<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 MARCH 31, 1999
COMMISSION FILE NO. 0-8841
------------------------
THE PIONEER GROUP, INC.
(exact name of registrant as specified in its charter)
------------------------
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)
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 March 31, 1999, there were 26,312,172 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>
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents, at cost which approximates fair
value..................................................... $ 28,499 $ 44,519
Restricted cash............................................. 6,778 7,815
Investment in marketable securities, at fair value.......... 2,400 3,638
Receivables:
From securities brokers and dealers for sales of mutual
fund shares............................................ 16,077 14,072
From Pioneer Family of Mutual Funds..................... 19,989 17,334
For securities sold..................................... 905 1,089
For gold shipments...................................... 3,205 2,851
Other................................................... 10,406 15,865
Mining inventory............................................ 17,679 18,297
Timber inventory............................................ 7,241 3,585
Other current assets........................................ 14,706 14,186
-------- --------
Total current assets................................ 127,885 143,251
-------- --------
NONCURRENT ASSETS:
Mining operations:
Mining equipment and facilities (net of accumulated
depreciation of $100,738 in 1999 and $94,282 in
1998).................................................. 82,703 86,740
Deferred mining development costs (net of accumulated
amortization of $22,858 in 1999 and $21,819 in 1998)... 14,130 15,030
Cost of acquisition in excess of net assets (net of
accumulated amortization of $15,436 in 1999 and $14,900 in
1998)..................................................... 16,869 17,415
Long-term venture capital investments, at fair value (cost
$56,137 in 1999 and $117,547 in 1998)..................... 49,916 129,560
Long-term investments, at lower of cost or fair value....... 7,006 7,006
Timber operations:
Timber equipment and facilities (net of accumulated
depreciation of $5,346 in 1999 and in 1998)............ 19,520 18,800
Deferred timber development costs (net of accumulated
amortization of $2,841 in 1999 and in 1998)............ 8,838 20,034
Building (net of accumulated amortization of $1,539 in 1999
and $1,413 in 1998)....................................... 24,602 25,136
Furniture, equipment, and leasehold improvements (net of
accumulated depreciation and amortization of $14,401 in
1999 and $13,146 in 1998)................................. 19,798 20,309
Other noncurrent assets..................................... 19,306 16,180
-------- --------
Total noncurrent assets............................. 262,688 356,210
-------- --------
$390,573 $499,461
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Payable to funds for shares sold............................ $ 16,063 $ 14,053
Accounts payable............................................ 18,408 17,962
Accrued expenses............................................ 38,953 33,768
Brokerage liabilities....................................... 3,680 5,669
Accrued income taxes........................................ 6,351 19,647
Current portion of notes payable............................ 12,032 9,476
Current liabilities net of current assets of discontinued
operations................................................ 273 413
-------- --------
Total current liabilities........................... 95,760 100,988
-------- --------
NONCURRENT LIABILITIES:
Notes payable, net of current portion....................... 94,966 133,395
-------- --------
Total noncurrent liabilities........................ 94,966 133,395
-------- --------
Total liabilities................................... 190,726 234,383
-------- --------
Minority interest........................................... 66,801 110,276
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $0.10 par value; authorized 60,000,000
shares; issued 26,317,377 shares in 1999 and 26,134,103
shares in 1998......................................... 2,632 2,613
Paid-in capital......................................... 33,231 30,110
Retained earnings....................................... 112,453 133,013
Treasury stock at cost, 5,205 shares in 1999 and 11,303
shares in 1998......................................... (130) (265)
Cumulative translation adjustment....................... (4,192) (1,855)
-------- --------
143,994 163,616
Less -- Deferred cost of restricted common stock
issued...................................................... (10,948) (8,814)
-------- --------
Total stockholders' equity.......................... 133,046 154,802
-------- --------
$390,573 $499,461
======== ========
</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
MARCH 31,
----------------------------
1999 1998
---- ----
<S> <C> <C>
Revenues and sales:
Investment management fees.............................. $ 35,275 $ 33,631
Underwriting commissions and distribution fees.......... 4,090 6,665
Shareholder services fees............................... 11,085 7,596
Revenues from brokerage activities...................... 215 781
Trustee fees and other income........................... 7,654 5,562
------------ ------------
Revenues from financial services businesses............. 58,319 54,235
Gold sales.............................................. 19,976 23,373
Timber sales............................................ -- 284
------------ ------------
Total revenues and sales........................... 78,295 77,892
------------ ------------
Costs and expenses:
Management, distribution, shareholder service and
administrative expenses................................ 52,641 44,994
Gold mining operating costs and expenses................ 25,222 24,251
Timber operating costs and expenses..................... 362 1,986
------------ ------------
Total costs and expenses........................... 78,225 71,231
------------ ------------
Other (income) expense:
Unrealized and realized (gains) losses on venture
capital and marketable securities investments, net..... 3,292 (6,138)
Interest expense........................................ 3,528 3,836
Other, net.............................................. 579 150
------------ ------------
Total other (income) expense....................... 7,399 (2,152)
------------ ------------
Income (loss) from continuing operations before provision
for income taxes and minority interest.................... (7,329) 8,813
------------ ------------
Provision for income taxes.................................. 476 3,387
------------ ------------
Income (loss) from continuing operations before minority
interest.................................................. (7,805) 5,426
------------ ------------
Minority interest........................................... 643 89
------------ ------------
Net income (loss) from continuing operations before
cumulative effect of change in accounting principle....... (8,448) 5,337
Income from discontinued Russian banking operations......... -- 10
Cumulative effect of change in accounting principle,
(start-up costs, net of income taxes of $261)............. (12,112) --
------------ ------------
Net income (loss)........................................... $ (20,560) $ 5,347
============ ============
Basic earnings (loss) per share:
Continuing operations................................... $ (0.33) $ 0.21
Discontinued operations................................. -- --
Cumulative effect of change in accounting principle..... (0.47) --
------------ ------------
Total basic earnings (loss) per share....................... $ (0.80) $ 0.21
============ ============
Diluted earnings (loss) per share:
Continuing operations................................... $ (0.33) $ 0.21
Discontinued operations................................. -- --
Cumulative effect of change in accounting principle..... (0.47) --
------------ ------------
Total diluted earnings (loss) per share..................... $ (0.80) $ 0.21
============ ============
Dividends per share......................................... -- $ 0.10
============ ============
Basic shares outstanding.................................... 25,791,000 24,890,000
============ ============
Diluted shares outstanding.................................. 25,791,000 25,772,000
============ ============
</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>
THREE MONTHS ENDED
MARCH 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $(20,560) $ 5,347
Less net income of discontinued operations................ -- 10
-------- --------
Net income (loss) from continuing operations.............. $(20,560) $ 5,337
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Cumulative effect of change in accounting principle..... 12,112 --
Depreciation and amortization........................... 11,589 12,258
Unrealized and realized gains on venture capital,
marketable securities, and long term investments, net.. 3,292 (6,138)
(Equity in earnings of) provision on other
investments............................................ 34 (354)
Restricted stock plan expense........................... 855 707
Deferred income taxes................................... (4,516) 133
Minority interest....................................... 643 66
Changes in operating assets and liabilities:
Investments in marketable securities, net............... 1,148 (6,717)
Receivable from securities brokers and dealers for sales
of mutual fund shares.................................. (2,005) (55,928)
Receivables for securities sold......................... 184 2,307
Receivables for gold shipments.......................... (354) 516
Receivables from Pioneer Family of Mutual Funds and
other.................................................. 2,527 1,168
Mining inventory........................................ 618 945
Timber inventory........................................ (3,656) (3,777)
Other current assets.................................... (1,063) (31)
Other noncurrent assets................................. (426) (1,758)
Payable to funds for shares sold........................ 2,010 55,899
Accrued expenses and accounts payable................... 5,631 (10,775)
Brokerage liabilities................................... (1,989) (2,250)
Accrued income taxes.................................... (13,206) 1,249
-------- --------
Total adjustments and changes in operating assets
and liabilities..................................... 13,428 (12,480)
-------- --------
Net cash (used in) continuing operating
activities.......................................... (7,132) (7,143)
-------- --------
Net cash (used in) provided by discontinued
operating activities................................ (140) 10,468
-------- --------
Net cash (used in) provided by operating
activities.......................................... (7,272) 3,325
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of mining equipment and facilities............... (2,419) (1,441)
Deferred mining development costs......................... (180) (149)
Additions to furniture, equipment and leasehold
improvements............................................ (2,186) (2,856)
Building.................................................. 408 340
Long-term venture capital investments..................... (884) (3,253)
Proceeds from sale of long-term venture capital
investments............................................. 742 4,998
Proceeds from sale of domestic venture capital
operations.............................................. 34,945 --
Deferred timber development costs......................... -- (244)
Purchase of timber equipment and facilities............... (720) 75
Other investments......................................... 362 (459)
Purchase of long-term investments......................... -- (370)
Proceeds from sale of long-term investments............... 135 1,204
-------- --------
Net cash (used in) provided by continuing investing
activities.......................................... 30,203 (2,155)
-------- --------
Net cash (used in) provided by investing activities,
discontinued operations............................. -- (1,873)
-------- --------
Net cash (used in) provided by investing
activities.......................................... 30,203 (4,028)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid............................................ -- (2,539)
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............................................ -- 281
Sale of stock by subsidiary............................... 555 --
Exercise of stock options................................. 180 57
Restricted stock plan award............................... 16 17
Dealer advances........................................... -- (5,635)
Revolving credit agreement (repayments) borrowings, net... (30,000) 4,000
Repayments of notes payable............................... (5,873) (4,363)
Reclassification of restricted cash....................... 1,037 (1,275)
-------- --------
Net cash (used in) continuing financing
activities.......................................... (37,345) (9,525)
-------- --------
Net cash (used in) financing activities,
discontinued operations............................. -- (8,595)
-------- --------
Net cash (used in) financing activities............. (37,345) (18,120)
-------- --------
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS.......................................... (1,606) (134)
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (16,020) (18,957)
-------- --------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 44,519 55,601
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 28,499 $ 36,644
======== ========
</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)
MARCH 31, 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.
Income taxes paid were $16,572,000 and $1,385,000 for the three months
ended March 31, 1999, and March 31, 1998, respectively. In addition, interest
paid was $3,212,000 for the three months ended March 31, 1999, and $3,857,000
for the three months ended March 31, 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 3/31/99
Basic earnings per share calculation........ $(20,560) 25,791 $(0.80)
======== ====== ======
Options..................................... --
Restricted stock............................ --
Diluted earnings per share calculation...... $(20,560) 25,791 $(0.80)
======== ====== ======
FOR THE THREE MONTHS ENDED 3/31/98
Basic earnings per share calculation:.......
Continuing operations....................... $ 5,337 24,890 $ 0.21
Discontinued operations..................... $ 10 24,890 --
-------- ------ ------
Total..................................... $ 5,347 24,890 $ 0.21
======== ====== ======
Options..................................... 745
Restricted stock............................ 137
------
Diluted earnings per share calculation:.....
Continuing operations....................... $ 5,337 25,772 $ 0.21
Discontinued operations..................... $ 10 25,772 --
-------- ------ ------
Total..................................... $ 5,347 25,772 $ 0.21
======== ====== ======
</TABLE>
5
<PAGE> 6
THE PIONEER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
MARCH 31, 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 three months ended March 31, 1999 and 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1999 1998
---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net income (loss)........................................ $(20,560) $5,347
-------- ------
Other comprehensive (expense):
Foreign currency translation adjustments............... (2,337) (159)
-------- ------
Other comprehensive (expense)............................ (2,337) (159)
-------- ------
Comprehensive (loss)/income.............................. $(22,897) $5,188
======== ======
</TABLE>
NOTE 4 -- MINING INVENTORY
Mining inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Gold-in-process.......................................... $ 2,236 $ 2,236
Materials and supplies................................... 15,443 16,061
------- -------
$17,679 $18,297
======= =======
</TABLE>
NOTE 5 -- 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 $1,091,591 at March 31, 1999, which
exceeded required net capital of $250,000 by $841,591.
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.
6
<PAGE> 7
THE PIONEER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
MARCH 31, 1999
NOTE 6 -- NOTES PAYABLE
Notes payable of the Company consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Revolving Credit Agreement.................................. $ 40,000 $ 70,000
Senior note payable to a commercial lender, principal
payable on August 15, 2004, interest payable at 8.95%..... 20,000 20,000
Small Business Administration ("SBA") financing, notes
payable to a bank......................................... -- 3,750
Note payable to a bank, interest and principal payable
monthly at the one-month Warsaw Bank rate plus 1.75%
through August 2002....................................... 363 447
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
Notes payable to a bank, guaranteed by the Company,
principal payable in semi-annual installments, of $214,000
through November 30, 1999, no interest payable, secured by
equipment................................................. 430 430
Note payable to a bank, guaranteed by the Swedish Exports
Credits Guarantee Board, principal payable in semi-annual
installments of $1,650,000 through January 31, 2002,
interest payable at 6.42%, secured by equipment........... 9,902 9,902
Note payable to a supplier, principal payable in quarterly
installments ranging from $250,000 to $482,000 through
April 15, 2001, interest payable at 7.85%, secured by
equipment................................................. 3,355 3,355
Note payable to a supplier, principal and interest payable
in quarterly installments ranging from $70,000 to $130,000
through April 15, 2001, interest payable at 7.85%, secured
by equipment.............................................. 919 919
Note payable to a supplier, principal payable in quarterly
installments ranging from $248,000 to $387,000 through May
15, 2001, interest payable at 8.00%, secured by
equipment................................................. 2,848 2,848
Note payable to a supplier, principal payable in quarterly
installments ranging from $212,000 to $439,000 through
December 15, 2001, interest payable at 8.25%, secured by
equipment................................................. 3,885 3,885
Note payable to a supplier, principal payable in semi-annual
installments ranging from $294,000 to $800,000 through
April 15, 2003, interest payable at 8.30%, secured by
equipment................................................. 4,847 4,847
Note payable to a bank, guaranteed by OPIC, principal
payable in equal semi-annual installments of $1,583,000
through September 15, 2003, interest payable at 9.02%..... 14,249 15,832
Project financing, guaranteed by OPIC, payable in
semi-annual installments of $620,000 through December 15,
2003, interest payable at 9.95%........................... 6,200 6,200
-------- --------
106,998 142,871
Less: Current portion....................................... (12,032) (9,476)
-------- --------
$ 94,966 $133,395
======== ========
</TABLE>
7
<PAGE> 8
THE PIONEER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
MARCH 31, 1999
Maturities of notes payable at March 31, 1999, for each of the next five
years and thereafter are as follows (dollars in thousands):
<TABLE>
<S> <C>
4/1/99-3/31/00.............................................. $ 12,032
4/1/99-3/31/01.............................................. 15,091
4/1/01-3/31/02.............................................. 51,181
4/1/02-3/31/03.............................................. 5,573
4/1/03-3/31/04.............................................. 3,121
Thereafter.................................................. 20,000
--------
$106,998
========
</TABLE>
In June 1996, the Company entered into an agreement with a syndicate of
commercial banks for a senior credit facility (the "Credit Facility"). Under the
Credit Facility, the Company may borrow up to $80 million for general corporate
purposes (the "Corporate Revolver"). At March 31, 1999, the Company had borrowed
$40 million under the Corporate Revolver.
As of March 31, 1999, the Company had six five-year interest rate swap
agreements with a member of the Company's banking syndicate which has
effectively fixed the interest rate on notional amounts totaling $100 million.
Under these agreements, the Company will pay the bank a weighted average fixed
rate of 6.76%, plus the applicable margin 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 $401,000 and $346,000 of interest expense on these swap agreements
during the three months ended March 31, 1999 and March 31, 1998, respectively.
At March 31, 1999, the Company had $60 million of overhedged swaps and
recognized approximately $561,000 of expense during the first quarter of 1999,
in accordance with generally accepted accounting principles, related to these
swaps. At March 31, 1999, the fair value of the swaps was ($3,215,000), compared
to a book value of ($1,800,000). If the Company were to terminate these
agreements, it would be required to pay an amount approximating fair value.
For the three months ended March 31, 1999, and March 31, 1998 the weighted
average interest rate on the borrowings under the Credit Facility and Note
Agreement was 8.31% and 7.92%, respectively.
NOTE 7 -- DISCONTINUED OPERATIONS
In the third quarter of 1998, the Company decided to liquidate its Russian
banking operations. Accordingly, the operating results for the bank have been
segregated from the results from the continuing operations and reported as a
separate line on the consolidated statements of operations for all periods
presented. In December 1998, the Company sold its stock in its Russian banking
operations to an unrelated third party. The sale is subject to certain
regulatory approvals. The following is an unaudited summary of the results of
discontinued operations for the three months ended March 31, 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1998
------------------
(AMOUNTS
IN THOUSANDS)
<S> <C>
Revenues from banking activities............................ $1,304
------
Income before income taxes and minority interest............ 25
Income tax (expense) benefit................................ (38)
------
Loss from discontinued operations........................... (13)
------
Minority interest credit.................................... 23
------
Net income from discontinued operations..................... $ 10
------
</TABLE>
8
<PAGE> 9
THE PIONEER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
MARCH 31, 1999
NOTE 8 -- FINANCIAL INFORMATION BY BUSINESS SEGMENT
The Company adopted SFAS 131, "Disclosures about Segments of an Enterprise
and Related Information" in 1997. SFAS 131 requires companies to present 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.
9
<PAGE> 10
THE PIONEER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999
NOTE 8 -- FINANCIAL INFORMATION BY BUSINESS SEGMENT (CONTINUED)
The following details total revenues and income (loss) by business segment
and geographic region, (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>
THREE MONTHS ENDED MARCH 31, 1999
Gross revenues and sales............. $ 51,073 $ 3,275 $ 4,157 $ 360 $ -- $ 7,792
========= ======= ======= ===== ===== =======
Intersegment eliminations............ $ (1,395) $ (68) $ -- $ -- $ -- $ (68)
========= ======= ======= ===== ===== =======
Net revenues and sales............... $ 49,678 $ 3,207 $ 4,157 $ 360 $ -- $ 7,724
========= ======= ======= ===== ===== =======
Income (loss) before income taxes,
minority interest and cumulative
effect of accounting change........ $ 12,605 $ (427) $(2,830) $(293) $(212) $(3,762)
========= ======= ======= ===== ===== =======
Income taxes......................... $ 4,474 $ (283) $ (24) $ (68) $ (70) $ (445)
========= ======= ======= ===== ===== =======
Minority interest.................... $ -- $ 26 $ (37) $ -- $ -- $ (11)
========= ======= ======= ===== ===== =======
Net income (loss) from continuing
operations before cumulative effect
of accounting change............... $ 8,131 $ (170) $(2,769) $(225) $(142) $(3,306)
========= ======= ======= ===== ===== =======
Cumulative effect of change in
Accounting Principle............... $ (205) $ (521) $ -- $ (14) $ -- $ (535)
========= ======= ======= ===== ===== =======
Net income (loss).................... $ 7,926 $ (691) $(2,769) $(239) $(142) $(3,841)
========= ======= ======= ===== ===== =======
Depreciation and amortization........ $ 3,213 $ 547 $ 315 $ 32 $ -- $ 894
========= ======= ======= ===== ===== =======
Interest expense..................... $ -- $ 10 $ 17 $ -- $ -- $ 27
========= ======= ======= ===== ===== =======
Capital expenditures................. $ 1,113 $ 111 $ 480 $ -- $ -- $ 591
========= ======= ======= ===== ===== =======
Gross identifiable assets at March
31, 1999........................... $ 203,325 $45,466 $18,150 $ 646 $ -- $64,262
========= ======= ======= ===== ===== =======
Intersegment eliminations............ $(111,802) $ (265) $ -- $ -- $ -- $ (265)
========= ======= ======= ===== ===== =======
Net identifiable assets at March 31,
1999............................... $ 91,523 $45,201 $18,150 $ 646 $ -- $63,997
========= ======= ======= ===== ===== =======
<CAPTION>
PIONEER GLOBAL INVESTMENTS
---------------------------------------------------
CENT. &
EAST. - SUBTOTAL -
REAL U.S. EUROPE OTHER PIONEER
ESTATE VENTURE VENTURE GOLD RUSSIAN NATURAL GLOBAL
SERVICES CAPITAL CAPITAL MINING TIMBER RESOURCES INVESTMENTS OTHER
-------- -------- ------- -------- -------- --------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 1999
Gross revenues and sales............. $ 354 $ 129 $ 208 $ 19,976 $ -- $ 226 $ 20,893 $ 3,994
======= ======== ======= ======== ======== ===== ======== =======
Intersegment eliminations............ $ -- $ -- $ -- $ -- $ -- $ -- $(3,994)
======= ======== ======= ======== ======== ===== ======== =======
Net revenues and sales............... $ 354 $ 129 $ 208 $ 19,976 $ -- $ 226 $ 20,893 $ --
======= ======== ======= ======== ======== ===== ======== =======
Income (loss) before income taxes,
minority interest and cumulative
effect of accounting change........ $(1,346) $ (4,158) $ (316) $ (7,173) $ (1,005) $(363) $(14,361) $(1,811)
======= ======== ======= ======== ======== ===== ======== =======
Income taxes......................... $ (367) $ (1,892) $ (4) $ (355) $ (204) $(125) $ (2,947) $ (606)
======= ======== ======= ======== ======== ===== ======== =======
Minority interest.................... $ -- $ 1,373 $ (146) $ (573) $ -- $ -- $ 654 $ --
======= ======== ======= ======== ======== ===== ======== =======
Net income (loss) from continuing
operations before cumulative effect
of accounting change............... $ (979) $ (3,639) $ (166) $ (6,245) $ (801) $(238) $(12,068) $(1,205)
======= ======== ======= ======== ======== ===== ======== =======
Cumulative effect of change in
Accounting Principle............... $ (115) $ (183) $ (382) $ -- $(10,692) $ -- $(11,372) $ --
======= ======== ======= ======== ======== ===== ======== =======
Net income (loss).................... $(1,094) $ (3,822) $ (548) $ (6,245) $(11,493) $(238) $(23,440) $(1,205)
======= ======== ======= ======== ======== ===== ======== =======
Depreciation and amortization........ $ 37 $ 45 $ 75 $ 7,603 $ 545 $ 1 $ 8,306 $ 31
======= ======== ======= ======== ======== ===== ======== =======
Interest expense..................... $ 2 $ 203 $ -- $ 1,233 $ 364 $ -- $ 1,802 $ 1,699
======= ======== ======= ======== ======== ===== ======== =======
Capital expenditures................. $ -- $ -- $ 70 $ 2,419 $ 720 $ -- $ 3,209 $ 4
======= ======== ======= ======== ======== ===== ======== =======
Gross identifiable assets at March
31, 1999........................... $ 4,736 $ 25,343 $50,357 $126,251 $ 44,789 $ 804 $252,280 $13,473
======= ======== ======= ======== ======== ===== ======== =======
Intersegment eliminations............ $ (274) $(24,193) $ -- $ (101) $ -- $ -- $(24,568) $(6,132)
======= ======== ======= ======== ======== ===== ======== =======
Net identifiable assets at March 31,
1999............................... $ 4,462 $ 1,150 $50,357 $126,150 $ 44,789 $ 804 $227,712 $ 7,341
======= ======== ======= ======== ======== ===== ======== =======
<CAPTION>
TOTAL
---------
<S> <C>
THREE MONTHS ENDED MARCH 31, 1999
Gross revenues and sales............. $ 83,752
=========
Intersegment eliminations............ $ (5,457)
=========
Net revenues and sales............... $ 78,295
=========
Income (loss) before income taxes,
minority interest and cumulative
effect of accounting change........ $ (7,329)
=========
Income taxes......................... $ 476
=========
Minority interest.................... $ 643
=========
Net income (loss) from continuing
operations before cumulative effect
of accounting change............... $ (8,448)
=========
Cumulative effect of change in
Accounting Principle............... $ (12,112)
=========
Net income (loss).................... $ (20,560)
=========
Depreciation and amortization........ $ 12,444
=========
Interest expense..................... $ 3,528
=========
Capital expenditures................. $ 4,917
=========
Gross identifiable assets at March
31, 1999........................... $ 533,340
=========
Intersegment eliminations............ $(142,767)
=========
Net identifiable assets at March 31,
1999............................... $ 390,573
=========
</TABLE>
10
<PAGE> 11
THE PIONEER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
MARCH 31, 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>
THREE MONTHS ENDED MARCH 31, 1998
Gross revenues and sales................. $ 49,871 $ 2,325 $ 3,069 $ 353 $ -- $ 5,747
========= ======= ======= ===== ===== =======
Intersegment eliminations................ $ (2,036) $ -- $ -- $ -- $ -- $ --
========= ======= ======= ===== ===== =======
Net revenues and sales................... $ 47,835 $ 2,325 $ 3,069 $ 353 $ -- $ 5,747
========= ======= ======= ===== ===== =======
Income (loss) before income taxes and
minority interest...................... $ 15,118 $(1,875) $ 165 $(326) $(214) $(2,250)
========= ======= ======= ===== ===== =======
Income taxes............................. $ 5,617 $ (660) $ (18) $ (44) $ (86) $ (808)
========= ======= ======= ===== ===== =======
Minority interest........................ $ -- $ (322) $ (1) $ -- $ -- $ (323)
========= ======= ======= ===== ===== =======
Net income (loss)........................ $ 9,501 $ (893) $ 184 $(282) $(128) $(1,119)
========= ======= ======= ===== ===== =======
Depreciation and amortization............ $ 5,255 $ 600 $ 135 $ 67 $ -- $ 802
========= ======= ======= ===== ===== =======
Interest expense......................... $ 836 $ 83 $ 6 $ -- $ -- $ 89
========= ======= ======= ===== ===== =======
Capital expenditures..................... $ 2,689 $ (242) $ 58 $ 9 $ -- $ (175)
========= ======= ======= ===== ===== =======
Gross identifiable assets at March 31,
1998................................... $ 331,193 $80,496 $16,623 $ 189 $ -- $97,308
========= ======= ======= ===== ===== =======
Intersegment eliminations................ $(135,469) $(2,435) $ -- $ -- $ -- $(2,435)
========= ======= ======= ===== ===== =======
Net identifiable assets at March 31,
1998................................... $ 195,724 $78,061 $16,623 $ 189 $ -- $94,873
========= ======= ======= ===== ===== =======
<CAPTION>
PIONEER GLOBAL INVESTMENTS
-------------------------------------------------
CENT. &
EAST. - SUBTOTAL -
REAL U.S. EUROPE OTHER PIONEER
ESTATE VENTURE VENTURE GOLD RUSSIAN NATURAL GLOBAL
SERVICES CAPITAL CAPITAL MINING TIMBER RESOURCES INVESTMENTS OTHER
-------- ------- ------- -------- ------- --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 1998
Gross revenues and sales................. $ 234 $ 353 $ 3,785 $ 23,373 $ 284 $ -- $ 28,029 $ 5,011
======= ======= ======= ======== ======= ====== ======== ========
Intersegment eliminations................ $ -- $ -- $(3,719) $ -- $ -- $ -- $ (3,719) $ (5,011)
======= ======= ======= ======== ======= ====== ======== ========
Net revenues and sales................... $ 234 $ 353 $ 66 $ 23,373 $ 284 $ -- $ 24,310 $ --
======= ======= ======= ======== ======= ====== ======== ========
Income (loss) before income taxes and
minority interest...................... $ (800) $ 3,999 $(1,088) $ (2,150) $(2,876) $ (238) $ (3,153) $ (902)
======= ======= ======= ======== ======= ====== ======== ========
Income taxes............................. $ (268) $ 1,446 $(1,007) $ (962) $ (169) $ (91) $ (1,051) $ (371)
======= ======= ======= ======== ======= ====== ======== ========
Minority interest........................ $ -- $ 561 $ (115) $ (34) $ -- $ -- $ 412 $ --
======= ======= ======= ======== ======= ====== ======== ========
Net income (loss)........................ $ (532) $ 1,992 $ 34 $ (1,154) $(2,707) $ (147) $ (2,514) $ (531)
======= ======= ======= ======== ======= ====== ======== ========
Depreciation and amortization............ $ 17 $ 56 $ 33 $ 5,987 $ 710 $ -- $ 6,803 $ 105
======= ======= ======= ======== ======= ====== ======== ========
Interest expense......................... $ -- $ 99 $ -- $ 980 $ 1,011 $ -- $ 2,090 $ 821
======= ======= ======= ======== ======= ====== ======== ========
Capital expenditures..................... $ -- $ -- $ -- $ 1,441 $ (75) $ 1 $ 1,367 $ 1
======= ======= ======= ======== ======= ====== ======== ========
Gross identifiable assets at March 31,
1998................................... $ 6,272 $78,978 $31,128 $145,074 $51,628 $1,565 $314,645 $ 28,207
======= ======= ======= ======== ======= ====== ======== ========
Intersegment eliminations................ $(2,146) $ (7) $(1,504) $ -- $ -- $ -- $ (3,657) $(23,767)
======= ======= ======= ======== ======= ====== ======== ========
Net identifiable assets at March 31,
1998................................... $ 4,126 $78,971 $29,624 $145,074 $51,628 $1,565 $310,988 $ 4,440
======= ======= ======= ======== ======= ====== ======== ========
<CAPTION>
TOTAL
---------
<S> <C>
THREE MONTHS ENDED MARCH 31, 1998
Gross revenues and sales................. $ 88,658
=========
Intersegment eliminations................ $ (10,766)
=========
Net revenues and sales................... $ 77,892
=========
Income (loss) before income taxes and
minority interest...................... $ 8,813
=========
Income taxes............................. $ 3,387
=========
Minority interest........................ $ 89
=========
Net income (loss)........................ $ 5,337
=========
Depreciation and amortization............ $ 12,965
=========
Interest expense......................... $ 3,836
=========
Capital expenditures..................... $ 3,882
=========
Gross identifiable assets at March 31,
1998................................... $ 771,353
=========
Intersegment eliminations................ $(165,328)
=========
Net identifiable assets at March 31,
1998................................... $ 606,025
=========
</TABLE>
11
<PAGE> 12
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, gold mining and timber 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
The Company reported a first quarter loss of $20.6 million, or $0.80 per
share, on revenues of $78.3 million. First quarter results included the impact
of the write-off of unamortized capitalized start-up costs of $12.1 million, or
$0.47 per share, as a result of the cumulative effect of a required change in
accounting principle. First quarter results also included a loss of $3.4
million, or $0.13 per share, related to the Company's sale of its U.S. venture
capital operations. Excluding the impact from the change in accounting principle
and the loss from the venture capital sale, the Company would have reported a
loss of $5.1 million, or $0.20 per share. During the first quarter of 1998, the
Company reported net income of $5.3 million, or $0.21 per share, on revenues of
$77.9 million.
Worldwide assets under management were approximately $22.9 billion at March
31, 1999, compared to $23.4 billion at December 31, 1998. Worldwide assets under
management were approximately $24.0 billion at April 30, 1999.
The following table details revenues and net income (loss) by business
segment for the three months ended March 31, 1999, and 1998, respectively.
REVENUES AND NET INCOME (LOSS)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
REVENUES NET INCOME
-------------- (LOSS)
THREE ---------------
MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
-------------- ---------------
BUSINESS SEGMENT 1999 1998 1999 1998
- ---------------- ----- ----- ------ -----
<S> <C> <C> <C> <C>
Pioneer Investment Management:
Mutual Funds and Institutional Accounts................... $49.6 $47.8 $ 8.1 $ 9.5
----- ----- ------ -----
Pioneer International Financial Services:
Russia.................................................... 3.3 2.3 (0.2) (0.9)
Central and Eastern Europe................................ 4.5 3.4 (3.0) (0.1)
Asia...................................................... -- -- (0.1) (0.1)
----- ----- ------ -----
7.8 5.7 (3.3) (1.1)
----- ----- ------ -----
Pioneer Global Investments:
Venture Capital........................................... 0.3 0.5 (3.8) 2.0
Real Estate............................................... 0.4 0.2 (1.0) (0.5)
Gold Mining............................................... 20.0 23.4 (6.2) (1.2)
Timber.................................................... -- 0.3 (0.8) (2.7)
Other..................................................... 0.2 -- (0.2) (0.1)
----- ----- ------ -----
20.9 24.4 (12.0) (2.5)
----- ----- ------ -----
Interest Expense and Other Expenses......................... -- -- (1.3) (0.6)
----- ----- ------ -----
Total Before Accounting Change.......................... $78.3 $77.9 $ (8.5) $ 5.3
----- ----- ------ -----
Cumulative Effect of Change in Accounting Principle
(Start-up Costs).......................................... -- -- (12.1) --
----- ----- ------ -----
Totals............................................. $78.3 $77.9 $(20.6) $ 5.3
===== ===== ====== =====
</TABLE>
12
<PAGE> 13
PIONEER INVESTMENT MANAGEMENT
Pioneer Investment Management ("PIM") had first quarter net income of $8.1
million compared to net income of $9.5 million in the first quarter of 1998. The
earnings decline was attributable to higher expenses incurred to strengthen the
investment management team, broaden and expand distribution, and enhance
technology capabilities.
PIM's assets under management at March 31, 1999 were approximately $22.5
billion compared to $23.0 billion at December 31, 1998. In the first quarter of
1999, sales of U.S. registered mutual funds (including reinvested dividends)
were $950 million, matching sales in the first quarter of 1998. Net redemptions
were $50 million, compared to net sales of $424 million in the first quarter of
1998.
Revenues of $49.6 million in the first quarter of 1999 increased by $1.8
million, or 4%. Management fee revenues of $33.3 million increased by $2.2
million, principally reflecting higher average assets under management. Revenues
from underwriting commissions, distribution fees, and shareholder servicing fees
decreased slightly by $0.3 million to $13.7 million, as increased shareholder
service fees mostly offset lower distribution fees.
Costs and expenses increased by $4.2 million in the first quarter of 1999
to $36.9 million. The expense increase resulted principally from higher payroll
costs, mutual fund distribution expenses and higher costs related to additional
office space.
Pioneer Investment Management's effective tax rate for the first quarter of
1999 was 35.5% compared to 37.2% in the first quarter 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 first quarter of 1999, Pioneer International Financial Services
("PIFS") lost $3.3 million on revenues of $7.8 million compared to a loss of
$1.1 million in the first quarter of 1998 on revenues of $5.7 million. A
majority of the first quarter 1999 loss occurred in Poland and was related to
the Company's pension subsidiary that was established in conjunction with the
Polish government's far-reaching pension reform program. The pension subsidiary
initiated efforts to solicit pension accounts by commencing an advertising
campaign, hiring and training personnel, and incurring registration fees for its
brokers. In April 1999, the Company reached agreement with Nationwide Global
Holdings, Inc., subject to Polish government approval, to sell 30% of its Polish
pension company subsidiary for $20 million. In Russia, PIFS had a slight loss of
$0.2 million, substantially eliminating recent operating losses. Also, PIFS
substantially scaled back its Russian brokerage operations during the first
quarter of 1999.
PIONEER GLOBAL INVESTMENTS
Pioneer Global Investments lost $12.0 million in the first quarter of 1999
on revenues of $20.9 million. The Company's venture capital operations lost $3.8
million, of which $3.4 million resulted from the U.S. venture capital sale. In
March 1999, the Company sold its direct investments and indirect interests of
its U.S. venture capital business for $34.9 million. The Company used the
proceeds from the venture capital sale to repay financing from the Small
Business Administration and to reduce debt outstanding under the Company's bank
revolving credit facility. The Company's real estate services operations
reported losses of $1.0 million in the first quarter of 1999 and $0.5 million in
the first quarter of 1998. Most of the losses were attributable to costs
associated with the development of the Company's Polish and Eastern Europe real
estate investment and property and facilities management operations.
The gold mining and timber businesses are discussed below.
13
<PAGE> 14
GOLD MINING BUSINESS
The results of the gold mining business are substantially attributable to
the operations of Teberebie Goldfields Limited ("TGL"), the principal operating
subsidiary of the Company's wholly owned subsidiary, Pioneer Goldfields Limited
("PGL"). The Company's reported earnings give effect to the 10% minority
interest in TGL held by the Government of Ghana. Gold mining results are also
affected by PGL's exploration activities in Africa and by the exploration
activities in the Russian Far East of Closed Joint Stock Company "Tas-Yurjah
Mining Company" ("Tas-Yurjah"), the Company's majority owned (95%) Russian
subsidiary. Exploration costs are charged to operations as incurred.
RECENT DEVELOPMENTS
As previously reported, the Company's gold mining operations have recently
been experiencing production problems related to the less weathered and harder
ore. The Company has completed its testing program and has developed a new mine
plan which incorporates the transition from heap leaching to conventional
milling. As a result, the Company is able to provide updated reserves
information, which it has incorporated into the offering memorandum related to
sale of PGL.
Set forth on the following table are the proven and probable gold reserves
of Teberebie Goldfields Limited ("TGL"), the Company's 90%-owned indirect
subsidiary located in Ghana, as of January 1, 1999 which have been certified by
an independent mining consultant. These reserves are estimated on an in situ
basis and contain provision for losses anticipated during mining but do not
include metallurgical recovery. The mill ore has a lower bound cut-off grade of
0.67 grams per tonne while the heap leach ore has a lower bound cut-off grade of
0.25 recovered grams per tonne. The price of gold used to delineate reserves is
$340 per ounce.
PROVEN AND PROBABLE RESERVES AS OF JANUARY 1, 1999 ($340/OZ)
<TABLE>
<CAPTION>
TONNES, ORE GRADE, G/T CONTAINED GOLD, OUNCES
----------- ---------- ----------------------
<S> <C> <C> <C>
Heap Leaching:
Pit..................................... 38,713,000 0.880 1,094,700
Dump Reclaim............................ 14,606,000 0.517 242,800
----------- ---------
Heap Leach Total........................ 53,319,000 0.780 1,337,500
Milling................................. 72,870,000 1.384 3,242,500
----------- ---------
Total Ore Reserve............. 126,189,000 1.129 4,580,000
=========== ===== =========
</TABLE>
TGL's last reported proven and probable reserve estimate was 6.1 million
ounces as of December 31, 1997. Approximately 0.4 million ounces of the 1.5
million ounce decrease in reserves is attributable to 1998 mine production. The
balance of the difference is attributable to a lower heap leach recovery rate
used in the reserve calculation based on a recently completed comprehensive
testing program and higher operating costs associated with the planned
transition to conventional milling. These decreases were offset, in part, by
higher expected conventional milling recovery rates. Based on current and
anticipated processing methods (heap leaching and conventional milling,
respectively), it is estimated that recoverable gold from these open pit
reserves will aggregate approximately 3.8 million ounces. Reported gold reserves
are estimates. As such, no assurance can be given that the indicated quantities
of gold will be produced. In addition, gold price fluctuations may render ore
reserves containing relatively lower grades of gold mineralization uneconomic to
mine. At May 12, 1999, the market spot price of gold was $278 per ounce.
In October 1998, the Company engaged the services of an investment banking
firm to sell PGL, including its African exploration rights and its 90% equity
interest in TGL, PGL's operating subsidiary. An offering document, which
incorporates a new mine plan and the revised reserve estimate, has been
finalized and is currently being circulated to a select group of potential
buyers.
14
<PAGE> 15
RESULTS OF OPERATIONS
In the first quarter of 1999, the gold mining segment lost $6.2 million
compared with a $1.2 million loss in the corresponding period in 1998. The
effective tax rate in the first quarter of 1999 was a 5% benefit compared with a
44% benefit in the first quarter of 1998.
GOLD SALES. Revenues decreased by $3.4 million to $20 million as gold
shipments decreased by 3,400 ounces, or 5%, to 70,100 ounces. The average
realized price of gold decreased by $33 to $285 per ounce. In the first quarter
of 1998, the average realized price of gold included proceeds of $1.7 million,
or $23 per ounce, from the sale of floor program options.
GOLD PRODUCTION AND COSTS. The table below provides production results and
compares TGL's cash costs and total costs per ounce for the first quarter of
1999 with the prior year's costs:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------ INCREASE/
1999 1998 (DECREASE)
------- ------- ----------
<S> <C> <C> <C>
Production (ounces)....................................... 70,100 73,500 (3,400)
======= ======= =======
Cash costs:
Production costs........................................ $ 209 $ 196 $ 13
Royalties............................................... 9 9 --
General and administrative.............................. 22 25 (3)
------- ------- -------
Cash costs per ounce.................................. 240 230 10
Non-cash costs:
Depreciation and amortization........................... 107 91 16
Other................................................... 5 3 2
------- ------- -------
Cost of production per ounce.......................... 352 324 28
Interest and other costs.................................. 21 16 5
------- ------- -------
Total costs per ounce................................... $ 373 $ 340 $ 33
======= ======= =======
</TABLE>
PRODUCTION COSTS. Production costs represent costs attributable to mining
ore and waste and processing the ore through crushing and processing facilities.
TGL's costs of production are affected by ore grade, gold recovery rates, the
waste to ore ("stripping") ratio, the age and availability of equipment, weather
conditions, availability and cost of labor, haul distances, foreign exchange
fluctuations and the inherent lag in gold production from heap leaching
operations. A reduction in the ore grade and lower recovery rates associated
with the previously discussed less weathered ore resulted in lower production
levels and a $13 per ounce increase in the cost per ounce compared with the
first quarter of 1998. Overall processing costs increased by approximately $1.1
million because of a 50% increase in tonnes processed; however, this increase
was offset partially by a $0.8 million reduction in mining costs attributable to
a reduction in the stripping ratio from 3.57:1 to 1.37:1.
A comparison of key production statistics for the three months ended March
31, 1999, and March 31, 1998, is shown in the table below:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------
1999 1998
------ ------
<S> <C> <C>
Tonnes mined (in thousands):
Waste....................................................... 4,440 7,424
Ore......................................................... 3,232 2,081
------ ------
Total Tonnes Mined........................................ 7,672 9,505
====== ======
Stripping Ratio (waste/ore)................................. 1.37:1 3.57:1
Ore Processed............................................... 3,198 2,162
Process Grade (grams/tonne)................................. 1.17 1.36
</TABLE>
15
<PAGE> 16
DEPRECIATION AND AMORTIZATION. Depreciation and amortization is calculated
using units-of-production and straight-line methods designed to fully depreciate
property, plant, and equipment over the lesser of their estimated useful lives
or ten years. In the first quarter of 1999, these costs increased by $16 per
ounce compared with the corresponding period in 1998 principally because of a
reduction in the depreciable lives for certain of TGL's crushing and leaching
equipment to reflect the expected transition from heap leaching to conventional
milling. This resulted in an acceleration of the depreciation and amortization
for these assets.
INCOME TAXES. The statutory tax rate for mining companies in Ghana in each
of 1999 and 1998 was 35%.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW. The cash balances of the gold mining segment increased by $0.4
million to $3.0 million during the first quarter of 1999, $2.2 million of which
remained in escrow and was unavailable to pay short-term obligations. Cash
generated from operating activities aggregated $2.0 million while capital
expenditures were $2.6 million. Major capital expenditures during the quarter
included $1.8 million for leach pad and pond development and $0.4 million for
capitalized rebuilds.
THIRD-PARTY DEBT. At the end of the first quarter of 1999, third-party
debt aggregated $40 million, including $14.2 million from the Overseas Private
Investment Corporation ("OPIC") for which the Company is subject to limited
recourse, and $0.4 million from other sources which the Company guarantees.
Scheduled third-party debt service for the remainder of 1999 is expected to
aggregate $8.1 million, of which $6.1 million represents principal payments.
TRANSITION TO CONVENTIONAL MILLING. The cost of installing a 12,000 tonne
per day, 4.2 million tonne per year, conventional mill is estimated at
approximately $47 million. For planning purposes, the mill is scheduled to be
fully operational in the year 2001. As discussed above, the Company plans to
sell PGL and, as a result, does not intend to bear the expense related to the
installation of the mill.
TIMBER BUSINESS
The results of the timber business are substantially attributable to the
operations of Forest-Starma, the 97% owned principal operating subsidiary of the
Company's wholly owned subsidiary, Pioneer Forest, Inc. Forest-Starma harvests
timber under a 49-year lease comprising 390,100 hectares (approximately 964,000
acres) in the aggregate with annual cutting rights of 555,000 cubic meters
awarded in the Khabarovsk Territory of Russia. Forest-Starma has developed a
modern logging camp, including a harbor, from which it exports timber to markets
in the Pacific Rim.
While Forest-Starma harvests timber and incurs the resulting operating
expenses throughout the year, it typically ships timber from mid-April through
December. As a result, Forest-Starma has incurred, and expects to continue to
incur, operating losses from fixed costs in the first quarter of the Company's
fiscal year. There were no shipments in the first quarter of 1999. Forest-Starma
shipped 8,300 cubic meters of low grade timber in the first quarter of 1998 at
an average realized price of $34 per cubic meter.
RESULTS OF OPERATIONS
In the first quarter of 1999, the timber business lost $0.8 million
compared to a loss of $2.7 million in the first quarter of 1998. The decrease in
losses was attributable principally to a timber inventory cost-to-market
write-down of $1.1 million in the first quarter of 1998.
TIMBER PRODUCTION. Forest-Starma produced 85,600 cubic meters in the first
quarter of 1999, 63% higher than first quarter of 1998 production of 52,500
cubic meters. Production costs for the first quarter of 1999 were approximately
$44 per cubic meter, including approximately $9 per cubic meter of depreciation
and amortization. These costs were recorded in inventory at the end of the first
quarter of 1999. During the first quarter of 1998, the average production cost
was $79 per cubic meter.
16
<PAGE> 17
OTHER COSTS AND EXPENSES. Other costs and expenses include interest
expense, management fees expense, foreign exchange losses, miscellaneous revenue
and parent company charges. These expenses decreased by $0.6 million in 1999 to
$0.8 million, principally from a decrease in parent company loan interest
expense.
LIQUIDITY AND CAPITAL RESOURCES
Forest-Starma had $6.2 million of external debt at March 31, 1999.
Scheduled debt service for the remainder of the year is expected to aggregate
$1.8 million.
OTHER VENTURES. In 1995, Closed Joint-Stock Company "Amgun-Forest" and
Closed Joint-Stock Company "Udinskoye," the Company's other Russian timber
ventures, each executed a long-term lease (50 years) relating to timber
harvesting. The Amgun-Forest lease covers 485,400 hectares (approximately
1,200,000 acres) with annual cutting rights of 350,000 cubic meters while the
Udinskoye lease covers 201,000 hectares (approximately 497,000 acres) with
annual cutting rights of 300,000 cubic meters. As of March 31, 1999, Pioneer
Forest, Inc. retained an 80.6% direct interest and 7.9% indirect interest in
Amgun-Forest and a 72% direct interest and 11.76% indirect interest in
Udinskoye.
RECENT DEVELOPMENTS
The Company is continuing discussions with several potential strategic
partners as participants in its timber business.
OTHER
The Company had net interest expense and other expenses of $1.3 million in
the first quarter of 1999 compared to $0.6 million in the first quarter of 1998.
The increase resulted principally from a mark-to-market adjustment on the
Company's interest rate protection agreements.
LIQUIDITY AND CAPITAL RESOURCES -- GENERAL
The Company's liquid assets consisting of cash and marketable securities
(exclusive of gold mining and timber operations) decreased by $18.8 million in
the first quarter of 1999 to $31.2 million principally related to the payment of
current federal taxes arising from the Company's 1998 sale of its rights to
receive future distribution fees and deferred sales charges from the
distribution of Class B shares of its U.S. based mutual funds.
For a description of the Company's $80 million senior credit facility and
$20 million senior notes, including interest rates and applicable covenants, see
Note 6 (Notes Payable) to Notes to the Company's Consolidated Financial
Statements included elsewhere in this Quarterly Report. At March 31, 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.
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. The
Company recorded a cumulative effect of a change in accounting principle of
approximately $12.1 million related principally to its timber operations.
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<PAGE> 18
FUTURE OPERATING RESULTS
Certain of the information contained in this Quarterly Report, including
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.
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 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. Investment performance may also be affected by economic or
market conditions which are beyond the control of the Company. In addition, four
of the Company's mutual funds (including the two largest funds) have management
fees which are adjusted based upon the funds' performance relative to the
performance of an established index. As a result, management fee revenues may be
subject to unexpected volatility.
The mutual fund industry is intensely competitive and is undergoing
substantial consolidation. Many organizations in this industry are attempting to
sell and service the same clients and customers, not only with mutual fund
investments but with other financial services products. Many of the Company's
competitors have more products and product lines and substantially greater
assets under management and financial resources.
The Company and its domestic investment management business unit are
primarily dependent upon their contractual relationships with the Company's U.S.
mutual funds. In the event any of these agreements were canceled or not renewed
on similarly favorable terms, the Company would be substantially adversely
affected.
The Securities and Exchange Commission has jurisdiction over registered
investment companies, registered investment advisers, broker-dealers and
transfer agents. The Securities and Exchange Commission could, in the event the
Company or its subsidiaries violated any applicable rules or regulations, take
action that could have a serious negative impact on the Company and its
financial performance.
Because a material portion of the Company's revenues are derived from the
mining and sale of gold by TGL, the Company's financial results are directly
impacted by gold production, the cost of such production, and the price of gold.
TGL's gold production is dependent upon a number of factors that could cause
actual gold production to differ materially from projections, including
obtaining and maintaining necessary equipment, accessing key supplies, including
electric power, cement, and diesel fuel, and hiring, training and retaining
supervisory personnel and skilled workers. Gold production is also affected by
the time lag inherent in heap leaching technology, subject to weather conditions
and dependent on the continued political stability in the Republic of Ghana.
Gold prices have historically fluctuated significantly and are affected by
numerous factors, including expectations for inflation, the strength of the U.S.
dollar, global and regional demand, central bank gold supplies and political and
economic conditions. If, as a result of a decline in gold prices, TGL's revenues
from gold sales were to fall below cash costs of production, and to remain below
cash costs of production for any substantial period, the Company could determine
that it is not economically feasible for TGL to continue commercial production.
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.
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<PAGE> 19
The Company has a significant number of operations and investments located
outside of the U. S., including the gold mining operations at TGL, the timber
operations in the Russian Far East and the financial services operations in
Eastern and Central Europe. Foreign operations and investments may be adversely
affected by exchange controls, currency fluctuations, taxation, political and
economic instability, ineffective regulatory oversight and laws or policies of
the particular countries in which the Company may have operations. There is no
assurance that the Company can obtain permits, authorizations, regulatory
approvals and agreements to implement plans at its foreign projects under
conditions or within time frames that make such plans economically feasible.
Also, there can be no assurance that applicable laws or the governing political
authorities will not change unfavorably or that such changes will not result in
the Company's having to incur material additional expenditures.
YEAR 2000
SUMMARY. The Company has for some time been addressing actively the
potential impact of the Year 2000 problem to its businesses and has largely
completed a comprehensive project to help ensure that all of its business units
will be able to function normally before, during and after the century date
rollover. Furthermore, the Company is aware that Year 2000 issues have the
potential to impact the capital markets and macroeconomic conditions globally.
While the Company is monitoring the threat of such impact and is taking measures
reasonably designed to protect the investments of its fund shareholders and
corporate investors, there can be no assurance that factors outside its control
will not disrupt the Company's operations.
MANAGEMENT. The Company is executing and managing its Year 2000 project
activities at several levels within the organization, including:
- regular senior-level management briefings
- regular Company Audit Committee briefings
- oversight subcommittee established by the Trustees of the Company's U.S.
mutual funds
- Year 2000 Steering Committee comprised of representatives from all
operational areas empowered to review progress and ensure the successful
completion of the Year 2000 project
- Year 2000 project office responsible for centralized monitoring,
reporting and support of project activities
- managers throughout the Company responsible for executing local Year 2000
plans
The Company is separately tracking the Year 2000 readiness of each of its
operating units and has created comprehensive reporting for each project team
worldwide. The Company has developed reports to monitor risk management and
project status both for systems and vendors. The Company has utilized the
services of outside companies and consultants specializing in Year 2000 issues.
APPROACH AND STATUS. The Company's Year 2000 initiative addresses
hardware, software, embedded systems and vendor systems and consists of the
following six phases:
- Awareness -- communicating management's commitment to identify and
resolve Year 2000 issues
- Inventory, Assessment, and Planning -- identifying all systems and
vendors with potential Year 2000 problems, rating the business
criticality of each, and planning for all project tasks
- Repair -- executing all necessary system remediation plans
- Testing -- ensuring that all remediated systems function correctly in
both current date and future date environments
- Contingency Planning -- developing project contingency and business
continuation plans for each business unit
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<PAGE> 20
- Vendor Analysis -- working closely with all important third parties to
ensure that their systems and businesses have adequately addressed Year
2000 issues
The Company has completed both the awareness and assessment phases of the
project and has completed the repair phase with respect to approximately 97% of
its 500 core systems. Remaining remediation work consists of installations that
are expected to be completed by the end of the second quarter. The testing and
contingency planning phases are well underway and will continue throughout 1999.
Vendor analysis is ongoing and will continue through the end of the project. To
date, the Company has performed stand-alone testing on all of its core
information technology applications and critical imbedded systems. The Company
recently 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 Company expects to complete the following additional activities during
the remainder of 1999:
- conducting company-wide integration tests
- participating in point-to-point testing with selected vendors
- correcting and retesting any problems that may be discovered during
integrated or third party testing
- refining and testing contingency plans
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's comfort in the ability of these systems to
operate properly after January 1, 2000 is relatively high.
VENDORS. The Company has been monitoring closely Year 2000 progress of all
critical third parties and to date has not identified a need to replace any of
these providers.
CAPITAL MARKETS. Particularly in the U.S., the Company is heavily reliant
upon functional capital markets (trading, clearing and settlement). The recently
completed 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 efforts of third parties and infrastructure elements. The Company has
indigenous operations in a number of countries, and these countries have
demonstrated various levels of awareness and readiness with respect to Year 2000
issues. The Company is preparing its systems and evaluating its vendors in each
of these operations in the same manner as in the U.S. Nevertheless, the Company
is subject to risks imposed by infrastructure failures beyond its control in the
countries in which it has operations.
Overall, the Company's approach to contingency planning, which is intended
to address the risks described above, has two components: (i) ensuring the
Company's ability to achieve Year 2000 compliance, even in the event of a vendor
failure in 1999 and (ii) preparing business continuity plans for various
potential failure scenarios which, despite the Company's best efforts, could
occur on or around January 1, 2000. At May 13, 1999, substantially all of the
Company's operating units had developed initial contingency plans. Plans will
continue to be refined and tested, as necessary, throughout 1999. Finally, the
Company has disaster recovery plans in place to address potential infrastructure
failures, including basic services such as electrical power and
telecommunications, and is leveraging and enhancing those plans to address
potential Year 2000 scenarios.
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<PAGE> 21
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. 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 March 31, 1999, the Company had incurred and expensed approximately
$1.4 million in connection with its Year 2000 project. The Company estimates its
total remaining costs to be approximately $1.1 million, which will be expensed
as incurred during 1999. All Year 2000 project costs have been and 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 believes that it will not incur
significant Year 2000 related costs on behalf of third parties from which it
purchases technology or outsources technology-based functions.
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.
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PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The Exhibits filed with this Quarterly Report on Form 10-Q are listed on
the "Index to Exhibits" below.
(b) Reports filed on form 8-K: None.
SIGNATURES
It is the opinion of management that the financial information contained in
this report reflects all adjustments necessary to a fair statement of results
for the period report, but such results are not necessarily indicative of
results to be expected for the year due to the effect that stock market
fluctuations may have on assets under management. All accounting policies have
been applied consistently with those of prior periods. Such financial
information is subject to year-end adjustments and annual audit by independent
public accountants.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE PIONEER GROUP, INC.
Dated: May 13, 1999
/s/ JOHN A. BOYNTON
------------------------------------
JOHN A. BOYNTON
EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER AND
TREASURER
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- ------------------------------------------------------------
<C> <S>
10.1 Shareholders' Agreement dated 8 April 1999 between the
Company and Nationwide Global Holdings, Inc. ("Nationwide")
10.2 Share Subscription Agreement dated as of 8 April 1999
between the Company, Nationwide and Pioneer Powszechne
Towarzystwd Emerytalne S.A.
27.99 Financial Data Schedule.
27.98 Financial Data Schedule.
</TABLE>
22
<PAGE> 1
EXHIBIT 10.1
DATED 8 APRIL 1999
----------------------------------------
(1) THE PIONEER GROUP, INC.
(2) NATIONWIDE GLOBAL HOLDINGS, INC.
----------------------------------------
SHAREHOLDERS' AGREEMENT
----------------------------------------
<PAGE> 2
THIS AGREEMENT is made on 8 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) Pioneer, Nationwide and the Society have today signed a share
subscription agreement (the "SHARE SUBSCRIPTION AGREEMENT") pursuant to
which Nationwide has 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.
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.
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
<PAGE> 3
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 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
<PAGE> 4
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.
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
3
<PAGE> 5
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).
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;
4
<PAGE> 6
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
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;
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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
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
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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.
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.
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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 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 the date of this Agreement and at Completion:
7.4.1 as if they had been repeated on each 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
the time of this Agreement (but so that any period of time
expressed to start at the date of this Agreement shall
continue to be deemed to start then)
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:
(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.
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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 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
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<PAGE> 11
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.
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).
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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;
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 the date of this Agreement;
(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.
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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 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
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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) 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:-
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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 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 purchase all
of the Shares held by Nationwide or any Associate of Nationwide on the
terms set out in CLAUSE 16 at the Put 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.
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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 its intention to exercise an option (which Pioneer hereby
grants to Nationwide) to require Pioneer to purchase from Nationwide
and any Associate of Nationwide all the Shares held by Nationwide and
each member of Nationwide Group on the terms set out in CLAUSE 16 at
the Put Option Price.
15.3 On the service of a Default Event Option Notice, Pioneer shall be
deemed irrevocably to have accepted such offer at the Put Option Price.
15.4 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.
15.5 For the purpose of this clause a "DEFAULT EVENT" means the occurrence
of any of the following:-
15.5.1 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;
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15.5.2 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);
15.5.3 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).
15.6 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.
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 Put 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
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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 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 Nationwide exercises the put option in CLAUSES 14.3 or 15.2, the
Shareholders shall endeavour to agree the price at which Pioneer will
acquire all the Shares held by Nationwide and its Associates. 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
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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 Put
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" 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
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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.
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.
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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 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
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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.
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
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<PAGE> 23
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 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.
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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 on the date of this Agreement.
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 maybe) to the
extent reasonably necessary to remove such ambiguity or conflict.
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
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<PAGE> 25
Party: NATIONWIDE GLOBAL HOLDING, 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
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.
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<PAGE> 26
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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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 attached to this Agreement and
described as such, dated as of the date of this Agreement 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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"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 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;
"PENSION LAW" the law of 28th of August 1997 on Organising and
Operation of Pension Funds, as amended;
"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;
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"PIONEER GROUP": Pioneer and its Associates from time to time;
"PUT OPTION PRICE": the price determined in accordance with CLAUSE 16.3
"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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SCHEDULE 2
DETAILS OF THE SOCIETY
NAME: Pioneer Powszechne Towarzystwo Emerytalne S.A.
NUMBER: 013232430
REGISTERED OFFICE: INTRACO, 29th Floor, 2 Stawki Street,
00-193Warsaw
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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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> 32
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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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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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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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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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
35
<PAGE> 37
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
36
<PAGE> 38
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
37
<PAGE> 39
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.
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.
38
<PAGE> 40
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.
39
<PAGE> 41
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:
40
<PAGE> 42
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.
41
<PAGE> 43
SIGNATURES:
/s/ Alicja Malecka
- --------------------------------------------------------------------------------
For THE PIONEER GROUP, INC.
/s/ David M. Martin
- --------------------------------------------------------------------------------
For NATIONWIDE GLOBAL HOLDINGS, INC.
42
<PAGE> 44
TABLE OF CONTENTS
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............................................3
5. Matters requiring consent of the Shareholders...............................4
6. Matters requiring consent of the Supervisory Board..........................5
7. Representations, Warranties and undertakings................................7
8. Capital and Further Finance................................................10
9. Guarantees, etc. given by the Shareholders.................................10
10. Exercise of rights and powers.............................................10
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........................................13
15. Default Event Option......................................................15
16. Share Transfer Mechanics..................................................16
17. Assignment................................................................18
18. Protection and use of name................................................18
19. This Agreement not to constitute a partnership............................19
20. Costs.....................................................................19
21. Confidential Information..................................................19
22. Duration..................................................................20
23. Announcements.............................................................21
24. Waiver, forbearance and variation.........................................21
25. Governing Law, Language and Jurisdiction..................................21
26. Severability..............................................................22
27. Entire agreement..........................................................22
28. The terms of this Agreement to prevail....................................23
29. Notices...................................................................23
30. Counterparts..............................................................25
<PAGE> 45
Schedule 1 Words and Expressions..............................................26
Schedule 2 Details of the Society.............................................29
Schedule 3 Representations and Warranties.....................................30
1. Information................................................................30
2. The Society................................................................30
3. Financial Statements.......................................................31
4. Post incorporation events..................................................31
5. Transactions with members of the Pioneer Group and Connected Persons.......31
6. Finance....................................................................32
7. Assets of the Society......................................................33
8. Insurance..................................................................33
9. Litigation.................................................................33
10. Licences and applicable legislation.......................................34
11. Trading...................................................................34
12. Contracts.................................................................35
13. Employees.................................................................35
14. Pension Schemes...........................................................37
15. Intellectual Property and Information Technology..........................37
16. Properties................................................................37
17. Capacity..................................................................38
18. Insolvency................................................................38
Schedule 4 Limitation of liability............................................39
1. A Party shall not be liable under the Warranties if and to the extent
that:......................................................................39
2. The liability of any party in respect of any claim under the Warranties:...39
3. The liability of the parties in respect of any claim under the
Warranties shall cease on first anniversary of Completion..................39
Schedule 5 Deed of Adherence..................................................40
1. Interpretation.............................................................40
2. Transfer...................................................................40
3. Transferor Provisions......................................................41
4. Notices....................................................................41
The following documents are in the agreed terms:
<PAGE> 46
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> 1
EXHIBIT 10.2
DATED 8 APRIL 1999
----------------------------------------
(1) THE PIONEER GROUP, INC.
(2) NATIONWIDE GLOBAL HOLDINGS, INC.
(3) PIONEER POWSZECHNE
TOWARZYSTWO EMERYTALNE S.A.
----------------------------------------
SHARE SUBSCRIPTION
AGREEMENT
----------------------------------------
<PAGE> 2
TABLE OF CONTENTS
1. Definitions and interpretation..............................................1
2. Conditions..................................................................2
3. Conduct prior to Completion.................................................3
4. Actions following execution of this Agreement...............................4
5. Warranties..................................................................7
6. Costs.......................................................................7
7. Confidential Information....................................................8
8. Announcements...............................................................8
9. Waiver, forbearance and variation...........................................9
10. Governing Law, Language and Jurisdiction...................................9
11. Protection of name.......................................................10
12. Severability..............................................................10
13. Entire agreement..........................................................10
14. Notices...................................................................10
15. Counterparts..............................................................12
Schedule 1 Words and Expressions..............................................13
Schedule 2. Events at Completion..............................................15
1. Pioneer's and the Society's Completion obligations.........................15
2. Nationwide's Completion obligations........................................15
DOCUMENTS IN THE AGREED TERMS:-
1. The amendments to the Articles,
2. The amendments to the by-laws of the Supervisory Board,
3. The Initial Budget,
4. The Initial Business Plan.
<PAGE> 3
THIS AGREEMENT is made on 8 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");
(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"); and
(3) PIONEER POWSZECHNE TOWARZYSTWO EMERYTALNE S.A., a joint stock company duly
established under Polish law whose registered office is at INTRACO, 29TH
Floor, 2 Stawki Street, 00-193 Warsaw, Poland (the "SOCIETY").
WHEREAS:-
(A) The Society was registered with the Registration Court on 29th October
1998 with a share capital of PLN 34,000,000 divided into 340,000 shares of
PLN 100 each. At the date of this Agreement, all of the shares of the
Society have been issued and are owned by Pioneer.
(B) The Society's sole activity is the establishment and management of the
Pioneer Open Pension Fund, an open pension fund in Poland established in
accordance with the Pension Law.
(C) The parties have agreed that Nationwide will subscribe for 145,714
Subscription Shares for, in aggregate, the PLN equivalent of US$20,000,000
and otherwise on the terms set out in this Agreement, such Subscription
Shares representing approximately 30% (thirty per cent.) of the share
capital of the Society, as enlarged by the subscription of the
Subscription Shares.
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.
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.
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<PAGE> 4
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. CONDITIONS
2.1 Completion of the subscription of the Subscription Shares shall be
conditional upon each of the following conditions having first been
satisfied or waived:-
2.1.1 a resolution or resolutions in terms to be agreed between the
parties being passed at a general meeting of the Society or at a
meeting of Supervisory Board, as appropriate, to (i) increase the
share capital of the Society to allow for the subscription of the
Subscription Shares, (ii) waive the pre-emption rights of Pioneer
in respect of the subscription of the Subscription Shares, (iii)
make amendments to the Articles in the agreed terms, (iv)
(conditional on the agreed amendments to the Articles being
registered by the Registration Court as referred to in CLAUSE
2.1.3 below) make amendments to the by laws of the Supervisory
Board in the agreed terms, (v) (conditional on the agreed
amendments to the Articles being registered by the Registration
Court as referred to in CLAUSE 2.1.3 below) appoint David Martin
as a member of the Supervisory Board and (vi) amend the statutes
of the Fund in terms to be agreed to reflect the changes in
shareholders of the Society and the amendments to Articles, all as
provided herein and in the Shareholders' Agreement;
2.1.2 Confirmation being received from the Office for Protection of
Consumers and Competition that it does not object to the
subscription by Nationwide of the Subscription Shares;
2.1.3 UNFE granting permission for (i) Nationwide to subscribe for the
Subscription Shares , (ii) David Martin to be appointed a member
of the Supervisory Board and (iii) the Articles and the statutes
of the Fund to be amended as referred to in CLAUSE 2.1.1.; and
2.1.4 registration by the Registration Court of (i) the increase in the
share capital of the Society referred to in CLAUSE 2.1.1 and (ii)
the amendments to the Articles in the agreed terms and
notification to the Registration Court of (i) the appointment of
David Martin as a Member of the Supervisory Board and (ii) the
amendments to the statutes of the Fund in the agreed terms.
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<PAGE> 5
2.2 Each party shall use all reasonable endeavours to procure (so far as it
lies within its powers so to do) that each of the conditions set out in
CLAUSE 2.1 (to the extent that such conditions are not waived) are
fulfilled as soon as possible but in any event prior to 30 September 1999.
Without prejudice to the generality of the above, each party will promptly
provide all information reasonably requested by any court or governmental
or regulatory agency so that such court or agency can give an approval to
the transactions contemplated by this Agreement.
2.3 If each of the conditions set out in CLAUSE 2.1 shall not have been
fulfilled (or waived) by 30 September 1999, this Agreement (other than the
provisions of CLAUSES 7 (CONFIDENTIAL INFORMATION), 8 (ANNOUNCEMENTS), 10
(GOVERNING LAW, LANGUAGE AND JURISDICTION) and 11 (PROTECTION OF NAME)
shall, unless the parties otherwise agree, thereupon automatically cease
and terminate and none of the parties shall have any claim of any nature
whatsoever against the other parties, save in respect of (i) any breach of
the provisions of this Agreement or the Shareholders' Agreement or (ii)
the return of the monies paid by Nationwide for the Subscription Shares
pursuant to CLAUSE 4 (ACTIONS FOLLOWING EXECUTION OF THIS AGREEMENT).
3. CONDUCT PRIOR TO COMPLETION
3.1 Prior to Completion and save for such steps as may be taken in
anticipation of CLAUSE 4 (ACTIONS FOLLOWING EXECUTION OF THIS AGREEMENT),
the Society shall, and Pioneer shall cause, so far as it is able, the
Society to carry on business in the ordinary and normal course of business
as a going concern and in accordance with the Initial Business Plan and
the Initial Budget.
3.2 Without prejudice to the generality of CLAUSE 3.1, the Society shall not
and Pioneer shall cause, so far as it is able, that the Society shall not
prior to Completion without the prior written consent of Nationwide or
except as expressly contemplated in this Agreement, the Shareholders'
Agreement, the Initial Budget or the Initial Business Plan:
3.2.1 declare or pay any dividend or make any other form of distribution
to its shareholders;
3.2.2 acquire or dispose of any shares, debentures or other securities
in any other company or all of any Shares (other than the
allotment of the Subscription Shares to Nationwide) or grant or
acquire any option over any shares, debentures or other securities
of the Society or make any commitment to do so;
3.2.3 (except in the ordinary course of business) dispose of any assets;
3.2.4 embark on a programme, submit any bid or tender or making any
contract or commitment which is likely to involve more than US$
100,000 (or its equivalent) by reference to (i) value, (ii)
capital expenditure or non-recurring costs or (iii) liabilities or
otherwise result in any material change in the nature of the
operations and activities of the Society's business;
-3-
<PAGE> 6
3.2.5 borrow any sum which would result in the aggregate borrowings of
the Society increasing by more than US$ 100,000 (or its
equivalent);
3.2.6 enter into any new contract or vary any existing contract with
Pioneer any other member of the Pioneer Group except as provided
for in the Shareholders' Agreement, the Initial Business Plan or
the Initial Budget;
3.2.7 make, terminate or vary any employment agreement or
employment-related arrangement with any member of the Management
Board or Supervisory Board;
3.2.8 amend the fee rates or structure, charging rates or structure or
commission rates or structure of the Society or the Fund from
those in the Initial Budget and Initial Business Plan;
3.2.9 alter the Articles, the statutes of the Fund or the by laws of the
Management Board or the Supervisory Board except as expressly
contemplated in CLAUSE 2.1.1.; or
3.2.10 (to the extent permitted by law) lend any sum to any third party.
3.3 In the period prior to Completion or, if earlier, the date on which the
parties agree that the conditions set out in CLAUSE 2.2 will not be
satisfied, the Society shall provide to Nationwide and Pioneer shall cause
the Society to provide a copy of all information that:-
3.3.1 Pioneer receives from the Society; and
3.3.2 a copy of all information in whatever format provided by the
Society to any governmental or other regulatory authority.
4. ACTIONS FOLLOWING EXECUTION OF THIS AGREEMENT
4.1 As soon as practicable following the execution of this Agreement, the
Society shall, and Pioneer shall cause that the Society shall, convene a
Shareholders' Meeting of the Society at which Pioneer shall pass the
resolution referred to in CLAUSE 2.1.1.
4.2 As soon as practicable following the passing at a general meeting of the
Society or the Supervisory Board, as appropriate, of the resolution
referred to in CLAUSE 2.1.1 to increase the share capital of the Society
to allow for the subscription of the Subscription Shares and to amend the
Articles in the agreed terms, Nationwide will execute a notarial statement
if required pursuant to Polish law, in a form to be agreed between the
parties and shall make a payment of US $20,000,000 to an account (the
"ESCROW ACCOUNT") in name of the Society at Citibank Poland S.A. in Warsaw
("CITIBANK") in respect of the subscription monies payable for the
Subscription Shares. The terms on which the Escrow Account will be
operated will be agreed between the parties and Citibank as soon as
practicable following the signing of this Agreement but such terms shall
be consistent, so far as is practicable with the following principles:-
-4-
<PAGE> 7
4.2.1 the Escrow Account will be a US$ account in the sole name of the
Society;
4.2.2 funds received into the Escrow Account will be held in US$;
4.2.3 no payments will be made from the Escrow Account except on the
joint written instructions of Nationwide and the Society;
4.2.4 if the conditions in CLAUSE 2.1.2 AND 2.1.3 are satisfied or
waived then Nationwide and the Society will give written
instructions to Citibank to transfer the monies payable for the
Subscriptions Shares to the Society;
4.2.5 in the event that
(i) the applications for the permissions and confirmations
referred to in CLAUSES 2.1.2 AND 2.1.3 are rejected; or
(ii) the applications for such permissions and confirmations
are withdrawn;
and if Pioneer and Nationwide agree in writing not to proceed
further with the applications for such permissions, confirmations
or registrations, the Society and Nationwide shall as soon as
practicable, and in any event within 2 Business Days of the
happening of such agreement, give written instructions to Citibank
to return to Nationwide all the subscription monies paid for the
Subscription Shares pursuant to CLAUSE 4.2 together with any other
sum properly payable to Nationwide. Notwithstanding the above the
parties agree that if the conditions in CLAUSE 2.1.2 and 2.1.3 are
not satisfied or waived by 30th September 1999, the written
instructions to Citibank to return the subscription monies and the
other sums to Nationwide referred to above shall be given to
Citibank by no later than the close of business (Warsaw Time) on
1st October 1999;
4.2.6 all interest which accrues on any sum in the Escrow Account will
be paid to Nationwide;
4.2.7 all costs charged by Citibank to administer the Escrow Account
shall be paid by Nationwide.
4.3 As soon as practicable following the payment by Nationwide to the Escrow
Account for the Subscription Shares in accordance with CLAUSE 4.2, the
parties will make applications for the permissions and confirmations
referred to in CLAUSES 2.1.2 and 2.1.3 (to the extent such permissions and
confirmation have not already been applied for). Nationwide hereby
confirms that it has already applied for the confirmation referred to in
CLAUSE 2.1.2.
4.4 As soon as practicable following:
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<PAGE> 8
4.4.1 confirmation being received from the Office for the Protection of
Consumers and UNFE that they have given the confirmations and
permissions referred to in CLAUSES 2.1.2 and 2.1.3; and
4.4.2 the Society receiving payment for the Subscription Shares from the
Escrow Account,
the Society shall make the appropriate application to the Court for the
registrations referred to in CLAUSE 2.1.4.
4.5 Completion shall take place at the Offices of Cameron McKenna Sp. z o.o.
Warsaw Financial Centre, ul. Emilii Plater 53, Warsaw (or wherever else
the Parties agree in writing) on the 5th Business Day following
satisfaction of all of the conditions in CLAUSE 2.1. or such earlier date
on which the parties agree in writing. At Completion, the Parties shall
perform their respective Completion obligations set out in SCHEDULE 2
(COMPLETION OBLIGATIONS).
4.6 In the event that:
4.6.1 (following the payment of the subscription monies to the Society
out of the Escrow Account) the resolutions referred to in CLAUSE
2.1 are not passed;
4.6.2 the application for the registration referred to in CLAUSE 2.1.4
is rejected; or
4.6.3 Pioneer and/or the Society fail to perform the obligations to be
performed by them at Completion as set out in CLAUSE 4.5 and
SCHEDULE 2 (COMPLETION OBLIGATIONS)
the Society shall, and Pioneer shall cause that the Society shall, as soon
as practicable and in any event within 2 Business Days of the happening of
such event pay to Nationwide the sum of US$ 20,000,000. If the conditions
in CLAUSE 2.1 are not satisfied by 30th September 1999 such payment shall
be made by no later than the close of business (Warsaw Time) on 1st
October 1999.
4.7 Notwithstanding Completion:
4.7.1 each provision of this Agreement (and any other document referred
to in it) not performed at or before Completion but which remains
capable of performance;
4.7.2 the Warranties; and
4.7.3 all covenants and other undertakings contained in or entered into
pursuant to this Agreement
will remain in full force and effect and (except as otherwise expressly
provided) without limit in time.
-6-
<PAGE> 9
4.8 Pioneer hereby confirms that it waives all and any rights of pre-emption
it has in respect of the subscription of the Subscription Shares by
Nationwide.
5. WARRANTIES
5.1 The Society hereby warrants to Nationwide as at the date of this Agreement
and as at Completion that:
5.1.1 it has full power to enter into this Agreement and the other
agreements to be entered into by it pursuant to this Agreement
each of which constitutes (or will when executed constitute)
binding obligations on the Society in accordance with their
respective terms.
5.1.2 Pioneer is the sole owner of 340,000 Shares free from Encumbrances
created by the Society 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 (other
than Nationwide) has the right (exercisable now or in the future
of whether contingent or not) to call for the issue of any share
capital of the Society;
5.1.3 the Subscription Shares will, when issued, be free from
Encumbrances and no person (other than Nationwide) will have any
right to call for their delivery.
5.2 The Society hereby warrants as at Completion that it has obtained all
necessary corporate and other consents and approvals in relation to the
performance of this Agreement and the other documents to be executed by it
at Completion and accordingly it has full power to perform this Agreement
and such other agreements.
5.3 Nationwide hereby warrants to the Society as at the date of this Agreement
and as at Completion that it has full power to enter into this Agreement
and the other agreements to be entered into by it pursuant to this
Agreement each of which constitutes (or will when executed constitute)
binding obligations on Nationwide in accordance with their respective
terms.
5.4 Nationwide hereby warrants as at Completion that it has obtained all
necessary corporate and other consents and approvals in relation to the
performance of this Agreement and the other documents to be executed by it
at Completion and accordingly it has full power to perform this Agreement
and such other agreements.
6. COSTS
6.1 Any stamp duty payable on the subscription by Nationwide of the
Subscription Shares shall be paid as to 50% by Nationwide and 50% by
Pioneer. All notarial fees and court fees payable in respect of any action
required in connection with this Agreement, including but not limited to
the passing of the resolution referred to in CLAUSE 2.1.1 or the
registration referred to in CLAUSE 2.1.4 shall be payable the Society. All
fees payable to Citibank in connection with the operation of the account
referred to in CLAUSE 4.2 and all notarial fees payable in respect of the
agreement referred to in CLAUSE 4.2 shall be payable by Nationwide.
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<PAGE> 10
6.2 All other 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.
7. CONFIDENTIAL INFORMATION
7.1 Each of the parties undertakes to the others that it shall not (and shall
procure that none of its Associates shall) disclose to any person (other
than those persons (including that party'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 of the other parties (or their
Associates) which the relevant parties may receive or obtain as a result
of negotiating or entering into this Agreement, and shall use its
reasonable endeavours to prevent its (and their) employees and agents from
so acting.
7.2 Each party shall (and shall procure their Associates shall) (i) procure
that anyone coming into receipt of Confidential Information 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 7 in respect of such Confidential Information as
if they were a party to this Agreement.
7.3 The restrictions in this clause shall continue to apply for a period of
three years after the expiration or sooner termination of this Agreement
but shall cease to apply to information or knowledge which:-
7.3.1 may properly come into the public domain through no fault of or
breach of this Agreement by the party so restricted; or
7.3.2 a party (or other person properly receiving the information
consistent with CLAUSE 7.1) 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 disclosable
pursuant to this CLAUSE 7.3.2 shall be disclosed only to the
extent required by such law, order, governmental or other
authority and only after prior consultation (if practicable) with
the other parties;
7.3.3 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;
7.3.4 any announcement made in accordance with the terms of CLAUSE 8.
8. ANNOUNCEMENTS
8.1 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
-8-
<PAGE> 11
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.
8.2 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.
9. WAIVER, FORBEARANCE AND VARIATION
9.1 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.
9.2 This Agreement shall not be amended, varied or cancelled, unless such
amendment, variation or cancellation shall be expressly agreed in writing
by each party but so that an amendment, variation or cancellation which
only affects the rights of particular parties shall only require the
agreement of those parties.
10. GOVERNING LAW, LANGUAGE AND JURISDICTION
10.1 The construction, validity and performance of this Agreement shall be
governed in all respects by Polish law.
10.2 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 text in any other language, the English
text shall prevail.
10.3
10.3.1 All disputes arising out of or in connection with this Agreement
shall be finally settled by the Arbitration Court at the Polish
Chamber of Commerce in Warsaw (Sad Arbitrazowy przy Krajowej Izbie
Gospodarczej w Warszawie) in accordance with the Rules of that
Court as in force at the date of the filing of the statement of
claim.
10.3.2 Performance under this Agreement shall continue if and so far as
reasonably possible during any disagreement or arbitration
proceedings.
10.3.3 The place and seat of the arbitration shall be Warsaw. The
language of the arbitration shall be English.
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<PAGE> 12
11. PROTECTION OF NAME
For the avoidance of doubt nothing in this Agreement permits or will
permit the Society to use the name "Nationwide" or any derivative thereof
in any business conducted by the Society without Nationwide's prior
written consent to such use.
12. 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.
13. ENTIRE AGREEMENT
This Agreement and any other agreement to be entered into on or prior to
Completion in accordance with its terms 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.
14. NOTICES
14.1 Any notice to be given under this Agreement shall be in writing and
delivered by hand or internationally recognised courier service 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
USA
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
USA
-10-
<PAGE> 13
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 62 54
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 72 54
Party: PIONEER POWSZECHNE TOWARZYSTWO EMERYTALNE
Address: INTRACO, 29th floor
2 Stawki Street
00-193 Warsaw
Poland
Facsimile No: 00 48 22 635 8145
Attention of: The President of the Management Board
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.
14.2 A notice shall be deemed to have been served as follows:-
14.2.1 if delivered by hand or by internationally recognised courier
service, at the time of delivery;
14.2.2 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
14.2.3 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 on any Business Day or
on any day which is
-11-
<PAGE> 14
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.
14.3 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.
15. 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> 15
SCHEDULE 1
WORDS AND EXPRESSIONS
"ARTICLES": the articles of association of the Society;
"ASSOCIATE": in relation to Pioneer or Nationwide any subsidiary or
holding company of the party or subsidiary of such holding company from
time to time (other than the Society);
"BUSINESS": has the meaning set out in the Shareholders' Agreement;
"BUSINESS DAY": any day other than a Saturday, Sunday or any bank or other
public holiday in Poland;
"COMPLETION": completion of the Subscription of Subscription Shares in the
Society in accordance with CLAUSE 4.5;
"CONFIDENTIAL INFORMATION": has the meaning set out in CLAUSE 7.1;
"ENCUMBRANCE" means any interest or equity of any person (including any
right to acquire, option or right of pre-emption or conversion) or any
mortgage, charge, pledge, lien, assignment, security interest, title
retention or any other security agreement or arrangement, or any agreement
to create any of the above;
"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;
"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;
"IN THE AGREED TERMS": in the form of the draft agreed by or on behalf of
the parties attached to this Agreement and initialled for identification
by or on behalf of Pioneer and Nationwide; and
"MANAGEMENT BOARD": the management board of the Society;
"NATIONWIDE GROUP": Nationwide and its Associates from time to time;
"PENSION LAW": the Law of 28 August 1997 on the Organisation and Operation
of Pension Funds, as amended;
"PIONEER GROUP": Pioneer and its Associates from time to time;
-13-
<PAGE> 16
"SHARES": shares in the share capital of the Society;
"SHAREHOLDERS' AGREEMENT": the shareholders' agreement entered into by
Pioneer and Nationwide on the date of this Agreement;
"SUBSCRIPTION SHARES": the 145,714 shares of PLN 100 each to be subscribed
for by Nationwide pursuant to this Agreement;
"SUPERVISORY BOARD": the supervisory board of the Society;
-14-
<PAGE> 17
SCHEDULE 2.
EVENTS AT COMPLETION
1. PIONEER'S AND THE SOCIETY'S COMPLETION OBLIGATIONS
Pioneer and the Society will be obliged to deliver to Nationwide (or
otherwise make available to the satisfaction of Nationwide):
1.1 A copy of the resolution of the board of directors of Pioneer ratifying
the execution by Pioneer of this Agreement, the Shareholders' Agreement
and the other documents to be executed by it of Completion;
1.2 a share certificate in respect of the Subscription Shares subscribed by
Nationwide, such share certificate to be in the name of Nationwide;
1.3 a copy of the resolution referred to in CLAUSE 2.1.1;
1.4 a copy of the Permission from UNFE referred to in cLAUSE 2.1.3; and
1.5 an extract from the register maintained by Registration Court evidencing
the increase in the share capital of the Society, the allotment of the
Subscription Share to Nationwide and the amendments in the agreed terms to
the Articles.
2. NATIONWIDE'S COMPLETION OBLIGATIONS
Nationwide's obligations are to deliver to Pioneer and the Society:
2.1 a copy of the resolution of the board of directors of Nationwide
authorising or ratifying the execution by Nationwide of this Agreement,
the Shareholders' Agreement and the other documents to be executed by it
at Completion.
2.2 a copy of the confirmation referred to in CLAUSE 2.1.2.
-15-
<PAGE> 18
SIGNATURES:
/s/ Alicja Malecka
- --------------------------------------------------------------------------------
For THE PIONEER GROUP, INC.
/s/ David M. Martin
- --------------------------------------------------------------------------------
For NATIONWIDE GLOBAL HOLDINGS, INC.
/s/ Tomasz Orlik
- --------------------------------------------------------------------------------
For PIONEER POWSZECHNE TOWARZYSTWO EMERYTALNE S.A.
-16-
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<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
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<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
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<CASH> 28,499
<SECURITIES> 2,400
<RECEIVABLES> 50,582
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<CURRENT-ASSETS> 127,885
<PP&E> 268,647
<DEPRECIATION> (122,024)
<TOTAL-ASSETS> 390,573
<CURRENT-LIABILITIES> 95,760
<BONDS> 94,966
0
0
<COMMON> 2,632
<OTHER-SE> 130,414
<TOTAL-LIABILITY-AND-EQUITY> 390,573
<SALES> 0
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<LOSS-PROVISION> 0
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<INCOME-PRETAX> (7,972)
<INCOME-TAX> 476
<INCOME-CONTINUING> (8,448)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (12,112)
<NET-INCOME> (20,560)
<EPS-PRIMARY> (0.800)
<EPS-DILUTED> (0.800)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1.00000
<CASH> 36,644
<SECURITIES> 17,852
<RECEIVABLES> 108,677
<ALLOWANCES> 0
<INVENTORY> 30,763
<CURRENT-ASSETS> 212,533
<PP&E> 248,998
<DEPRECIATION> (93,880)
<TOTAL-ASSETS> 606,025
<CURRENT-LIABILITIES> 140,704
<BONDS> 168,390
0
0
<COMMON> 2,539
<OTHER-SE> 179,245
<TOTAL-LIABILITY-AND-EQUITY> 606,025
<SALES> 0
<TOTAL-REVENUES> 77,892
<CGS> 0
<TOTAL-COSTS> 71,231
<OTHER-EXPENSES> (5,988)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,836
<INCOME-PRETAX> 8,724
<INCOME-TAX> 3,387
<INCOME-CONTINUING> 5,337
<DISCONTINUED> 10
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,347
<EPS-PRIMARY> 0.210
<EPS-DILUTED> 0.210
</TABLE>
