
validity) and in the name of the Pledgor or otherwise to sign legally binding
documents or to perform actions having legally binding consequences which OPIC
(or their deputies or other empowered persons) considers, in its opinion, to be
appropriate in connection with the exercise of any rights of OPIC or which the
Pledgor is obliged to create for the benefit of OPIC on the basis of this
Contract or other related agreements. No such power of attorney shall extend to
or include any of the rights pertaining to the Pledgor under Section 5.3.
OBLIGATIONS IN ACCORDANCE WITH THIS CONTRACT SHALL NOT LEAD TO MERGER OR
COMBINING OF RIGHTS OF PLEDGE
10. The rights contained in this Contract or created in accordance with this
Contract shall serve as an addition (and in no event either excluding or
affecting) to other rights of pledge, the right to levy execution, the right to
set-off counter-obligations, the right to combine obligations or any other
rights of OPIC which it may acquire in the future (or shall have in addition to
the Pledge arising under this Contract, or other rights in relation to this
Contract) with respect to the Company or the Pledgor or any other person in
connection with the Secured Amounts. OPIC shall have the right at any time to
create, waive, exercise, change, exchange or refrain from the registration or
other analogous procedures or the creation of any other Means of Securing
Obligations without affecting in so doing or limiting the rights under this
Contract. OPIC does not and shall not bear responsibility to the Pledgor for any
damage which is the result of the failure of
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<PAGE> 14
OPIC to take measures with regard to the use of or failure to use its rights or
the procedure or means to exercise them or the avoidance of or refraining from
the exercise of any of its rights as pledgeholder.
CHANGE OF NAME
11. This Contract shall remain in force and its performance may be secured
irrespective of whether the name, composition, form, or status (or legal status)
of OPIC, the Company or the Pledgor changes, whether there occurs the merger or
association in any form of OPIC, the Company or the Pledgor with another person
or enterprise irrespective of its form, whether any changes occur in the
organisation of the Pledgor, the Company or any of their participants
(stockholders).
AVOIDANCE OF PAYMENTS
12. If any payment is avoided or changed in accordance with norms of law,
including any act relating to the regulation of insolvency (bankruptcy), no
release from obligations or settlement of obligations or claims performed by
OPIC on the basis of such payment shall affect in any way the rights of OPIC to
receive the Secured Amounts from the Company or the Pledgor or to exercise its
rights under this Contract in order to receive all of the Secured Amounts.
NOTIFICATIONS AND DEMANDS
13. The provisions of Section 8.1 of the Finance Agreement shall be an integral
part of this Contract and shall be subject to application to this Contract
mutatis mutandis.
CONCLUDING PROVISIONS
EVIDENCE OF INDEBTEDNESS
14.1 In any petition to sue, examination, or claim relating to this Contract or
to the rights of pledge under this Contract, a statement concerning the need to
perform any payment to the benefit of OPIC, or a payment of all, part, or parts
of the Secured Amounts, which is confirmed by personnel of OPIC is, excluding
instances of obvious or incontestable mistakes, prima facie evidence of the
Company's indebtedness in the amount designated therein.
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<PAGE> 15
SUPPLEMENTARY NATURE OF RIGHTS; WAIVER OF RIGHT
14.2 The rights and powers which this Contract grants to OPIC shall supplement
one another, may be exercised as often as OPIC wishes, and supplement their
respective rights in accordance with general norms of law (irrespective of
whether they arise under this Contract or in accordance with law and subordinate
acts). OPIC may waive such rights; however such waiver must be expressed (and
not implied) and be in writing and, in particular, any failure to use or
impossibility of use of any rights, or delay in the use of rights, shall not
mean and may not be construed as a waiver of any of such rights; any improper or
partial exercise of such rights shall not terminate or preclude the possibility
of the exercise of such rights or any other rights in the future or in other
instances and circumstances; and no action or behaviour or agreement through
negotiations with the participation of OPIC or persons acting in its name shall
prevent OPIC from exercising any of their rights and shall not mean the
suspension or change of the character, form, and content of any of such rights
or of such rights as a whole.
CONSEQUENCES OF INVALIDITY OF ANY PROVISION OF THIS CONTRACT
14.3 If any of the provisions of this Contract becomes or are deemed to be void,
not conforming to law, or the enforcement of which is impossible in a judicial
proceeding in accordance with any norm of law, the validity, conformity to law
and legal effect of other provisions shall in no event be brought into doubt nor
affected, and all such provisions shall remain in force.
APPLICABLE LAW
15. The applicable law of this Contract shall be the law of the Russian
Federation.
ARBITRATION AND JURISDICTION
ARBITRATION; RULES; VENUE; LANGUAGE
16.1 Any dispute, controversy or claim arising out of, or relating to, or in
connection with, this Contract (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 Pledgor, 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,
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<PAGE> 16
unless OPIC directs that the place of arbitration shall instead by Washington,
DC or London. The arbitration shall be conducted in the English language. Upon
the Pledgor's receipt of a notice from OPIC of its election to settle by
arbitration any dispute, controversy or claim pursuant to this Section 16, the
Pledgor shall be obliged to settle such dispute, controversy or claim as
provided in this Section 16. If any dispute, controversy or claim is referred to
arbitration by OPIC, the Pledgor 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.
ARBITRATORS; SELECTION; QUALIFICATION
16.2 The arbitration shall be conducted by three arbitrators. OPIC and the
Pledgor shall each 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
Pledgor. The two arbitrators appointed by OPIC and the Pledgor 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
Pledgor fail to appoint any arbitrator within the time limits provided
hereunder, such arbitrators shall upon the written request of OPIC or the
Pledgor, 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 Pledgor 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 qualification 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 within a reasonable
time.
LAW
16.3 Each arbitral panel established hereunder shall make its decisions entirely
on the basis of this Contract or Finance Agreement, as applicable, the governing
law provisions provided herein or therein, and the Rules.
STATEMENTS OF CLAIM AND DEFENCE; REPRESENTATION; PROCEEDINGS
16.4 OPIC shall communicate its statement of claim in writing to the Pledgor and
the arbitral panel within a period of time to be determined by the panel. The
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<PAGE> 17
Pledgor shall file a statement of defence 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 Pledgor's
submission of its statement of defence, 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.
AWARDS
16.5 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 US dollars.
The award shall be limited to the scope of the submission and in no
circumstances 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 Pledgor
shall not be entitled to seek from any judicial authority or take any interim
measures or provide any preaward relief against OPIC or the Pledgor,
notwithstanding any contrary provisions in the Rules.
COSTS, FEES AND EXPENSES
16.6 Each party shall pay its own costs, fees and expenses.
NO WAIVER
16.7 In invoking any arbitration pursuant to this Section 16, 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 DC.
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<PAGE> 18
COUNTERPARTS
17. This Contract may be executed in two counterparts, each of which shall be
deemed an original, but both of which together shall constitute one and the same
Contract.
This Contract has been concluded by the Pledgor and by OPIC on June , 1999, in
two copies in the English language and two copies in the Russian language, each
of which has identical legal force.
Legal addresses of the parties:
Pledgor: OPIC:
Pioneer Forest, Inc. Overseas Private Investment Corporation
60 State Street 1100 New York Avenue NW
Boston, MA 02109-1820 Washington DC 20627-0001
USA USA
SIGNED by )
/s/ Stephen G. Kasnet )
for and on behalf of )
PIONEER FOREST, INC. )
SIGNED by )
/s/ Steven S. Smith )
for and on behalf of )
OVERSEAS PRIVATE )
INVESTMENT CORPORATION )
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<PAGE> 19
ANNEX 1
(BEING AN INTEGRAL PART OF THE CONTRACT OF PLEDGE OF SHARES
BETWEEN PIONEER FOREST, INC. AND OVERSEAS PRIVATE INVESTMENT
CORPORATION OF JUNE , 1999)
PLEDGED SHARES
DESCRIPTION VALUE(1)
1455 ordinary registered shares (common stock) in Closed USD18,300,000
Joint-Stock Company "FOREST-STARMA" with a
nominal value of 1 Rouble each
SIGNED by )
/s/ Stephen G. Kasnet )
for and on behalf of )
PIONEER FOREST, INC. )
SIGNED by )
/s/ Steven S. Smith )
for and on behalf of )
OVERSEAS PRIVATE )
INVESTMENT CORPORATION )
- --------------------------------------------------------------------------------
(1) The value of the Pledged Shares designed in this Annex is the value of the
Pledged Shares, the amount of which has been agreed by OPIC and the Pledgor,
based on the audited balance sheet of Closed Joint-Stock Company "FOREST-STARMA"
as of 31 December 1998. The value of the Pledged Shares at the moment of the
exercise of the rights of OPIC shall be equal to the price of such shares
received by OPIC after the sale or realisation by other means of the Pledged
Shares, taking into account the location and condition of the assets of the
Pledgor at the moment of the exercise of the rights of OPIC.
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<PAGE> 20
ANNEX 2
(BEING AN INTEGRAL PART OF THE CONTRACT OF PLEDGE OF SHARES
BETWEEN PIONEER FOREST, INC. AND OVERSEAS PRIVATE INVESTMENT
CORPORATION OF JUNE , 1999)
NOTICE OF PLEDGE
From: PIONEER FOREST, INC.
To: Closed Joint-Stock Company "FOREST-STARMA"
Copy to: Overseas Private Investment Corporation
Dear Sirs,
We hereby give you notice that by a Contract of Pledge of Shares dated [_____
_____] and made between this Company (the PLEDGOR) and Overseas Private
Investment Corporation, (OPIC) we have pledged absolutely to OPIC all our
rights, title and interest in and to the shares held by the Pledgor in Closed
Joint-Stock Company "FOREST-STARMA".
Unless and until OPIC has sent you a demand for payment following the occurrence
of an event of default in accordance with Section 7 of the Finance Agreement
between OPIC and you, we retain the right and all and any dividends and other
distributions accruing to the pledged shares and to all voting and other rights.
This notice and the instructions herein contained are irrevocable. Please
acknowledge receipt of this notice to OPIC on the enclosed consent to pledge.
Yours faithfully,
.........................
For and on behalf of
Pioneer Forest, Inc.
Page 20
<PAGE> 21
ANNEX 3
(BEING AN INTEGRAL PART OF THE CONTRACT OF PLEDGE OF SHARES
BETWEEN PIONEER FOREST, INC. AND OVERSEAS PRIVATE INVESTMENT
CORPORATION OF JUNE , 1999)
ACKNOWLEDGEMENT OF PLEDGE
From: Closed Joint-Stock Company "FOREST-STARMA"
To: Overseas Private Investment Corporation
[ ] 19[ ]
Dear Sirs,
We acknowledge receipt of a notice of pledge dated [_____ _____] (the NOTICE)
from Pioneer Forest, Inc. (the PLEDGOR) and confirm that the Notice is adequate
notice of a Contract of Pledge of Shares dated [_____ _____] and we further
acknowledge that the Notice is effective to confer on you, subject to the
pledge, all the rights, title and interest of the Pledgor under the Contract of
Pledge of Shares dated [_____ _____] between the Pledgor and this Company and
that the issuance of shares has been registered in accordance with applicable
laws.
Notice of Pledge has been entered on the register of shareholders of which the
relevant extract is attached hereto.
Yours faithfully,
..........................
and
..........................
For and on behalf of
Closed Joint-Stock Company "FOREST-STARMA"
Page 21
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0
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
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0
0
<COMMON> 2,544
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<TOTAL-LIABILITY-AND-EQUITY> 508,736
<SALES> 0
<TOTAL-REVENUES> 118,843
<CGS> 0
<TOTAL-COSTS> 109,496
<OTHER-EXPENSES> (11,396)
<LOSS-PROVISION> 0
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<INCOME-TAX> 9,163
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<EPS-BASIC> (0.270)
<EPS-DILUTED> (0.270)
</TABLE>
