<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 SEPTEMBER 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 [X] No [ ]
------------------------
As of September 30, 1999, there were 26,503,913 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>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents, at cost which approximates fair
value..................................................... $ 42,148 $ 44,212
Restricted cash............................................. 10,975 5,512
Investment in marketable securities, at fair value.......... 4,482 3,638
Receivables:
From securities brokers and dealers for sales of mutual
fund shares............................................ 11,805 14,072
From Pioneer Family of Mutual Funds..................... 19,509 17,334
For securities sold..................................... 803 1,089
Other................................................... 8,796 15,247
Timber inventory............................................ 5,026 3,585
Other current assets........................................ 10,515 13,310
Current assets net of current liabilities of discontinued
operations................................................ -- 1,011
-------- --------
Total current assets................................ 114,059 119,010
-------- --------
NONCURRENT ASSETS:
Cost of acquisition in excess of net assets (net of
accumulated amortization of $16,509 in 1999 and $14,900 in
1998)..................................................... 15,289 16,572
Long-term venture capital investments, at fair value (cost
$55,773 in 1999 and $117,547 in 1998)..................... 49,552 129,560
Long-term investments, at lower of cost or fair value....... 7,063 7,006
Timber operations:
Timber equipment and facilities (net of accumulated
depreciation of $7,226 in 1999 and $5,346 in 1998)..... 18,835 18,800
Deferred timber development costs (net of accumulated
amortization of $3,152 in 1999 and $2,841 in 1998)..... 7,144 19,031
Building (net of accumulated depreciation of $1,928 in 1999
and $1,413 in 1998)....................................... 24,599 25,136
Furniture, equipment, and leasehold improvements (net of
accumulated depreciation and amortization of $17,695 in
1999 and $13,146 in 1998)................................. 18,064 20,169
Other noncurrent assets..................................... 29,641 15,016
Noncurrent assets net of noncurrent liabilities of
discontinued operations................................... 46,295 68,918
-------- --------
Total noncurrent assets............................. 216,482 320,208
-------- --------
$330,541 $439,218
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Payable to funds for shares sold............................ $ 11,796 $ 14,053
Accounts payable............................................ 8,011 9,162
Accrued expenses............................................ 46,012 30,621
Brokerage liabilities....................................... 10,375 5,669
Accrued income taxes........................................ 4,057 19,647
Current portion of notes payable............................ 1,345 1,818
Current liabilities net of current assets of discontinued
operations................................................ 39,929 --
-------- --------
Total current liabilities........................... 121,525 80,970
-------- --------
NONCURRENT LIABILITIES:
Notes payable, net of current portion....................... 64,541 99,035
-------- --------
Total noncurrent liabilities........................ 64,541 99,035
-------- --------
Total liabilities................................... 186,066 180,005
-------- --------
Minority interest........................................... 61,438 104,411
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $0.10 par value; authorized 60,000,000
shares; issued 26,508,198 shares in 1999 and 26,134,103
shares in 1998......................................... 2,651 2,613
Paid-in capital......................................... 46,839 30,110
Retained earnings....................................... 45,260 133,013
Treasury stock at cost, 4,285 shares in 1999 and 11,303
shares in 1998......................................... (111) (265)
Cumulative translation adjustment....................... (2,664) (1,855)
-------- --------
91,975 163,616
Less -- Deferred cost of restricted common stock
issued................................................. (8,938) (8,814)
-------- --------
Total stockholders' equity.......................... 83,037 154,802
-------- --------
$330,541 $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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues and sales:
Investment management fees........................ $ 37,216 $ 34,506 $ 108,875 $ 105,247
Underwriting commissions and distribution fees.... 3,365 7,694 11,434 22,203
Shareholder services fees......................... 10,832 8,243 32,742 23,737
Net revenues from brokerage activities............ 284 (828) 1,154 1,240
Trustee fees and other income..................... 7,189 13,290 21,797 26,439
----------- ----------- ----------- -----------
Revenues from financial services businesses....... 58,886 62,905 176,002 178,866
Timber sales...................................... 5,223 3,059 9,499 5,941
----------- ----------- ----------- -----------
Total revenues and sales..................... 64,109 65,964 185,501 184,807
----------- ----------- ----------- -----------
Costs and expenses:
Management, distribution, shareholder service and
administrative expenses......................... 50,116 58,372 149,757 155,794
Timber operating costs and expenses............... 7,125 6,764 12,196 18,838
----------- ----------- ----------- -----------
Total costs and expenses..................... 57,241 65,136 161,953 174,632
----------- ----------- ----------- -----------
Other (income) expense:
Unrealized and realized (gains) losses on venture
capital and marketable securities investments,
net............................................. (68) 13,824 2,814 780
Equity in (earnings) losses of affiliated
companies....................................... 2,217 -- 9,852 (51)
Interest expense.................................. 1,207 2,929 5,069 8,510
----------- ----------- ----------- -----------
Total other (income) expense................. 3,356 16,753 17,735 9,239
----------- ----------- ----------- -----------
Income (loss) from continuing operations before
provision for income taxes and minority interest.... 3,512 (15,925) 5,813 936
----------- ----------- ----------- -----------
Provision for income taxes............................ 2,858 1,966 6,626 11,129
----------- ----------- ----------- -----------
Income (loss) from continuing operations before
minority interest................................... 654 (17,891) (813) (10,193)
----------- ----------- ----------- -----------
Minority interest..................................... (168) (10,102) 1,146 (8,403)
----------- ----------- ----------- -----------
Net income (loss) from continuing operations before
cumulative effect of change in accounting
principle........................................... 822 (7,789) (1,959) (1,790)
Loss from discontinued operations..................... (42,844) (8,688) (73,682) (21,470)
Cumulative effect of change in accounting principle,
(start-up costs, net of income taxes of $261)....... -- -- (12,112) --
----------- ----------- ----------- -----------
Net income (loss)..................................... $ (42,022) $ (16,477) $ (87,753) $ (23,260)
=========== =========== =========== ===========
Basic earnings (loss) per share:
Continuing operations............................. $ 0.03 $ (0.31) $ (0.08) $ (0.07)
Discontinued operations........................... (1.65) (0.34) (2.84) (0.86)
Cumulative effect of change in accounting
principle....................................... -- -- (0.47) --
----------- ----------- ----------- -----------
Total basic earnings (loss) per share........ $ (1.62) $ (0.65) $ (3.39) $ (0.93)
=========== =========== =========== ===========
Diluted earnings (loss) per share:
Continuing operations............................. $ 0.03 $ (0.31) $ (0.08) $ (0.07)
Discontinued operations........................... (1.63) (0.34) (2.83) (0.85)
Cumulative effect of change in accounting
principle....................................... -- -- (0.47) --
----------- ----------- ----------- -----------
Total diluted earnings (loss) per share...... $ (1.60) $ (0.65) $ (3.38) $ (0.92)
=========== =========== =========== ===========
Dividends per share................................... -- $ -- -- $ (0.20)
=========== =========== =========== ===========
Basic shares outstanding.............................. 26,014,000 25,207,000 25,897,000 25,091,000
=========== =========== =========== ===========
Diluted shares outstanding............................ 26,238,000 25,207,000 25,972,000 25,325,000
=========== =========== =========== ===========
</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>
NINE MONTHS
ENDED
SEPTEMBER 30,
--------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................................... $(87,753) $(23,260)
Less net income (loss) of discontinued operations.......... (73,682) (21,470)
Less cumulative effect of change in accounting principle... (12,112) --
-------- --------
Net income (loss) from continuing operations............... $ (1,959) $ (1,790)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................ 13,085 20,727
Unrealized and realized gains (losses) on venture
capital, marketable securities, and long term
investments, net....................................... 2,814 780
Equity in (earnings) losses of affiliated companies...... 9,852 (51)
Restricted stock plan expense............................ 2,424 2,273
Deferred income taxes.................................... (4,100) (21,356)
Minority interest........................................ 1,146 (8,403)
Changes in operating assets and liabilities:
Investments in marketable securities, net................ (930) 4,441
Receivable from securities brokers and dealers for sales
of mutual fund shares.................................. 2,267 1,314
Receivables for securities sold.......................... 286 10,410
Receivables from Pioneer Family of Mutual Funds and
other.................................................. 4,017 3,816
Receivable from sale of Class B share rights............. -- (61,731)
Timber inventory......................................... (1,441) 3,394
Other current assets..................................... 1,151 (5,024)
Other noncurrent assets.................................. 1,644 (783)
Payable to funds for shares sold......................... (2,257) (1,339)
Accrued expenses and accounts payable.................... 13,879 8,289
Brokerage liabilities.................................... 4,706 (8,796)
Accrued income taxes..................................... (15,003) 12,016
-------- --------
Total adjustments and changes in operating assets and
liabilities.......................................... 33,540 (40,023)
-------- --------
Net cash provided by (used in) continuing operating
activities........................................... 31,581 (41,813)
-------- --------
Net cash provided by (used in) discontinued operating
activities........................................... 480 7,742
-------- --------
Net cash provided by (used in) operating
activities........................................... 32,061 (34,071)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to furniture, equipment and leasehold
improvements............................................. (4,488) (8,714)
Building................................................... 22 (513)
Long-term venture capital investments...................... (884) (30,117)
Proceeds from sale of long-term venture capital
investments.............................................. 909 21,248
Proceeds from sale of domestic venture capital
operations............................................... 34,945 --
Deferred timber development costs.......................... -- 357
Purchase of timber equipment and facilities................ (1,915) (1,732)
Other investments.......................................... (502) (2,582)
Proceeds from sales of other investments................... -- 1,103
Cost of acquisition in excess of net assets acquired....... (169) (50)
Deconsolidation of pension company subsidiary.............. (10,070) --
Purchase of long-term investments.......................... (111) (827)
Proceeds from sale of long-term investments................ 644 5,007
-------- --------
Net cash provided by (used in) continuing investing
activities........................................... 18,381 (16,820)
-------- --------
Net cash (used in) investing activities, discontinued
operations........................................... (4,874) (6,888)
-------- --------
Net cash provided by (used in) investing
activities........................................... 13,507 (23,708)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid............................................. -- (5,079)
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............................................. -- 17,903
Sale of stock by subsidiary................................ 555 --
Employee stock purchase plan............................... 349 474
Exercise of stock options.................................. 1,139 3,391
Restricted stock plan award................................ 16 28
Dealer advances............................................ -- 32,797
Revolving credit agreement (repayments) borrowings, net.... (30,000) 22,500
Repayments of notes payable................................ (4,967) (4,805)
Reclassification of restricted cash........................ (5,463) (1,351)
-------- --------
Net cash provided by (used in) continuing financing
activities........................................... (41,631) 65,790
-------- --------
Net cash (used in) financing activities, discontinued
operations........................................... (5,726) (9,494)
-------- --------
Net cash provided by (used in) financing
activities........................................... (47,357) 56,296
-------- --------
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS........................................... (275) (211)
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (2,064) (1,694)
-------- --------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 44,212 50,421
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 42,148 $ 48,727
======== ========
</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)
SEPTEMBER 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 $23,290,000 and $14,794,000 for the nine months
ended September 30, 1999, and September 30, 1998, respectively. In addition,
interest paid was $7,223,000 for the nine months ended September 30, 1999, and
$8,167,000 for the nine months ended September 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 9/30/99
Basic earnings per share calculation:
Continuing operations........................... $ 822 26,014 $ 0.03
Discontinued operations......................... $(42,844) 26,014 $(1.65)
-------- ------ ------
Total................................. $(42,022) 26,014 $(1.62)
======== ====== ======
</TABLE>
5
<PAGE> 6
THE PIONEER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
SEPTEMBER 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>
Options......................................... 224
Restricted stock................................ --
------
Diluted earnings per share calculation:
Continuing operations........................... $ 822 26,238 $ 0.03
Discontinued operations......................... $(42,844) 26,238 $(1.63)
-------- ------ ------
Total................................. $(42,022) 26,238 $(1.60)
======== ====== ======
FOR THE THREE MONTHS ENDED 9/30/98
Basic earnings per share calculation:
Continuing operations........................... $ (7,789) 25,207 $(0.31)
Discontinued operations......................... $ (8,688) 25,207 $(0.34)
-------- ------ ------
Total................................. $(16,477) 25,207 $(0.65)
======== ====== ======
Options......................................... --
Restricted stock................................ --
Diluted earnings per share calculation:
Continuing operations........................... $ (7,789) 25,207 $(0.31)
Discontinued operations......................... $ (8,688) 25,207 $(0.34)
-------- ------ ------
Total................................. $(16,477) 25,207 $(0.65)
======== ====== ======
FOR THE NINE MONTHS ENDED 9/30/99
Basic earnings per share calculation:
Continuing operations........................... $ (1,959) 25,897 $(0.08)
Discontinued operations......................... $(73,682) 25,897 $(2.84)
Cumulative effect of change in accounting
principle..................................... $(12,112) 25,897 $(0.47)
-------- ------ ------
Total................................. $(87,753) 25,897 $(3.39)
======== ====== ======
Options......................................... 75
Restricted stock................................ --
------
Diluted earnings per share calculation:
Continuing operations........................... $ (1,959) 25,972 $(0.08)
Discontinued operations......................... $(73,682) 25,972 $(2.83)
Cumulative effect of change in accounting
principle..................................... $(12,112) 25,972 $(0.47)
-------- ------ ------
Total................................. $(87,753) 25,972 $(3.38)
======== ====== ======
FOR THE NINE MONTHS ENDED 9/30/98
Basic earnings per share calculation:
Continuing operations........................... $ (1,790) 25,091 $(0.07)
Discontinued operations......................... $(21,470) 25,091 $(0.86)
-------- ------ ------
Total................................. $(23,260) 25,091 $(0.93)
-------- ------ ------
Options......................................... 251
Restricted stock................................ (17)
------
Diluted earnings per share calculation:
Continuing operations........................... $ (1,790) 25,325 $(0.07)
Discontinued operations......................... $(21,470) 25,325 $(0.85)
-------- ------ ------
Total................................. $(23,260) 25,325 $(0.92)
======== ====== ======
</TABLE>
6
<PAGE> 7
THE PIONEER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
SEPTEMBER 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 nine months ended September 30, 1999 and 1998.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1999 1998
-------- ---------
(DOLLARS) IN
THOUSANDS
<S> <C> <C>
Net income (loss)................................... $(87,753) $(23,260)
-------- --------
Other comprehensive income (expense):
Foreign currency translation adjustments.......... (809) (510)
-------- --------
Other comprehensive income (expense)................ (809) (510)
-------- --------
Comprehensive (loss)/income......................... $(88,562) $(23,770)
======== ========
</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, requires 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 $1,145,217 at September 30, 1999,
which exceeded required net capital of $250,000 by $895,217.
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 consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(DOLLARS)IN THOUSANDS
<S> <C> <C>
Senior Credit Facility...................................... $40,000 $ 70,000
Senior note payable to a commercial lender, principal
payable on August 15, 2004, interest payable at 9.45%..... 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....................................... 306 447
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
------- --------
65,886 100,853
Less: Current portion....................................... (1,345) (1,818)
------- --------
$64,541 $ 99,035
======= ========
</TABLE>
7
<PAGE> 8
THE PIONEER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
SEPTEMBER 30, 1999
Maturities of notes payable at September 30, 1999, for each of the next
five years and thereafter are as follows (dollars in thousands):
<TABLE>
<S> <C>
10/1/99 - 9/30/00........................................... $ 1,345
10/1/00 - 9/30/01........................................... 41,379
10/1/01 - 9/30/02........................................... 1,302
10/1/02 - 9/30/03........................................... 1,240
10/1/03 - 9/30/04........................................... 20,620
Thereafter.................................................. --
-------
$65,886
=======
</TABLE>
At September 30, 1999, the Company had $36 million of debt attributable to
its discontinued gold mining operations. Scheduled debt service for the
remainder of 1999 is expected to aggregate $2.2 million, of which $1.8 million
represents principal payments.
In June 1996, the Company entered into an agreement with a syndicate of
commercial banks for a senior credit facility, which has been amended from time
to time (the "Credit Facility"). Under the Credit Facility, the Company may
borrow up to $55 million for general corporate purposes. The Credit Facility
contains restrictions that limit, among other things, encumbrances on the assets
of the Company's domestic mutual fund subsidiaries and certain mergers and sales
of assets. Additionally, the Credit Facility requires that the Company meet
certain financial covenants including covenants that require the Company to
maintain certain minimum ratios with respect to debt to cash flow and interest
payments to cash flow and a minimum tangible net worth, all as defined in the
Credit Facility. The Company is in compliance with all applicable covenants. At
September 30, 1999, the Company had borrowed $40 million under the Credit
Facility.
As of September 30, 1999, the Company had two five-year interest rate swap
agreements with a member of the Company's banking syndicate which has
effectively fixed the interest rate on notional amounts totaling $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 has incurred
approximately $955,000 and $876,000 of interest expense on these swap agreements
during the nine months ended September 30, 1999 and September 30, 1998,
respectively. During June 1999, the Company unwound $40 million of overhedged
swaps and recognized $426,000 of income on the transaction. At September 30,
1999, the Company had $20 million of overhedged swaps and recognized
approximately $191,000 of expense during the nine months ended September 30,
1999, in accordance with generally accepted accounting principles, related to
these swaps. At September 30, 1999, the fair value of the swaps was ($959,000),
compared to a book value of ($293,000). If the Company were to terminate these
agreements, it would be required to pay an amount approximating fair value.
In 1997, the Company entered into an agreement (the "Note Agreement") with
a commercial lender pursuant to which the Company issued to the lender Senior
Notes in the aggregate principal amount of $20 million. The Senior Notes, which
bear interest at the rate of 8.95% per annum, have a maturity of seven years.
The restrictions and financial covenants under the Note Agreement are
substantially similar to the amended restrictions and financial covenants under
the Credit Facility.
For the nine months ended September 30, 1999 and September 30, 1998 the
weighted average interest rate on the borrowings under the Credit Facility and
Note Agreement was 9.41% 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
8
<PAGE> 9
THE PIONEER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
SEPTEMBER 30, 1999
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 third party. The
following is an unaudited summary of the results of discontinued Russian banking
operations for the nine months ended September 30, 1998:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1998
------------------
(AMOUNTS
IN THOUSANDS)
<S> <C>
Revenues from banking activities............................ $ 2,150
-------
Loss before income taxes and minority interest.............. (9,589)
Income tax benefit.......................................... (311)
-------
Loss from discontinued operations before minority
interest.................................................. (9,278)
-------
Minority interest........................................... (2,829)
-------
Loss from discontinued operations........................... $(6,449)
-------
</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 nine
months ended September 30, 1999 include $53.6 million from the estimated loss on
the disposition of the gold mining segment, principally from the impairment of
the long-lived assets of Teberebie Goldfields Limited, the Company's 90% owned
subsidiary. The above referenced losses are management's best estimates of the
costs of winding down the gold mining operations. The Company, however, may
record gains or incur additional losses in either a sales transaction or closure
scenario as details, timing and other events unfold. There can be no assurance
that the Company can successfully negotiate a sales transaction and consummate
that transaction or close the mine in accordance with management's estimates. In
addition, the Company disposed of its powdered metals business. Losses included
$0.9 million from the loss on the disposition of the powdered metals business.
The following is an unaudited summary of the loss from operations of the gold
mining and powdered metals segments for the nine months ended September 30, 1999
and 1998, respectively:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 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 ($365)................... $(18,705) $(0.72)
Estimated loss on disposal of gold mining
segment......................................... (53,580) (2.06)
Loss from operations of discontinued powdered
metals business, net of taxes of ($239)......... (498) (0.02)
Loss on disposal of powdered metals business...... (899) (0.03)
-------- ------
Total loss from discontinued
operations............................ $(73,682) $(2.83)
======== ======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 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 ($4,948)............... $(15,021) $(0.60)
-------- ------
</TABLE>
9
<PAGE> 10
THE PIONEER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
SEPTEMBER 30, 1999
The following is an unaudited summary of the results of discontinued gold
mining operations for the nine months ended September 30, 1999 and 1998,
respectively:
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
(AMOUNTS (AMOUNTS
IN THOUSANDS) IN THOUSANDS)
<S> <C> <C>
Revenues from gold mining activities........ $ 54,319 $ 58,387
-------- --------
Loss before income taxes and minority
interest.................................. (21,374) (21,525)
Income tax benefit.......................... (365) (4,948)
-------- --------
Loss from discontinued operations before
minority interest......................... (21,009) (16,577)
-------- --------
Minority interest........................... (2,304) (1,556)
-------- --------
Loss from discontinued operations........... $(18,705) $(15,021)
-------- --------
</TABLE>
The results of discontinued gold mining operations for the nine months
ended September 30, 1999 and September 30, 1998 included an allocation of
directly attributable corporate interest expense of $1,283,000 and $403,000,
respectively. 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)
SEPTEMBER 30, 1999
NOTE 7 -- FINANCIAL INFORMATION BY BUSINESS SEGMENT (CONTINUED)
The following details total revenues and income (loss) by business segment
and geographic region, excluding discontinued 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>
NINE MONTHS ENDED SEPTEMBER 30, 1999
Gross revenues and sales.......... $ 156,728 $ 9,359 $ 11,930 $1,189 $ -- $ 22,478
========= ======= ======== ====== ===== ========
Intersegment eliminations......... $ (4,558) $ (622) $ -- $ -- $ -- $ (622)
========= ======= ======== ====== ===== ========
Net revenues and sales............ $ 152,170 $ 8,737 $ 11,930 $1,189 $ -- $ 21,856
========= ======= ======== ====== ===== ========
Income (loss) before income taxes,
minority interest and cumulative
effect of accounting change..... $ 40,410 $ (914) $(11,653) $ (695) $(425) $(13,687)
========= ======= ======== ====== ===== ========
Income taxes...................... $ 14,020 $ (578) $ (373) $ (186) $(149) $ (1,286)
========= ======= ======== ====== ===== ========
Minority interest................. $ -- $ 448 $ (132) $ -- $ -- $ 316
========= ======= ======== ====== ===== ========
Net income (loss) from continuing
operations before cumulative
effect of accounting change..... $ 26,390 $ (784) $(11,148) $ (509) $(276) $(12,717)
========= ======= ======== ====== ===== ========
Cumulative effect of change in
accounting principle............ $ (205) $ (521) $ -- $ (14) $ -- $ (535)
========= ======= ======== ====== ===== ========
Net income (loss)................. $ 26,185 $(1,305) $(11,148) $ (523) $(276) $(13,252)
========= ======= ======== ====== ===== ========
Depreciation and amortization..... $ 9,899 $ 1,496 $ 762 $ 70 $ -- $ 2,328
========= ======= ======== ====== ===== ========
Interest expense.................. $ -- $ 10 $ 44 $ -- $ -- $ 54
========= ======= ======== ====== ===== ========
Capital expenditures.............. $ 4,085 $ 507 $ -- $ 19 $ -- $ 526
========= ======= ======== ====== ===== ========
Gross identifiable assets at
September 30, 1999.............. $ 276,080 $45,850 $ 17,430 $ 838 $ -- $ 64,118
========= ======= ======== ====== ===== ========
Intersegment eliminations......... $(159,548) $ (485) $ -- $ -- $ -- $ (485)
========= ======= ======== ====== ===== ========
Net identifiable assets at
September 30, 1999.............. $ 116,532 $45,365 $ 17,430 $ 838 $ -- $ 63,633
========= ======= ======== ====== ===== ========
<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>
NINE MONTHS ENDED SEPTEMBER 30, 1999
Gross revenues and sales.......... $ 1,078 $ 109 $ 991 $ 9,499 $ 11,677 $ 7,830 $ 198,713
======= ======== ======= ======== ======== ======= =========
Intersegment eliminations......... $ (1) $ -- $ (201) $ -- $ (202) $(7,830) $ (13,212)
======= ======== ======= ======== ======== ======= =========
Net revenues and sales............ $ 1,077 $ 109 $ 790 $ 9,499 $ 11,475 $ -- $ 185,501
======= ======== ======= ======== ======== ======= =========
Income (loss) before income taxes,
minority interest and cumulative
effect of accounting change..... $(4,098) $ (4,151) $ (959) $ (5,778) $(14,986) $(5,924) $ 5,813
======= ======== ======= ======== ======== ======= =========
Income taxes...................... $(1,048) $ (1,882) $ (51) $ (1,044) $ (4,025) $(2,083) $ 6,626
======= ======== ======= ======== ======== ======= =========
Minority interest................. $ -- $ 1,349 $ (519) $ -- $ 830 $ -- $ 1,146
======= ======== ======= ======== ======== ======= =========
Net income (loss) from continuing
operations before cumulative
effect of accounting change..... $(3,050) $ (3,618) $ (389) $ (4,734) $(11,791) $(3,841) $ (1,959)
======= ======== ======= ======== ======== ======= =========
Cumulative effect of change in
accounting principle............ $ (115) $ (183) $ (382) $(10,692) $(11,372) $ -- $ (12,112)
======= ======== ======= ======== ======== ======= =========
Net income (loss)................. $(3,165) $ (3,801) $ (771) $(15,426) $(23,163) $(3,841) $ (14,071)
======= ======== ======= ======== ======== ======= =========
Depreciation and amortization..... $ 95 $ (128) $ 10 $ 3,199 $ 3,176 $ 106 $ 15,509
======= ======== ======= ======== ======== ======= =========
Interest expense.................. $ 5 $ 234 $ -- $ 905 $ 1,144 $ 3,871 $ 5,069
======= ======== ======= ======== ======== ======= =========
Capital expenditures.............. $ (141) $ (12) $ 3 $ 1,915 $ 1,765 $ 5 $ 6,381
======= ======== ======= ======== ======== ======= =========
Gross identifiable assets at
September 30, 1999.............. $ 1,105 $ 24,497 $49,999 $ 43,033 $118,634 $14,813 $ 473,645
======= ======== ======= ======== ======== ======= =========
Intersegment eliminations......... $ -- $(23,590) $ -- $ -- $(23,590) $(5,776) $(189,399)
======= ======== ======= ======== ======== ======= =========
Net identifiable assets at
September 30, 1999.............. $ 1,105 $ 907 $49,999 $ 43,033 $ 95,044 $ 9,037 $ 284,246
======= ======== ======= ======== ======== ======= =========
</TABLE>
11
<PAGE> 12
THE PIONEER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
SEPTEMBER 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>
NINE MONTHS ENDED SEPTEMBER
30, 1998
Gross revenues and
sales.................. $ 166,151 $ 7,476 $ 8,476 $1,234 $ -- $ 17,186
========= ======== ======= ====== ===== ========
Intersegment
eliminations........... $ (7,028) $ -- $ -- $ -- $ -- $ --
========= ======== ======= ====== ===== ========
Net revenues and sales... $ 159,123 $ 7,476 $ 8,476 $1,234 $ -- $ 17,186
========= ======== ======= ====== ===== ========
Income (loss) before
income taxes and
minority interest...... $ 46,827 $(19,446) $(1,264) $ (796) $(668) $(22,174)
========= ======== ======= ====== ===== ========
Income taxes............. $ 16,933 $ (2,710) $ (112) $ (132) $(257) $ (3,211)
========= ======== ======= ====== ===== ========
Minority interest........ $ -- $ (6,862) $ (6) $ -- $ -- $ (6,868)
========= ======== ======= ====== ===== ========
Net income (loss)........ $ 29,894 $ (9,874) $(1,146) $ (664) $(411) $(12,095)
========= ======== ======= ====== ===== ========
Depreciation and
amortization........... $ 18,366 $ 1,152 $ 444 $ 207 $ -- $ 1,803
========= ======== ======= ====== ===== ========
Interest expense......... $ 2,613 $ 368 $ 15 $ -- $ -- $ 383
========= ======== ======= ====== ===== ========
Capital expenditures..... $ 6,697 $ 2,041 $ 363 $ 100 $ -- $ 2,504
========= ======== ======= ====== ===== ========
Gross identifiable assets
at September 30,
1998................... $ 325,757 $ 70,174 $23,640 $1,200 $ -- $ 95,014
========= ======== ======= ====== ===== ========
Intersegment
eliminations........... $(171,896) $(14,640) $ -- $ (86) $ -- $(14,726)
========= ======== ======= ====== ===== ========
Net identifiable Assets
at September 30,
1998................... $ 153,861 $ 55,534 $23,640 $1,114 $ -- $ 80,288
========= ======== ======= ====== ===== ========
<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>
NINE MONTHS ENDED SEPTEMBER
30, 1998
Gross revenues and
sales.................. $ 825 $ 1,293 $ 4,238 $ 5,941 $ 12,297 $ 10,370 $ 206,004
======= ======= ======= ======== ======== ======== =========
Intersegment
eliminations........... $ -- $ -- $(3,799) $ -- $ (3,799) $(10,370) $ (21,197)
======= ======= ======= ======== ======== ======== =========
Net revenues and sales... $ 825 $ 1,293 $ 439 $ 5,941 $ 8,498 $ -- $ 184,807
======= ======= ======= ======== ======== ======== =========
Income (loss) before
income taxes and
minority interest...... $(2,438) $ 7,343 $(7,847) $(17,253) $(20,195) $ (3,522) $ 936
======= ======= ======= ======== ======== ======== =========
Income taxes............. $ (779) $ 1,802 $(1,560) $ (451) $ (988) $ (1,605) $ 11,129
======= ======= ======= ======== ======== ======== =========
Minority interest........ $ -- $ 3,048 $(4,583) $ -- $ (1,535) $ -- $ (8,403)
======= ======= ======= ======== ======== ======== =========
Net income (loss)........ $(1,659) $ 2,493 $(1,704) $(16,802) $(17,672) $ (1,917) $ (1,790)
======= ======= ======= ======== ======== ======== =========
Depreciation and
amortization........... $ 48 $ 140 $ 108 $ 2,208 $ 2,504 $ 327 $ 23,000
======= ======= ======= ======== ======== ======== =========
Interest expense......... $ -- $ 262 $ -- $ 3,149 $ 3,411 $ 2,103 $ 8,510
======= ======= ======= ======== ======== ======== =========
Capital expenditures..... $ -- $ 12 $ 14 $ 1,732 $ 1,758 $ -- $ 10,959
======= ======= ======= ======== ======== ======== =========
Gross identifiable assets
at September 30,
1998................... $ 5,308 $77,098 $36,701 $ 47,217 $166,324 $ 34,386 $ 621,481
======= ======= ======= ======== ======== ======== =========
Intersegment
eliminations........... $ (710) $ (7) $(1,163) $ -- $ (1,880) $(25,157) $(213,659)
======= ======= ======= ======== ======== ======== =========
Net identifiable Assets
at September 30,
1998................... $ 4,598 $77,091 $35,538 $ 47,217 $164,444 $ 9,229 $ 407,822
======= ======= ======= ======== ======== ======== =========
</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 its gold mining operations and as such is reporting those results as
discontinued operations. 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
In the third quarter of 1999, the Company had net income from continuing
operations of $0.8 million, or $0.03 per share, and losses from discontinued
gold mining operations of $42.8 million, or $1.63 per share. During the third
quarter of 1998, the Company reported losses from continuing operations of $7.8
million, or $0.31 per share, losses from discontinued gold mining operations of
$8.2 million, or $0.32 per share, and losses from discontinued Russian banking
operations of $0.5 million, or $0.02 per share. Revenues from continuing
operations were $64.1 million in the third quarter of 1999 compared to $65.9
million in the third quarter of 1998.
For the nine months ended September 30, 1999, the Company reported losses
from continuing operations of $2.0 million, or $0.08 per share, losses from
discontinued gold mining and powdered metals operations of $73.7 million, or
$2.83 per share, and 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. 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. During the nine
months ended September 30, 1998, the Company reported losses from continuing
operations of $1.8 million, or $0.07 per share, losses from discontinued gold
mining operations of $15.1 million, or $0.60 per share, and losses from
discontinued Russian banking operations of $6.4 million, or $0.25 per share.
Revenues from continuing operations were $185.5 million for the nine months
ended September 30, 1999, compared to $184.8 million for the nine months ended
September 30, 1998.
Worldwide assets under management were approximately $22.6 billion at
September 30, 1999, compared to approximately $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 nine months ended September 30, 1999, and 1998,
respectively.
REVENUES AND NET INCOME (LOSS)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
REVENUES NET INCOME (LOSS) REVENUES NET INCOME (LOSS)
-------------- ------------------ ---------------- ------------------
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
-------------- ------------------ ---------------- ------------------
1999 1998 1999 1998 1999 1998 1999 1998
----- ----- ------- ------- ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BUSINESS SEGMENT
Pioneer Investment Management:
Mutual Funds and
Institutional Accounts.... $51.1 $49.5 $ 8.9 $ 5.5 $152.1 $151.1 $ 26.4 $ 24.6
Sale of Class B Share
Rights.................... -- 8.1 -- 5.3 -- 8.1 -- 5.3
----- ----- ------ ------ ------ ------ ------ ------
51.1 57.6 8.9 10.8 152.1 159.2 26.4 29.9
----- ----- ------ ------ ------ ------ ------ ------
Pioneer International
Financial Services:
Russia...................... 2.2 1.4 (0.5) (8.0) 8.7 7.5 (0.8) (9.8)
Central and Eastern
Europe.................... 4.9 3.0 (3.0) (0.9) 13.2 9.7 (11.7) (1.8)
Asia........................ -- -- (0.1) (0.1) -- -- (0.3) (0.4)
----- ----- ------ ------ ------ ------ ------ ------
7.1 4.4 (3.6) (9.0) 21.9 17.2 (12.8) (12.0)
----- ----- ------ ------ ------ ------ ------ ------
Pioneer Global Investments:
Venture Capital............. 0.4 0.5 (0.1) (2.8) 0.9 1.7 (4.0) 0.8
Real Estate................. 0.3 0.4 (1.2) (0.5) 1.1 0.8 (3.1) (1.7)
Timber...................... 5.2 3.0 (2.0) (5.6) 9.5 5.9 (4.7) (16.8)
----- ----- ------ ------ ------ ------ ------ ------
5.9 3.9 (3.3) (8.9) 11.5 8.4 (11.8) (17.7)
----- ----- ------ ------ ------ ------ ------ ------
Interest Expense and Other
Expenses.................... -- -- (1.2) (0.7) -- -- (3.8) (2.0)
----- ----- ------ ------ ------ ------ ------ ------
Total From Continuing
Operations.................. $64.1 $65.9 $ 0.8 $ (7.8) $185.5 $184.8 $ (2.0) $ (1.8)
----- ----- ------ ------ ------ ------ ------ ------
Discontinued Operations....... -- -- (42.8) (8.7) -- -- (73.7) (21.5)
Change in Accounting Principle
(Start-up Costs)............ -- -- -- -- -- -- (12.1) --
----- ----- ------ ------ ------ ------ ------ ------
Totals............... $64.1 $65.9 $(42.0) $(16.5) $185.5 $184.8 $(87.8) $(23.3)
===== ===== ====== ====== ====== ====== ====== ======
</TABLE>
PIONEER INVESTMENT MANAGEMENT
Pioneer Investment Management ("PIM") recorded third quarter 1999 net
income of $8.9 million compared to third quarter 1998 net income of $10.8
million, including $5.5 million of operating income and a gain of $5.3 million
associated with the sale of Class B share rights. PIM recorded net income of
$26.4 million for the nine months ended September 30, 1999, compared to $29.9
million for the nine months ended September 30, 1998. Excluding the one-time
gain, PIM's net income increased by $3.4 million and $1.8 million for the third
quarter and nine months ended September 30, 1999, respectively.
PIM's assets under management at September 30, 1999 were approximately
$22.3 billion compared to approximately $23.0 billion at December 31, 1998. In
the third quarter of 1999, sales of U.S. registered mutual funds (including
reinvested dividends) were approximately $0.8 billion, 13% below sales in the
third quarter of 1998. Net redemptions were approximately $0.1 billion, compared
to net sales of approximately $0.3 billion in the third quarter of 1998. For the
nine months ended September 30, 1999, sales of U.S. registered mutual funds
(including reinvested dividends) were approximately $2.9 billion, 6% below sales
in the comparable 1998 period. Net redemptions were approximately $0.1 billion,
compared to net sales of approximately $1.3 billion in the first nine months of
1998.
14
<PAGE> 15
Since October 1998, the Company has sold each month at a premium additional
rights arising from sales of Class B shares. In consideration for the sale, the
Company relinquishes its rights to receive future distribution fees and certain
sales charges. As a result, distribution fees and expenses associated with the
amortization of Class B Share dealer advances have decreased significantly in
1999. In the third quarter of 1998, distribution fees related to Class B and C
shares were $4.8 million and amortization expenses were $3.8 million, compared
to fees of $1.1 million and expenses of $0.5 million in the third quarter of
1999. In the first nine months of 1998, distribution fees were $13.6 million and
amortization expenses were $10.1 million, compared to fees of $4.2 million and
expenses of $1.6 million in the first nine months of 1999.
Revenues of $51.1 million in the third quarter of 1999 increased by $1.6
million, excluding the one-time gain associated with the B-Share rights sale.
Management fee revenues of $35.1 million increased by $2.8 million, as average
assets under management for the quarter increased by $2.0 billion to $23.5
billion. Revenues from underwriting commissions, distribution fees, and
shareholder servicing fees decreased by $2.4 million to $13.2 million, as
increased shareholder service fees partially offset lower distribution fees.
Excluding the B-Share rights sale, revenues of $152.1 million in the first
nine months of 1999 increased by $1.0 million. Management fee revenues of $102.8
million increased by $4.8 million, as average assets under management for the
nine months increased by $1.1 billion to $23.2 billion. Revenues from
underwriting commissions, distribution fees, and shareholder servicing fees
decreased by $5.1 million to $40.7 million, as increased shareholder service
fees partially offset lower distribution fees. All other revenues increased by
$1.3 million, principally from increased trustee fees on mutual fund retirement
accounts and higher interest income.
Costs and expenses decreased by $3.3 million in the third quarter of 1999
to $37.4 million, principally from lower expenses associated with the
amortization of dealer advances. For the nine months ended September 30, 1999,
costs and expenses of $111.7 million decreased by $0.8 million. Excluding the
$8.5 million decrease in dealer advance amortization expenses overall expenses
increased by $7.7 million, resulting principally from higher payroll costs,
higher mutual fund distribution expenses and higher costs related to additional
office space.
PIM's effective tax rate for the third quarters of both 1999 and 1998 were
36%. For the nine months ended September 30, 1999, PIM's effective tax rate was
34.7% compared to 36.2% in the first nine 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 third quarter of 1999, Pioneer International Financial Services
("PIFS") lost $3.6 million on revenues of $7.1 million compared to a loss of
$9.0 million on revenues of $4.4 million in the third quarter of 1998. A
substantial portion ($2.8 million) of the third quarter 1999 loss occurred in
Poland, $2.2 million of which related to the Company's pension subsidiary. In
line with the Company's expectations, the quarterly rate of loss declined as
start-up costs and advertising expenses wound down. In addition, the Company
only recorded 70% of the pension company's operating losses for the full third
quarter as opposed to recording 100% of the losses for most of the second
quarter. Most of PIFS' third quarter 1998 loss ($8.0 million) occurred in
Russia, $5.6 million of which related to a cost basis adjustment and the
write-off of uncollectible receivables of the Pioneer First Investment Fund.
During the nine months ended September 30, 1999, PIFS lost $12.8 million on
revenues of $21.9 million compared to a loss of $12.0 million on revenues of
$17.2 million in the nine months ended September 30, 1998. Most of the 1999 loss
($11.2 million) occurred in Poland and related to the Company's pension
subsidiary while most of the 1998 loss ($9.8 million) occurred in Russia and
related to the Pioneer First Investment Fund.
In April 1999, the Company reached agreement with Nationwide Global
Holdings, Inc. ("Nationwide") to sell a 30% interest in the Company's Polish
pension subsidiary for $20 million. 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
15
<PAGE> 16
investment in the pension company under the equity method retroactive to January
1, 1999. The consolidation method of accounting was used during the fourth
quarter of 1998, when the pension company was formed.
PIONEER GLOBAL INVESTMENTS
In the third quarter, Pioneer Global Investments lost $3.3 million on
revenues of $5.9 million compared to losses of $8.9 million on revenues of $3.9
million in the third quarter of 1998. The reduced losses included lower timber
losses of $3.6 million and lower venture capital losses of $2.7 million,
partially offset by higher real estate losses of $0.7 million.
In the first nine months of 1999, Pioneer Global Investments lost $11.8
million on revenues of $11.5 million compared to losses of $17.7 million on
revenues of $8.4 million in the first nine months of 1998. Included in the $5.9
million reduction in losses were lower timber losses of $12.1 million which more
than offset the lower venture capital earnings of $4.8 million and higher real
estate losses of $1.4 million. The Company sold its U.S. venture capital
operations in the first quarter of 1999 resulting in a one-time 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, which harvests timber in the Khabarovsk Territory of Russia, 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 nine months ended September 30,
1999, the timber business lost $2.0 million and $4.7 million, respectively.
During the corresponding periods in 1998, the timber business lost $5.6 million
and $16.8 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 nine months
ended September 30, 1999, was 72,000 and 230,000 cubic meters, respectively.
This represents increases of 60% and 68%, respectively, compared with
corresponding periods in 1998. Production costs for the third quarter of 1999
were approximately $58 per cubic meter, including approximately $10 per cubic
meter of depreciation and amortization. Production costs were $87 per cubic
meter in the third quarter of 1998, including approximately $13 per cubic meter
of depreciation and amortization. During the three and nine months ended
September 30, 1999, Forest-Starma shipped 135,000 cubic meters and 234,000 cubic
meters of timber at an average realized price of $39 per cubic meter and $41 per
cubic meter, respectively. During the three and nine months ended September 30,
1998, Forest-Starma shipped 109,000 cubic meters and 191,000 cubic meters,
respectively, at average realized prices of $28 per cubic meter and $31 per
cubic meter, respectively. Production costs were $52 and $88 per cubic meter in
the nine months ended September 30, 1999 and September 30, 1998, including $10
and $13 per cubic meter of depreciation and amortization, respectively.
THIRD-PARTY DEBT. Forest-Starma had $5.6 million of external debt
outstanding at September 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 $0.9 million.
RECENT DEVELOPMENTS. The Company is continuing discussions with several
potential strategic partners as participants in its timber business.
16
<PAGE> 17
DISCONTINUED OPERATIONS
During the second quarter of 1999, the Company reflected the gold mining
segment as a discontinued operation. The gold mining segment consists of Pioneer
Goldfields Limited ("PGL"), and its 90%-owned Ghanaian operating subsidiary,
Teberebie Goldfields Limited ("TGL"), and Closed Joint-Stock Company "Tas-Yurjah
Mining Company" ("Tas-Yurjah"), the Company's majority owned (95%) Russian
subsidiary. The Company also reflected its powdered metals and Russian banking
operations as discontinued operations in the second quarter of 1999 and the
third quarter of 1998, respectively. The following table summarizes discontinued
operations for the three and nine months ended September 30, 1999 and September
30, 1998:
LOSSES FROM DISCONTINUED OPERATIONS
($ IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- --------------------
1999 1998 1999 1998
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Discontinued gold mining........................ $(42.8) $(8.2) $(72.3) $(15.1)
Discontinued powdered metals.................... -- -- (1.4) --
Discontinued Russian banking.................... -- (0.5) -- (6.4)
------ ----- ------ ------
Total................................. $(42.8) $(8.7) $(73.7) $(21.5)
====== ===== ====== ======
</TABLE>
GOLD MINING
In October 1998, the Company engaged the services of an investment banking
firm to sell PGL, including its African exploration rights and its ownership
interest in TGL. 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. The Company is now conducting what
it believes to be final negotiations with potential purchasers.
Whether or not the Company consummates a sale, it recently determined to
proceed with an orderly closure of the Teberebie mine. Mining operations will
cease by the end of the year and all processing activities will cease in the
first half of 2000. The Company believes it can complete the closure without
providing additional funding to TGL. Based on the foregoing, additional losses
from discontinued gold mining operations in the third quarter of 1999 were $42.8
million, principally related to the impairment of the long-lived assets of TGL.
The losses described above reflect management's estimates of the costs of
winding down the gold mining operations. The Company, however, may record gains
or incur additional losses in either a sales transaction or closure scenario as
details, timing, and other events unfold. There can be no assurance that the
Company can successfully negotiate a sales transaction and consummate that
transaction or close the mine in accordance with management's estimates.
Losses from discontinued gold mining operations were $8.2 million in the
third quarter of 1998.
Losses from discontinued gold mining operations during the first nine
months of 1999 were $72.3 million, including $18.7 million from operations and
$53.5 million from the estimated loss on the disposition of the gold mining
segment. Losses from discontinued gold mining operations in the first nine
months of 1998 were $15.1 million.
The following summarizes the operations of TGL during the third quarter and
nine months ended September 30, 1999, compared to the third quarter and nine
months ended September 30, 1998.
GOLD SALES. Revenues decreased by $0.7 million to $17.1 million in the
third quarter of 1999 compared with 1998, as a $39 decrease in the average
realized price of gold to $264 per ounce was largely offset by a 6,400 ounce, or
11%, increase in gold shipments to 65,000 ounces. Revenues decreased by $4.1
million to $54.3 million during the first nine months of 1999 compared with 1998
as a 12% decrease in the average realized gold price to $274 per ounce was
offset partially by a 6% increase in gold sales to 198,600 ounces. During the
third quarter and first nine months of 1998, the average realized price of gold
included proceeds of $15 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 nine
months ended September 30, 1999, with the comparable periods in 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- INCREASE/ ------------------- INCREASE/
1999 1998 (DECREASE) 1999 1998 (DECREASE)
-------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Production & shipment (ounces)......... 65,000 58,600 6,400 198,600 188,100 10,500
======= ======= ====== ======== ======== =======
Cash costs per ounce................... $ 224 $ 346 $ (122) $ 233 $ 292 $ (59)
------- ------- ------ -------- -------- -------
Total costs per ounce............. $ 366 $ 476 $ (110) $ 367 $ 415 $ (48)
======= ======= ====== ======== ======== =======
</TABLE>
THIRD-PARTY DEBT. At September 30, 1999, third-party debt aggregated $36.1
million, including $12.7 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 $2.2
million, of which $1.8 million represents principal payments.
POWDERED METALS
The Company sold for nominal value its powdered metals operations at the
end of the third quarter of 1999. The Company incurred $1.4 million of expenses
in 1999 associated with these operations, including $0.9 million from the loss
on the disposition of this business.
RUSSIAN BANKING OPERATIONS
In the third quarter of 1998, the Company liquidated its Russian banking
operations. Accordingly, losses of $0.5 million and $6.4 million for the three
months and nine months ended September 30, 1998 were 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 $1.2 million in
the third quarter of 1999 compared to $0.7 million in the third quarter of 1998.
For the nine months ended September 30, 1999, net interest and other expenses
were $3.8 million compared to $2.0 million in the first nine 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,
mark-to-market adjustments on the Company's interest rate protection agreements
and expenses associated with amendments to the Company's credit facility and
senior notes.
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 slightly by $1.2 million in the first nine months of 1999 to $46.6
million.
18
<PAGE> 19
During 1999, the Company and its commercial banking syndicate amended its
senior credit facility, which, among other things reduced the availability under
the facility from $80 million to $55 million and shortened the maturity date to
March 31, 2001. For a description of the Company's $55 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 September
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, financial resources and name recognition.
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, 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
19
<PAGE> 20
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 has been 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 has been 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 has addressed
hardware, software, embedded systems and vendor systems and has consisted 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.
- Testing -- ensuring that all remediated systems function correctly in
both current date and future date environments.
20
<PAGE> 21
- 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. Additionally, 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 throughout the year. 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 all core 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 has been preparing its systems and evaluating its vendors in
each of its core international 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
that, 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 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.
21
<PAGE> 22
Commencing October 1, 1999 and continuing through February 1, 2000, there will
be a freeze in effect on the introduction of new computer code or other systems
modifications. Any proposed changes during this timeframe will be approved by
the Year 2000 Steering Committee prior to being implemented. In general, it is
expected that only system changes required to address critical issues or legal
or regulatory requirements will be implemented during the freeze period. Because
we expect 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 appropriately.
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 September 30, 1999, the Company had incurred and expensed
approximately $2.3 million in connection with its Year 2000 project. The Company
estimates its total remaining costs to be approximately $200,000, which will be
expensed as incurred during the fourth quarter of 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 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: November 12, 1999
THE PIONEER GROUP, INC.
/s/ ERIC W. RECKARD
------------------------------------
Eric W. Reckard,
Executive Vice President
Chief Financial Officer and
Treasurer
23
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- ------------------------------------------------------------
<C> <S>
10.1 Shareholders Agreement dated as of 8th April 1999 between
the Company and Nationwide Global Holdings, Inc.
27.99 Financial Data Schedule.
27.98 Financial Data Schedule.
</TABLE>
24
<PAGE> 1
EXHIBIT 10.1
(1) THE PIONEER GROUP, INC.
(2) NATIONWIDE GLOBAL HOLDINGS, INC.
----------------------------------------
SHAREHOLDERS' AGREEMENT
----------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
1. Definitions and interpretation......................................................................1
2. Object of the Society...............................................................................2
3. Members of the Supervisory Board....................................................................3
4. Conduct of the Society's affairs....................................................................4
5. Matters requiring consent of the Shareholders.......................................................5
6. Matters requiring consent of the Supervisory Board..................................................5
7. Representations, Warranties and undertakings........................................................8
8. Capital and Further Finance........................................................................10
9. Guarantees, etc. given by the Shareholders.........................................................11
10. Exercise of rights and powers.....................................................................11
11. Competition Restrictions and Regulatory Action....................................................11
12. Dividend and distribution policy..................................................................12
13. Share transfers : pre-emption provisions..........................................................12
14. Procedure in the event of Deadlock................................................................14
15. Default Event Option..............................................................................15
16. Share Transfer Mechanics..........................................................................17
17. Assignment........................................................................................18
18. Protection and use of name........................................................................18
19. This Agreement not to constitute a partnership....................................................20
20. Costs.............................................................................................20
21. Confidential Information..........................................................................20
22. Duration..........................................................................................21
23. Announcements.....................................................................................21
24. Waiver, forbearance and variation.................................................................22
25. Governing Law, Language and Jurisdiction..........................................................22
26. Severability......................................................................................23
27. Entire agreement..................................................................................23
28. The terms of this Agreement to prevail............................................................23
29. Notices...........................................................................................24
30. Counterparts......................................................................................25
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
Schedule 1 Words and Expressions......................................................................26
Schedule 2 Details of the Society.....................................................................29
Schedule 3 Representations and Warranties.............................................................30
Schedule 4 Limitation of liability....................................................................40
Schedule 5 Deed of Adherence..........................................................................41
</TABLE>
The following documents are in the agreed terms:
1. The amendments to the by-laws of the Supervisory Board referred to in CLAUSE
3.3,
2. The Initial Budget,
3. The Initial Business Plan
<PAGE> 4
THIS AGREEMENT is made with effect from 8th April 1999
BETWEEN:-
(1) THE PIONEER GROUP, INC. a company duly established under Delaware law whose
principal place of business is at 60 State Street, Boston, Massachusetts
02109, United States of America ("PIONEER"); and
(2) NATIONWIDE GLOBAL HOLDINGS, INC. a company duly established under Ohio law
whose principal place of business is at One Nationwide Plaza, Columbus,
Ohio 43215, United States of America ("NATIONWIDE").
WHEREAS:-
(A) Pioneer Powszechne Towarzystwo Emerytalne S.A. (the "SOCIETY") was
registered by the Registration Court on 29th October 1998. The Society has
a share capital of PLN 340,000,000 divided into 340,000 shares of PLN 100
each. Further details about the Society are set out in SCHEDULE 2 (DETAILS
OF THE SOCIETY).
(B) On 8th April 1999, Pioneer, Nationwide and the Society signed a share
subscription agreement (the "SHARE SUBSCRIPTION AGREEMENT") pursuant to
which Nationwide agreed to subscribe for 145,714 shares of PLN 100 each in
the Society on the terms and conditions set out in that agreement.
(C) Pioneer and Nationwide wish to participate as shareholders in the Society
for the purposes and on the terms set out in this Agreement.
(D) The Parties to this Agreement entered into a shareholder's agreement (the
"ORIGINAL AGREEMENT") on 8th April 1999 setting out the terms on which they
would participate as shareholders in the Society. The Parties have agreed
to amend the Original Agreement and to execute this Agreement to
incorporate such amendments and to restate the terms on which they are
participating as shareholders' in the Society.
IT IS AGREED as follows:-
1. DEFINITIONS AND INTERPRETATION
1.1 In this Agreement the words and expressions set out in SCHEDULE 1 (WORDS
AND EXPRESSIONS) have, unless the context otherwise requires, the meanings
there provided for them.
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1.2 The recitals and schedules form part of this Agreement and shall have the
same force and effect as if set out in the body of this Agreement.
1.3 Headings in this Agreement are inserted for convenience only and shall not
affect its construction or interpretation.
1.4 Where appropriate, words denoting the singular shall include the plural and
vice versa and words denoting any gender shall include the other genders.
1.5 References to recitals, schedules and clauses are to recitals and schedules
to and clauses of this Agreement, unless otherwise stated.
1.6 References to any document or agreement (including this Agreement) include
a reference to that document or agreement as varied, amended, supplemented,
substituted, novated or assigned from time to time.
2. OBJECT OF THE SOCIETY
2.1 The object of the Society shall be to carry on the business of establishing
and managing the Fund, an open pension fund established and registered in
accordance with the Pension Law.
2.2 The Business shall be conducted under the name Pioneer Powszechne
Towarzystwo Emerytalne in accordance with applicable Polish law and the
Articles and in the best interests of the Society on sound commercial
profit-making principles so as to generate the maximum achievable
maintainable profits available for distribution and otherwise in accordance
with the Business Plan, as varied by from time to time as provided herein.
2.3 In support of the Business, Nationwide will actively seek to assist and
promote the business of the Society in the manner contemplated by the then
current Business Plan through such measures as transfer of knowledge in the
areas of sales training and sales management, with the aim of developing a
professionally trained, compensated and supervised sales force which is
directed toward the goals of increased business, enhanced customer
satisfaction, enhanced customer loyalty to Pioneer funds and superior
customer retention.
2.4 In support of the Business, Pioneer will use its best efforts to assist and
promote the Business in the manner contemplated by the then current
Business Plan through such measures as the use of Pioneer's brand name,
professional money management skills, execution of appropriate advertising
and promotion, support of the product through existing and future
distribution channels, assisting in identifying and recruiting local staff
and providing local market knowledge and expertise.
2.5 The Shareholders shall supply consulting and other services to the Society
on an as needed basis. In general, ad hoc support service which requires
less than
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full-time participation of individual employees of either Shareholders will
be the responsibility of such Shareholder and will not be chargeable as a
direct expense to the Society. In the event that the Shareholders agree
that ongoing support is needed from either Shareholder, that contribution
must be authorised by the Society in an approved written agreement and is
chargeable as an expense to the Society. Reimbursement to each Shareholder
for these services will be on an equitable and consistent basis for both
Shareholders.
2.6 US$ 2,000,000 of the proceeds of the issue of the Subscription Shares will
be used for an advertising campaign to launch the Fund. The balance of the
proceeds of the Subscription Shares will be used by the Society for the
Business in accordance with the then current Business Plan and Budget,
subject to any restrictions on use of such funds arising under applicable
Polish law.
3. MEMBERS OF THE SUPERVISORY BOARD
3.1 The Society will be supervised by the Supervisory Board as provided in the
Articles and applicable Polish law. The number of members of the
Supervisory Board holding office at any time shall be 6 members, unless
otherwise agreed in writing by the Shareholders.
3.2 Pioneer shall have the right to nominate 4 persons to be members of the
Supervisory Board, one of whom shall be designated by Pioneer as the
chairman of the Supervisory Board. Nationwide shall have the right to
nominate 2 persons to be members of the Supervisory Board, one of whom
shall be designated by Nationwide as the vice - chairman of the Supervisory
Board. 2 of the persons nominated to the Supervisory Board by Pioneer and 1
of the persons nominated to the Supervisory Board by Nationwide will be
independent of Pioneer and Nationwide respectively and will otherwise meet
all the qualification (including educational) requirements of UNFE. A
person will be independent of Pioneer or Nationwide Group (as the case may
be) if they meet the independence requirements of the Pension Law. The
Shareholders will consult each other concerning the identity of their
respective nominees to the Supervisory Board. Each Shareholder hereby
undertakes to vote in support of any person nominated by the other as an
appointee to the Supervisory Board provided that such person is properly
qualified, satisfies applicable legal requirements, and his appointment is
accepted by UNFE.
3.3 The procedures in relation to the functioning of the Supervisory Board and
adopting resolutions by the Supervisory Board shall be established in the
Supervisory Board by-laws in the agreed terms and adopted by the General
Assembly.
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4. CONDUCT OF THE SOCIETY'S AFFAIRS
4.1 Each of the Shareholders agrees with the other that it shall exercise all
voting rights and other powers of control available to it in relation to
the Society so as to cause (insofar as they are able by the exercise of
such rights and powers) that at all times during the continuance of this
Agreement without the prior written consent of the other Shareholder:-
4.1.1 there is a Budget resolved upon by the Supervisory Board in
respect of the capital and revenue affairs of the Society
(including (except with respect to the Initial Budget), without
prejudice to the generality of the foregoing, all staff salaries,
bonuses and other remuneration) and that such Budget is for
periods not exceeding a year and a replacement Budget is agreed
for each Financial Year of the Society in advance and as
superseded or modified from time to time as required. The first
Budget is the Initial Budget;
4.1.2 the business of the Society shall consist exclusively of the
Business (even if Polish law permits the Society to conduct some
other business);
4.1.3 the Business shall be conducted in accordance with the Business
Plan which shall be resolved upon by the Supervisory Board and
replaced on a rolling basis from time to time and as superseded
or modified from time to time. The first Business Plan shall be
the Initial Business Plan;
4.1.4 Nationwide shall be entitled to receive from Pioneer copies of:-
(a) all reports and documents legally required to be provided to
the Shareholders in the Society; and
(b) copies of all other documents provided by the Society to
Pioneer;
4.1.5 without prejudice to the rights of the Shareholders and their
respective Groups to carry on their other businesses in a proper
and efficient manner, each Shareholder shall use all reasonable
endeavours to promote the business and affairs of the Society;
4.1.6 members of the Supervisory Board shall be appointed in accordance
with provisions of this Agreement and applicable law;
4.1.7 the Society shall comply with the provisions of its Articles; and
4.1.8 any transferee of Shares shall execute a deed of adherence in the
form set out in SCHEDULE 5 (DEED OF ADHERENCE).
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5. MATTERS REQUIRING CONSENT OF THE SHAREHOLDERS
5.1 Each of the Shareholders agrees with the other that it shall exercise all
voting rights and other powers of control available to it in relation to
the Society so as to cause (insofar as they are able by the exercise of
such rights and powers) that the Society shall not without the unanimous
consent of the Shareholders, whether in general meeting or in writing:-
5.1.1 alter the Articles;
5.1.2 redeem or purchase any Share;
5.1.3 increase the share capital of the Society or create or issue any
shares or any option or other Encumbrance over Shares;
5.1.4 amend the Management Board by-laws or the Supervisory Board
by-laws in a manner inconsistent with this Agreement;
5.1.5 cease operations or dissolve the Society
5.1.6 to the extent permitted by Polish Law, create another open
pension fund or take over the management of any pension fund
other than the Fund or transfer the management of the Fund to any
other open pension fund society.
6. MATTERS REQUIRING CONSENT OF THE SUPERVISORY BOARD
6.1 Each of the Shareholders agrees with the other that it shall exercise all
voting rights and other powers of control available to it in relation to
the Society so as to cause (insofar as they are able by the exercise of
such rights and powers) that the Society shall not without the prior
unanimous consent of the Supervisory Board (whether in writing or at a duly
convened and quorate meeting of the Supervisory Board at which both the
chairmen and the vice-chairman of the Supervisory Board are present):-
6.1.1 enter into any contract, arrangement or commitment involving
expenditure on capital account or the realisation of capital
assets if the amount or the aggregate amount of such expenditure
or realisation by the Society, would exceed US$ 100,000 (or its
equivalent) in any one year or in relation to any one project,
and for the purpose of this CLAUSE 6.1.1, the aggregate amount
payable under any agreement for hire, hire purchase or purchase
on credit sale or conditional sale terms shall be deemed to be
capital expenditure incurred in the year in which such agreement
entered into;
6.1.2 approve or replace any Budget or Business Plan or modify any
Budget or Business Plan provided that prior unanimous consent
shall not be required pursuant to this CLAUSE 6.1.2 for any
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modification to the Budget which varies the Budget by less than
10%;
6.1.3 enter into any contract or other obligation inconsistent with the
then current Budget or omit to take any action which is required
by the Budget provided that prior unanimous consent shall not be
required pursuant to this CLAUSE 6.1.3 for any contract or other
obligation which requires expenditure on the part of the Society
less than 10% higher than the then current Budget;
6.1.4 undertake any action which is inconsistent with, or omit to
undertake any action which is required by, the Business Plan;
6.1.5 pay any bonus to any member of the Management Board or the
Supervisory Board or employee of the Society in excess of amount
allocated for such bonuses in the relevant Financial Year set out
in the then current Budget or Business Plan;
6.1.6 to the extent permitted by Polish Law, give any guarantee or
indemnity or surety to secure the liabilities or obligations of
any person;
6.1.7 sell, transfer, lease, assign, or otherwise dispose of the whole
or a material part of the undertaking, property and/or assets of
the Society, or acquire any material asset or business or
contract so to do (whether by a single transaction or a series of
transactions) where the value concerned exceeds US$ 100,000 (or
its equivalent);
6.1.8 (except in the ordinary course of business) take or agree to take
any leasehold interest in or licence over any land;
6.1.9 create any mortgage, charge, pledge or other encumbrance over the
whole or any part of its undertaking, property or assets except
for the purpose of securing the indebtedness of the Society to
its bankers for sums borrowed in the ordinary and proper course
of business;
6.1.10 borrow any sum (except from the Society's bankers in the ordinary
and proper course of the Business) in excess of a maximum
aggregate sum outstanding at any time of US$ 250,000 (or its
equivalent);
6.1.11 to the extent permitted by Polish Law, make any loan or advance
or give any credit (other than normal trade credit);
6.1.12 enter into or terminate any partnership, joint venture or
profit-sharing agreement or enter into any collaboration
agreement;
6.1.13 enter into any contract or transaction which
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a) is not in the ordinary course of the business of the
Society;
b) has a duration of more than three years;
c) is not on arm's length terms;
6.1.14 enter into any contract or obligation with any shareholder or to
any entity in the Pioneer Group or the Nationwide Group or any
Associate or employee of any such person (including any renewal
thereof or any variation in the terms of any existing contract or
obligation) which involves or could involve expenditure or the
incurring of any obligation by the Society in excess of US$
150,000 (or its equivalent);
6.1.15 take any major decisions relating to the initiation or conduct
(including settlement) of material legal, arbitration,
alternative dispute resolution or similar proceedings to which it
is or would become a party (a potential liability or claim for
US$ 250,000 (or its equivalent) being regarded as material for
that purpose);
6.1.16 make a material change to the investment policy of the Fund;
6.1.17 change the depository bank of the Fund;
6.1.18 to the extent allowed by law, change the principles in relation
to the calculation of assets of the Fund and the calculation of
the rate of return on the assets of the Fund;
6.1.19 change the outside transfer agent of the Fund;
6.1.20 amend the fee rates or structure, the charging rates or structure
or commission rate or structure of the Society or the Fund;
6.1.21 change the auditors of the Society;
6.1.22 acquire, purchase or subscribe for any shares, debentures,
mortgages, or securities (or any interest therein) in any
company, trust or other body; or
6.1.23 change the fiscal year end of the Society or the Fund.
6.2 At the first meeting of the Supervisory Board following Completion, the
parties will cause (insofar as they are able by the exercise of such rights
and powers) that the Supervisory Board will give a direction to the
Management Board that the Management Board is to keep the Supervisory Board
fully informed about any legal, arbitration, alternative dispute resolution
or similar proceedings to which the Society is or becomes a party.
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7. REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS
7.1 Pioneer hereby makes representations and warrants to Nationwide in the
terms set out in SCHEDULE 3 (WARRANTIES) in relation to the Society and the
Fund (as appropriate). Each of the Warranties shall be construed
independently and (except as expressly otherwise provided) shall not be
limited by reference to any other Warranty or by anything in this
Agreement.
7.2 Pioneer accepts that Nationwide is entering into this Agreement upon the
basis of and in reliance upon the Warranties.
7.3 The liability of Pioneer and Nationwide in respect of any claim in relation
to the Warranties shall be limited as provided in SCHEDULE 4 (LIMITATION OF
LIABILITY).
7.4 In relation to the Society and the Fund (as appropriate) Pioneer makes
representations and warranties to Nationwide that all the Warranties were
true and accurate in all respects and not misleading as at 8th April 1999.
In addition, in relation to the Society and the Fund (as appropriate)
Pioneer makes representations and warrants to Nationwide that all the
Warranties (with the exception of the Warranties in PARAGRAPHS 1; 2.1; 3.1;
6.1; 6.2; THE FIRST SENTENCE OF PARAGRAPH 6.3; 7; 8.2; 13.1 AND 17 of
SCHEDULE 3 (WARRANTIES)) will be true and accurate in all respects and not
misleading at Completion:
7.4.1 as if they had been repeated on such day by reference to the
circumstances at the time of repetition; and
7.4.2 on the basis that a reference to the time of repetition were each
time substituted for any express or implied reference to 8th
April 1999 (but so that any period of time expressed to start at
the date of this Agreement shall continue to be deemed to start
on 8th April 1999)
and references in this Agreement to the Warranties shall include them as so
repeated.
7.5 Pioneer undertakes that:
7.5.1 it shall not, and shall cause (as far as it can) that the Society
shall not, at any time before Completion do (or permit or suffer
to subsist or be done) any act or thing which would constitute a
breach of any of the Warranties or which would make any of the
Warranties untrue or misleading at Completion;
7.5.2 upon Pioneer becoming aware before Completion of the actual or
impending occurrence or non-occurrence of any matter, event or
circumstance (including any omission to act) which:
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(a) would or might reasonably be expected to cause or constitute
a breach of any Warranty; or
(b) would or might reasonably be expected to make any of the
Warranties untrue or misleading at Completion; or
(c) would have caused or constituted a breach of any Warranty
had it been known to Pioneer before exchange of this
Agreement,
it will immediately give written notice of such event to
Nationwide with sufficient details to enable Nationwide to assess
accurately the impact of such event and (if requested by
Nationwide) use its reasonable endeavours promptly to prevent or
remedy the event.
7.6 Where any Warranty is qualified by Pioneer's knowledge it shall mean the
actual knowledge of Alan Laughlin, Larry R. Wilder, Alicja Malecka and/or
each of the members of the Management Board.
7.7 Pioneer hereby warrants to Nationwide that at Completion Pioneer and the
Society have obtained all necessary corporate and other consents and
approvals in relation to the performance of this Agreement and the Share
Subscription Agreement and the other documents to be executed at Completion
and accordingly they each have full power to enter into and perform this
Agreement and the Share Subscription Agreement and the other documents to
be entered into pursuant to this Agreement and the Share Subscription
Agreement, each of which constitutes (or will when executed) binding
obligations on Pioneer and the Society in accordance with their respective
terms.
7.8 Nationwide hereby makes representations and warrants to Pioneer as follows:
7.8.1 Nationwide has full power to enter into this Agreement and the
Share Subscription Agreement and the other documents to be
entered into pursuant to this Agreement and the Share
Subscription Agreement, each of which constitutes (or will when
executed constitute) binding obligations on Nationwide in
accordance with their respective terms.
7.8.2 Nationwide hereby warrants to Pioneer that at Completion
Nationwide has obtained all necessary corporate and other
consents and approvals in relation to the performance of this
Agreement and the Share Subscription Agreement and the other
documents to be executed at Completion and accordingly it has
full power to enter into and perform this Agreement and the Share
Subscription Agreement and the other documents to be entered into
pursuant to this Agreement and the Share Subscription Agreement,
each of
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which constitutes (or will when executed) binding obligations on
Nationwide in accordance with their respective terms.
7.8.3 No officer or employee of Nationwide has made or received any
Sensitive Payment in connection with the Business or any
permission, confirmation or registration held by the Society or
applied for pursuant to clause 2 of the Share Subscription
Agreement. For the purposes of this CLAUSE 7.8.3 the expression
"SENSITIVE PAYMENT" (whether or not illegal) shall include (i)
bribes or kickbacks paid to any person, firm or company including
central or local government officials or employees or (ii)
amounts received with an understanding that rebates or refunds
will be made in contravention of the laws of any jurisdiction
either directly or through a third party or (iii) any political
contribution which would be unlawful in Poland or (iv) payments
or commitments (whether made in the form of commissions, payments
or fees for goods received or otherwise) made with the
understanding or under circumstances that would indicate that all
or part of the payment is to be paid by the recipient to central
or local government officials or as a commercial bribe, influence
payment or kickback.
7.9 In consideration of Nationwide entering into the Share Subscription
Agreement Pioneer hereby undertakes to Nationwide that if the Society fails
to make the payment of US$ 20,000,000 to Nationwide pursuant to clause 4.6
of the Share Subscription Agreement within the time limits prescribed in
such clause, Pioneer shall cause the Society to make a payment of US$
20,000,000 to Nationwide on the written demand of Nationwide.
8. CAPITAL AND FURTHER FINANCE
8.1 The issued share capital of the Society may from time to time be increased
by such sum as shall be agreed between the Shareholders in accordance with
this CLAUSE 8 and CLAUSE 5.1.3.
8.2 It is the intention of the parties that the Society should be
self-financing and neither Shareholder shall be obliged to contribute
further funds or participate for the benefit of the Society in any
guarantee or similar undertaking. However, the Shareholders acknowledge
their intention to support the Society in accordance with the then current
Business Plan and will in good faith consider providing such additional
funds, guarantees and undertakings as may reasonably be required to ensure
the adequate funding of the Society. Unless the parties agree otherwise,
all capital increases of the Society shall be made on a pro rata basis.
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9. GUARANTEES, ETC. GIVEN BY THE SHAREHOLDERS
Neither Shareholder (nor any member of its respective Group) shall be
obliged to participate for the benefit of the Society in any guarantee,
bond, indemnity or financing arrangement with any bank or financial
institution, whether as a guarantor or in any other capacity whatsoever.
10. EXERCISE OF RIGHTS AND POWERS
Each Shareholder undertakes with the other that (so far as it is legally
able) it will exercise all voting rights and powers, direct and indirect,
available to it in relation to any person and to the Society so as to
ensure the complete and punctual fulfilment, observance and performance of
the provisions of this Agreement (and the other agreements referred to in
this Agreement) and generally that full effect is given to the principles
set out in this Agreement including (without limitation) taking all
appropriate steps to enforce this Agreement (and any such other
agreements).
11. COMPETITION RESTRICTIONS AND REGULATORY ACTION
11.1 Neither of the Shareholders shall at any time whilst it is beneficially
interested in any Shares or for a period of one year from the date on which
such Shareholder ceases to be beneficially interested in any of the Shares,
and shall cause that none of its Associates shall do (and whether alone or
jointly with others or whether as principal, agent, shareholder or
otherwise and whether for its own benefit or that of others) any of the
following without the prior written consent of the other Shareholder:-
11.1.1 directly or indirectly carry on or be engaged, concerned or
interested (except as the holder for investment of shares
amounting in aggregate to less than 3 per cent. (3%) of the share
capital quoted or dealt in on the Warsaw Stock Exchange) in any
business competing in Poland with the Business;
11.1.2 solicit or entice away or endeavour to solicit or entice away any
employee of the Society (including without limitation, a person
whose services have been seconded to the Society by the other
Shareholder or any of its Associates), but without prejudice to
the right of such Shareholder to terminate arrangements under
which any of its staff are seconded to the Society, provided that
nothing in this CLAUSE 11.1.2 shall prevent a Shareholder making
a job offer to an employee who responds to a job advertisement;
or
11.1.3 carry on a trade or business or use a business name or mark under
a title containing the name of the Society;
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provided that nothing in this clause shall preclude or restrict either
Shareholder or other members of their respective Groups from:-
(a) carrying on any activity carried on during the period of 12
months immediately preceding 8th April 1999
(b) offering any service or goods similar to those previously
supplied as part of the Business but subsequently discontinued
and not supplied by the Society at the time when such similar
service or goods are offered;
(c) using any of its existing business names or trademarks; or
(d) acquiring or holding shares amounting in aggregate between the
Shareholder and any of its subsidiaries to less than three per
cent. (3%) of the capital of a company quoted or dealt in on the
Warsaw Stock Exchange.
12. DIVIDEND AND DISTRIBUTION POLICY
12.1 The Shareholders shall cause that unless otherwise expressly agreed by each
of the Shareholders in writing or in general meeting, to the extent
permitted by Polish law, the aggregate of the full amount of the profits of
the Society available for distribution according to the audited accounts
for any Financial Year and the accumulated distributable reserves of the
Society from prior Financial Years but less accumulated losses shall be
distributed by the Society by way of dividend (subject to any obligation on
the Society imposed by Polish law to create or maintain any reserve).
13. SHARE TRANSFERS: PRE-EMPTION PROVISIONS
13.1 Except in the case of a transfer pursuant to CLAUSE 13.10, the right to
transfer a Share shall be subject to the provisions contained in this
CLAUSE 13.
13.2 Before transferring any Share, the Shareholder proposing to make the
transfer (the "TRANSFEROR") shall give notice in writing (a "TRANSFER
NOTICE") to the other Shareholders specifying the Shares (the "SALE
SHARES") which the Transferor wishes to transfer. A Transfer Notice shall
be irrevocable.
13.3 A Transfer Notice may include a condition (a "TOTAL TRANSFER CONDITION")
that if all the Sale Shares are not sold to the other Shareholders, then
none shall be so sold.
13.4 The Transfer Notice shall state, in addition to details of the Sale Shares:
13.4.1 the name or names of the person or persons (such person or
persons being hereinafter referred to as the "PROPOSING
TRANSFEREE") to
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whom the Sale Shares are proposed to be transferred and a summary
of the terms and conditions on which such sale is proposed to be
made in the event that the Sale Shares are not acquired by the
other Shareholders; and
13.4.2 the entire consideration per Share for which any such transfer or
transfers will be made (and, if any of the said consideration is
not a cash price expressed in United States Dollars, an amount
per share which is so expressed) and such consideration shall be
the "Sale Price".
13.5 The Transfer Notice shall offer the Sale Shares for sale by the Proposing
Transferor to all the other Shareholders at the Sale Price.
13.6 Any such offer as is required to be made by the Proposing Transferor
pursuant to CLAUSE 13.5. shall limit a time (not being less than 14 days or
more than 21 days) after such offer is made within which it must be
accepted or, in default will lapse. Following any such offer, if
acceptances are received in respect of an aggregate number of Shares in
excess of that offered, the number of Sale Shares shall be allocated
amongst those who have accepted the same in proportion to the number of
Shares held by each acceptor provided that no acceptor shall be obliged to
acquire more Sale Shares than the number for which he has applied and so
that the provisions of this CLAUSE 13.6. shall continue to apply mutatis
mutandis until all Shares which any such acceptor would but for this
proviso have acquired on the proportionate basis specified above have been
allocated accordingly.
13.7 If a Transfer Notice shall contain a Total Transfer Condition, then any
such offer as aforesaid shall be conditional upon such condition being
satisfied and no acceptance of an offer of Sale Shares will become
effective unless such condition is satisfied. Subject thereto, any such
offer as is required to be made by the Proposing Transferor pursuant to
this CLAUSE 13 shall be unconditional except as provided in CLAUSE 16.
13.8 If the Proposing Transferor shall, pursuant to the foregoing provisions of
this CLAUSE 13, find other Shareholders to purchase some or (if CLAUSE
13.7. shall apply) all the Sale Shares, it shall as soon as practicable
after so doing give notice in writing thereof to the accepting
Shareholders. Every such notice shall state the name and address of each of
the accepting Shareholders and the number of the Sale Shares to be
purchased by him. Upon the giving by the Company of any such notice as
aforesaid the Proposing Transferor shall be bound, subject to CLAUSE 16, to
complete the sale of the Sale Shares at the Sale Price to which such notice
relates in accordance with its terms.
13.9 If the Proposing Transferor shall not, prior to the expiry of the
Prescribed Period, find other Shareholders willing to purchase some, or, if
the relevant Transfer Notice contains a Total Transfer Condition, all, of
the Sale Shares, it shall be at liberty (subject to receiving all relevant
Regulatory Approvals)
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to transfer those of the Sale Shares not purchased by other Shareholders or
all the Sale Shares (as the case may be) to the Proposing Transferee at the
Sale Price and otherwise on terms and conditions summarised no more
favourable than those in the Transfer Notice.
13.10 A Shareholder shall be permitted to transfer a Share without having to
serve a Transfer Notice pursuant to CLAUSE 13.2 if the Shareholder proposes
to transfer such Shares to any other member of its Group provided that in
the case of a proposed transfer to a subsidiary of the Shareholder or to
another member of its Group which is a lower tier subsidiary of its holding
company than the Shareholder concerned, it obtains the prior written
consent of the other Shareholders to such transfer, such consent not to be
unreasonably withheld or delayed.
14. PROCEDURE IN THE EVENT OF DEADLOCK
14.1 The provisions of this clause shall apply in any case where:-
14.1.1 a substantial matter referred to in CLAUSES 4, 5, OR 6 hereof of
the Society has been considered by a meeting of the Supervisory
Board or the Shareholders General Meeting as the case may be
after the text of the resolution was circulated to the members of
the Supervisory Board referring to this clause; and
14.1.2 no resolution has been carried at such meeting of the Supervisory
Board or the Shareholders, as the case may be, in relation to the
matter by reason of a failure to achieve the required majority of
votes or an equality of votes for and against any proposal for
dealing with it.
Any such case is hereinafter referred to as a "DEADLOCK".
14.2 In any case of Deadlock, Nationwide may, within ten Business Days of such
Deadlock having arisen or become apparent, prepare and circulate to Pioneer
a memorandum referring to this clause and setting out its position on the
matter giving rise to the Deadlock and its reasons for adopting such
position and requesting Pioneer to issue within the next ten (10) Business
Days an equivalent memorandum. Each such memorandum shall be considered by
the Chairman (or his nominee) of Nationwide and Pioneer and Pioneer and
Nationwide shall each cause that its Chairman (or his nominee) shall use
his reasonable endeavours to resolve the Deadlock within a period of thirty
(30) days of his receipt of the first such memorandum or statement being
circulated (whatever the date, if any, of any other such memorandum). If
they agree upon a resolution or disposition of the matter, they shall
exercise the voting rights and other powers of control available to them in
relation to the Society to cause that such resolution or disposition is
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<PAGE> 18
fully and promptly carried into effect. No memorandum shall be issued under
this clause within 12 months of the date of this Agreement.
14.3 If a resolution or disposition of the matter giving rise to a Deadlock is
not agreed to the satisfaction of both Nationwide and Pioneer in accordance
with the provisions of CLAUSE 14.2 within ninety (90) days after the
receipt by the Chairmen of the first memorandum mentioned therein (or such
longer period as Nationwide and Pioneer may agree in writing) Nationwide
may give a written notice (a "DEADLOCK OPTION NOTICE") to Pioneer of its
intention to exercise an option (which Pioneer hereby grants to Nationwide)
to require Pioneer to take one of the following actions (which choice shall
be in Pioneer's sole discretion) : (a) purchase all of the Shares held by
Nationwide or any Associate of Nationwide on the terms set out in CLAUSE 16
at the Option Price, or (b) offer to sell all of the Shares held by Pioneer
or any Associate of Pioneer to Nationwide on the terms set out in CLAUSE 16
at the Option Price. A Deadlock Option Notice shall state that it is a
Deadlock Option Notice given pursuant to this clause of this Agreement and
shall be irrevocable except with the consent of Pioneer. For the avoidance
of doubt, the provisions in this CLAUSE 14 are in addition to any right
which Nationwide may have including but not limited to selling its Shares
to a third party. For the avoidance of doubt, Nationwide is not obliged to
accept any offer made pursuant to CLAUSE 14.3 (b).
14.4 In no circumstances shall either Shareholder create an artificial Deadlock
under this clause nor shall Nationwide exercise, or seek to pursue, its
rights under this clause when a Deadlock is or has become artificial. For
the purposes of this provision, a Deadlock is artificial if caused by a
Shareholder, or its appointees on the Supervisory Board, voting against or
persisting in their opposition to a proposal (i) primarily or substantially
with the intention of frustrating or delaying the proper and efficient
carrying out of the Business or (ii) in any case where the passage or
approval of the same is required to enable the Society to carry on the
Business properly and efficiently and (in either case (i) or (ii)) the
implementation of the proposal is not directly contrary to the significant
business interests of that Shareholder nor required by its obligations
under this or any other agreement between the parties hereto.
15. DEFAULT EVENT OPTION
15.1 In the event that Pioneer shall commit or suffer a Default Event,
Nationwide shall subject to CLAUSE 15.2 be entitled but not obliged to
adopt the procedure described in this CLAUSE 15.
15.2 Nationwide may whilst the Default Event continues to subsist but in any
event within six (6) weeks of Nationwide first becoming aware of the
Default Event give written notice (a "DEFAULT EVENT OPTION NOTICE") to
Pioneer of
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<PAGE> 19
its intention to exercise an option (which Pioneer hereby grants to
Nationwide) to require Pioneer to take one of the following actions (which
choice shall be in Pioneer's sole discretion) : (a) purchase all of the
Shares held by Nationwide or any Associate of Nationwide on the terms set
out in CLAUSE 16 at the Option Price, or (b) offer to sell all of the
Shares held by Pioneer or any Associate of Pioneer to Nationwide on the
terms set out in CLAUSE 16 at the Option Price. For the avoidance of doubt,
Nationwide is not obliged to accept any offer made pursuant to
CLAUSE 15.2 (b).
15.3 The exercise of its rights by Nationwide under this CLAUSE 15 shall be
without prejudice to any other rights or remedies available to Nationwide
in respect of such Default Event including, but not limited to its right to
sell any Shares held by it or any of its Associates to a third party or to
seek damages or specific performance or some other form of equitable
remedy.
15.4 For the purpose of this clause a "DEFAULT EVENT" means the occurrence of
any of the following:-
15.4.1 that Shareholder committing a material breach of its obligations
under CLAUSES 3, 4, 5, 6, 11 OR 13, of this Agreement and, in the
case of a breach capable of remedy, failing to remedy the same to
the reasonable satisfaction of the other Shareholder within
thirty (30) Business Days of being required by notice (referring
to this clause and specifying the breach) so to do by the other
Shareholder;
15.4.2 that Shareholder ceasing or threatening to cease wholly or
substantially to carry on its business, otherwise than for the
purpose of a reconstruction or amalgamation without insolvency
and on terms previously approved by the other Shareholder (such
approval not to be unreasonably withheld or delayed);
15.4.3 any receiver, liquidator, assignee, trustee or sequestrator
taking possession of or being appointed over the whole or any
part of the undertaking, property or assets of that Shareholder;
or
15.5.4. the making of an order or the passing of a resolution for the
winding up of that Shareholder , otherwise than for the purpose
of a reconstruction or amalgamation without insolvency on terms
previously approved by Nationwide (such approval not to be
unreasonably withheld or delayed).
15.5 The provisions of this CLAUSE 15 shall be without prejudice to any rights
or remedies available to Pioneer in respect of a Default Event suffered or
committed by Nationwide including, but not limited to Pioneer's right to
sell any Shares held by it or any of its Associates to a third party or to
seek damages or specific performance or some other form of equitable
remedy.
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<PAGE> 20
16. SHARE TRANSFER MECHANICS
16.1 Completion of the transfer of any Shares by one Shareholder (the "VENDOR")
together with any other relevant members of its Group to the other
Shareholder (the "PURCHASER") pursuant to CLAUSES 13, 14 OR 15 shall take
place on the seventh Business Day after whichever is the later of the date
such obligation arises pursuant to those clauses and the date of
ascertainment of the Option Price and the date of the obtaining of all
necessary Regulatory Approvals and other third party consents and the
Shareholders shall use their respective reasonable endeavours to obtain
such Regulatory Approvals and other consents as soon as practicable and on
terms which do not impose conditions which are both material and to which
the affected party can reasonably (or does not) object. Subject to the
obtaining of such Regulatory Approvals and other consents on such terms,
completion shall take place at 12 noon at the registered office of the
Vendor (or at such other place and time as the Shareholders shall agree)
when the Vendor shall deliver to the Purchaser:-
16.1.1 a duly executed agreement transferring to the Purchaser (or as it
may direct) the relevant Shares together with the relevant share
certificates therefor, such Shares to be sold by the Vendor and
any other relevant members of its Group free from any right of
pre-emption, option, lien, charge, equity or other Encumbrance
and to be sold together with all rights attaching thereto
(including dividends declared but not paid) on the date on which
the sale is to take place;
16.1.2 all other documents of title relating to the relevant Shares and
all such waivers or consents as the Purchaser may reasonably
require to enable it to be registered as the holders of the
relevant Shares;
16.1.3 all third party consents or approvals (insofar as these are
within the power of the Vendor so to obtain) in connection with
the transfer of the relevant Shares to the proposed Purchaser;
16.1.4 such evidence as the Purchaser may reasonably request that any
relevant Regulatory Approvals and other necessary third party
consents have been obtained and their conditions complied with;
and
16.1.5 the written resignation by deed of all members of the Supervisory
Board appointed or deemed to have been appointed by the Vendor.
16.2 Against receipt of the documents referred to in CLAUSE 16.1, the Purchaser
shall as a further part of completion:-
16.2.1 deliver to the Vendor such evidence as the Vendor shall
reasonably request that any relevant Regulatory Approvals and
other necessary
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<PAGE> 21
third party consents have been obtained and their conditions
complied with;
16.2.2 put to the Vendor in (unless otherwise agreed by the
Shareholders) cleared funds for the purchase consideration for
the relevant Shares; and
16.2.3 procure the release of the Vendor (and any of its Associates)
from any Guarantees given to third parties in respect of the
Society provided that in the event that such release is not
available at completion of such sale, the Purchaser (and any
guarantor of its obligations hereunder) shall indemnify the
Vendor in respect of any liability whatsoever (including costs)
it or its Associates may have under any such Guarantees.
16.3 If the put options in CLAUSES 14.3 (a) or 15.2 (a) are exercised or if
either of the offers to sell referred to in CLAUSES 14.3 (b) or 15.2 (b)
are made by Pioneer and accepted by Nationwide, the Shareholders shall
endeavour to agree the price at which Pioneer will acquire all the Shares
held by Nationwide and its Associates, or, as the case may be, Nationwide
will acquire all the Shares held by Pioneer and its Associates. The price
as so agreed shall be the Option Price. If the Shareholders fail to agree
such price within 30 days of the Deadlock Option Notice or, as the case may
be, the Default Event Option Notice, Nationwide and Pioneer shall each
separately instruct an expert in the valuation of companies in the
financial services sector (the "EXPERTS") to determine the open market
value (the "MARKET VALUE") of the relevant Shares as between a willing
seller and a willing third party buyer at the date of the Deadlock Option
Notice or Default Event Option Notice (as the case may be).The Experts
shall act as experts and not as arbitrators and their decisions shall be
incorporated on to a certificate. The fees and expenses claimed by each
Expert shall be bourne by the party which instructed them. The Option Price
shall be the average of the Market Values determined by the two Experts.
17. ASSIGNMENT
Neither of the Shareholders shall assign or declare any trust of any Shares
it holds from time to time or any interest therein nor assign or transfer
or purport to assign or transfer or declare any trust of any of its rights
or obligations under this Agreement without the prior written consent of
the other Shareholder.
18. PROTECTION AND USE OF NAME
18.1 For the avoidance of doubt nothing in this Agreement permits or will permit
Pioneer or any of its Associates or the Society to use the name
"Nationwide"
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<PAGE> 22
or any derivative thereof in any business conducted by Pioneer or any
Associate of Pioneer.
18.2 For the avoidance of doubt, nothing in this Agreement permits or will
permit Nationwide or any of its Associates to use the name "Pioneer" or any
derivative thereof in any business conducted by Nationwide or any Associate
of Nationwide.
18.3 Pioneer hereby confirms that it consents to the use by the Society and the
Fund, in connection with the Business, of the name "Pioneer" and the
trademarks and logo of Pioneer. Pioneer shall, and shall cause that its
Associates shall, permit the Society and the Fund to use the name "Pioneer"
for not less than four years following Completion and thereafter for so
long as Pioneer of any other member of the Pioneer Group remains a
Shareholder. Upon all members of the Pioneer Group ceasing to be a
Shareholder, (a) Pioneer may give notice to the Society and the Fund that
they are to cease to use the name "Pioneer" and thereafter (b) Nationwide
(and any other Shareholder at that time that is a party to this Agreement)
shall promptly exercise all voting rights and powers available to it to
cause the Society and the Fund to change their names to remove the name
"Pioneer" provided, however, that if Pioneer and the other members of the
Pioneer Group cease to be a Shareholder before the fourth anniversary of
Completion, such revocation of right and change of names shall not take
effect until the fourth anniversary of Completion, unless the Shareholders
agree otherwise on an earlier date.
The parties further agree that as soon as practicable and in any event
prior to Completion, Pioneer shall cause Pioneer Investment Fund Company to
grant a non-exclusive royalty-free licence (the "LICENCE") to the Society
to use the trademarks and logo of Pioneer in the Business. The parties to
this Agreement agree to negotiate the terms of the Licence in good faith as
soon as practicable and in any event prior to Completion.
Pioneer shall not and shall cause that its Associates shall not terminate
the Licence or any other agreement permitting the Society and the Fund to
use in connection with the Business, the trademarks or logo of Pioneer
during the period of four years following Completion and thereafter for so
long as Pioneer or any member of the Pioneer Group remains a Shareholder.
Upon all members of the Pioneer Group ceasing to be a Shareholder, Pioneer
may give, and may cause its Associates to give, notice to terminate or
otherwise revoke the Licence and any other agreement permitting the Society
and the Fund to use the trademarks or logo of Pioneer provided, however,
that if Pioneer and the other members of the Pioneer Group cease to be a
Shareholder before the fourth anniversary of Completion, such termination
or revocation of rights shall not take effect until the fourth anniversary
of Completion, unless the Shareholders agree otherwise on an earlier date.
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<PAGE> 23
19. THIS AGREEMENT NOT TO CONSTITUTE A PARTNERSHIP
None of the provisions of this Agreement (or any of the arrangements
contemplated by this Agreement) shall be deemed to constitute a partnership
between the parties hereto at any time or, save as expressly provided
herein, to constitute any party the agent of the other, or to have any
authority to bind the others in any way except as expressly provided.
20. COSTS
All costs, legal fees and other expenses incurred in the negotiation,
preparation and execution of this Agreement shall be borne and paid by the
party which incurred them.
21. CONFIDENTIAL INFORMATION
21.1 Each of the parties undertakes to the other that it shall not (and shall
procure that none of its subsidiaries shall) disclose to any person (other
than those persons (including that person's professional advisers) whose
province it is to know the same on a "need-to-know" basis for the proper
implementation of this Agreement) or use or exploit for any purpose
whatever any of the trade secrets or confidential knowledge or information
or any financial or trading information ("CONFIDENTIAL INFORMATION")
relating to the business or affairs the other parties (or their Associates)
which the relevant parties (or their Subsidiaries) may receive or obtain as
a result of negotiating for or entering into this Agreement, and shall use
its reasonable endeavours to prevent its (and their) employees and agents
from so acting.
21.2 Each party shall (and shall cause their Associates shall) (i) cause that
anyone coming into receipt of Confidential Information consistently with
this clause shall be informed upon receipt that such information is
Confidential Information and (ii) use their reasonable endeavours to
procure that any person to whom disclosure is made under (i) of this clause
shall comply with the provisions of this clause in respect of such
Confidential Information as if they were Shareholders.
21.3 The restrictions in this clause shall continue to apply for three years
after the expiration or sooner termination of this Agreement but shall
cease to apply to information or knowledge which:-
21.3.1 may properly come into the public domain through no fault of or
breach of this Agreement by the party so restricted; or
21.3.2 a party (or other person properly receiving the information
consistent with CLAUSE 21.1) is required to disclose by law or by
order of any court or by any competent governmental or other
regulatory authority, provided that any information required to
be
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<PAGE> 24
disclosed pursuant to CLAUSE 21.3.2 shall be disclosed only to
the extent required by such law, order governmental or other
authority and only after consultation with the other parties;
21.3.3 information which is independently developed by the relevant
party or acquired from a third party to the extent that it is
acquired with the right to use or exploit or disclose the same;
21.3.4 any announcement made in accordance with the terms of CLAUSE 23
(ANNOUNCEMENTS).
22. DURATION
22.1 This Agreement shall unless otherwise agreed in writing between the
Shareholders continue in full force and effect until the first to occur of
the following dates:-
22.1.1 the date on which the Shareholders cease to be beneficially
entitled to any Shares;
22.1.2 the date of commencement of the dissolution of the Society.
Provided that notwithstanding the termination of this Agreement
nothing shall:-
22.1.3 relieve either Shareholder or any of their Associates from any
liability or obligation in respect of any act or omission by such
Shareholder or Associate up to the date of termination of this
Agreement or under or pursuant to any other agreement or
arrangement between any Shareholder (or any of its Associates)
and the Society;
22.1.4 affect the obligations of the parties under clauses 11
(COMPETITION RESTRICTIONS AND REGULATORY ACTION), 21
(CONFIDENTIAL INFORMATION) OR 23 (ANNOUNCEMENTS), and other
provisions of this Agreement which are expressed to survive
termination hereof.
23. ANNOUNCEMENTS
23.1 Save, and insofar as required by the rules of any stock exchange or other
governmental or regulatory authority (whether or not having the force of
law) to which a party may be subject, no announcement shall be made by any
party either before or after Completion in relation to any of the
transactions provided for in this Agreement without the prior written
consent of both Pioneer and Nationwide which prior written consent shall
not be unreasonably withheld or delayed.
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23.2 Each of the parties undertakes to provide all such information known to it
or which, on reasonable enquiry, ought to be known to it as may reasonably
be required by the other parties for the purpose of complying with the
requirements of any stock exchange or other governmental or regulatory
authority to which one of the parties to this Agreement is subject.
24. WAIVER, FORBEARANCE AND VARIATION
24.1 The rights of any party shall not be prejudiced or restricted by any
indulgence or forbearance extended to any other party and no waiver by any
party in respect of any breach shall operate as a waiver in respect of any
subsequent breach.
24.2 This Agreement shall not be amended, varied or cancelled, unless such
amendment, variation or cancellation shall be expressly agreed in writing
by each party.
25. GOVERNING LAW, LANGUAGE AND JURISDICTION
25.1 The construction, validity and performance of this Agreement shall be
governed in all respects by law of the state of Delaware, without regard to
choice of law provisions.
25.2 All notices or formal communications under or in connection with this
Agreement shall be in the English language or in any other language
accompanied by a translation into English. In the event of any conflict
between the English text and the Polish text, if any, the English text
shall prevail.
25.3 All and any disputes or differences arising out of or in connection with
this Agreement, or the breach, termination or invalidity thereof shall be
finally settled by arbitration in accordance with the International
Arbitration Rules of the American Arbitration Association (the "AAA
Rules").
25.4 The place and seat of the arbitration shall be New York and the language of
the arbitral proceedings shall be English.
25.5 All and any awards of the Arbitrators shall be made in accordance with the
AAA Rules in writing and shall be final and binding on the parties who
expressly exclude all and any rights of appeal from all and any awards, to
the extent such exclusion may be validly made.
25.6 The parties agree to keep confidential to themselves and to their legal and
professional advisers the existence and details of any proceedings pursuant
to
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<PAGE> 26
this clause including the parties' submissions and evidence, all and any
awards (their content, reasons and result), save to the extent that such
documents or information are in the public domain or their disclosure is
required by a legal duty or is reasonably necessary to protect or pursue a
legal right or remedy.
26. SEVERABILITY
If any of the provisions of this Agreement is found by an arbitrator or
other competent authority to be void or unenforceable, such provision shall
be deemed to be deleted from this Agreement and the remaining provisions of
this Agreement shall continue in full force and effect. Notwithstanding the
foregoing the parties shall thereupon negotiate in good faith in order to
agree the terms of a mutually satisfactory provision to be substituted for
the provision so found to be void or unenforceable.
27. ENTIRE AGREEMENT
27.1 This Agreement and the Share Subscription Agreement and any other agreement
to be entered into on Completion supersedes any previous agreement between
the parties in relation to the matters dealt with herein and represents the
entire understanding between the parties in relation thereto.
27.2 The provisions of CLAUSES 3, 4, 5, 6, 10, 11, 12, 13, 14, 15, 16 and 18
shall be conditional on the conditions in clause 2.1 of the Share
Subscription Agreement being satisfied or waived and on Completion taking
place. The remaining provisions of this Agreement shall come into full
force and effect with effect from 8th April 1999.
27.3 The Original Agreement is hereby restated and replaced in its entirety by
this Agreement and the Original Agreement shall no longer have any legal
effect.
28. THE TERMS OF THIS AGREEMENT TO PREVAIL
In the event of any ambiguity or conflict arising between the terms of this
Agreement and those of the Articles, the by-laws of the Management Board or
the by-laws of the Supervisory Board, the terms of this Agreement shall
prevail as between the parties and the Shareholders shall exercise such
voting rights and other powers available to them to give full force and
effect to this Agreement including without limitation to amend the
Articles, the by-laws of the Management Board or the by-laws of the
Supervisory Board (as the case may be) to the extent reasonably necessary
to remove such ambiguity or conflict.
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<PAGE> 27
29. NOTICES
29.1 Any notice to be given under this Agreement shall be in writing and
delivered by hand and/or internationally recognised courier and/or sent by
post (registered delivery if inland and airmail if overseas) or facsimile
(in the case of facsimile to be confirmed in writing within 48 hours of
being sent by such notice being delivered by hand or sent by registered
delivery as aforesaid). The address for service of each party shall by as
follows:-
Party: THE PIONEER GROUP, INC
Address: 60 State Street
Boston MA
United States of America
Facsimile No: 001 617 422 4286
Attention of: Alicja Malecka
Copy to: Robert P. Nault
General Counsel
The Pioneer Group, Inc.
60 State Street
Boston MA
United States of America
Facsimile No: 001 617 422 4293
Party: NATIONWIDE GLOBAL HOLDINGS, INC.
Address: One Nationwide Plaza
Columbus,
Ohio 43215
United States of America
Facsimile No: 001 614 677 6254
Attention of: David Martin
Copy to: Toni Ness
Nationwide Global Holdings, Inc.
One Nationwide Plaza
Columbus
Ohio 43215
United States of America
Facsimile No: 001 614 249 7254
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<PAGE> 28
Any party may change any of its address, fax number or the name of the
person for whose attention the notice is to be addressed by serving a
notice on the other parties pursuant to this clause.
29.2 A notice shall be deemed to have been served as follows:-
29.2.1 if delivered by hand or internationally recognised courier, at
the time of delivery;
29.2.2 if posted, at the expiration of 48 hours or (in the case of
airmail) seven days after the envelope containing the same was
delivered into the custody of the postal authorities; and
29.2.3 if sent by facsimile or telemessage, at the expiration of 12
hours after the same was despatched
except that if a notice or other communication would be deemed to be
delivered under the above provisions after 5.30pm or on any day which is
not a Business Day, then it shall be deemed instead to have been delivered
at 9.30am on the next day which is a Business Day.
29.3 In proving such service it shall be sufficient to prove that the envelope
was properly addressed and personal delivery was made, or that the envelope
containing such notice was delivered into the custody of the postal
authorities as a prepaid first class recorded delivery or airmail letter
(as appropriate) or that the telex, facsimile or telemessage was properly
addressed and transmitted as the case may be.
30. COUNTERPARTS
This Agreement may be executed in one or more counterparts each signed by
each of the parties and such counterparts shall together constitute one
document.
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<PAGE> 29
SCHEDULE 1
WORDS AND EXPRESSIONS
"ARTICLES": the existing articles of association of the Society or any amended
or substituted version of the articles of association of the Society current for
the time being in accordance with the terms of this Agreement;
"ASSOCIATE": in relation to any party to this Agreement any subsidiary or
holding company of the party or subsidiary of such holding company from time to
time (other than the Society);
"AUDITORS": the auditors of the Society from time to time;
"BUDGET": the Initial Budget and any budget for the Society agreed in accordance
with CLAUSE 4.1.1 and applicable from time to time;
"BUSINESS DAY": any day other than a Saturday, Sunday or any bank or other
public holiday in Poland;
"BUSINESS PLAN": the Initial Business Plan and any business plan for the Society
agreed in accordance with CLAUSES 4.1.3 or 6.1.2 and applicable from time to
time;
"BUSINESS": the business of the Society as described in CLAUSE 2.1;
"COMPLETION": has the meaning set out in the Share Subscription Agreement;
"CONNECTED PERSON": in relation to Pioneer and the Society means any of the
following:
(a) any Associate of Pioneer or the Society;
(b) any director, officer or employee of Pioneer and/or the Society;
(c) any member of the Management Board or Supervisory Board; and
(d) any spouse or infant child of any of the above;
"DEFAULT EVENT": any of the events listed in CLAUSE 15.4;
"DISCLOSURE LETTER": means the letter described as such , dated 8th April 1999
and addressed by Pioneer to Nationwide;
"ENCUMBRANCE" means any interest of any person (including any right to acquire,
option or right of pre-emption) or any mortgage, pledge, lien, assignment,
security interest, title relocation or other security agreement or any agreement
to create any of the above;
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<PAGE> 30
"FINANCIAL YEAR": each accounting reference period of the Society which will end
on 31 December in each year subject to any longer or shorter period being agreed
between the Shareholders;
"FUND": the Pioneer Open Pension Fund;
"GROUP": either or both of the Pioneer Group or the Nationwide Group and
references to "its Group" shall be to the Pioneer Group or the Nationwide Group
as the context shall require;
"GUARANTEES": all guarantees, indemnities, sureties and covenants and letters of
comfort or support (irrespective of the fact they may not be legally binding)
referred to in CLAUSE 9, as varied extended or renewed;
"IN THE AGREED TERMS": in the form of the draft agreed between the parties
attached to this Agreement and initialled for identification at the date of the
Share Subscription Agreement by or on behalf of Pioneer and Nationwide;
"INITIAL BUDGET": the first budget for the Society in the agreed terms;
"INITIAL BUSINESS PLAN": the first business plan for the Society in the agreed
terms;
"INTELLECTUAL PROPERTY": means all patents, trademarks, service marks, community
trade marks, trade names, business names, unregistered trade and service marks,
copyrights, design rights, database rights, rights to or in computer software,
know-how, trade secrets, rights to or in confidential information and all other
commercial monopoly rights, intellectual property rights and rights or forms of
protection of the same or of a similar or equivalent nature or effect which may
subsist anywhere in the world whether or not registered or capable of
registration and any similar or analogous rights to any of the above, together
with all applications for registration of and rights to apply for, and any
licence to use, any of the foregoing;
"LOANS": all loans, loan capital, borrowings and indebtedness in the nature of
borrowing;
"MANAGEMENT BOARD": the management board of the Society;
"NAME": Pioneer Powszechne Towarzystwo Emerytalne;
"NATIONWIDE GROUP": Nationwide and its Associates from time to time;
"OPTION PRICE": the price determined in accordance with CLAUSE 16.3;
"ORIGINAL AGREEMENT": has the meaning set out in RECITAL (D);
"PENSION LAW": the law of 28th of August 1997 on Organising and Operation of
Pension Funds, as amended;
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<PAGE> 31
"PERSON": any person, whether or not having legal personality, including,
without limitation, any firm or body corporate or an unincorporated association
carrying on a trade or business with or without a view to profit;
"PIONEER GROUP": Pioneer and its Associates from time to time;
"REGULATORY APPROVALS": any necessary approvals required by any competent
supranational, governmental or regulatory agencies or authorities;
"SHAREHOLDERS": Pioneer and Nationwide or any person or persons to whom they may
properly transfer their shares pursuant to the provisions of this Agreement;
"SHARE SUBSCRIPTION AGREEMENT": has the meaning set out in RECITAL (B);
"SHARES": shares in the share capital of the Society;
"SOCIETY": Pioneer Powszechne Towarzystwo Emerytalne S.A.;
"SUBSCRIPTION SHARES": the 145,714 Shares to be subscribed for by Nationwide
pursuant to this Agreement;
"SUPERVISORY BOARD": the supervisory board of the Society;
"TERRITORY": Poland;
"WARRANTIES": means the representations and warranties set out in CLAUSE 7 and
SCHEDULE 3.
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<PAGE> 32
SCHEDULE 2
DETAILS OF THE SOCIETY
NAME: Pioneer Powszechne Towarzystwo Emerytalne S.A.
NUMBER: 013232430
REGISTERED OFFICE: INTRACO, 29th Floor, 2 Stawki Street, 00-193
Warsaw
SHARE CAPITAL: PLN 34,000,000 divided in 340,000 registered
common A Series Shares
SHAREHOLDERS:
- NAME: The Pioneer Group, Inc.
- SHARES HELD: 340,000
MEMBERS OF THE
MANAGEMENT BOARD:
- Krzysztof Szajek - The President
- Tomasz Orlik
- Jaroslaw Skorulski.
MEMBERS OF THE
SUPERVISORY BOARD:
- Alicja K. Malecka - Salomon - the Chairman,
- Henryka Bochniarz - Vice Chairman
- John F. Cogan, Jr.,
- Marek Kulczycki,
- Zdzislaw Sadowski.
AUDITORS: Arthur Andersen
MORTGAGES AND CHARGES: None
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<PAGE> 33
SCHEDULE 3
REPRESENTATIONS AND WARRANTIES
PART 1
GENERAL REPRESENTATIONS AND WARRANTIES
1. INFORMATION
The information set out in RECITAL (A) and SCHEDULE 2 (DETAILS OF THE
SOCIETY) is complete, true, accurate and not misleading. All information
which has been given to Nationwide or its representatives or professional
advisers by Pioneer and/or the Society or by their respective professional
advisers or other agents in the course of the negotiations leading to this
Agreement (a list of such information provided in written form being
attached to the Disclosure Letter) was when given and is now complete, true
and accurate in all material respects and not misleading in any material
respect. Insofar as any such information are matters of opinion or
represent a forecast, intention or expectation, such opinions, forecasts,
intentions or expectations (as appropriate) are honestly held or believed
by Pioneer and made on reasonable grounds.
2. THE SOCIETY
2.1 The copies of the articles of association of the Society, the statutes of
the Fund, the by-laws of the Management Board and the by-laws of the
Supervisory Board which are attached to the Disclosure Letter are true and
complete in all respects.
2.2 All registers and minute books of the Society, the Supervisory Board and
the Management Board have been properly kept and contain an accurate and
complete record of the matters which should be dealt with in those books,
to Pioneer's knowledge no notice or allegation that any of them is
incorrect or should be rectified has been received and nor are there any
circumstances to Pioneer's knowledge which might reasonably be expected to
lead to any such notice or allegation being served on the Society.
2.3 All returns, particulars, resolutions and other documents required to be
filed with or delivered to Commercial Register by the Society have been
correctly and properly prepared and so filed or delivered.
2.4 Pioneer is the sole legal and beneficial owner of 340,000 Shares free from
Encumbrances and such shares represent the entire issued share capital of
the Society. There is no Encumbrance on, over or affecting any unissued
shares of the Society and no person has the right (exercisable now or in
the future
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<PAGE> 34
and whether contingent or not) to call for the issue of any share capital
of the Society.
2.5 The Society is not and has not agreed to become a member of any
partnership, joint venture, consortium or other unincorporated association
other than a recognised trade association or any agreement or arrangement
for sharing commissions or other income.
3. FINANCIAL STATEMENTS
3.1 The financial statements attached to the Disclosure Letter have been
properly prepared in accordance with the accounting standards adopted by
the Society and accurately state the level of turnover, operating loss and
liabilities of the Society as at 31 December 1998 and for the period from
the date of incorporation of the Society to 31 December 1998 and (save as
expressly disclosed therein) do not include any unusual, exceptional,
non-recurring or extraordinary item of income or expenditure.
4. POST INCORPORATION EVENTS
4.1 Since the date of its incorporation, the Society:
4.1.1 has carried on its business in the normal course and without any
interruption or material alteration in the nature, scope or
manner of its business;
4.1.2 has not acquired or disposed of or agreed to acquire or dispose
of any assets or assumed or incurred or agreed to assume or incur
any material liabilities (actual or contingent) or entered into
any long term, substantial or unusual transaction, whether or not
in the ordinary course of trading;
4.1.3 has not declared, made or paid any dividend, bonus or other
distribution of capital or income;
4.1.4 save as set out in the Initial Business Plan, it has not entered
into any contract involving capital expenditure in an amount
exceeding US$ 100,000 or its equivalent or contracts in aggregate
involving an amount exceeding US$ 100,000 or its equivalent;
5. TRANSACTIONS WITH MEMBERS OF THE PIONEER GROUP AND CONNECTED PERSONS
5.1 There is not outstanding:
5.1.1 any indebtedness or other liability (actual or contingent) owing
by the Society to Pioneer or any Connected Person or owing to the
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<PAGE> 35
Society by any member of the Pioneer Group or any Connected
Person; or
5.1.2 any guarantee or security for any such indebtedness or liability.
5.2 There is not outstanding, and there has not at any time since the formation
of the Society been outstanding, any agreement, arrangement or
understanding (whether legally enforceable or not) to which the Society is
a party and in which any member of the Pioneer Group or to Pioneer's
knowledge any Connected Person is or has been interested, whether directly
or indirectly.
5.3 No member of the Pioneer Group or, to Pioneer's knowledge, any Connected
Person, either individually or with any other person or persons, has any
interest, directly or indirectly, in any business which has a trading
relationship with the Society or (other than that now carried on by the
Society) which is or is likely to become competitive with the Business save
as registered holder or other owner of any class of securities of any
company if such class of securities is listed on any stock exchange and if
such person (together with Connected Persons and Affiliates) holds or is
otherwise interested in less than five per cent. of such class of
securities.
5.4 No member of the Pioneer Group either individually, collectively or with
any other person or persons are interested in any way whatsoever in any
Intellectual Property used and not wholly owned by the Society.
6. FINANCE
6.1 Particulars of all money borrowed by the Society (other than normal trade
credit) including, in each case, the name and address of all banks with
whom the Society holds an account and the name and number of such account,
have been disclosed in the Disclosure Letter, and the Disclosure Letter
lists all documents relating to all overdrafts, loans or other financial
facilities outstanding or available to the Society and all Encumbrances to
which any asset of the Society is subject.
6.2 Particulars of all money lent or agreed to be lent by the Society and which
has not been repaid to it (other than normal trade credit) have been
disclosed in the Disclosure Letter and lists of all such documentation
relating to such arrangements are contained in the Disclosure Letter.
6.3 Full details of all grants made to the Society and all outstanding
applications for any such grant, have been disclosed in the Disclosure
Letter. No act or transaction has been effected in consequence of which the
Society is or could be held liable to refund (in whole or in part) any such
grant or in consequence of which any such grant for which application has
been made by it will not or may not be paid or will or may be reduced.
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<PAGE> 36
6.4 The Society is not responsible (including on a contingent basis) for the
indebtedness of any other person nor subject to any obligation (whatever
called) to pay, purchase or provide funds for the payment of, or as an
indemnity against the consequence of default in the payment of, any
indebtedness of any other person.
6.5 No person other than the Society has given any guarantee of or security for
any overdraft, loan or loan facility granted to the Society.
7. ASSETS OF THE SOCIETY
The Disclosure Letter contains a complete and accurate list of (a) all
assets owned by the Society and (b) assets in the possession of the Society
and held under any leasing, hire-purchase, conditional sale, deferred
payment or other similar agreement and up to date details of the rentals
(or alike payments) payable by the Society thereunder.
8. INSURANCE
8.1 All the assets of the Society are insured as provided in the Disclosure
Letter.
8.2 Particulars of all policies of insurance of the Society now in force have
been disclosed in the Disclosure Letter and such particulars are true and
correct and all premiums due on such policies have been duly paid.
9. LITIGATION
9.1 Except as plaintiff in the collection of debts (not exceeding PLN4,000 in
the aggregate) arising in the ordinary course of trading, neither the
Society nor (in relation to the Society's Business) any member of the
Management Board or Supervisory Board or any employee of the Society is now
engaged in any legal proceedings (including litigation, arbitration or any
hearing before any tribunal or official body), no such proceeding are
pending or to Pioneer's knowledge are in prospect.
9.2 There is no matter or fact in existence to Pioneer's knowledge which might
give rise to any legal proceedings involving the Society including any
which might form the basis of any criminal prosecution against the Society
or lead to the termination of any licence held by the Society.
9.3 The Society is not subject to any order or judgment given by any court,
tribunal or governmental agency (other than in respect of the licenses,
permits and consents referred to in paragraph 10.1.) which is still in
force and has not given any undertaking to any court or tribunal or to any
third party arising out of any legal proceedings.
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<PAGE> 37
10. LICENCES AND APPLICABLE LEGISLATION
10.1 The Society has all necessary licences (including statutory licences),
permits, consents and authorities (public and private) for the proper and
effective carrying on of its Business in the manner in which its Business
is now carried on and all such licences, permits, consents and authorities
are valid and subsisting and Pioneer has no knowledge of any reason why any
of them is likely to be suspended, cancelled or revoked whether in
connection with the subscription of Subscription Shares by Nationwide or
otherwise.
10.2 In carrying on its business, the Society, and, to Pioneer's knowledge, its
officers and employees (in connection with the Business) have complied with
all applicable legislation (including the Pension Law), have not received
any notice or allegation and are not subject to any investigation relating
to any breach or alleged breach of the requirements of any legislation
which is applicable to it (in connection with the Business) and Pioneer has
no knowledge of any allegation of any circumstances which may give rise to
any such notice, allegation or investigation.
11. TRADING
11.1 Neither the subscription of Subscription Shares by Nationwide hereunder or
any change in the composition of the Management Board or Supervisory Board
will:
11.1.1 to Pioneer's knowledge cause the Society to lose the benefit of
any right, privilege or licence it presently enjoys;
11.1.2 relieve any person of any obligation to the Society (whether
contractual or otherwise) or entitle any person to determine or
terminate any contract or arrangement with the Society or to
exercise any right whether under an agreement or arrangement with
the Society;
11.1.3 conflict with or result in the breach on the part of the Society
under any of the terms, conditions or provisions of any agreement
or instrument to which the Society is now a party or any loan to
the Society.
11.2 No offer, tender or the like is outstanding (the value of which to the
Society could exceed US$ 100,000 in any year) which is capable of being
converted
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<PAGE> 38
into an obligation of the Society by an acceptance or other act of some
other person.
11.3 The Society is not and has not been a party to any agreement, arrangement,
understanding or practice restricting the freedom of the Society to provide
and take goods and services by such means and from and to such persons and
into or from such place as it may from time to time think fit.
11.4 To Pioneer's knowledge no officer or employee of the Society has made or
received any Sensitive Payment in connection with the Business or on any
permission, confirmation or registration held by the Society. For the
purposes of this paragraph the expression "SENSITIVE PAYMENTS" (whether or
not illegal) shall include (i) bribes or kickbacks paid to any person, firm
or company including central or local government officials or employees or
(ii) amounts received with an understanding that rebates or refunds will be
made in contravention of the laws of any jurisdiction either directly or
through a third party or (iii) any political contributions which world be
unlawful in Poland or (iv) payments or commitments (whether made in the
form of commissions, payments or fees for goods received or otherwise) made
with the understanding or under circumstances that would indicate that all
or part of the payment is to be paid by the recipient to central or local
government officials or as a commercial bribe, influence payment or
kickback.
12. CONTRACTS
12.1 Complete and accurate copies of all contracts to which the Society is a
party with a value in excess of US$100,000 (or its equivalent) have been
disclosed in the Disclosure Letter and the Society is not a party to or
subject to any other agreement, transaction, obligation, commitment,
understanding, arrangement or liability which is inconsistent with the
Initial Budget or the Initial Business Plan.
12.2 The terms of all contracts of the Society have been complied with by the
Society and to Pioneer's knowledge by the other parties to the contracts in
all material respects and there are no circumstances likely to give rise to
a default by the Society or, to Pioneer's knowledge, by the other parties
under any such contract.
12.3 Pioneer has no knowledge of the invalidity of or grounds for, avoidance or
repudiation of any agreement or other transaction to which the Society is a
party and has received no notice of any intention to terminate, repudiate
or disclaim any such agreement or other transaction.
13. EMPLOYEES
13.1 The Disclosure Letter incorporates a complete and accurate schedule of all
employees of the Society including details of their dates of birth, the
date on
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<PAGE> 39
which they commenced continuous employment with the Society and all
remuneration payable and other benefits provided or which the Society is
bound to provide to each such person. In addition, the Disclosure Letter
contains complete copies of all standard terms of employment, staff
handbooks and other statements or documents containing the terms of
employee emoluments and benefits.
13.2 There are no consultancy or management services agreements in existence
between the Society and any other person, firm or company, and there are no
agreements (including collection bargaining agreements) or other
arrangements (binding or otherwise) between the Society or any employers'
or trade association of which the Society is a member and any trade union,
staff association or other body representing employees or a substantial
number of them.
13.3 Save to the extent (if any) to which provision or allowance has been made
in the Initial Budget or the Initial Business Plan:
13.3.1 no liability has been incurred or to Pioneer's knowledge is
anticipated by the Society for breach of any contract of
employment or for services or for severance payments or
redundancy payments or for compensation or damages for unfair or
wrongful dismissal or for any other liability accruing from the
termination or variation of any contract of employment or for
services;
13.3.2 no gratuitous payment has been made or to Pioneer's knowledge
promised by the Society in connection with the actual or proposed
termination, suspension or variation of any contract of
employment or for services of any present or former director,
officer or any dependant of any present or former director,
officer or employee of the Society.
13.4 The Society has complied with all material obligations imposed on it by all
relevant statutes, regulations and codes of conduct and practice relating
to its employees.
13.5 No present member of the Management Board or Supervisory Board, officer or
employee of the Society has given or received notice terminating his
employment except as expressly contemplated under this Agreement.
13.6 Save as disclosed in the Disclosure Letter, the Society does not have in
existence nor is it proposing to introduce, and none of the members of the
Management Board or Supervisory Board or employees participates in, any
employee share trust, share incentive scheme, share option scheme or profit
sharing scheme established by the Society for the benefit of all or any of
its present or former members of the Management Board or Supervisory Board
or employees or the dependants of any of such persons or any scheme under
which any present or former member of the Management Board or
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<PAGE> 40
Supervisory Board or employee of the Society is entitled to a commission or
remuneration of any other sort calculated by reference to the whole or part
of the turnover, profits or sales of the Society or any other person, firm
or company.
13.7 Neither the Society nor any of its employees is involved in any industrial
dispute, no dispute exists or, to Pioneer's knowledge, can reasonably be
anticipated between the Society and a material number or category of its
employees or any trade union or staff association or other body
representing employees or a substantial number of them and, to Pioneer's
knowledge, there are no wage or other claims outstanding against the
Society by any person who is now or has been a member of the Management
Board or Supervisory Board or employee of the Society.
14. PENSION SCHEMES
The Society is not and has not been a party to any agreement or arrangement
for the provision of pensions, allowances, lump sums or other like benefits
on retirement, death or long term ill health for the benefit of any current
or former employee of the Society or their dependants nor has the Society
provided or promised to provide any ex-gratia pensions, lump sums or like
benefits for any current or former employees of the Society or dependants
thereof. In particular, there is no obligation to pay contributions to any
personal pension scheme in respect of any employee.
15. INTELLECTUAL PROPERTY AND INFORMATION TECHNOLOGY
The Society is the sole owner of all Intellectual Property used in its
business or otherwise has a valid and subsisting legally enforceable right
to use Intellectual Property belonging to a third party which it uses in
its business. The Society is not in breach of any such right in respect of
Intellectual Property to which it is a party.
16. PROPERTIES
16.1 The Society does not own any real property.
16.2 The Disclosure Letter contains a description of the terms of all leases to
which the Society is a party. The leases described in the Disclosure Letter
are in full force and effect; all rents and additional rents owing on each
such lease have been paid; the lessee has been in peaceable possession
since the commencement of the original term of such lease and is not in
default thereunder and no waiver, indulgence or postponement of the
lessee's obligations thereunder has been granted by the lessor; and there
exist no event of default or to Pioneer's knowledge event, occurrence,
condition or act (including the subscription of the Subscription Share)
which, with the giving of notice, the lapse of time or the occurrence of
any further event or condition, would become a and, to Pioneer's knowledge,
all of the covenants
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<PAGE> 41
to be performed by any other party under its lease have been fully
performed.
17. CAPACITY
Pioneer and the Society each have full power to enter into this Agreement
and the Share Subscription Agreement and the other documents to be entered
into pursuant to this Agreement and the Share Subscription Agreement, each
of which constitutes (or will when executed constitute) binding obligations
on Pioneer and the Society in accordance with their respective terms.
18. INSOLVENCY
18.1 The Society has not stopped payment of its debts, has not entered into any
scheme of arrangement or voluntary arrangement with any of its creditors,
is not insolvent and no order has ever been made or petition presented or
resolution passed for the winding up of the Society.
18.2 There are no circumstances which would entitle any person to present a
petition for the winding up of the Society or to appoint a receiver or
administrator over the whole or any part of the Society's undertaking or
assets.
PART 2
TAXATION REPRESENTATIONS AND WARRANTIES
To Pioneer's knowledge:
1. All notices, returns, computations and registrations of the Society for the
purpose of taxation have been made punctually on a proper basis and are
correct and none of them is, or is likely to be, the subject of any dispute
with any taxation authority.
2. All information supplied by the Society for the purpose of taxation was when
supplied and remains complete and accurate in all material respects or, to
the extent it was not so complete and accurate in all material respects, it
has been corrected.
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<PAGE> 42
3. All taxation which Society is liable to pay prior to Completion has been or
will be so paid prior to Completion.
4. The Society has not received and is not aware of any circumstances in which
it might receive any notice or complaint from the tax authorities in relation
to the organisation of the Society.
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<PAGE> 43
SCHEDULE 4
LIMITATION OF LIABILITY
1. A Party shall not be liable under the Warranties if and to the extent that:
1.1 the facts or circumstances which might result in a claim or possible claim
under the Warranties have been fairly disclosed in the Disclosure Letter;
1.2 the subject of the claim is specifically provided for or noted in the
Accounts;
1.3 a claim under the Warranties arises or is increased:-
1.3.1 as a result of an act or omission occurring at the request of or
with the written consent of the Nationwide after Completion;
1.3.2 as a result of an act or omission compelled by law;
1.3.3 as a result of any increase in rates of taxation since
Completion;
1.3.4 as a result of the passing or coming into force of or any change
in any enactment, law, regulation, directive, requirement or any
published practice of any government, government department or
agency or regulatory body after Completion, whether or not having
retrospective effect.
2. The liability of any party in respect of any claim under the Warranties:
2.1 shall not arise unless and until the amount of such claim when aggregated
with other claims based on substantially the same facts or circumstances
exceeds US$ 50,000 (or its equivalent) in respect of any single item;
2.2 shall not arise unless and until the amount of such claim when aggregated
with the amount of any other claim made against that party under this
Agreement exceeds US$ 100,000 (or its equivalent) in which event all of
such claim or claims (and not just the excess) shall be recoverable and no
minimum shall apply to any subsequent claims;
2.3 shall not (when aggregated with the amount of all other claims under the
Warranties) exceed US$ 20,000,000 or, if higher, the amount subscribed by
Nationwide and other members of the Nationwide Group for Shares as at the
date a claim under the Warranties is made.
3. The liability of the parties in respect of any claim under the Warranties
shall cease on first anniversary of Completion.
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<PAGE> 44
SCHEDULE 5
DEED OF ADHERENCE
THIS DEED OF ADHERENCE is made on [ - ] BETWEEN
(1) [ - ] of [ - ]; and
[ - ] of [ - ] (together the
"CONTINUING PARTIES")
(2) [ - ] of [ - ] (the
"TRANSFEROR");
(3) [ - ] of [ - ] (the
"TRANSFEREE")
WHEREAS:
(A) The Continuing Parties and the Transferor are parties to a Shareholders'
Agreement dated [ - ] 1999 in relation to the affairs of Pioneer
Powszechne Towarzystwo Emerytalne S.A. (the "SOCIETY") (such Agreement, as
amended herein called the "SHAREHOLDERS' AGREEMENT").
(B) The Transferor intends to transfer [ - ] Shares in the capital of the
Society to the Transferee subject to the Transferee and all other parties
hereto entering into this Deed.
(C) The Transferee wishes to accept such Shares subject to such condition and
to enter into this Deed.
IT IS AGREED as follows:
1. INTERPRETATION
1.1 Clause 1 of in the Shareholders' Agreement shall, unless the context
otherwise requires, have effect (as to interpretation and other matters)
also as to this agreement.
1.2 In this deed the "Effective Date" shall mean -.
2. TRANSFER
2.1 With effect from the Effective Date, the Continuing Parties hereby release
and discharge the Transferor from all its obligations under the
Shareholders' Agreement and the Transferor shall cease to be a party to the
Shareholders' Agreement.
2.2 The Continuing Parties agree that, with effect from the Effective Date the
following shall apply:
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<PAGE> 45
2.2.1 the Transferee shall assume all the rights of the Transferor
pursuant to the Shareholders' Agreement; and
2.2.2 the Transferee shall be subject to and shall perform the
obligations from which the Transferor is released and discharged
pursuant to clause 2.1 and shall be bound by and entitled to the
benefit all other provisions of the Shareholders' Agreement
except as hereby provided as if the Transferee had at all times
been a party to the Shareholders' Agreement in place of the
Transferor.
3. TRANSFEROR PROVISIONS
With effect from the Effective Date, the Transferor, in consideration of
the other parties entering into this Deed, hereby agrees (as a separate,
independent and collateral contract with all the other parties to this
Deed) to be bound by the provisions of CLAUSES 11 (COMPETITION RESTRICTIONS
AND REGULATORY ACTIONS), CLAUSE 18 (PROTECTION AND USE OF NAME) AND 21
(CONFIDENTIAL INFORMATION) of the Shareholders' Agreement, as if it had
remained a party to the Shareholders' Agreement.
4. NOTICES
4.1 For the purposes of the Shareholders' Agreement, the Transferee's address
for service shall be as follows:
Address: [ - ]
Facsimile No: [ - ]
Attention of: [ - ]
The Transferee may change its address, fax number or the name of the person
for whose attention the notice is to be addressed by serving notice on the
other parties pursuant to the Shareholders' Agreement.
4.2 CLAUSES 20 (COSTS) to 30 (COUNTERPARTS) inclusive of the Shareholders'
Agreement shall apply to this deed mutatis mutandis as if set out herein
except as otherwise provided.
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<PAGE> 46
SIGNATURES:
/s/ Alicja K. Malecka
- --------------------------------------------------------------------------------
For THE PIONEER GROUP, INC.
/s/ David Martin
- --------------------------------------------------------------------------------
For NATIONWIDE GLOBAL HOLDINGS, INC.
43
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<PERIOD-END> SEP-30-1998
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