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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ___________
COMMISSION FILE NUMBER 0-8841
THE PIONEER GROUP, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 13-5657669
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
60 STATE STREET,
BOSTON, MASSACHUSETTS 02109
(617) 742-7825
(Address, including zip code, and telephone number, including area code, of
principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.10 PER SHARE
(Title of Class)
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 12 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X].
Based on the last sale price of the Registrant's Common Stock on the Nasdaq
National Market of $16.375 on March 24, 1999, the aggregate market value of the
shares of voting stock held by non-affiliates of the Registrant on that date was
$348,950,169.
As of March 24, 1999, 26,315,377 shares of the Registrant's Common Stock,
$0.10 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the 1998 Annual Report to Stockholders are incorporated by
reference into Parts I, II and IV (as indicated in such parts).
(2) Certain information called for by Part III (as indicated therein) is
incorporated from the Registrant's definitive proxy materials for use in
connection with the 1999 Annual Meeting of Stockholders.
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PART I
ITEM 1. BUSINESS.
OVERVIEW
The operations of The Pioneer Group, Inc., a corporation organized under
the laws of the State of Delaware in 1956 (the "Company"), and its wholly owned
subsidiaries, are divided among three strategic business units: (i) Pioneer
Investment Management, (ii) Pioneer International Financial Services, and (iii)
Pioneer Global Investments.
PIONEER INVESTMENT MANAGEMENT. This strategic business unit includes the
(i) investment management of the Company's 24 open-end registered investment
companies (comprised of 36 investment portfolios) and one closed-end registered
investment company (collectively, the "mutual funds") based in the U.S., which
are available to domestic investors, as well as the seven offshore open-end
investment funds based in Ireland, which are available to non-U.S. investors,
(ii) distribution of shares of the open-end mutual funds and offshore funds, and
(iii) shareholder servicing for the open-end mutual funds. Pioneer Investment
Management also provides separate account management services for institutional
investors.
PIONEER INTERNATIONAL FINANCIAL SERVICES. The Company's international
financial services businesses include investment management and financial
services operations in: (i) Warsaw, Poland, where the Company manages and
distributes units of four mutual funds available to Polish citizens, owns 80% of
a brokerage company and 100% of a unitholder servicing agent and recently
established a private pension fund management company, (ii) Prague, the Czech
Republic, where the Company manages a Czech open-end mutual fund and distributes
its participation certificates, (iii) Moscow, Russia, where the Company provides
financial services, including transfer agency services, distributes shares of,
manages and services two open-end mutual funds available to Russian citizens and
manages and owns 51% of the Pioneer First Investment Fund, a closed-end fund,
which was one of the largest Russian voucher investment funds, and (iv) Madras,
India, where the Company owns 47.61% of an Indian company that serves as the
investment adviser, distributor and shareholder servicing agent to 18 private
sector mutual funds available to Indian citizens. In addition, the Company has a
10% interest in an investment management operation in Taiwan.
PIONEER GLOBAL INVESTMENTS. This strategic business unit includes the
Company's diversified businesses of gold mining, timber, international venture
capital, real estate and mineral exploration. The Company's indirect wholly
owned subsidiary, Pioneer Goldfields Limited ("Pioneer Goldfields"), conducts
mining and exploration activities in the Republic of Ghana and exploration
activities elsewhere in Africa. Pioneer Goldfields' principal asset is its
ownership of 90% of the outstanding shares of Teberebie Goldfields Limited,
which operates a gold mine in the western region of the Republic of Ghana. The
Company also participates in several natural resource development ventures in
Russia. The Company's subsidiary, Pioneer Forest, Inc. ("Pioneer Forest"),
conducts (through three Russian subsidiaries) timber harvesting and timber
development activities in the Russian Far East. Pioneer Forest's principal asset
is its ownership of 97% of the outstanding shares of Closed Joint-Stock Company
"Forest-Starma." The Company also is conducting a gold exploration project in
the same region. In addition, the Company provides global real estate management
and advisory services to institutions and corporations in the U.S., Russia and
Poland and serves as a venture capital investor and manager in Poland.
PIONEER INVESTMENT MANAGEMENT
DOMESTIC INVESTMENT MANAGEMENT
The Company's domestic investment management business includes the U.S.
registered mutual funds, the offshore funds registered in Ireland and private
institutional accounts, all of which are advised by the Company's wholly owned
subsidiary, Pioneer Investment Management, Inc. ("Pioneer Management"). This
business also includes distribution, shareholder servicing and transfer agency
activities related to these investment products.
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U.S. Mutual Funds. Pioneer Management serves as investment manager to 24
domestic open-end mutual funds (consisting of 36 investment portfolios,
comprised of seven U.S. growth portfolios, nine international growth portfolios,
10 growth and income portfolios, six income portfolios, two tax-free income
portfolios and two money market portfolios) and one U.S. closed-end mutual fund.
These portfolios include Pioneer Independence Fund, which commenced operations
in March 1998, and the Europe and Emerging Markets Portfolios of the Pioneer
Variable Contracts Trust, which commenced operations in October 1998. All of
these funds (hereinafter referred to collectively as the "U.S. Funds") are
registered under the Investment Company Act of 1940, as amended (the "1940
Act").
At March 1, 1999, the U.S. Funds had aggregate net assets of approximately
$21.5 billion. In managing such assets, Pioneer Management employed, at March 1,
1999, 153 persons on a full-time basis, including 22 fund managers and 54
investment analysts and support staff.
Pioneer Management manages each U.S. Fund pursuant to a management
contract, which is renewable annually by vote of either the U.S. Fund's Board of
Trustees (including a majority of members who are not "interested persons" as
defined under the 1940 Act) or the U.S. Fund's shareholders. All management
contracts terminate if assigned and may be terminated by either party without
penalty on 60 days' written notice. The management contracts for the U.S. Funds
(other than three U.S. Funds that were established in 1998) were all renewed for
an additional year in 1998. Under these contracts, Pioneer Management is
authorized in its discretion to buy and sell securities for the accounts of the
U.S. Funds, subject to certain limitations. In addition, the management
contracts between the U.S. Funds and Pioneer Management define the ordinary
operating expenses to be assumed by each.
As compensation for its management services, Pioneer Management receives
management fees from the U.S. Funds that range from 0.40% to 1.25% per year of
average daily net assets depending on the U.S. Fund. Four of the U.S. Funds
(including the two largest U.S. Funds) have a management fee that is adjusted
based upon the U.S. Fund's performance relative to the performance of an
established index. For 1998, 1997 and 1996, Pioneer Management received revenues
from management fees from all the U.S. Funds and from Pioneer II and Pioneer
Fund, the Company's largest U.S. Funds, approximately as shown in the chart
below:
<TABLE>
<CAPTION>
1998 1997 1996
(IN MILLIONS) (IN MILLIONS) (IN MILLIONS)
------------- ------------- -------------
<S> <C> <C> <C>
Management Fee Revenues from All U.S. Funds.. $125 $107 $76
Management Fee Revenues from Pioneer II...... $ 36 $ 40 $29
Management Fee Revenues from Pioneer Fund.... $ 32 $ 21 $14
</TABLE>
On an interim basis, Pioneer Management has agreed not to impose a portion
of its management fees and to make other arrangements, if necessary, to limit
operating expenses of selected U.S. Funds. Pursuant to this policy, Pioneer
Management limited management fees or otherwise incurred expenses pursuant to
expense limitation agreements with selected U.S. Funds during 1998, 1997 and
1996 as shown in the chart below:
<TABLE>
<CAPTION>
1998 1997 1996
(IN MILLIONS) (IN MILLIONS) (IN MILLIONS)
------------- ------------- -------------
<S> <C> <C> <C>
Management Fees Limited or Expenses Incurred.. $1.5 $1.8 $2.4
</TABLE>
Irish Funds. Pioneer Management (Ireland) Limited ("Pioneer Ireland"), a
wholly owned subsidiary of the Company, serves as investment manager,
distributor and shareholder servicing agent of seven offshore funds incorporated
under the laws of the Republic of Ireland, consisting of five growth portfolios,
one income portfolio and one money market portfolio (collectively, the "Irish
Funds"). Pioneer Management serves as investment adviser for the Irish Funds. As
compensation for its advisory services, Pioneer Ireland receives annual
management fees from the Irish Funds of 0.60% to 1.50% of average daily net
assets. The Irish Funds are currently sold primarily in Germany and Austria, but
the Company anticipates that they eventually will be sold in other foreign
markets. At March 1, 1999, the Irish Funds had aggregate net assets of
approximately $413 million.
Pioneer Ireland's main office is located in Dublin, Ireland. It also
maintains an office in Hamburg, Germany. At March 1, 1999, Pioneer Ireland had
163 employees, including management and support staff.
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Institutional Accounts. Pioneer Management acts as an investment manager
to one private institutional account and two collective investment vehicles for
institutional investors and acts as a subadvisor to one of a series of
portfolios utilized as funding vehicles for a variable life insurance fund
(hereinafter referred to collectively as the "Institutional Accounts"). The
Institutional Accounts had aggregate assets of approximately $118 million at
March 1, 1999.
DISTRIBUTION ACTIVITIES
Pioneer Management's wholly owned subsidiary, Pioneer Funds Distributor,
Inc. ("Pioneer Distributor"), acts as principal underwriter and distributor of
the shares of the U.S. Funds (except Pioneer Interest Shares, a closed-end fund
which does not continuously offer its shares). In 1998, Pioneer Distributor sold
shares of the U.S. Funds with an aggregate offering price of approximately $4
billion, including Class A Shares (as defined below) with an aggregate offering
price of $2.5 billion, Class B Shares (as defined below) with an aggregate
offering price of $869 million, Class C Shares (as defined below) with an
aggregate offering price of $297 million, Class Y Shares (as defined below) with
an aggregate offering price of $9 million and shares of Pioneer Variable
Contracts Trust with an aggregate offering price of $304 million. In connection
therewith, Pioneer Distributor received aggregate commissions in each of 1998,
1997 and 1996 as shown in the chart below. In each such year, Pioneer
Distributor reallowed the amount shown in the chart below to approximately 1,600
independent broker-dealers throughout the United States and in several foreign
countries. One broker-dealer was responsible for approximately 11% of sales in
1998, 10% of sales in 1997 and 9% of sales in 1996.
<TABLE>
<CAPTION>
1998 1997 1996
(IN MILLIONS) (IN MILLIONS) (IN MILLIONS)
------------- ------------- -------------
<S> <C> <C> <C>
Commissions Received..................... $75.9 $60.9 $66.2
Commissions Reallowed.................... $66.1 $53.8 $59.1
</TABLE>
Underwriting Contracts. Pioneer Distributor provides its underwriting and
distribution services pursuant to underwriting contracts, which are
substantially identical, with each of the U.S. Funds. These one-year contracts
are renewable annually by vote of the U.S. Fund's Board of Trustees (including a
majority of those Trustees who are not "interested persons" as defined under the
1940 Act) or shareholders. Each contract terminates if assigned and may be
terminated by either party on 60 days' written notice without penalty. The
underwriting contracts for each of the U.S. Funds (other than U.S. Funds that
were established in 1998) were all renewed for an additional year in 1998.
Sales Charges. Generally, purchasers of shares of the U.S. Funds pay a
sales charge at the time of purchase. The amount of the sales charge is
calculated as the difference between the offering price of the shares and the
net asset value of the shares and varies generally as a percentage of the
offering price. Shares bearing this sales charge are referred to as front-end
load shares ("Class A Shares"). Sales charges on Class A Shares range from zero
to 5.75% depending on the U.S. Fund and the amount invested. Most of the sales
charge on Class A Shares is reallowed by Pioneer Distributor to broker-dealers
through whom the shares are sold. This reallowance varies generally as a
percentage of the offering price on sales under $1 million. Reallowances range
from 1.0% to 5.0% depending on the U.S. Fund and the amount of the sale.
Broker-dealer reallowances on new funds and during certain short-term promotions
may be increased to 100% or more of the sales charge.
The Company also offers a multiclass share structure for the U.S. Funds,
which, with the exception of Pioneer Interest Shares, Pioneer Variable Contracts
Trust and Pioneer Independence Fund, are sometimes collectively referred to
herein as the "multiclass funds". Pursuant to this structure, the multiclass
funds offer Class A Shares, two classes of back-end load shares ("Class B
Shares" and "Class C Shares") and a no-load class of shares ("Class Y Shares").
On Class B Shares, the investor does not pay any sales charge unless he or she
redeems before the expiration of the minimum holding period, which ranges from
three to six years. These early redemptions are subject to a contingent deferred
sales charge (a "CDSC"), which ranges from 2.0% to 4.0%. On Class C Shares, the
investor does not pay any sales charge unless he or she redeems within one year
of purchase in which event a CDSC of 1.0% is imposed. Class Y Shares are not
subject to a front-end load,
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back-end load or Rule 12b-1 distribution fees (see "Distribution Plans" below).
The Company began offering Class B Shares in April 1994, Class C Shares in
January 1996 and Class Y Shares in April 1998. Class C Shares and Class Y Shares
are not available on all multiclass funds.
With respect to sales of Class A Shares, Pioneer Distributor may, in its
discretion, pay a commission to broker-dealers that initiate and are responsible
for sales of at least $1 million but less than $50 million, ranging from 0.10%
to 1.0%, depending on the U.S. Fund and the amount of the sale. Certain
purchases not subject to an initial sales charge may be subject to a CDSC of
1.0% in the event of certain redemption transactions within one year. With
respect to sales of Class B Shares, Pioneer Distributor will generally pay
commissions to broker-dealers related to sales and service of such shares
ranging from 2% to 4% of the sales transaction amount (including a service fee
of 0.25% for the first year). With respect to sales of Class C Shares, Pioneer
Distributor will pay commissions to broker-dealers related to sales and service
of such shares of 1% of the sales transaction amount (including a service fee of
0.25% for the first year). Pioneer Distributor incurs the expense of
distributing Class Y Shares. During 1998, 1997 and 1996, in connection with
sales of Class B Shares, Pioneer Distributor paid aggregate commissions to
broker-dealers as shown in the chart below:
<TABLE>
<CAPTION>
1998 1997 1996
(IN MILLIONS) (IN MILLIONS) (IN MILLIONS)
------------- ------------- -------------
<S> <C> <C> <C>
Broker-Dealer Commissions Paid........... $27.5 $16.3 $23.2
</TABLE>
Previously, Pioneer Distributor's cash flow was subject to the adverse
effects of vigorous sales of back-end load shares because its recovery of the
cost of commissions paid up front to dealers was spread over a period of years.
During this period, the Company would bear the costs of financing and the risk
of market decline. Pioneer Distributor would be reimbursed for such commissions
from payments by the U.S. Funds under distribution plans (see "Distribution
Plans" below) and from CDSCs paid by redeeming investors before the expiration
of the holding periods. Rather than continuing to bear the ongoing financing
costs and market risks, in September 1998, Pioneer Distributor sold its rights
to certain distribution fees and CDSCs (see "Distribution Plans" below) from the
distribution of Class B Shares of the U.S. Funds in exchange for cash payments
from a third party. This arrangement also provides for the sale at a premium of
additional rights arising out of future sales of Class B Shares on a monthly
basis for three years. The purpose of this transaction was to provide liquidity
to the Company and reduce the continuous strain on its cash flow.
Distribution Plans. Each of the U.S. Funds (except Pioneer Interest Shares
and Pioneer Variable Contracts Trust) has one or more distribution plans
pursuant to Rule 12b-1 under the 1940 Act which provides for certain payments to
be made to Pioneer Distributor. With respect to Class A Shares and shares of
Pioneer Independence Fund, the distribution plans (the "Class A Plans") provide
for payments by such U.S. Funds of certain expenses up to 0.25% per annum of
average daily net assets (0.15% for Pioneer Cash Reserves Fund, a money market
fund). With respect to Class B and Class C Shares, the distribution plans (the
"Class B Plans" and "Class C Plans," respectively) provide for payments by such
U.S. Funds of fees relating to (a) distribution services in an amount not to
exceed 0.75% per annum of the average daily net assets of the Class B or Class C
Shares and (b) personal and account maintenance services in an amount not to
exceed 0.25% of the average daily net assets of the Class B or Class C Shares.
Each U.S. Fund's distribution plan is subject to annual renewal, which requires
the approval of the U.S. Fund's Board of Trustees, including a majority of
Trustees who are not "interested persons" of the U.S. Fund. In 1998, the
Trustees of the U.S. Funds (other than U.S. Funds that were established in 1998)
renewed the Class A, Class B and Class C Plans. In 1998, 1997 and 1996, Pioneer
Distributor received aggregate distribution fees as shown in the chart below:
<TABLE>
<CAPTION>
1998 1997 1996
(IN MILLIONS) (IN MILLIONS) (IN MILLIONS)
------------- ------------- -------------
<S> <C> <C> <C>
Distribution Fees Received................. $14.0 $13.1 $7.7
</TABLE>
Domestic Sales of Shares of the U.S. Funds. Pioneer Distributor is a
registered broker-dealer (see "Regulation" below), employing approximately 139
full-time personnel, including 26 regional sales representatives who are
responsible for territories comprising most of the United States and Puerto Rico
and who work with broker-dealers to promote sales of U.S. Fund shares in their
respective territories. Substantially all of the U.S. Funds' shares are sold to
the public by securities sales persons registered with the National Association
of
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Securities Dealers, Inc. (the "NASD") who act as representatives of
broker-dealer firms, which are members of the NASD and which have signed sales
agreements with Pioneer Distributor. Shares of the Funds may be sold in all
states, by broker-dealers and registered representatives licensed in those
states.
International Sales of Shares of the Funds. Pioneer Distributor's wholly
owned subsidiary, Pioneer Fonds Marketing GmbH ("Pioneer Fonds Marketing"), a
company registered under the laws of the Republic of Germany, performs marketing
and sales activities with respect to sales of shares of certain of the U.S.
Funds in Europe, primarily Germany, Austria and Switzerland. Pioneer Fonds
Marketing currently has 26 full-time employees. In 1998, approximately 13% of
the total sales of the U.S. Funds' shares were sold outside of the United
States. Pioneer Fonds Marketing also performs marketing and sales activities
with respect to sales of the Irish Funds in Western Europe.
In 1998, Pioneer Distributor established Pioneer Global Funds Distributor,
Ltd. ("Global Funds Distributor") to serve as the exclusive worldwide
distributor of the Irish Funds. Global Funds Distributor, a wholly owned
subsidiary of Pioneer Distributor, is registered under the laws of Bermuda and
maintains its registered office in that country. Global Funds Distributor has
entered into an agreement with Pioneer Fonds Marketing with respect to sales of
the Irish Funds in specified countries in Western Europe.
SHAREHOLDER AND RELATED SERVICES
Pioneering Services Corporation. At December 31, 1998, the U.S. Funds had
approximately 1,363,000 active shareholder accounts, including approximately
473,000 Individual Retirement Accounts ("IRAs") and other tax-qualified
retirement accounts. Shareholder accounts, in general, and qualified accounts,
in particular, require an exceptional amount of shareholder communications and
transfer agency services. The Company's wholly owned subsidiary, Pioneering
Services Corporation ("Pioneering Services"), has been providing transfer agent
and shareholder services to the U.S. Funds since 1985. At March 1, 1999,
Pioneering Services employed 332 full-time personnel, including 64 employees who
are located at its processing facility in Omaha, Nebraska.
As shareholder servicing agent for the U.S. Funds, Pioneering Services has
entered into agreements with each U.S. Fund (except Pioneer Interest Shares)
pursuant to which it received in 1998 an annual active account fee of $22.75 for
equity fund accounts, $30.00 for fixed-income fund accounts and $28.00 for money
market fund accounts. Such agreements are subject to annual renewals which
require the approval of the U.S. Funds' Boards, including a majority of members
who are not "interested persons," and may be canceled by either party on 60
days' notice. Effective January 1, 1999, these annual fees were changed to
$25.25 for equity fund accounts and $33.00 for fixed-income and money market
fund accounts. For 1998, 1997 and 1996, Pioneering Services received revenues
from service fees from the Funds and Pioneer Interest Shares (in 1996) as shown
in the chart below:
<TABLE>
<CAPTION>
1998 1997 1996
(IN MILLIONS) (IN MILLIONS) (IN MILLIONS)
------------- ------------- -------------
<S> <C> <C> <C>
Service Fee Revenues..................... $30.9 $27.0 $25.3
</TABLE>
In February 1997, Pioneer Ireland assumed responsibilities as
sub-shareholder servicing agent for certain of the U.S. Funds, representing
approximately 133,000 active shareholder accounts. In that capacity, Pioneer
Ireland provides, under the direction of Pioneering Services, shareholder and
transfer agency services to U.S. Fund shareholders who are citizens of Germany,
Austria and Switzerland. Pioneer Ireland also provides similar services to the
shareholders of the Irish Funds, representing approximately 31,000 active
shareholder accounts.
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Trustee/Custodian. The Company acts as the trustee/custodian for accounts
that are IRAs or other tax-qualified retirement accounts and receives an annual
fee of $10 for each such account, payable by shareholders with such accounts, up
to maximum annual fees of $20 for shareholders with multiple accounts of one
plan type. Shareholders also have the option of paying a one-time fee of $100 in
lieu of the annual account fee. During 1998, 1997 and 1996, the Company received
fees in connection with its services as trustee/custodian as shown in the chart
below:
<TABLE>
<CAPTION>
1998 1997 1996
(IN MILLIONS) (IN MILLIONS) (IN MILLIONS)
------------- ------------- -------------
<S> <C> <C> <C>
Trustee/Custodian Fees Received.......... $5.5 $4.4 $3.9
</TABLE>
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For more information on assets under management and sales of mutual fund
shares for the five years ended December 31, 1998, and other industry segment
information for the three years ended December 31, 1998, see "Assets Under
Management at December 31," "Sales of Mutual Fund Shares" and Note 17 -
Financial Information by Business Segment included under Notes to Consolidated
Financial Statements, all of which are included in the 1998 Annual Report to
Stockholders and are incorporated herein by reference.
COMPETITION
Management and Distribution Services. The mutual fund industry is
intensely competitive. Many organizations in this industry are attempting to
sell and service the same clients and customers, not only with mutual fund
investments but also with other financial products. Some of the Company's
competitors have more products and product lines and substantially greater
assets under management and financial resources. The Company believes it is
competitive in terms of price and performance with other firms providing similar
advisory services to investment companies and to pension plans and endowment
funds and with firms engaged in distributing investment company shares.
The distribution of mutual fund shares has been significantly affected by
(i) the growth in the number of funds available for sale, in particular, no-load
funds, the shares of which are sold primarily through direct sales approaches
without any sales charge, (ii) the evolution of service fees payable to
broker-dealers that provide continuous services to their clients in connection
with their investments in a mutual fund, (iii) the aggressive entry of banks and
investment banking firms into the industry, and (iv) the development and
implementation of complex distribution systems employing multiple classes of
shares and master-feeder fund structures. Typically, the underwriter or
distributor that pays a service fee is reimbursed by the mutual fund under a
plan of distribution pursuant to Rule 12b-1 under the 1940 Act. All of the U.S.
Funds distributed by Pioneer Distributor now pay such service fees to
broker-dealers. See "Domestic Investment Management -- Distribution
Activities -- Distribution Plans" above.
Success in the investment advisory and mutual fund share distribution
businesses is substantially dependent on the U.S. Funds' investment performance.
Good performance stimulates sales of the U.S. Funds' shares and tends to keep
redemptions low. Sales of U.S. Funds' shares generate higher management fees and
distribution revenues (which are based on assets of the U.S. Funds). Good
performance also attracts private institutional accounts to Pioneer Management.
Conversely, relatively poor performance results in decreased sales and increased
redemptions of the U.S. Funds' shares and the loss of private accounts, with
corresponding decreases in revenues to the Company. In 1998, the performance of
the U.S. Funds managed by Pioneer Management was generally competitive with
comparable mutual funds offered by others and with relevant indices and
benchmarks approved by the U.S. Funds' Boards.
Shareholder Services. The shareholder services industry is extremely
competitive. Pioneering Services believes that it is providing high quality
shareholder services for the U.S. Funds and their shareholders at competitive
rates. The Company believes that superior shareholder services are vital to
success in this industry. While these services have historically been provided
by banks and other institutions with greater resources than those of Pioneering
Services or Pioneer Ireland, the Company believes that Pioneering Services and
Pioneer Ireland generally outperform such competitors because they are dedicated
exclusively to the
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provision of such services to the U.S. Funds and the Irish Funds and their
respective shareholders, rather than to a number of different customers.
REGULATION
Each of the U.S. Funds is registered under the 1940 Act and the Securities
Act of 1933, as amended. As registered investment companies, the U.S. Funds are
subject to extensive regulation governing all aspects of their operations. In
addition to being subject to the regulatory authority of the U.S. Securities and
Exchange Commission (the "SEC"), the U.S. Funds are also subject to certain
limited regulation by the securities regulators in all 50 states and in the
foreign jurisdictions in which several of the U.S. Funds are registered.
Pioneer Distributor, as a registered broker-dealer under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), is required, among other
things, to maintain certain records, file reports with the SEC, supervise
employees and deal fairly with customers, all in accordance with the 1934 Act
and the rules and regulations promulgated thereunder. Pioneer Distributor is
also registered as a broker-dealer in all 50 states and, as such, is subject to
regulation by the state securities regulators in all such states. Pioneer
Distributor is a member of the NASD, a securities industry self-regulatory body
which is itself regulated by the SEC under the 1934 Act. As a member of the
NASD, Pioneer Distributor is required to abide by the standards, including
pricing practices, set forth in the Articles of Incorporation, the By-Laws and
the Rules of Fair Practice of the NASD.
Pioneer Management, as investment manager of the U.S. Funds, adviser to the
Institutional Accounts and investment adviser to the Irish Funds, is registered
pursuant to the Investment Advisers Act of 1940, as amended, and as such is
subject to certain recordkeeping, SEC reporting, compensation and supervisory
rules and regulations.
Each of Pioneering Services and Pioneer Ireland, as transfer agent and
sub-transfer agent, respectively, for the U.S. Funds, is registered as a
transfer agent pursuant to the 1934 Act and as such is subject to SEC
recordkeeping and reporting requirements and certain other rules and
regulations.
The SEC has jurisdiction over registered investment companies, registered
investment advisers, broker-dealers and transfer agents and, in the event of a
violation of applicable rules or regulations, may take action which could have a
serious effect on Pioneer Management's, Pioneer Distributor's, Pioneering
Services' or Pioneer Ireland's businesses.
The Irish Funds are authorized by The Central Bank of Ireland under the
European Communities (Undertakings for Collective Investment in Transferable
Securities) Regulations, 1989 (S.I. No. 78 of 1989) of Ireland.
PIONEER INTERNATIONAL FINANCIAL SERVICES
FINANCIAL SERVICES -- POLAND
Polish Mutual Funds. In 1992, subsidiaries of the Company organized and
began distributing units of Pioneer First Polish Trust Fund, the first mutual
fund in Poland. Since 1992, the Company has organized three additional funds,
Pioneer Aggressive Investment Trust Fund, Pioneer Interest Bearing Securities
Trust and Pioneer Privatization Trust Fund (collectively, the "Polish Funds").
Pioneer First Polish Investment Fund Joint Stock Company ("Pioneer First
Polish") serves as an investment manager and distributor of units of the Polish
Funds. As compensation for its management services, Pioneer First Polish
receives management fees of 2.00% per annum of average daily net assets. The
Polish Funds are open-end trust funds established under, and regulated by, the
Public Trading in Securities and Trust Funds Act of March 22, 1991, as amended.
At March 1, 1999, Pioneer First Polish employed 103 full-time persons, including
management and support staff. Pioneer First Polish is a wholly owned subsidiary
of Pioneer International Corporation ("Pioneer
7
<PAGE> 9
International"). At March 1, 1999, the Polish Funds had aggregate net assets of
approximately $322 million. Sales of units of the Polish Funds in 1998, 1997 and
1996 were in the amounts shown in the chart below:
<TABLE>
<CAPTION>
1998 1997 1996
(IN MILLIONS) (IN MILLIONS) (IN MILLIONS)
------------- ------------- -------------
<S> <C> <C> <C>
Aggregate Sales of Polish Funds............ $39 $203 $169
</TABLE>
Pioneer Financial Services Limited. In January 1992, the Company's
subsidiary, Pioneer International, established Pioneer Financial Services
Limited ("PFSL"), which was 50% owned by Pioneer International and 50% owned by
Bank Polska Kasa Opieki, S.A. During the fourth quarter of 1998, Pioneer
International acquired the remaining 50% of PFSL from Bank Polska Kasa Opieki,
S.A. PFSL acts as the unitholder servicing agent for the Polish Funds.
Pioneering Services provides ongoing support to PFSL. Under the terms of the
agreements with the funds, PFSL receives annual fees equal to the Polish zloty
("PLN") equivalent of $21.00 per account. In 1998, such fees aggregated
approximately PLN 16.4 million (approximately $4.7 million). At December 31,
1998, PFSL serviced approximately 275,000 unitholder accounts. At March 1, 1999,
PFSL employed 117 full-time persons.
Polish Brokerage Operations. In March 1996, Pioneer International acquired
approximately 86% of Pioneer Polski Dom Maklerski, S.A., a Polish full-service
brokerage operation ("PPDM"). Pioneer International now holds 80% of PPDM. PPDM
provides brokerage services to Polish and U.S. institutions and Polish citizens.
PPDM also provides investment advice, research and analysis and portfolio
management and trading services.
Polish Pension Fund Company. In October 1998, the Polish government
granted to Pioneer Universal Pension Fund Company ("Pioneer Universal Pension"),
a wholly owned subsidiary of the Company, a license to establish one of Poland's
first universal pension fund societies. Initially capitalized with $10 million,
Pioneer Universal Pension will manage pension assets accumulated in Pioneer Open
Pension Funds, which operates in the second pillar of Poland's newly reformed
pension system. Pioneer Universal Pension is licensed by the Pension Fund
Supervisory Office in Poland under the Act on Organization and Operation of
Pension Funds.
FINANCIAL SERVICES -- RUSSIA
The Company's Russian investment operations, which include Pioneer First
(Company for the Management of Investment Funds) and Pioneer Services, are
consolidated under Pioneer Omega's subsidiary, Pioneer First Russia, Inc.
("PFR"). In 1996, PFR executed agreements with the International Finance
Corporation ("IFC"), a member of the World Bank Group, pursuant to which IFC
agreed to invest $4 million in PFR to acquire an 18.35% equity interest. This
transaction was completed in early 1997. At March 1, 1999, PFR and its
subsidiaries employed 69 persons.
During the second quarter of 1998, the Company reported a significant loss
from its Russian bank, Pioneer Bank. In response, the Company elected to
discontinue operations of Pioneer Bank in the third quarter of 1998 and
subsequently sold its share ownership of Pioneer Bank.
In August 1998, the Russian government effectively defaulted on its
internal debt and suspended trading in its government securities. These actions
led to a severe lack of liquidity in the Russian equity market which severely
impacted the Company's Russian investment management, venture capital and
brokerage businesses.
The Company adjusted the cost basis of certain of the securities of Pioneer
First Investment Fund (the "First Investment Fund") in the third and fourth
quarters of 1998, to reflect the lack of liquidity in the Russian equity market.
These adjustments resulted in a net loss of $4.5 million. The First Investment
Fund had over 2 million shareholders and approximately 125 portfolio investment
as of March 1, 1999. A significant portion of the revenues of the First
Investment Fund is lease revenue from the Meridian Commercial Towers in Moscow,
for which Pioneer Real Estate Advisors, Inc., the Company's real estate
management subsidiary, provides management services.
8
<PAGE> 10
Pioneer First serves as investment manager to the First Investment Fund and
Pioneer First Unit Investment Fund, one of Russia's first open-end unit
investment funds. Pioneer First Unit Investment Fund, which invests mainly in
Russian government bonds, was launched in November 1996. Its operations were
suspended in the third quarter of 1998. In November 1997, the Company launched
its second open-end unit investment fund, Pioneer First Liquid Shares, which
invests mainly in Russian equities. Pioneer Services, a domestic registrar and
shareholder services company, serves as the registrar for the First Investment
Fund and the unit investment funds.
In the fourth quarter of 1998, as a result of the continuing Russian
economic crisis, the Company determined that it would cease operating its
Russian venture capital subsidiary, Pioneer Investments. In the first quarter of
1999, the Company decided to shut down its Russian brokerage subsidiary, Pioneer
Securities.
In 1998, 1997 and 1996, Russian financial services had revenues and net
income (loss) from continuing operations as shown in the chart below:
<TABLE>
<CAPTION>
1998 1997 1996
(IN MILLIONS) (IN MILLIONS) (IN MILLIONS)
------------- ------------- -------------
<S> <C> <C> <C>
Revenues................................. $ 10.3 $42.2 $ 6.1
Net Income (Loss)........................ $(13.0) $ 5.8 $(2.3)
</TABLE>
FINANCIAL SERVICES -- CZECH REPUBLIC
In 1995, subsidiaries of the Company organized and began distributing
Pioneer Czech Investment Company Trust Fund (the "Pioneer Czech Fund") in the
Czech Republic. Pioneer Czech Investment Company, a.s. ("Pioneer Czech"), a
wholly owned subsidiary of Pioneer International, serves as investment adviser
and distributor of participation certificates in the Pioneer Czech Fund. As
compensation for its management services, Pioneer Czech receives management fees
of 2% of average daily net assets. Pioneer Czech is regulated by the newly
established Czech Securities and Exchange Commission in accordance with the new
Securities Commission Act, Securities Act and Investment Company and Investment
Funds Act. Pioneer Czech employs 26 full-time persons. As of March 1, 1999, the
Pioneer Czech Fund had net assets with a market value of approximately $61
million. The Company has a second Czech subsidiary, Pioneer Czech Financial
Company s.r.o., which provides distribution services generally and which also
distributes the Irish Funds in the Czech Republic.
OTHER INVESTMENT MANAGEMENT INITIATIVES
India. Pioneer Management owns 47.61% of Kothari Pioneer AMC Ltd.
("Kothari Pioneer"), an Indian company, which serves as investment adviser,
distributor and shareholder servicing agent to 18 private sector mutual funds
for Indian citizens. These funds had aggregate net assets of approximately $109
million at March 1, 1999.
Taiwan. The Company is a 10% investor in a joint venture in Taiwan, which
was organized to manage and distribute investments in investment companies to
Taiwanese investors.
------------------------------
9
<PAGE> 11
PIONEER GLOBAL INVESTMENTS
GOLD MINING BUSINESS
SUMMARY
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 indirect wholly owned subsidiary, Pioneer Goldfields
Limited, a corporation organized under the laws of Guernsey, Channel Islands,
which conducts mining and exploration activities in the Republic of Ghana and
exploration activities elsewhere in Africa. Pioneer Goldfields' principal asset
is its ownership of 90% of the outstanding shares of TGL. TGL, a corporation
organized under the laws of the Republic of Ghana, is engaged in the
exploration, mining, and processing of gold ore on a mining concession located
in the Western Region of the Republic of Ghana. The Republic of Ghana holds the
remaining 10% ownership interest in TGL. Gold mining results are also affected
by the exploration activities in the Russian Far East of Closed Joint Stock
Company "Tas-Yurjah Mining Company," a Russian company in which the Company has
a 95% beneficial interest. Exploration costs are charged to operations as
incurred.
TGL shipped approximately 253,000 ounces of gold in 1998, contributing
$77.3 million to the Company's revenues. In 1997 and 1996, TGL shipped
approximately 263,000 and 203,000 ounces of gold, respectively. A three-year
financial summary for the gold mining business segment is shown below:
<TABLE>
<CAPTION>
1998 1997 1996
(IN MILLIONS) (IN MILLIONS) (IN MILLIONS)
------------- ------------- -------------
<S> <C> <C> <C>
Revenues................................. $ 77.3 $ 89.5 $ 78.3
Net Income (Loss)........................ $(19.8) $ (2.8) $ 2.6
Total Assets............................. $131.4 $152.9 $149.6
</TABLE>
TEBEREBIE GOLDFIELDS LIMITED
Organization and Mining Lease. In 1986, the Company and a joint venture
partner organized TGL for the purpose of evaluating the feasibility of mining
gold on several tracts of land in the Teberebie concession area ("Teberebie") in
the Republic of Ghana. In February 1988, TGL entered into a mining lease with
the Republic of Ghana (the "Government") pursuant to which TGL received
exclusive gold mining rights for a term of 30 years. Under this lease, the
Government is entitled to annual royalties of between 3.0% and 12.0% of TGL
revenue, which rate will vary based on TGL's operating profit margin and its
level of capital expenditures, and is assured a continuing 10% equity interest
in TGL. In April 1989, the Company purchased the joint venture partner's
interest for $3.7 million, primarily in cash. In 1992, TGL was granted a second
26-year mining lease over two contiguous areas to the north and west of the
original lease area, the terms of which are substantially similar to the
original lease. Since the commencement of commercial production in 1991, TGL has
paid royalties to the Government in the amount of 3.0% of TGL's annual revenue.
Teberebie Mine Site. The Teberebie mine site consists of mining
concessions covering an area of approximately 42 square kilometers. It is
located in the Western Region of the Republic of Ghana and is approximately six
kilometers south of the town of Tarkwa. The Teberebie mine is geographically
approximately 200 kilometers west of, and 330 kilometers by road from, Accra,
the capital of the Republic of Ghana. It is approximately 95 kilometers by road
from Takoradi, which is one of Ghana's two major ports and the point of entry
for most of the imported equipment used at the Teberebie mine.
Gold Reserves. Reserves (proven and probable categories) represent that
portion of TGL's resource which can be reasonably assumed to be economically and
legally extracted based on demonstrated practice or detailed tests and studies.
In the fourth quarter of 1998, TGL identified the source of lower than expected
heap leach recoveries. Compared with the predominant material processed since
project inception, the more recently processed ore is inherently less weathered
and harder, adversely affecting crusher throughput and availability. The Company
now believes that the hardness of the ore also contributed to lower than
expected crusher production in the second and fourth quarters of 1998. Based on
TGL's existing heap leach technology, this ore exhibits a significantly longer
leach cycle and yields extraction values below historical rates. Testing
10
<PAGE> 12
work conducted by TGL personnel to date has confirmed that acceptable extraction
values are achievable at liberation sizes below those feasible by present
crushing methods. TGL has determined that the high incidence of the less
weathered and harder ore will necessitate a transition from heap leaching to
conventional milling. A comprehensive testing program is nearing completion,
which delineates the recovery characteristics of this ore and identifies both
its location and frequency in the current pit design.
As a result of this new finding, TGL is currently developing a new mine
plan which will: (i) synthesize the results of the comprehensive testing
program, (ii) incorporate a new, modified pit design, and (iii) specify the
equipment necessary to efficiently process the less weathered ore. Until the new
mine plan is complete, TGL cannot quantify its effect on previously reported
proven and probable in situ mineable reserves of 5.9 million ounces or on annual
production levels. TGL anticipates, however, that proven and probable in situ
mineable reserves will be reduced.
Mining and Processing. The Teberebie mine is a conventional open pit, heap
leach operation. Mining at Teberebie is a technically simple drill and blast,
load and haul operation, carried out on three contiguous ridges along a strike
length of some 6.5 kilometers. The ridges, running from south to north, are
named Teberebie, Awunaben and Mantraim. The mine is currently an open pit mine
operating from two pits, the Teberebie/Awunaben pit and the Mantraim pit.
TGL processes its ore using a conventional heap leach operation at three
locations on the Teberebie concession: the East, West, and South Plants. Each
plant was developed during successive phases of project development (see
"Development and Expansion" below). Ore is crushed in the near-pit gyratory
crusher, which serves as the primary crusher for the West Plant and the South
Plant. A jaw crusher, with a capacity of 3.0 million tonnes per year, continues
to be the primary crusher for the East Plant. Cement is added to the crushed ore
to bind the ore and to raise its alkalinity to a level conducive to cyanide
leaching. The agglomerate of ore and cement is then placed on a heap leach and
is then treated with a diluted cyanide solution that percolates through the
material dissolving the gold. The diluted cyanide solution containing the
dissolved gold drains into collection ponds. From there, the solution is pumped
to an adjacent adsorption desorption refinery plant (the "ADR Plant") where it
passes through a series of activated carbon adsorption columns. The gold
contained in the solution is adsorbed onto the carbon and the solution is then
recirculated to the barren solution pond where it is refortified with sodium
cyanide. Gold is then chemically stripped from the carbon adsorption columns and
recovered from the stripper solution by electrowinning onto stainless steel
cathodes. The cathodes are removed approximately every two weeks at each ADR
Plant, at which time the gold sludge is washed off and dried. The sludge is then
mixed with flux and smelted to produce dore.
Gold Production and Sales. TGL began shipping gold in October 1990. In the
second quarter of 1991, the mine reached then commercially feasible production
levels (about 1,000 ounces per week), and reached full production levels (about
2,000 ounces per week) during the fourth quarter of 1991. Set forth below is a
chart showing TGL's gold shipments for the years ended December 31, 1998, 1997
and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
(OUNCES) (OUNCES) (OUNCES)
-------- -------- --------
<S> <C> <C> <C>
TGL Gold Shipments............................... 253,000 263,000 203,000
</TABLE>
The average realized price of gold sold by TGL during 1998, 1997 and 1996
was $305, $340 and $385 per ounce, respectively. With the exception of 1998 and
1997, the average realized price was based on the market spot price of gold at
the time of sale. In 1998 and 1997, the average realized price of gold includes
proceeds from the sale of floor program options of $12 per ounce and $15 per
ounce, respectively. Spot prices of gold fluctuate widely and are affected by a
number of factors including supply and demand, inflation expectations, the
strength of the U.S. dollar and interest rates.
At present, TGL does not enter into forward gold sales or otherwise engage
in gold price hedging. In the fourth quarter of 1996, TGL entered into a series
of put options which secured a minimum selling price of $340 per ounce to cover
1997 estimated production. In May 1997 and April 1998, TGL purchased additional
put options at exercise prices of $320 and $305 per ounce, respectively, to
cover estimated production for the respective four months ended April 28, 1998
and the five months ended September 28, 1998. During 1997 and
11
<PAGE> 13
1998, when the market spot price of gold declined below the exercise price of
the options, the Company continued to ship gold to refineries and sold the put
options, receiving payment for the difference between the market spot price of
gold and the exercise price. As a result of low prevailing market prices, the
Company was unable to secure an acceptable floor program exercise price beyond
September 1998. The Company may consider additional hedging strategies if and
when it deems circumstances appropriate.
TGL's cash costs per ounce and total costs per ounce for 1998, 1997 and
1996 are summarized on the following table:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash Costs Per Ounce.................................... $284 $230 $266
Total Costs Per Ounce................................... $409 $337 $361
</TABLE>
More information on TGL's 1998 production and operations is set forth in
the 1998 Annual Report to Stockholders under the caption "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations -- Pioneer Global Investments -- Gold Mining
Business -- Gold Production and Costs," which information is incorporated herein
by reference.
Development and Expansion. TGL has completed three major capital
expenditure programs at the Teberebie mine to date, designated Phase I, Phase II
and Phase III. Phase I included the development of the mine site and the
construction of the crushing and processing facility known as the East plant.
Phase II, which was completed in 1994, included the construction of a crushing
and processing facility that replicated the East plant and is known as the West
plant. Phase III, which was completed in 1997, included a further heap leach
operation and a near-pit gyratory crushing facility which acts as a primary
crushing facility for both the existing West Plant and the new South Plant. The
Phase III expansion plan did not require the construction of a third ADR Plant
to support the South Plant. Instead, the existing ADR Plant at the West Plant
was upgraded with a second carbon adsorption train and a modified stripping
circuit. The first gold pour associated with the South Plant occurred in April
1997, but the plant was not fully operational until the fourth quarter of 1997.
Customers. During the year ended December 31, 1998, gold sales aggregated
$77.3 million. During 1998, gold shipments from TGL in Ghana to two unaffiliated
European refiners (Johnson Matthey Plc and Metaux Precieux SA Metalor) accounted
for $38.5 million and $35.7 million, respectively, of total sales, or 96% of
such sales. Because of the worldwide demand for gold, the Company does not
believe that the loss of such customers would have a material adverse effect on
the Company or its subsidiaries. The remaining 4% of sales related to the sales
of put options associated with TGL's gold price floor program and the sale of
carbon residue with gold value to a Ghanaian firm.
Employees. At March 1, 1999, TGL had 1,389 employees, 1,354 of whom are
Ghanaians. The terms of employment and compensation for junior TGL staff, known
as monthly rated employees, are determined pursuant to a collective bargaining
agreement between TGL and the Ghana Mineworkers' Union. The terms of the
collective agreement (other than pay levels) are negotiated every three years.
Pay levels are negotiated annually. Because of general depression in the gold
industry, negotiations of the three-year collective bargaining agreement were
deferred six months to January 1, 1999. Although a new agreement had not been
executed by March 1999, the existing agreement remains in effect until TGL and
the Ghana Mineworkers' Union conclude negotiations. TGL experienced a two-day
work stoppage in 1996. The work stoppage was related to two employee dismissals
resulting from a determination by TGL and local union officials that the
employees had violated the disciplinary code. The union did not organize the
work stoppage, and the work stoppage did not have a material effect on TGL's
operations. TGL continues to believe that its relations with its employees are
good.
Regulation and Taxation. Mining activities in the Republic of Ghana are
governed by PNDCL 153, the Minerals and Mining Law of 1986 (the "MML").
The Republic of Ghana is currently developing a system of environmental
regulation that applies to TGL's operations. However, it has always been a
strategic objective of the Company to minimize the effects of its subsidiaries'
mining operations on the environment. TGL has developed an overall environmental
action
12
<PAGE> 14
plan, a reagent spill management plan, a decommissioning plan and has initiated
site rehabilitation and revegetation studies. The Company cannot determine at
this time the effect, if any, the new regulations may have on TGL's operations.
In the first quarter of 1994, the Republic of Ghana enacted the Minerals
and Mining (Amendment) Act of 1994, which reduced the income tax rate for mining
companies from 45% to 35%. Pursuant to the terms of the MML, income taxes may be
deferred until recovery of capital investment. Accordingly, deferred taxes at
December 31, 1998, 1997 and 1996, were $-0-, $7.6 million and $9.6 million,
respectively. Income taxes were deferred during all of 1996, 1997 and 1998.
Deferred taxes decreased during the last two years principally as a result of
operating losses. Income tax payments to the Republic of Ghana since the
inception of the project aggregate approximately $20.2 million.
Insurance. The Company maintains $76.5 million of "political risk"
insurance principally from the Overseas Private Investment Corporation ("OPIC"),
covering 90% of its equity and loan guarantees. This insurance also covers 90%
of the Company's proportionate share of TGL's cumulative retained earnings and
parent debt. The OPIC debt and equity coverage is presently limited to a ceiling
of $74.1 million. In 1998, the Company increased the ceiling by about $11
million to cover parent debt. The Company also secured $9 million foreign
exchange exposure insurance from another source to hedge 90% of its exposure to
a limited recourse provision contained in the OPIC Phase III expansion
financing. In addition to other commercial insurance coverage, TGL has secured
business interruption coverage of up to $40.6 million for losses associated with
machinery breakdown and property damage and to defray continuing infrastructure
and interest costs.
Recent Developments. In October 1998, the Company engaged the services of
an investment banking firm to sell Pioneer Goldfields, including its African
exploration rights and its 90% equity interest in TGL, Pioneer Goldfields'
operating subsidiary. Upon completion of the new mine plan, an offering document
will be finalized for circulation to a select group of potential buyers.
For more information on recent developments affecting production and
reserves, see "Gold Reserves" above.
EXPLORATION ACTIVITIES OF PIONEER GOLDFIELDS
Since the end of 1993, in addition to continuing to develop the Teberebie
mine, Pioneer Goldfields has increased its exploration activities in the
Republic of Ghana and in other African countries. These activities are currently
conducted by TGL in Ghana and by Pioneer Goldfields in Niger. In 1997, Pioneer
Goldfields discontinued exploration activities in Zimbabwe and is in the process
of dissolving its Zimbabwe-registered company, Lobengula Exploration and Mining
Company, Ltd. In 1998, Pioneer Goldfields incurred exploration costs of
approximately $1.8 million, approximately $1.4 million of which related to
exploration activities outside of Ghana. In 1997, Pioneer Goldfields incurred
exploration costs of approximately $1.9 million, approximately $1.7 million of
which related to exploration activities outside of Ghana.
EXPLORATION ACTIVITIES OF TAS-YURJAH MINING COMPANY
In 1994, the Company entered into a joint venture, Closed Joint Stock
Company "Tas-Yurjah Mining Company" ("Tas-Yurjah"), with a Russian company to
explore potential gold mining properties in the Khabarovsk Territory of the
Russian Far East. The Company currently owns a 94.5% direct interest and a 0.59%
indirect interest in Tas-Yurjah. In 1995, Tas-Yurjah secured a license to
conduct exploration activities over a 240 square kilometer area (the "licensed
area"). Tas-Yurjah plans to conduct drilling and geochemical and geological
surveys to further examine anomalies located in the licensed area during 1999.
At December 31, 1998, the Company had expended approximately $5.4 million for
exploration work related to Tas-Yurjah, of which $1.5 million had been expended
in 1998.
13
<PAGE> 15
TIMBER BUSINESS
The Company holds a majority controlling interest in three companies
located in the Khabarovsk Territory of the Russian Far East, Closed Joint-Stock
Company "Forest-Starma" ("Forest-Starma"), Closed Joint-Stock Company
"Amgun-Forest" ("Amgun-Forest") and Closed Joint-Stock Company "Udinskoye"
(Udinskoye"). The Company has consolidated its ownership of these three
companies under its wholly owned subsidiary, Pioneer Forest, Inc. ("Pioneer
Forest"). Of the three companies, Forest-Starma is the only company currently
engaged in timber operations. Forest-Starma, which is located on Siziman Bay in
the Vanino district of the Khabarovsk Territory, has developed a modern logging
camp, including a harbor facility, from which it exports timber to markets in
the Pacific Rim, primarily Japan and South Korea.
Leasehold and Cutting Rights. Forest-Starma, Amgun-Forest and Udinskoye
have each entered into long-term lease arrangements that provide significant
leasehold acreage and annual cutting rights. In the aggregate, the three
subsidiaries have leasehold rights comprising 1,076,500 hectares (approximately
2.7 million acres), with annual cutting rights of approximately 1.2 million
cubic meters. Forest-Starma is actively engaged in negotiations to expand its
existing leasehold. The current leasehold rights of each of the projects are set
forth below:
<TABLE>
<CAPTION>
FOREST-STARMA AMGUN-FOREST UDINSKOYE
------------- ------------ ---------
<S> <C> <C> <C>
Hectares (acres)............... 390,100 485,400 201,000
(964,000) (1,200,000) (497,000)
Annual Cutting Rights (m(3))... 555,000 350,000 300,000
</TABLE>
Ownership Structure. Pioneer Forest currently has a 97% direct interest in
Forest-Starma. The Company has signed agreements to acquire an additional 3%
direct interest in Forest-Starma. The transfer is currently awaiting regulatory
approvals. Pioneer Forest has an 80.6% direct interest and the Company has a
7.9% indirect interest in Amgun-Forest. Pioneer Forest has a 72% direct interest
and the Company has a 11.76% indirect interest in Udinskoye.
Timber Operations. Timber is harvested at Forest-Starma according to
international sustainable development standards using advanced planning and
implementation of the best available management practices as defined in the U.S.
Forest Service stewardship guidelines and the United Nations Conference on
Environment and Development principles. Five production crews consisting, in
aggregate, of four harvesters, eight skidders, and five processors form the
nucleus of the logging operation. The harvesters cut the trees which are then
skidded to five processors which delimb and buck the timber into logs. The logs
are hauled on company constructed roads by log trucks approximately 50
kilometers to a lower landing log yard for sorting and scaling prior to
shipment. The lower landing is equipped with log loaders and other equipment
necessary for maintaining the log yard and delivering sorted logs to the harbor
for shipment. Sorted logs are delivered to the harbor based upon a manifest
received from Forest-Starma's marketing agent, Rayonier, Inc. The logs are then
delivered to the dock and placed on ships by crane. Forest-Starma has
constructed and maintains a self-contained camp with living quarters for between
250 and 300 workers, a modern maintenance and parts facility, on site offices
and sophisticated communications equipment.
14
<PAGE> 16
Timber Production. Timber harvesting commenced in the first quarter of
1995 and the first shipments of timber totaling approximately 30,000 cubic
meters occurred in the third and fourth quarters of 1995. In 1996, Forest-Starma
shipped approximately 133,000 cubic meters of timber. Since the project was
still in the development phase, the related revenues of $10.1 million were used
partially to offset capitalized interest and development costs. In January 1997,
Forest-Starma commenced commercial production of timber and amortization of
deferred development costs. During 1997, Forest-Starma produced and shipped
257,000 cubic meters and 194,000 cubic meters of timber, respectively. During
1998, Forest-Starma produced and shipped 248,000 cubic meters and 280,000 cubic
meters of timber, respectively. A three-year financial summary for the timber
business segment is shown below:
<TABLE>
<CAPTION>
1998 1997 1996
(IN MILLIONS) (IN MILLIONS) (IN MILLIONS)
------------- ------------- -------------
<S> <C> <C> <C>
Revenues................................. $ 10.5 $11.9 $ --
Net Income (Loss)........................ $(18.7) $(6.7) $(0.5)
Total Assets............................. $ 52.9 $51.0 $43.4
</TABLE>
Customers. In 1998, Forest-Starma shipped 45% of its timber to seven
unaffiliated customers in Japan and 55% of its timber to seven unaffiliated
customers in South Korea.
Employees. At March 1, 1999, Forest-Starma had 604 Russian employees. In
addition, expatriate employees and consultants of the Company's employment
company subsidiary are seconded to Forest-Starma. Such employees are not
unionized nor are they a party to a collective bargaining agreement. Salaries
are determined annually based on the prevailing market prices for timber
industry employees within the region.
Insurance. In connection with its investment in Forest-Starma, the Company
has secured OPIC political risk insurance in an amount of up to $47 million
which would protect 90% of the Company's equity investment and loans and a
proportionate share of cumulative retained earnings. In addition, the Company
has secured OPIC business income loss insurance of up to $5 million for
Forest-Starma.
Amgun-Forest and Udinskoye. The Amgun-Forest timber project is located in
the Polina Osipenko District of the Khabarovsk Territory, approximately 150
kilometers northwest of the city of Komsomolsk-on-Amur and further inland than
Forest-Starma. Duharian Larch, Yeddo Spruce and Amur Fir are the principal
commercial tree species in the project area, with larch constituting
approximately 67% of the exportable product and whitewood (Yeddo Spruce and Amur
Fir together) constituting the balance. The Udinskoye timber project is also
located in the Polina Osipenko District of the Khabarovsk Territory, west of the
Amgun-Forest timber project.
U.S. AND CENTRAL EUROPE VENTURE CAPITAL
U.S. VENTURE CAPITAL OPERATIONS
The Company was engaged in venture capital investment and management in the
U.S. for a number of years through its wholly owned subsidiary, Pioneer Capital
Corporation ("Pioneer Capital"), a majority-owned limited partnership, Pioneer
Ventures Limited Partnership ("PVLP"), and Pioneer Ventures Limited Partnership
II ("PVLP II"), an institutional investor fund in which the Company had a 14%
interest. In March 1999, the Company sold the investment assets held by Pioneer
Capital and PVLP and its interest in PVLP II. More information on the Company's
sale of its direct investments and indirect interests of its U.S. venture
capital business is set forth in the 1998 Annual Report to Stockholders under
the caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations -- Pioneer Global
Investments -- 1998 Compared to 1997 and 1996," which information is
incorporated herein by reference.
POLISH VENTURE CAPITAL OPERATIONS
In 1995, the Company's wholly owned subsidiary, Pioneer International
Corporation ("Pioneer International"), organized two limited partnerships,
Pioneer Poland U.S. L.P. ("PPUSLP") and Pioneer Poland U.K. L.P. ("PPUKLP"), for
the purpose of raising funds for venture capital investment in Poland. Pioneer
International's wholly owned subsidiaries, Pioneer Poland U.S. (Jersey) Ltd. and
Pioneer Poland U.K. Ltd., are the general partners of PPUSLP and PPUKLP,
respectively. During 1995, PPUSLP and PPUKLP (collectively, the "Pioneer Poland
Fund") raised $60 million in commitments from U.S. and
15
<PAGE> 17
European investors. The Company has invested approximately $2.5 million in each
limited partnership. This investment provides the Company with a 7% indirect
interest in PPUSLP and a 9% indirect interest in PPUKLP. At December 31, 1998,
Pioneer Poland Fund held investments valued at approximately $27.5 million in 9
privately held Polish companies, had committed contractually to invest an
additional $3 million in these companies and had reserved an additional $3.1
million for future financing rounds of the existing portfolio. The
responsibilities for managing the Pioneer Polish Fund are shared by Pioneer
Management (Jersey) Ltd. and Pioneer Investment Poland Ltd., each of which is a
wholly owned subsidiary of Pioneer International. The limited partners of PPUSLP
and PPUKLP have approved a reorganization of the partnerships, which would
substitute a single general partner for the two current ones. This
reorganization would have no effect on the Company's legal rights or economic
interests in the partnerships.
REAL ESTATE MANAGEMENT AND ADVISORY SERVICES
In 1996, the Company established Pioneer Real Estate Advisors, Inc.
("Pioneer Real Estate") to provide real estate advisory and management services
to institutional investors and corporations in the U.S. and in Central and
Eastern Europe, primarily Russia and Poland. Pioneer Real Estate is based in
Boston and conducts its operations in Russia through a representative office in
Moscow and in Poland through a wholly owned subsidiary. Pioneer Real Estate is
currently pursuing two primary objectives. First, it seeks to invest and manage
capital in the commercial real estate markets of Central and Eastern Europe on
behalf of pooled investment vehicles, individual institutional investors and the
Company. Second, it seeks to provide advisory services, including property
management, facilities management, development management and feasibility and
valuation analysis, to the pooled investment vehicles it manages and to third
parties.
In Poland, Pioneer Real Estate is developing a $60 million Polish real
property fund (the "Polish Real Estate Fund") to invest in a diversified
portfolio of commercial real estate in Poland, including office space,
warehouse/distribution centers and retail centers. Pioneer Real Estate Advisors
Poland Sp. z o.o., a limited liability company that Pioneer Real Estate
established in 1996, will provide professional real estate investment advice to
the Polish Real Estate Fund. Pioneer Real Estate has committed to invest $2
million in the Polish Real Estate Fund and has been conducting extensive
negotiations for the balance of the equity commitments.
In May 1998, Pioneer Real Estate, together with its partner, Banc One
Capital Corporation, established an OPIC-sponsored pooled investment vehicle
(the "PBO Property Fund") that will invest in commercial property projects in
Central and Eastern Europe and the newly independent states of the former Soviet
Union. The PBO Property Fund will be funded with up to $80 million of equity
investments from institutional investors and up to $160 million of debt
financing guaranteed by OPIC. Pioneer Real Estate has committed to invest $4
million in the PBO Property Fund. During the second half of 1998, the PBO
Property Fund began seeking capital commitments from investors, and Pioneer Real
Estate expects to close this fund by the end of 1999.
Pioneer Real Estate, through its representative office in Moscow, manages
the Meridian Commercial Towers, an 18 story office tower located in Northern
Moscow, which is owned by the First Investment Fund. As of March 1, 1999,
Pioneer Real Estate had 25 employees.
METALS VENTURES
Since 1991, a subsidiary of the Company, Pioneer Metals and Technology,
Inc., has been involved in a development-stage business in Russia, through its
subsidiary, for the manufacture, production and sale of powdered metals,
permanent magnets and various trading endeavors. To date, the metals ventures
have not had a material impact on the Company's financial results.
COMPETITION
Venture Capital. The venture capital industry both in the United States
and abroad is extremely competitive. In the process of investing and attempting
to raise funds from entities other than the Company, the Company's venture
capital subsidiaries must compete with a large number of venture capital firms,
many of which have substantially larger staffs, more experience in raising
funds, and more capital to invest.
16
<PAGE> 18
Real Estate Management and Advisory Business. The real estate management
and advisory business both in the United States and abroad is extremely
competitive. Pioneer Real Estate must compete with a large number of real estate
firms, many of which have been in existence for many years and have
substantially more resources than those available to Pioneer Real Estate.
EMPLOYEES
Throughout its three strategic business units the Company has a total of
3,300 employees worldwide, including 665 at its headquarters in Boston and 1,389
at the TGL mine in Ghana. The Company believes that it has good relations with
its employees in all worldwide locations.
FUTURE OPERATING RESULTS
Certain of the information contained in this Annual Report on Form 10-K,
including information with respect to the Company's plans and strategies for its
three strategic business units, consists of forward-looking statements. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects," "projects,"
"estimates" and similar expressions are intended to identify forward-looking
statements. Important factors that could cause actual results to differ
materially from those indicated by such forward-looking statements are set forth
in the 1998 Annual Report to Stockholders under the caption "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Future Operating Results" which is hereby incorporated by
reference.
YEAR 2000
A description of the Company's plans with respect to the Year 2000
transition is set forth in the 1998 Annual Report to Stockholders under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Year 2000," which is hereby incorporated by reference.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's principal properties are its headquarters in Boston, its gold
mine concession in Ghana, and its timber production facilities in the Russian
Far East, each as more fully described below. Additionally, the Company leases
properties in several locations for its financial services operations, including
Poland, Ireland, the Czech Republic, Russia, Germany and Switzerland.
The Company and its subsidiaries conduct their principal operations from
leased premises with approximately 163,241 square feet at 60 State Street,
Boston, Massachusetts, under two leases. The first to expire of these leases
(which covers substantially all of the space) expires in 2002, with two
five-year renewal options. The rent expense for these premises was approximately
$4.6 million in 1998. After a recently completed expansion, the Company believes
that its facilities are adequate for its current needs and that additional space
will be available as needed.
TGL conducts mining operations in Tarkwa, Ghana. The Republic of Ghana has
granted TGL land concessions of approximately 42 square kilometers. The
operating facilities included on the mine site include approximately 48 housing
and office buildings, one gyratory crusher, two three-stage crushing plants, one
four-stage crushing plant, heap leaching facilities and ponds, two processing
plants and refineries, a clinic, a laboratory, a warehouse and an eight-bay
maintenance shop for heavy equipment. TGL believes that its facilities are
generally in a state of good repair and adequate for its current needs and that
additional facilities will be constructed as needed.
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<PAGE> 19
The Company's 97%-owned subsidiary, Forest-Starma, is pursuing the
development of timber production in the Khabarovsk Territory of Russia under
three long-term (49 years) leases comprising 390,100 hectares (approximately
964,000 acres) in the aggregate with annual cutting rights of 555,000 cubic
meters. Amgun-Forest and Udinskoye, the Company's other majority-owned Russian
timber ventures, each have a long-term lease (49 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. The
Udinskoye lease covers 201,000 hectares (approximately 497,000 acres) with
annual cutting rights of 300,000 cubic meters.
ITEM 3. LEGAL PROCEEDINGS.
There are no material legal proceedings to which the Company or its
subsidiaries is a party or of which any of their property is subject, other than
ordinary routine litigation incidental to the Company's businesses.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
18
<PAGE> 20
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names and ages of the executive officers of the
Company, and a description of the positions and offices each holds with the
Company and its significant subsidiaries.
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY AND ITS SIGNIFICANT SUBSIDIARIES
---- --- -----------------------------------------------------------
<S> <C> <C>
John F. Cogan, Jr...................... 72 President, Chief Executive Officer and Chairman of the
Board of the Company since 1962. Chairman of Pioneer
Management since 1993 and President of Pioneer Management
from 1962 to 1993. Director of Pioneer Management since
1962. Chairman and Director of Pioneer Distributor.
Chairman, President and Trustee of each of the registered
investment companies in the Pioneer Family of Mutual Funds.
President and Director of Pioneer International, Pioneer
Omega and Pioneer First Russia. Director of Pioneering
Services, Pioneer Real Estate, First Investment Fund and
Pioneer Forest. Chairman and Director of Pioneer
Goldfields, TGL, and Forest-Starma. Chairman of Supervisory
Board of Pioneer First Polish, Pioneer Czech and Pioneer
Fonds Marketing. Director of Pioneer Ireland and each of
the Irish Funds. Chairman of Global Funds Distributor.
Member of Supervisory Board of Pioneer Universal Pension.
Senior Partner of the Boston law firm, Hale and Dorr LLP,
counsel to the Company.
John A. Boynton........................ 45 Executive Vice President and Chief Financial Officer of the
Company since 1998. Treasurer of the Company, Pioneer
Distributor, Pioneer Management, Pioneering Services,
Pioneer International, Pioneer Real Estate, Pioneer Omega
and Pioneer First Russia. Treasurer of each of the
registered investment companies in the Pioneer Family of
Mutual Funds. Previously, Senior Vice President of The
Quaker Oats Company.
Stephen G. Kasnet...................... 53 Executive Vice President of the Company since 1998.
President of the Company's business unit, Pioneer Global
Investments, since 1998. Vice President of the Company
since 1995. President of Pioneer Real Estate since January
1996. Director of Pioneer Real Estate, Pioneer Goldfields,
TGL and Pioneer Forest. Trustee and Vice President of
Pioneer Real Estate Shares and Vice President of Pioneer
Variable Contracts Trust. Previously, Managing Director,
First Winthrop Corporation and Winthrop Financial
Associates. Chairman of the Board of Warren Bancorp and
Warren Five Cents Savings Bank and Director of Bradley Real
Estate, Inc.
Alicja K. Malecka...................... 52 Executive Vice President of the Company since 1998.
President of the Company's business unit, Pioneer
International Financial Services, since 1998. Vice
President of the Company since 1992. Senior Vice President
of Pioneer International and Vice President of Pioneer Real
Estate. Director and Vice President of Pioneer First Russia
and Director of First Investment Fund. President of Pioneer
First Polish and the Polish Funds. Member of the
Supervisory Board of PFSL, Pioneer Czech and Pioneer
Universal Pension.
</TABLE>
19
<PAGE> 21
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY AND ITS SIGNIFICANT SUBSIDIARIES
---- --- -----------------------------------------------------------
<S> <C> <C>
William H. Smith, Jr................... 63 Executive Vice President -- Global Operations and
Technology of the Company since 1998. Vice President of the
Company and Director of Pioneering Services since 1985.
Vice President and Director of Pioneer International.
Director of Pioneer Ireland and each of the Irish Funds.
Member of the Supervisory Board of PFSL.
David D. Tripple....................... 55 Executive Vice President of the Company since 1986.
President of the Company's business unit, Pioneer
Investment Management, since 1998. Director of the Company
since 1986. President of Pioneer Management since 1993 and
Director of Pioneer Management since 1986. Executive Vice
President and Chief Investment Officer of Pioneer
Management from 1986 to 1993. Executive Vice President and
Trustee of each of the registered investment companies in
the Pioneer Family of Mutual Funds. Director of Pioneer
Distributor, Pioneer International, Pioneer Real Estate,
Pioneer First Russia, Pioneer Omega, Pioneer Ireland and
each of the Irish Funds. Member of Supervisory Board of
Pioneer First Polish and Pioneer Czech.
Timothy T. Frost....................... 43 Senior Vice President -- Corporate Planning and
Communications of the Company since 1998. Vice President of
the Company since 1995. Director and Vice President of
Pioneer Omega and Director of Pioneer First Russia and
First Investment Fund. Senior Vice President of Pioneer
International. Vice President of Pioneer Real Estate.
Previously, Managing Director of Financial Services
Volunteer Corps.
Robert P. Nault........................ 35 Senior Vice President of the Company since 1998. General
Counsel and Assistant Secretary of the Company since 1995.
Assistant Secretary of each of the registered investment
companies in the Pioneer Family of Mutual Funds, Pioneer
Management, Pioneer Distributor, Pioneering Services,
Pioneer International, Pioneer Omega, Pioneer First Russia
and Pioneer Goldfields. Secretary of Pioneer Real Estate
and Pioneer Forest. Previously, Junior Partner of the
Boston law firm, Hale and Dorr LLP, counsel to the Company.
Joseph P. Barri........................ 52 Secretary of the Company since 1978. Secretary of each of
the registered investment companies in the Pioneer Family
of Mutual Funds, Pioneer Management, Pioneer Distributor,
Pioneering Services, Pioneer Omega, Pioneer First Russia
and Pioneer International. Senior Partner of the Boston law
firm, Hale and Dorr LLP, counsel to the Company.
</TABLE>
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<PAGE> 22
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Incorporated by reference from the 1998 Annual Report to Stockholders under
the caption "Quarterly Financial Data."
ITEM 6. SELECTED FINANCIAL DATA.
Incorporated by reference from the 1998 Annual Report to Stockholders under
the caption "Five Year Summary of Selected Financial Data."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Incorporated by reference from the 1998 Annual Report to Stockholders under
the caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Incorporated by reference from the 1998 Annual Report to Stockholders under
the caption "Market Risk Disclosure."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Incorporated by reference from the 1998 Annual Report to Stockholders under
the caption "Consolidated Financial Statements and Notes to Consolidated
Financial Statements" and "Report of Independent Public Accountants."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEMS 10-13.
The information required for Part III in this Annual Report on Form 10-K is
incorporated by reference from the Company's definitive proxy statement for the
Company's 1999 Annual Meeting of Stockholders. Such information will be
contained in the sections of such proxy statement captioned "Security Ownership
of Certain Beneficial Owners, Directors and Executive Officers," "Election of
Directors," "Directors' Meetings and Fees," "Committee Meetings," "Executive
Compensation," "Stock Option Grants and Exercises," "Certain Transactions" and
"Compliance with Section 16 of the Securities Exchange Act of 1934." Information
regarding executive officers of the Company is also furnished in Part I of this
Annual Report on Form 10-K under the heading "Executive Officers of the
Registrant."
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<PAGE> 23
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are included as part of this Annual Report on
Form 10-K.
1. FINANCIAL STATEMENTS:
<TABLE>
<S> <C>
Report of Independent Public Accountants.................... 31*
Consolidated Statements of Operations for the Three years
Ended December 31, 1998................................... 32*
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... 33*
Consolidated Statements of Changes in Stockholders' Equity
for the Three Years Ended December 31, 1998............... 34*
Consolidated Statements of Cash Flows for the Three Years
Ended December 31, 1998................................... 35*
Notes to Consolidated Financial Statements.................. 36*
</TABLE>
- ---------------
* Refers to page number in 1998 Annual Report to Stockholders. Each such
financial statement or report is hereby incorporated herein by reference to
the 1998 Annual Report to Stockholders which is filed as an exhibit to this
Annual Report on Form 10-K.
2. FINANCIAL STATEMENT SCHEDULES:
All financial statement schedules are omitted because they are not
applicable or the required information is shown in the Consolidated Financial
Statements or the Notes thereto.
3. EXHIBITS:
The exhibits filed with or incorporated into this Annual Report on Form
10-K are listed on the "Index to Exhibits" below.
(b) Reports on Form 8-K:
None.
22
<PAGE> 24
SIGNATURES
Pursuant to the requirements of Section 13 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, on March 30, 1999.
THE PIONEER GROUP, INC.
BY: /s/ JOHN F. COGAN, JR.
---------------------------------
JOHN F. COGAN, JR.,
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C>
/s/ JOHN F. COGAN, JR. Principal Executive Officer and March 30, 1999
- ---------------------------- Director
JOHN F. COGAN, JR.
/s/ JOHN A. BOYNTON Principal Financial Officer and March 30, 1999
- ---------------------------- Principal Accounting
JOHN A. BOYNTON
/s/ ROBERT L. BUTLER Director March 30, 1999
- ----------------------------
ROBERT L. BUTLER
/s/ MAURICE ENGLEMAN Director March 30, 1999
- ----------------------------
MAURICE ENGLEMAN
/s/ ALAN J. STRASSMAN Director March 30, 1999
- ----------------------------
ALAN J. STRASSMAN
/s/ JASKARAN S. TEJA Director March 30, 1999
- ----------------------------
JASKARAN S. TEJA
/s/ DAVID D. TRIPPLE Director March 30, 1999
- ----------------------------
DAVID D. TRIPPLE
/s/ JOHN H. VALENTINE Director March 30, 1999
- ----------------------------
JOHN H. VALENTINE
</TABLE>
23
<PAGE> 25
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<S> <C> <C>
3.1(17) -- Certificate of Incorporation, as amended
3.2(1) -- By-Laws, as amended
10.1(15) -- Form of Management Contract with Pioneer Mutual Funds
10.2(15) -- Form of Investment Company Service Agreement with Pioneer
Mutual Funds
10.3(1)(7) -- Retirement Benefit Plan and Trust
10.4(5)(7) -- 1988 Stock Option Plan, as amended
10.5(5) -- Lease, dated as of July 3, 1991, between the Trustees of 60
State Street and the Company
10.6(2)(7) -- Form of Employment Agreements with Regional Vice Presidents
10.7(22) -- Revised Form of Underwriting Contract with Pioneer Funds
10.8(3)(7) -- 1990 Restricted Stock Plan
10.9(4) -- Deed of Warranty, dated December 3, 1987, between the
Government of Republic of Ghana, Teberebie Goldfields
Limited and The Pioneer Group, Inc.
10.10(4) -- Lease, dated February 2, 1988, between the Government of the
Republic of Ghana and Teberebie Goldfields Limited
10.11(4) -- Map of Mining Operations in Tarkwa, Ghana
10.12(6) -- Refining Agreement, dated as of August 23, 1993, between
Teberebie Goldfields Limited and Metalor
10.13(6) -- OPIC Contract of Insurance Against Inconvertibility,
Expropriation and Political Violence between OPIC and
Pioneer Goldfields Limited, dated August 12, 1993
10.14(6) -- Credit Agreement, dated as of June 1, 1993, between
Teberebie Goldfields Limited and Skandinaviska Enskilda
Banken
10.15(8) -- Agreement, dated May 10, 1994, between Teberebie Goldfields
Limited and Johnson Matthey PLC
10.16(8) -- Contract, dated May 30, 1994, among Timber Harvesting
Equipment Sales, Inc., Joint-Stock Company "Forest-Starma"
and the Company
10.17(8) -- Contract, dated August 4, 1994, among Morbark Northwest,
Inc., Joint-Stock Company "Forest-Starma" and the Company
10.18(8) -- Contract, dated May 25, 1994, among Caterpillar Overseas
S.A., Joint-Stock Company "Forest Starma" and the Company
10.19(8) -- OPIC Contract of Insurance Against Business Income Loss
between OPIC and the Company, effective September 30, 1992,
as amended (No. D581)
10.20(8) -- OPIC Contract of Insurance Against Business Income Loss
between OPIC and the Company, effective September 30, 1992,
as amended (No. D582)
10.21(8) -- OPIC Contract of Insurance Against Inconvertibility,
Expropriation and Political Violence between OPIC and the
Company, effective September 30, 1992 as amended (No. D547)
10.22(8) -- OPIC Contract of Insurance Against Inconvertibility,
Expropriation and Political Violence between OPIC and the
Company, effective September 30, 1992 (No. D545)
10.23(8) -- Consulting Agreement, dated as of January 2, 1995, between
the Company and Pioneer First Polish Trust Fund Joint Stock
Company ("Pioneer Poland")
10.24(8) -- Services Contract, dated January 1, 1994, between Pioneering
Services Corporation and Financial Services Limited
10.25(8) -- Agreement, dated June 25, 1992, between Pioneer Poland and
Bank Polska Kasa Opieka S.A. ("Bank Pekao")
10.26(8) -- Agreement, dated as of June 25, 1992, between Bank Pekao and
Pioneer International Corporation
</TABLE>
24
<PAGE> 26
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<S> <C> <C>
10.27(8) -- Agreement, dated June 25, 1992, between Bank Pekao and
Pioneer Poland
10.28(8) -- Agreement, dated September 24, 1992, between Pioneer Poland
and Financial Services Limited
10.29(9) -- Master Share Purchase Agreement dated as of April 7, 1995 by
and among Pioneer Omega, Inc. and First Voucher Fund
10.30(9) -- Agreement dated as of April 7, 1995 by and among Pioneer
Omega, Inc. and DOM Investment Company
10.31(9) -- Agreement dated as of April 7, 1995 by and among Pioneer
Omega, Inc. and Moscow International Business Centre Limited
10.32(9) -- Stockholders Agreement dated as of April 11, 1995 by and
among the Company and Moscow International Business Centre
Limited
10.33(10) -- Collective Agreement dated as of July 3, 1995 between
Teberebie Goldfields Limited and the Ghana Mineworkers Union
of T.U.C.
10.34(11) -- Contract of Insurance Against Incontrovertibility,
Expropriation and Political Violence dated September 29,
1995 between the Overseas Private Investment Corporation and
the Company
10.35(7)(12) -- 1995 Restricted Stock Plan
10.36(12) -- Credit Agreement between Teberebie Goldfields Limited and
Skandinaviska Enskilda Banken AB dated as of March 11, 1996
10.37(7)(13) -- 1995 Employee Stock Purchase Plan
10.38(13) -- Loan Agreement dated as of April 23, 1996, by and between
Teberebie Goldfields Limited and Caterpillar Financial
Services Corporation
10.39(13) -- Chattel Mortgage dated as of April 23, 1996, by and between
Teberebie Goldfields Limited and Caterpillar Financial
Services Corporation
10.40(13) -- Credit Agreement dated as of June 6, 1996, by and among the
Company, Certain of its subsidiaries, the Lenders and The
First National Bank of Boston, as agent for itself and the
other Lenders
10.41(13) -- Loan Agreement dated as of May 16, 1996, by and between
Teberebie Goldfields Limited and Caterpillar Financial
Corporation
10.42(14) -- Sublease dated as of August 15, 1996, between the Company
and Citizens Financial Group, Inc.
10.43(16) -- Subscription Agreement dated as of October 16, 1996, between
Pioneer First Russia, Inc. and International Finance
Corporation
10.44(16) -- Shareholders Agreement dated as of October 16, 1996, among
Pioneer Omega, Inc. and Pioneer First Russia, Inc. and
International Finance Corporation
10.45(16) -- Put and Call Agreement dated as of October 16, 1996, among
Pioneer First Russia, Inc. and Pioneer Omega, Inc. and
International Finance Corporation
10.46(16) -- Credit Facility Agreement dated 19th December, 1996, for
Pioneer Real Estate Advisors, Inc. provided by Banque
Societe Generale Vostok
10.47(16) -- First Amendment to Lease dated as of the 31st day of January
1994, by and between the Trustees of 60 State Street Trust
and the Company
10.48(16) -- Second Amendment to Lease dated as of September 30, 1996, by
and between The Trustees of 60 State Street Trust and the
Company
10.49(16) -- Third Amendment to Lease dated as of November 15, 1996, by
and between The Trustees of 60 State Street Trust and the
Company
10.50(16) -- Finance Agreement dated as of October 25, 1996, between
Teberebie Goldfields Limited and the Overseas Private
Investment Corporation
10.51(16) -- Project Completion Agreement dated as of October 28, 1996,
among Teberebie Goldfields Limited, the Company and Overseas
Private Investment Corporation
</TABLE>
25
<PAGE> 27
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<S> <C> <C>
10.52(16) -- Overseas Private Investment Corporation Contract of
Insurance Against Inconvertibility, Expropriation and
Political Violence between the Overseas Private Investment
Corporation and Pioneer Omega, Inc.
10.53(17) -- Finance Agreement between Closed Joint-Stock Company
"Forest-Starma" and Overseas Private Investment Corporation
dated as of December 21, 1995
10.54(17) -- Project Completion Agreement among Closed Joint-Stock
Company "Forest-Starma", the Company, International
Joint-Stock Company "Starma Holding" and Overseas Private
Investment Corporation dated as of December 21, 1995
10.55(17) -- Closed Joint-Stock Company "Forest-Starma" Promissory Note
in the principal amount of $9.3 million dated as of July 1,
1996
10.56(17) -- Amendment to Finance Agreement dated as of June 24, 1996
between Closed Joint-Stock Company "Forest-Starma" and
Overseas Private Investment Corporation
10.57(17) -- Amendment No. 1 to Credit Agreement dated as of April 23,
1997, among the Company, certain of its subsidiaries, the
Lenders and The First National Bank of Boston
10.58(18) -- Amendment No. 2 to Credit Agreement dated as of June 30,
1997, by and among the Company, certain of its subsidiaries,
the Lenders and BankBoston, N.A. f/k/a/ The First National
Bank of Boston
10.59(18)(7) -- 1997 Stock Incentive Plan
10.60(19) -- Note Agreement dated as August 14, 1997 by and between the
Company and The Travelers Insurance Company
10.61(20) -- Amendment No. 3 to Credit Agreement dated as of June 30,
1997, by and among the Company, certain of its subsidiaries,
the Lenders and BankBoston, N.A. f/k/a/ The First National
Bank of Boston
10.62(20) -- Investment Agreement dated as of February 11, 1998 by and
between AS Eesti Forekspank and ZAO Pioneer Bank
10.63(20) -- Fourth Amendment to Lease dated as of September 11, 1997, by
and between The Trustees of 60 State Street Trust and the
Company
10.64(21) -- Amendment No. 4 to Credit Agreement dated as of April 21,
1998, by and among the Company, certain of its subsidiaries,
the Lenders and BankBoston, N.A. f/k/a The First National
Bank of Boston
10.65(21) -- Amendment No. 5 to Credit Agreement dated as of July 21,
1998, by and among the Company, certain of its subsidiaries,
the Lenders and BankBoston, N.A. f/k/a The First National
Bank of Boston
10.66(21) -- Amendment No. 6 to Credit Agreement dated as of September
30, 1998, by and among the Company, certain of its
subsidiaries, the Lenders and BankBoston, N.A. f/k/a The
First National Bank of Boston
10.67(21) -- Supplemental Agreement No. 1 to Note Agreement dated as of
September 30, 1998, by and between the Company and Travelers
Insurance Company
10.68(21) -- Supplemental Agreement No. 2 to Note Agreement dated as of
September 30, 1998, by and between the Company and Travelers
Insurance Company
10.69(21) -- Pioneer Program Master Agreement dated as of September 30,
1998, among the Company, certain of its subsidiaries, PLT
Finance, L.P., Putnam, Lovell, DeGuardiola & Thornton, Inc.,
and Bankers Trust Company (Confidential Treatment Granted)
10.70* -- Amendment No. 7 to Credit Agreement dated as of December 30,
1998, by and among the Company, certain of its subsidiaries,
the Lenders and BankBoston, N.A. f/k/a The First National
Bank of Boston
10.71* -- Supplemental Agreement No. 3 to Note Agreement dated as of
December 30, 1998, by and between the Company and Travelers
Insurance Company
10.72*(7) -- 1998 Deferred Compensation Plan
</TABLE>
26
<PAGE> 28
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<S> <C> <C>
10.73* -- Agreement dated as of December 7, 1998 between Closed Joint
Stock Company "Forest Starma" and Rayonier Inc., and
Amendment No. 1 thereto.
10.74* -- Fifth Amendment to Lease dated as of December 31, 1997, by
and between The Trustees of 60 State Street Trust and the
Company
10.75* -- Sixth Amendment to Lease dated as of October 5, 1998, by and
between the Trustees of 60 State Street Trust and the
Company
10.76* -- Sublease Agreement dated as of March 5, 1999, by and between
Leerink, Swann & Company and the Company
10.77* -- Asset Purchase Agreement dated as of March 18, 1999, by and
between PCC Transfer Limited Partnership, Pioneer Capital
Corporation, Pioneer Ventures Limited Partnership and The
Pioneer Group, Inc.
13* -- 1998 Annual Report to Stockholders (which is not deemed
"filed" except with respect to the portions specifically
incorporated herein by reference)
21* -- Subsidiaries
23* -- Consent of Arthur Andersen LLP
27.98* -- Financial Data Schedule (1998)
27.97* -- Financial Data Schedule (1997)
27.96* -- Financial Data Schedule (1996)
</TABLE>
- ---------------
* Filed herewith
(1) Incorporated herein by reference to the exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1986.
(2) Incorporated herein by reference to the exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1988.
(3) Incorporated herein by reference to the exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1989.
(4) Incorporated herein by reference to the exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1990.
(5) Incorporated herein by reference to the exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1991.
(6) Incorporated herein by reference to the exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993.
(7) Management contract or compensatory plan or arrangement filed as an exhibit
to this Form pursuant to Items 14(a) and 14(c) of Form 10-K.
(8) Incorporated herein by reference to the exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.
(9) Incorporated herein by reference to the exhibits to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1995.
(10) Incorporated herein by reference to the exhibits to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995.
(11) Incorporated herein by reference to the exhibits to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1995.
(12) Incorporated herein by reference to the exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
(13) Incorporated herein by reference to the exhibits to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996.
27
<PAGE> 29
(14) Incorporated herein by reference to the exhibits to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996.
(15) Incorporated herein by reference to the exhibits to the Registration
Statement on Form N-1A for the Pioneer Micro Cap Fund (File Nos. 333-18639,
811-07985) filed December 23, 1996.
(16) Incorporated herein by reference to the exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.
(17) Incorporated herein by reference to the exhibits to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997.
(18) Incorporated herein by reference to the exhibits to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997.
(19) Incorporated herein by reference to the exhibits to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997.
(20) Incorporated herein by reference to the exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
(21) Incorporated herein by reference to the exhibits to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998.
(22) Incorporated herein by reference to the exhibits to the Registration
Statement on Form N-1A for the Pioneer Fund (File Nos. 2-25980, 811-07613)
filed October 30, 1998.
28
<PAGE> 1
EXHIBIT 10.70
EXECUTION COUNTERPART
THE PIONEER GROUP, INC.
CREDIT AGREEMENT
AMENDMENT NO. 7
This Agreement, dated as of December 30, 1998, is among The Pioneer
Group, Inc., a Delaware corporation (the "Company"), certain of its subsidiaries
listed on the signature pages hereto, the Lenders (as defined in the Credit
Agreement referenced below) and BankBoston, N.A., f/k/a The First National Bank
of Boston, as agent (the "Agent") for itself and the other Lenders. The parties
agree as follows:
1. REFERENCE TO CREDIT AGREEMENT; DEFINITIONS. Reference is made to the
Credit Agreement dated as of June 6, 1996, among the Company, certain of its
subsidiaries, the Lenders and the Agent (as amended, modified and in effect
prior to giving effect to this Agreement, the "Credit Agreement"). Terms defined
in the Credit Agreement as amended hereby (the "Amended Credit Agreement") and
not otherwise defined herein are used herein with the meanings so defined.
Except as the context otherwise explicitly requires, the capitalized terms
"Section" and "Exhibit" refer to sections hereof and exhibits hereto.
2. AMENDMENTS TO CREDIT AGREEMENT. Subject to all of the terms and
conditions hereof and in reliance upon the representations and warranties set
forth in Section 3, the Credit Agreement is amended as follows, effective upon
the date (the "Amendment Date") that the conditions specified in Section 4 are
satisfied, which conditions must be satisfied no later than December 30, 1998,
or this Agreement shall be of no force or effect:
2.1. AMENDMENT OF SECTION 1.4. Section 1.4 of the Credit Agreement
is amended to read in its entirety as follows:
"1.4. "APPLICABLE MARGIN" means, (1) with respect to any portion of the
Revolving Loan subject to a Pricing Option, 2.25%, and (2) with respect to
each other portion of the Revolving Loan, 0.25%."
2.2. AMENDMENT TO SECTION 1.49. Section 1.49 of the Credit
Agreement is amended to read in its entirety as follows:
"1.49. "CONSOLIDATED TANGIBLE NET WORTH" means, at any date, the total of:
(a) stockholders' equity of the Company and its Subsidiaries
(excluding the effect of any foreign currency translation adjustments)
determine in accordance with GAAP on a Consolidated basis, MINUS
<PAGE> 2
(b) the amount by which such stockholders' equity has been increased
by the write-up of any asset of the Company and its Subsidiaries (excluding
any write-ups net of write-downs associated with any venture capital
investments of the Company and its Subsidiaries), MINUS
(c) assets of the Company and its Subsidiaries that are considered
intangible assets under GAAP (including but not limited to customer lists,
goodwill, computer software and capitalized research and development costs
other than the capitalized development costs relating to the natural
resource business operations of the Company or any of its Subsidiaries),
PLUS
(d) the amount by which such stockholders' equity has been decreased
by the after-tax noncash write-down of assets employed in the Company's and
it Subsidiaries' international operations, up to an aggregate of all such
write-downs of $25,000,000."
2.3. AMENDMENT TO SECTION 4.2.3. Section 4.2.3 of the Credit
Agreement is amended to read in its entirety as follows:
"4.2.3. PREPAYMENT OF REVOLVING LOAN. Within five Banking Days after the
consummation of any underwritten public offering or other sale of any equity
interest in Pioneer Goldfields Entities pursuant to Section .11.5, the Company
shall apply 100% of the Net Cash Proceeds to the prepayment of the Revolving
Loan, and the Maximum Amount of Revolving Credit shall be permanently reduced by
50% of such amount, PROVIDED that the Maximum Amount of Revolving Credit shall
never be reduced below $40,000,000 by operation of this Section 4.2.3. For
purposed of this Section 4.23, "Net Cash Proceeds" shall mean the total cash
proceeds received from such public offering or equity sale of Pioneer Goldfields
Entities, reduced by (i) the amount required to be paid by the Company or any
Subsidiary to repay financing obligations on any equipment being transferred in
such sale, (ii) the amount required to be paid by the Company or any Subsidiary
to repay the OPIC financing, (iii) any federal, state, local or other tax
obligations incurred by the Company or any Subsidiary as a result of such public
offering or sale or the prior sale of the B Share revenues used the prepay the B
Share Loan, and (iv) an federal, state or local tax obligations due and payable
by the Company within 45 days of such prepayment."
2.4. AMENDMENT TO SECTION 7.4.3. Two new paragraphs (h) and (i) are
added to Section 7.4.3 (Other Reports) of the Credit Agreement as follows:
"(h) As soon as prepared and in any event within five days of the end of
each week or five Banking Days of the end of each month, as applicable,
updated actual and forecasted weekly cash flows for the period commencing
November 30, 1998 through December 31, 1998, and monthly cash flows for the
period commencing January 1, 1999, in report form similar to that in the
attached Exhibit 2.4.
(i) As soon as prepared and in any event within five days of the end of
each month beginning with July 1999 and ending with December 1999, a report
of the aggregate amount of all Investments in the Company's and any
Subsidiary's international operations as of the end of such month and for
the period beginning July 1, 1999 and ending at the end of such month."
2
<PAGE> 3
2.5. AMENDMENT TO SECTION 7.5.3. Section 7.5.3 of the Credit
Agreement is amended to read in its entirety as follows:
"7.5.3. CONSOLIDATED TANGIBLE NET WORTH. Consolidated Tangible Net Worth
shall:
(a) on and after December 4, 1998, and through June 30, 1999, at all
times equal or exceed $120,000,000; PROVIDED, HOWEVER, that on the first
day of each fiscal quarter of the Company beginning with the fiscal quarter
ending December 31, 1998, such dollar amount shall be increased by an
amount equal to 50% of the sum of (i) Consolidated Net Income (only if in
excess of zero) and (ii) the after-tax gain on the sale or disposition of
assets or capital stock of Pioneer Goldfields Entities for the fiscal
quarter then most recently ended, and
(b) on and after July 1, 1999, at all times equal or exceed
$137,500,000, provided, however, that on the first day of each fiscal
quarter of the Company beginning with the fiscal quarter ending September
30, 1999, such dollar amount shall be increased by an a mount equal to 50%
of the sum of (i) Consolidated Net Income (only if in excess of zero) and
(ii) the after-tax gain on the sale or disposition of assets or capital
stock of Pioneer Goldfields Entities for the fiscal quarter then most
recently ended."
2.6. AMENDMENT TO SECTION 7.9.1. Amendment to Section 7.9.1 of the
Credit Agreement is amended to read in its entirety as follows:
"7.9.1. Investments of the Company and each Subsidiary of the Company which
is not a Core Mutual Fund Subsidiary; provided that immediately before and
after giving effect to such Investment, no Default exists; provided further
that on and after July 1, 1999 and through December 31, 1999, the Company
and any Subsidiary will only have outstanding, acquire, commit itself to
acquire or hold any new Investments, including Guarantees permitted by
Section 7.7, in the Company's or any Subsidiary's international operation
that in the aggregate will not exceed $20,000,000."
2.7. AMENDMENT TO SECTION 7.9.7. Amendment to Section 7.9.7 of the
Credit Agreement is amended to read in its entirety as follows:
"7.9.7. Guarantees permitted by Section 7.7; provided, however, that on and
after July 1, 1999 and though December 31, 1999, the Company and any
Subsidiary will only have outstanding, acquire, commit itself to acquire or
hold any new Guarantees in the Company's or any Subsidiary's international
operations that in the aggregate, together with other new Investments, will
not exceed $20,000,000."
2.8. AMENDMENT TO EXHIBIT 8.1. Exhibit 8.1 of the Credit Agreement
(the Company's Organization) is amended to read in its entirety as set forth on
Exhibit 8.1 hereto.
2.9. AMENDMENT TO SECTION 9.1.9. Section 9.1.9 of the Credit
Agreement is amended to add a new paragraph (c) as follows:
3
<PAGE> 4
"(c) The aggregate investment assets under management by the Company and
its Subsidiaries shall at any time be less that $15,000,000,000."
2.10. AMENDMENT TO EXHIBIT 9.1.12. Exhibit 9.1.12 of the Credit
Agreement (the Officers of the Company) is amended to read in its entirety as
set forth on Exhibit 9.1.12 hereto.
3. REPRESENTATIONS AND WARRANTIES. In order to induce the Lenders to enter
into this Agreement, each of the Company and the Guarantors represents and
warrants to each of the Lenders that:
3.1. LEGAL EXISTENCE; ORGANIZATION. Each of the Company and its
Subsidiaries is duly organized and validly existing and in good standing under
the laws of the jurisdiction of its incorporation, with all power and authority,
corporate or otherwise, necessary to (i) enter into and perform this Agreement,
the Amended Credit Agreement and each other Credit Document to which it is party
and (ii) own its properties and carry on the business now conducted or proposed
to be conducted by it. Each of the Company and its Subsidiaries has taken, or
shall have taken on or prior to the Amendment Date, all corporate or other
action required to make the provisions of this Agreement, the Amended Credit
Agreement and each other Credit Document to which it is party the valid and
enforceable obligations they purport to be.
3.2. ENFORCEABILITY. The Company and each of its Subsidiaries that
are signatories hereto have duly executed and delivered this Agreement. Each of
this Agreement and the Amended Credit Agreement is the legal, valid and binding
obligation of the Company and such Subsidiaries and is enforceable against the
Company and such Subsidiaries in accordance with its terms.
3.3. NO LEGAL OBSTACLE TO AGREEMENTS. Neither the execution,
delivery or performance of this Agreement, nor the performance of the Amended
Credit Agreement, nor the consummation of any other transaction referred to in
or contemplated by this Agreement, nor the fulfillment of the terms hereof or
thereof, has constituted or resulted in or will constitute or result in:
(1) any breach or termination of the provisions of any
agreement, instrument, deed or lease to which the Company or any
Subsidiary is a party or by which it is bound, or the Charter or
By-laws of the Company or any Subsidiary;
(2) the violation of any law, judgment, decree or
governmental order, rule or regulation applicable to the Company or any
Subsidiary;
(3) the creation under any agreement, instrument, deed or
lease of any Lien upon any of the assets of the Company or any
Subsidiary; or
(4) any redemption, retirement or other repurchase
obligation of the Company or any Subsidiary under any Charter, By-law,
agreement, instrument, deed or lease.
No approval, authorization or other action by, or declaration to or filing with,
any governmental or administrative authority or any other Person is required to
be obtained or made by the
4
<PAGE> 5
Company or any Subsidiary in connection with the execution, delivery and
performance of this Agreement or the performance of the Amended Credit
Agreement, or the consummation of the transactions contemplated hereby or
thereby.
3.4. NO DEFAULT. Immediately before and after giving effect to the
amendments set forth in Section 2, no Default will exist.
3.5. INCORPORATION OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties set forth in Section 8 of the Credit Agreement
are true and correct on the date hereof as if originally made on and as of the
date hereof (except to the extent any representation or warranty refers to a
specific earlier date).
4. CONDITIONS. The effectiveness of this Agreement shall be subject to the
satisfaction of the following conditions:
4.1. AMENDMENT TO NOTE AGREEMENT. The Note Agreement dated August
14, 1997 among the Company and its Subsidiaries listed as Guarantors (including
other Subsidiaries of the Company that from time to time become party thereto)
and the Travelers Insurance Company shall have been amended to impose no more
stringent Consolidated Tangible Net Worth covenant levels and other terms and
conditions on the Company than those contained in the Amended Credit Agreement,
which terms and conditions shall be satisfactory to the Lenders.
4.2. INVESTMENT ASSET UNDER MANAGEMENT. On the Amendment Date, the
aggregate investment assets under management by the Company and its Subsidiaries
shall equal or exceed $20,000,000,000, and the Company shall have furnished to
the Agent on such date a certificate to such effect signed by an Executive
Officer or a Financial Officer.
4.3. DELIVERY OF FINANCIAL INFORMATION.
(a) The Company shall have delivered to the Lenders the quarterly
reports for the fiscal quarter ended September 301, 998, including all
information specified in Section 7.4.2 of the Credit Agreement.
(b) The Company shall have provided for the period commencing
November 30, 1998 through December 31, 1998, weekly cash flow forecasts, and for
the period commencing January 1, 1999 through June 30, 1999, monthly cash flow
forecasts.
4.4. FEES.
(a) In accordance with their Percentage Interests, in
consideration for entering into this Agreement, the Borrower shall have paid to
the Agent for the account of the Lenders, and amount equal to 0.25% of the
Maximum Amount of the Revolving Credit.
(b) The Company shall have paid all fees due to the Agent or other
lenders and all reasonable fees and disbursements of Ropes & Gray, special
counsel to the Lenders.
5
<PAGE> 6
4.5. OFFICER'S CERTIFICATE. The representations and warranties
contained in Section 3 shall be true and correct as of the Amendment Date with
the same force and effect as though originally made on and as of such date; no
Default shall exist on the Amendment Date prior to or immediately after giving
effect to this Agreement; as of the Amendment Date, no Material Adverse Change
shall have occurred; and the Company shall have furnished to the Agent on the
Amendment Date a certificate to these effects, in substantially the form of
Exhibit 4.5, signed by an Executive Officer or a Financial Officer.
4.6. PROPER PROCEEDINGS. All proper corporate proceedings shall
have been taken by each of the Company and the Subsidiaries to authorize this
Agreement, the Amended Credit Agreement and the transactions contemplated hereby
and thereby. The Agent shall have received copies of all documents, including
legal opinions of counsel and records of corporate proceedings that the Agent
may have requested in connection therewith, such documents, where appropriate,
to be certified by proper corporate or governmental authorities.
4.7. EXECUTION BY LENDERS. Each of the Lenders shall have executed
and delivered this Agreement to the Company.
5. FURTHER ASSURANCES. Each of the Company and the Subsidiaries will,
promptly upon request of the Agent from time to time, execute, acknowledge and
deliver, and file and record, all such instruments and notices, and take all
such action, as the Agent deems necessary or advisable to carry out the intent
and purposes of this Agreement.
6. GENERAL. The Amended Credit Agreement and all of the other Credit
Documents are each confirmed as being in full force and effect. This Agreement,
the Amended Credit Agreement and the other Credit Documents referred to herein
or therein constitute the entire understanding of the parties with respect to
the subject matter hereof and thereof and supersede all prior and current
understandings and agreements, whether written or oral, with respect to such
subject matter. The invalidity or unenforceability of any provision hereof shall
not affect the validity or enforceability of any other term or provision hereof.
The headings in this Agreement are for convenience of reference only and shall
not alter, limit or otherwise affect the meaning hereof. Each of this Agreement
and the Amended Credit Agreement is a Credit Document and may be executed in any
number of counterparts, which together shall constitute one instrument, and
shall bind and inure to the benefit of the parties and their respective
successors and assigns, including as such successor and assigns all holders of
any Note. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS (OTHER THAN THE CONFLICT OF LAWS RULES) OF THE COMMONWEALTH OF
MASSACHUSETTS.
6
<PAGE> 7
Each of the undersigned has caused this Agreement to be executed and
delivered by its duly authorized officer as an agreement under seal as of the
date first above written.
THE PIONEER GROUP, INC.
By: /s/ John A. Boynton
----------------------------------
Title: Chief Financial Officer,
Treasurer, Exec. VP
60 State Street
Boston, Massachusetts 02109-1820
PIONEER MANAGEMENT (IRELAND) LIMITED
By: /s/ Robert Richardson
----------------------------------
Title: Managing Director
60 State Street
Boston, Massachusetts 02109-1820
PIONEER FUNDS DISTRIBUTOR, INC.
By: /s/ John A. Boynton
----------------------------------
Title: Treasurer
60 State Street
Boston, Massachusetts 02109-1820
PIONEERING SERVICES CORPORATION
By: /s/ John A. Boynton
----------------------------------
Title: Treasurer
60 State Street
Boston, Massachusetts 02109-1820
7
<PAGE> 8
BANKBOSTON, N.A.
By: /s/ Stewart P. Neff
----------------------------------
Title: Managing Director
Financial Institutions Division
100 Federal Street - 15th Floor
Boston, Massachusetts 02110
Telecopy: (617) 434-1537
Telex: 940581
THE BANK OF NEW YORK
By: /s/ Scott H. Buitekant
----------------------------------
Title: AVP
One Wall Street, OWS-1
Securities Industry Division
New York, New York 10286
Telecopy: (212) 809-9566
SOCIETE GENERALE
By: /s/ Woody Littlefield
----------------------------------
Title: Vice President
1221 Avenue of the Americas
New York, New York 10020
Telecopy: (212) 278-7153
STATE STREET BANK & TRUST COMPANY
By: /s/ Michael St. Jean
----------------------------------
Title: Vice President
225 Franklin Street, 8th Floor
Asset-Based Finance
Boston, Massachusetts 02110
Telecopy: (617) 338-4041
8
<PAGE> 9
BANQUE NATIONALE DE PARIS
By: /s/ Marguerite L. Lebon /s/ Laurent Vanderzyppe
---------------------------------- ----------------------------------
Title: Asst VP Vice President
499 Park Avenue, 7th Floor
New York, New York 10022
Telecopy: (212)) 415-9707
MELLON BANK, N.A.
By: /s/ John R. Cooper
----------------------------------
Title: Vice President
One Mellon Bank Center
Mail Code: 1510370
Pittsburgh, Pennsylvania 15258
Telecopy: (412) 234-8087
[EXHIBITS INTENTIONALLY OMITTED]
9
<PAGE> 1
EXHIBIT 10.71
THE PIONEER GROUP, INC.
SUPPLEMENTAL AGREEMENT NO. 3
as of December 30, 1998
Re: Senior Notes due 2004
To: The Travelers Insurance Company
One Tower Square
Hartford, CT 06183-2030
Ladies and Gentlemen:
THE PIONEER GROUP, INC., a Delaware corporation (the "COMPANY"), hereby
agrees with you as follows:
Section 1. AMENDMENTS. Pursuant to the Note Agreement dated as of
August 14, 1997 (as amended by Supplemental Agreement No. 1 and Supplement Note
Agreement No. 2, each dated as of September 30, 1998 (as so amended, the "NOTE
AGREEMENT") entered into by the Company with The Travelers Insurance Company,
the Company issued and sold $20,000,000 aggregate principal amount of its Senior
Notes due 2004 (the "NOTES"). Unless the context otherwise requires, capitalized
terms used herein without definition have the respective meanings ascribed
thereto in the Note Agreement. The Notes originally bore an interest rate of
7.95% per annum and, pursuant to Supplemental Amendment No. 1, such interest
rate was changed to a floating rate of interest as therein described. The
Company has requested you, as the holder of all the outstanding Notes, further
to amend the Note Agreement and the Notes. Subject to this Supplemental
Agreement No. 3 becoming effective as hereinafter provided, the Company and the
holder of the Notes do hereby agree that the Note Agreement and the outstanding
Notes are amended pursuant to Section 11.1 of the Note Agreement as follows:
A. Section 1 of the Note Agreement is amended by:
1. deleting the definitions of "Adjusted Company Total
Debt", "Applicable Margin", "Applicable Rate", "Base Rate", and
"Combined Adjusted Mutual Fund Cash Flow" found therein.
2. deleting the definitions of "Consolidated Tangible
Net Worth" and "Default Rate" in their entirety and replacing them with
the following new definitions:
"'CONSOLIDATED TANGIBLE NET WORTH'" means, at any date, the total of:
(a) stockholders' equity of the Company and its
Subsidiaries (excluding the effect of any foreign currency translation
adjustments) determine in accordance with GAAP on a Consolidated basis,
MINUS
<PAGE> 2
(b) the amount by which such stockholders' equity has
been increased by the write-up of any asset of the Company and its
Subsidiaries (excluding any write-ups net of write-downs associated
with any venture capital investments of the Company and its
Subsidiaries), MINUS
(c) assets of the Company and its Subsidiaries that are
considered intangible assets under GAAP (including but not limited to
customer lists, goodwill, computer software and capitalized research
and development costs other than the capitalized development costs
relating to the natural resource business operations of the Company or
any of its Subsidiaries), PLUS
(d) the amount by which such stockholders' equity has
been decreased by the after-tax noncash write-down of assets employed
in the Company's and it Subsidiaries' international operations, up to
an aggregate of all such write-downs of $25,000,000."
* * * *
"'DEFAULT RATE' means that rate of interest that is the
greater of (i) 10.95% and (ii) 2% above the rate of interest publicly
announced by Citibank, N.A. from time to time at its principal office
in New York City as its prime rate."
3. adding the following definitions:
"'ADDITIONAL INDEBTEDNESS' means Indebtedness for borrowed
money incurred by the Company or any Core Mutual Fund Subsidiary on or
after the Supplemental Agreement No. 3 Effective Date in excess of the
amounts of Indebtedness outstanding under the Note Agreement and the
Bank Credit Facility, respectively, as of such date."
"'NET CASH PROCEEDS' is defined in Section 7.11.5."
"'SUPPLEMENTAL AGREEMENT NO. 3 EFFECTIVE DATE' means the
Effective Date as defined in Supplemental Agreement No. 3 to this
Agreement."
B. Section 2.1 of the Note Agreement is amended by changing
"7.95%" on the second line thereof to "8.95%".
C. Section 4.6 of the Note Agreement is amended by:
1. by changing the definition of "Reinvestment Yield" by adding
the following parenthetical immediately after the term "0.50%":
"(or 1.0% in the case of a prepayment effected pursuant to the
terms of Section 7.11.5)"
2. by changing the definition of "Remaining Scheduled Payments"
by deleting the parenthetical "(determined for such purpose at the Base Rate
only)" found on the sixth line thereof and replacing it with the phrase
"(determined for such purpose at the rate of 7.95%)".
2
<PAGE> 3
D. Section 7.4.3 of the Note Agreement is amended by adding the
following new clauses (i) and (j) at the end thereof:
"(i) As soon as prepared and in any event within five days of
the end of each week or five Banking Days of the end of each month, as
applicable, updated actual and forecasted weekly cash flows for the
period commencing November 30, 1998 through December 31, 1998, and
monthly cash flows for the period commencing January 1, 1999, in report
form similar to that in the attached Exhibit B.
(j) As soon as prepared and in any event within five days of
the end of each month beginning with July 1999 and ending with December
1999, a report of the aggregate amount of all Investments in the
Company's and any Subsidiary's international operations as of the end
of such month and for the period beginning July 1, 1999 and ending at
the end of such month."
E. Section 7.5.3 of the Note Agreement is amended by deleting it
in its entirety and replacing it with the following new Section 7.5.3:
"7.5.3. CONSOLIDATED TANGIBLE NET WORTH. Consolidated Tangible Net
Worth shall:
(a) on and after December 30, 1998, and through June 30,
1999, at all times equal or exceed $120,000,000; PROVIDED, HOWEVER,
that on the first day of each fiscal quarter of the Company beginning
with the fiscal quarter ending December 31, 1998, such dollar amount
shall be increased by an amount equal to 50% of the sum of (i)
Consolidated Net Income (only if in excess of zero) AND (ii) the
after-tax gain on any sale or disposition of assets or capital stock of
Pioneer Goldfields Entities for the fiscal quarter then most recently
ended, and
(b) on and after July 1, 1999, at all times equal or
exceed $137,500,000, provided, however, that on the first day of each
fiscal quarter of the Company beginning with the fiscal quarter ending
September 30, 1999, such dollar amount shall be increased by an a mount
equal to 50% of the sum of (i) Consolidated Net Income (only if in
excess of zero) and (ii) the after-tax gain on the sale or disposition
of assets or capital stock of Pioneer Goldfields Entities for the
fiscal quarter then most recently ended."
F. Section 7.6.1 of the Note Agreement is hereby amended by
adding the following proviso at the end thereof:
"PROVIDED, HOWEVER, that Additional Indebtedness incurred
under the Bank Credit Facility, when aggregated with all other
Additional Indebtedness, shall not exceed $45,000,000 at any one time
outstanding."
G. A new Section 7.6.12 is hereby added to the Note Agreement to
read as follows:
"7.6.12 Additional Indebtedness of the Company and the Core
Mutual Fund Subsidiaries, PROVIDED, HOWEVER, that Additional
Indebtedness incurred under this Section 7.6.11., when aggregated with
all Additional Indebtedness incurred under the Bank
3
<PAGE> 4
Credit Facility pursuant to Section 7.6.1, shall not exceed $45,000,000
at any one time outstanding; and PROVIDED, FURTHER that immediately
before and after giving effect to the incurrence of such Additional
Indebtedness, no Default exits."
H. Section 7.9.1 of the Note Agreement is amended by deleting it
in its entirety and replacing it with the following new Section 7.9.1:
"7.9.1. Investments of the Company and each Subsidiary of the
Company which is not a Core Mutual Fund Subsidiary; PROVIDED that
immediately before and after giving effect to such Investment, no
Default exists; PROVIDED FURTHER that on and after July 1, 1999 and
through December 31, 1999, the Company and any Subsidiary will only
have outstanding, acquire, commit itself to acquire or hold any new
Investments, including Guarantees permitted by Section 7.7, in the
Company's or any Subsidiary's international operations that in the
aggregate, together with Guarantees permitted by Section 7.9.7, will
not exceed $20,000,000."
I. Section 7.9.7 of the Note Agreement is amended by deleting it
in its entirety and replacing it with the following new Section 7.9.7:
"7.9.7. Guarantees permitted by Section 7.7; PROVIDED,
HOWEVER, that on and after July 1, 1999 and though December 31, 1999,
the Company and any Subsidiary will only have outstanding, acquire,
commit itself to acquire or hold any new Guarantees in the Company's or
any Subsidiary's international operations that in the aggregate,
together with other new Investments permitted by Section 7.9.1, will
not exceed $20,000,000."
J. Section 7.11.5 of the Note Agreement is amended by (a) by
deleting the words "a non-controlling equity interest" and replacing them with
"assets or an equity interest (whether controlling or non-controlling)", (b)
deleting the words "net cash proceeds" found in the fourth line thereof and
replacing them with the words "Net Cash Proceeds", (c) deleting the words "to
purchase" found on the eleventh line thereof and the remainder of said Section
and replacing it with the following:
"to purchase or prepay (for a price at least equal to the price that
would be paid if the Company then prepaid a like principal amount of
the Notes pursuant to Section 4.1) pro rata among all Notes tendered,
an aggregate principal amount of Notes at least equal to the amount
that bears the same relation to the outstanding principal amount of the
Notes as the amount of the permanent reduction of the Maximum Amount of
Revolving Credit (as such term is defined in the Bank Credit Facility)
resulting from such transaction under Section 4.2.3 of the Bank Credit
Facility bears to such Maximum Amount of Revolving Credit before giving
effect to such reduction, and PROVIDED, FURTHER, that any such purchase
or prepayment of Notes shall be made prior to or concurrently with such
prepayment of such Revolving Loan."
and (d) adding the following sentence at the end thereof:
"For purposes of this Section 7.11.5, `Net Cash Proceeds' shall mean
the total cash proceeds received from such public offering or equity
sale of Pioneer Goldfields Entities,
4
<PAGE> 5
reduced by (i) the amount required to be paid by the Company or any
Subsidiary to repay financing obligations on any equipment being
transferred in such sale, (ii) the amount required to be paid by the
Company or any Subsidiary to repay the OPIC Financing, (iii) any
federal, state, local or other tax obligations incurred by the Company
or any Subsidiary as a result of such public offering or sale or the
prior sale of the B Share revenues used to prepay the B Share Loan, and
(iv) any federal, state or local tax obligations due and payable by the
Company within 45 days of such prepayment."
K. Section 9.1.9 of the Note Agreement is amended by adding the
following new paragraph (c) at the end thereof:
"(c) The aggregate investment assets under management by the
Company and its Subsidiaries shall at any time be less than $15,000,000,000."
L. Exhibit 2.1 to the Note Agreement is deleted in its entirety
and replaced with Exhibit A hereto.
M. A new Exhibit 7.4.3(i) to the Note Agreement is added in the
form of Exhibit B hereto.
N. Exhibit 8.1 to the Note Agreement, entitled "The Company and
its Subsidiaries", is deleted in its entirety and replaced with Exhibit C
hereto.
O. Exhibit 9.1.12 to the Note Agreement, entitled "Officers of
the Company", is deleted in its entirety and replaced with Exhibit D hereto.
Section 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to you as follows:
A. ORGANIZATION, AUTHORIZATION, ETC. The Company and each of its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the State of its organization, and has all requisite
power and authority to execute, deliver and perform its obligations under the
Note Agreement as amended by this Supplemental Agreement No. 3.
The execution, delivery and performance of this Supplemental Agreement
No. 3 has been duly authorized by all necessary corporate and, if required,
stockholder action on the part of the Company and each Subsidiary Guarantor, as
applicable. This Supplemental Agreement No. 3 is a legal, valid and binding
obligation of the Company and the Subsidiary Guarantors, as applicable,
enforceable against the Company or such Subsidiary Guarantors in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, fraudulent transfer, moratorium or other similar laws relating
to or affecting creditors' rights generally and by general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
B. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC. The execution,
delivery and performance by the Company or the Subsidiary Guarantors of this
Supplemental Agreement No. 3 does not and will not (A) contravene, result in any
breach of, or constitute a default under, or
5
<PAGE> 6
result in the creation of any Lien in respect of any property of the Company
under any indenture, mortgage, deed of trust, loan, purchase or credit
agreement, lease, corporate charter or by-laws, or any other agreement or
instrument to which the Company or any Subsidiary is bound or by which the
Company or any Subsidiary or any of their respective properties may be bound or
affected, (B) conflict with or result in a breach of any of the terms,
conditions or provisions of any order, judgment, decree, or ruling of any court,
arbitrator or Governmental Authority applicable to the Company or any Subsidiary
or (C) violate any provision of any statute or other rule or regulation of any
Governmental Authority applicable to the Company or any Subsidiary.
C. GOVERNMENTAL AUTHORIZATIONS, ETC. No consent, approval or
authorization of, or registration, filing or declaration with, any Governmental
Authority is required in connection with the execution, delivery or performance
by the Company or any Subsidiary Guarantor of this Supplemental Agreement No. 3.
D. NO DEFAULT, ETC. No Event of Default or Default has occurred
and is continuing and neither the Company nor any Core Mutual Fund Subsidiary is
in default (whether or not waived) in the performance or observance of any of
the terms, covenants or conditions contained in any instrument evidencing any
Indebtedness and there is no pending request by the Company (except pursuant to
this Supplemental Agreement No. 3) or any Subsidiary for any amendment or waiver
in respect of any contemplated or possible default with respect to such
Indebtedness and no event has occurred and is continuing which, with notice or
lapse of time or both, would become such a default.
E. NO UNDISCLOSED FEES. The Company has not, directly or
indirectly, other than with respect to the payment of consideration disclosed to
the Noteholders, paid or caused to be paid any consideration (as supplemental or
additional interest, a fee or otherwise) to any party to the Bank Credit
Facility in order to induce such party to enter into an agreement substantially
similar to this Supplemental Agreement No. 3, nor has the Company agreed to made
any such payment.
Section 3. REPRESENTATION OF THE NOTEHOLDER. You represent to the
Company that you are the beneficial owner of the Notes in an aggregate principal
amount of $20,000,000.
Section 4. EFFECTIVENESS OF THIS SUPPLEMENTAL AGREEMENT NO. 3. The
amendments to Exhibit A to the Note Agreement and the change in the interest
rate to be borne by the Notes pursuant to this Supplemental Agreement No 3 shall
become effective on December 30, 1998. All other terms and conditions of this
Supplemental Agreement No. 3 will become effective on the date (the "EFFECTIVE
DATE") on which all of the following conditions precedent shall have been
satisfied:
A. PROCEEDINGS. All proceedings taken by the Company and the
Subsidiary Guarantors in connection with the transactions contemplated hereby
and all documents and papers incident thereto shall be satisfactory to you, and
you and your special counsel shall have received all such counterpart originals
or certified or other copies of such documents and papers, all in form and
substance satisfactory to you, as you or they may reasonably request in
connection therewith.
B. OPINION OF COUNSEL FOR THE COMPANY. On the Effective Date, you
shall have received from Hale and Dorr, special counsel to the Company, hereby
authorized and directed by the
6
<PAGE> 7
Company, its opinion with respect to this Supplemental Agreement No. 3, the Note
Agreement, as amended hereby, and the transactions contemplated hereby and
thereby, which opinion shall be in form and substance satisfactory to you.
C. REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 of this Supplemental Agreement
No. 3 shall be true on and as of the Effective Date as though such
representations and warranties had been made on and as of the Effective Date,
and you shall have received a certificate of a senior financial officer of the
Company, dated the Effective Date, to such effect.
D. PAYMENT OF FEES. The Company shall have paid the fees and
disbursements of your special counsel as contemplated by Section 6 of this
Supplemental Agreement No. 3. The Company shall have paid for the account of The
Travelers insurance Company a fee of $70,000.
E. PRIVATE PLACEMENT NUMBER. A new private Placement Number
issued by Standard & Poor's CUSIP Service Bureau (in cooperation with the
Securities Valuation Office of the National Association of Insurance
Commissioners) shall have been obtained for the Notes.
Section 5. EXCHANGE OR NOTATION OF THE NOTES. Prior to the transfer
effected on or after December 30, 1998 of any Note outstanding on such date, the
holder thereof shall endorse such Note appropriately in order to indicate that
all amounts owing under such Note shall, from and after December 30, 1998, bear
interest at the rate of 8.95% per annum. Each new Note issued thereafter in
substitution or exchange for an outstanding Note shall be in the form or Exhibit
A hereto, which form of Note shall replace Exhibit 2.1 to the Note Agreement.
Section 6. EXPENSES. Without limiting the generality of Section 5.8 of
the Note Agreement, the Company agrees, whether or not the transactions
contemplated hereby are consummated, to pay the reasonable fees and
disbursements of Willkie Farr & Gallagher, your special counsel, for their
services rendered in connection with such transactions and with respect to this
Supplemental Agreement No. 3 and any other document delivered pursuant to this
Supplemental Agreement No. 3 and to reimburse you for your out-of-pocket
expenses in connection with the foregoing.
Section 7. RATIFICATION. Except as amended hereby, the Note Agreement
is in all respects ratified and confirmed and the provisions thereof shall
remain in full force and effect, and the Subsidiary Guarantors hereby ratify
their obligations thereunder and under the Subsidiary Guarantees to which they
are party.
Section 8. COUNTERPARTS. This Supplemental Agreement No. 3 may be
executed in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
Section 9. GOVERNING LAW. This Supplemental Agreement No. 3 shall be
governed by and construed in accordance with the laws of the State of New York.
7
<PAGE> 8
If you are in agreement with the foregoing, please sign the form of
acceptance in the space provided below, whereupon this Supplemental Agreement
No. 3 shall become a binding agreement between you and the Company, with the
approval of the Subsidiary Guarantors, subject to becoming effective as
hereinabove provided.
THE PIONEER GROUP, INC.
By: /s/ John A. Boynton
----------------------------------
Title: CFO, Treasurer, Exec. VP
60 State Street
Boston, Massachusetts 02109-1820
SUBSIDIARY GUARANTORS
PIONEER INVESTMENT MANAGEMENT, INC. (formerly known as
Pioneering Management Corporation)
By: /s/ John A. Boynton
----------------------------------
Title: Treasurer
60 State Street
Boston, Massachusetts 02109-1820
PIONEERING MANAGEMENT (IRELAND) LIMITED
By: /s/ Robert F. Richardson
----------------------------------
Title: Managing Director
60 State Street
Boston, Massachusetts 02109-1820
PIONEERING SERVICES CORPORATION
By: /s/ John A. Boynton
----------------------------------
Title: Treasurer
60 State Street
Boston, Massachusetts 02109-1820
ACCEPTED
THE TRAVELERS INSURANCE COMPANY
By: /s/ Pamela Westmoreland
----------------------------------
Title: Investment Officer
8
<PAGE> 9
EXHIBIT A
EXHIBIT 2.1
[FORM OF NOTE]
THE PIONEER GROUP, INC.
8.95% Senior Note due 2004
No. R- New York, New York
$________________ [Date]
PPN: 723684 a@ 5
THE PIONEER GROUP, INC., a Delaware corporation (the "Company"), for
value received, hereby promises to pay to ____________, or registered assigns,
the principal sum of __________________ Dollars (or so much thereof as shall not
have been prepaid) on August 15, 2004, and to pay interest (computed on the
basis of a 360-day year of twelve 30-day months) on the unpaid principal balance
thereof from the date of this Note at the rate of 8.95% per annum, quarterly on
February 15, May 15, August 15 and November 15 in each year until such principal
sum shall have become due and payable (whether at maturity, at a date fixed for
prepayment or by declaration, acceleration or otherwise), and to pay on demand
interest (so computed) on any overdue principal and premium, if any, and (to the
extent permitted by applicable law) on any overdue interest, at a rate per annum
equal to the greater (determined on a daily basis) of (i) 10.95% and (ii) 2%
above the rate of interest publicly announced by Citibank, N.A. from to time to
time at its principal office in The City of New York as its prime or base rate.
Payments of principal, premium, if any, and interest shall be made in such coin
or currency of the United States of America as at the time of payment is legal
tender for the payment of public and private debts in the manner and to the
address designated by the holder hereof and, in the absence of such designation,
at said principal office of Citibank, N.A.
This Note is one of an issue of Senior Notes of the Company issued
pursuant to the Note Agreement dated as of August 14, 1997, as amended by
Supplemental Agreement No. 1 dated as of September 30, 1998, Supplemental
Agreement No. 2 dated as of September 30, 1998 and Supplemental Agreement No. 3
dated as of December 30, 1998 (as so amended, the "Note Agreement"), entered
into by the Company and certain of its Subsidiaries, as guarantors, with an
institutional investor. The holder of this Note is entitled to the benefits of
the Note Agreement and is also entitled to the benefits of a certain
Intercreditor Agreement referred to therein.
The Company may at its election prepay this Note, in whole or in part,
and the maturity hereof may be accelerated following an Event of Default, all as
provided in the Note Agreement, to which reference is made for the terms and
conditions of such provisions as to prepayment and acceleration, including
without limitation the payment of a make-whole premium in connection therewith.
Upon surrender of this Note for registration of transfer or exchange,
duly endorsed or accompanied by a written instrument of transfer duly executed
by the registered holder hereof or
9
<PAGE> 10
such holder's attorney duly authorized in writing, a new Note for a like
principal amount will be issued to, and, at the option of the holder, registered
in the name of, the transferee. The Company and any agent of the Company may
deem and treat the person in whose name this Note is registered as the owner
hereof for the purpose of receiving payments of the principal of, premium, if
any, and interest hereon and for all other purposes whatsoever, whether or not
this Note is overdue, and the Company shall not be affected by any notice to the
contrary.
As provided in the Note Agreement, this Note shall be governed by and
construed in accordance with the law of State of New York.
THE PIONEER GROUP, INC.
By:
----------------------------------
Title:
[REMAINING EXHIBITS OMITTED]
10
<PAGE> 1
EXHIBIT 10.72
THE PIONEER GROUP, INC.
1998 DEFERRED COMPENSATION PLAN
Effective January 1, 1998
<PAGE> 2
TABLE OF CONTENTS
Page
Purpose..................................................................... 1
ARTICLE 1- DEFINITIONS...................................................... 1
ARTICLE 2 - SELECTION, ENROLLMENT, ELIGIBILITY.............................. 7
2.1 SELECTION BY COMMITTEE.......................................... 7
2.2 ENROLLMENT REQUIREMENTS......................................... 7
2.3 ELIGIBILITY; COMMENCEMENT OF PARTICIPATION...................... 7
2.4 TERMINATION OF PARTICIPATION AND/OR DEFERRALS................... 7
ARTICLE 3 - DEFERRAL COMMITMENTS/CREDITING/TAXES............................ 8
3.1 MINIMUM DEFERRALS............................................... 8
3.2 MAXIMUM DEFERRAL................................................ 8
3.3 ELECTION TO DEFER; EFFECT OF ELECTION FORM...................... 9
3.4 WITHHOLDING OF ANNUAL DEFERRAL AMOUNTS.......................... 9
3.5 INVESTMENT OF TRUST ASSETS...................................... 9
3.6 VESTING......................................................... 10
3.7 CREDITING/DEBITING OF ACCOUNT BALANCES.......................... 10
3.8 FICA AND OTHER TAXES............................................ 12
3.9 DISTRIBUTIONS................................................... 12
3.10 EMPLOYER DEFERRAL............................................... 12
3.11 DEFERRALS FROM OTHER PLANS...................................... 13
ARTICLE 4 - SHORT-TERM PAYOUT; UNFORESEEABLE FINANCIAL EMERGENCIES;
WITHDRAWAL ELECTION............................................. 13
4.1 SHORT-TERM PAYOUT............................................... 13
4.2 OTHER BENEFITS TAKE PRECEDENCE OVER SHORT-TERM PAYOUT........... 14
4.3 WITHDRAWAL PAYOUT/SUSPENSIONS FOR UNFORESEEABLE
FINANCIAL EMERGENCIES........................................... 14
4.4 WITHDRAWAL ELECTION............................................. 14
ARTICLE 5 - RETIREMENT BENEFIT.............................................. 15
5.1 RETIREMENT BENEFIT.............................................. 15
5.2 PAYMENT OF RETIREMENT BENEFIT................................... 15
5.3 DEATH PRIOR TO COMPLETION OF RETIREMENT BENEFIT................. 15
ARTICLE 6 - PRE-RETIREMENT SURVIVOR BENEFIT................................. 16
6.1 PRE-RETIREMENT SURVIVOR BENEFIT................................. 16
6.2 PAYMENT OF PRE-RETIREMENT SURVIVOR BENEFIT...................... 16
-ii-
<PAGE> 3
ARTICLE 7 - TERMINATION BENEFIT............................................ 16
7.1 TERMINATION BENEFIT............................................ 16
7.2 PAYMENT OF TERMINATION BENEFIT................................. 16
ARTICLE 8 - DISABILITY WAIVER AND BENEFIT.................................. 16
8.1 DISABILITY WAIVER.............................................. 16
8.2 CONTINUED ELIGIBILITY; DISABILITY BENEFIT...................... 17
ARTICLE 9 - BENEFICIARY DESIGNATION........................................ 17
9.1 BENEFICIARY.................................................... 17
9.2 BENEFICIARY DESIGNATION; CHANGE................................ 18
9.3 ACKNOWLEDGMENT................................................. 18
9.4 NO BENEFICIARY DESIGNATION..................................... 18
9.5 DOUBT AS TO BENEFICIARY........................................ 18
9.6 DISCHARGE OF OBLIGATIONS....................................... 18
ARTICLE 10 - LEAVE OF ABSENCE............................................... 18
10.1 PAID LEAVE OF ABSENCE.......................................... 18
10.2 UNPAID LEAVE OF ABSENCE........................................ 19
ARTICLE 11 - TERMINATION, AMENDMENT OR MODIFICATION......................... 19
11.1 TERMINATION.................................................... 19
11.2 AMENDMENT...................................................... 20
11.3 PLAN AGREEMENT................................................. 20
11.4 EFFECT OF PAYMENT.............................................. 20
ARTICLE 12 - ADMINISTRATION................................................. 20
12.1 COMMITTEE DUTIES............................................... 20
12.2 AGENTS......................................................... 21
12.3 BINDING EFFECT OF DECISIONS.................................... 21
12.4 INDEMNITY OF COMMITTEE......................................... 21
12.5 EMPLOYER INFORMATION........................................... 21
12.6 MULTIPLE COMMITTEES............................................ 21
ARTICLE 13 - OTHER BENEFITS AND AGREEMENTS.................................. 22
13.1 COORDINATION WITH OTHER BENEFITS............................... 22
ARTICLE 14 - CLAIMS PROCEDURES.............................................. 22
14.1 PRESENTATION OF CLAIM.......................................... 22
14.2 NOTIFICATION OF DECISION....................................... 22
14.3 REVIEW OF A DENIED CLAIM....................................... 23
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<PAGE> 4
14.4 DECISION ON REVIEW............................................. 23
14.5 LEGAL ACTION................................................... 23
ARTICLE 15 - TRUST.......................................................... 24
15.1 ESTABLISHMENT OF THE TRUST..................................... 24
15.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST.................... 24
15.3 DISTRIBUTIONS FROM THE TRUST................................... 24
ARTICLE 16 - MISCELLANEOUS.................................................. 24
16.1 STATUS OF PLAN................................................. 24
16.2 UNSECURED GENERAL CREDITOR..................................... 24
16.3 EMPLOYER'S LIABILITY........................................... 25
16.4 NONASSIGNABILITY............................................... 25
16.5 NOT A CONTRACT OF EMPLOYMENT................................... 25
16.6 FURNISHING INFORMATION......................................... 25
16.7 TERMS.......................................................... 25
16.8 CAPTIONS....................................................... 26
16.9 GOVERNING LAW.................................................. 26
16.10 NOTICE......................................................... 26
16.11 SUCCESSORS..................................................... 26
16.12 VALIDITY....................................................... 26
16.13 INCOMPETENT.................................................... 26
16.14 DISTRIBUTION IN THE EVENT OF TAXATION.......................... 27
16.15 INSURANCE...................................................... 27
16.16 LEGAL FEES TO ENFORCE RIGHTS AFTER CHANGE IN CONTROL........... 27
-iv-
<PAGE> 5
The Pioneer Group, Inc.
1998 DEFERRED COMPENSATION PLAN
Effective January 1, 1998
PURPOSE
-------
The purpose of this Plan is to provide specified benefits to a select
group of management and highly compensated Employees who contribute materially
to the continued growth, development and future business success of The Pioneer
Group, Inc., a Delaware corporation, and its subsidiaries, if any, that sponsor
this Plan. This Plan shall be unfunded for tax purposes and for purposes of
Title I of ERISA.
ARTICLE 1
DEFINITIONS
-----------
For purposes of this Plan, unless otherwise clearly apparent from the
context, the following phrases or terms shall have the following indicated
meanings:
1.1 "Account Balance" shall mean, with respect to a Participant, a
credit on the records of the Employer equal to the Deferral
Account balance. The Account Balance, and each other specified
account balance, shall be a bookkeeping entry only and shall
be utilized solely as a device for the measurement and
determination of the amounts to be paid to a Participant, or
his or her designated Beneficiary, pursuant to this Plan.
1.2 "Annual Bonus" shall mean any compensation, in addition to
Base Annual Salary relating to services performed during any
calendar year, whether or not paid in such calendar year or
included on the Federal Income Tax Form W-2 for such calendar
year, payable to a Participant as an Employee under any
Employer's annual bonus and cash incentive plans, excluding
holiday bonuses, retention bonuses, or any other discretionary
or special bonus or awards.
1.3 "Annual Deferral Amount" shall mean that portion of a
Participant's Base Annual Salary and Annual Bonus that a
Participant elects to have deferred, and is deferred, in
accordance with Article 3, for any one Plan Year. In the event
of a Participant's Retirement, Disability (if deferrals cease
in accordance with Section 8.1), death or a Termination of
Employment prior to the end of a Plan Year, such year's Annual
Deferral Amount shall be the actual amount withheld prior to
such event.
<PAGE> 6
1.4 "Annual Installment Method" shall be an annual installment
payment over the number of years selected by the Participant
in accordance with this Plan, calculated as follows: The
Account Balance of the Participant shall be calculated as of
the close of business three business days prior to the last
business day of the year. The annual installment shall be
calculated by multiplying this balance by a fraction, the
numerator of which is one, and the denominator of which is the
remaining number of annual payments due the Participant. By
way of example, if the Participant elects a 10 year Annual
Installment Method, the first payment shall be 1/10 of the
Account Balance, calculated as described in this definition.
The following year, the payment shall be 1/9 of the Account
Balance, calculated as described in this definition. Each
annual installment shall be paid on or as soon as practicable
after the last business day of the applicable year.
1.5 "Base Annual Salary" shall mean the annual cash compensation
relating to services performed during any calendar year,
whether or not paid in such calendar year or included on the
Federal Income Tax Form W-2 for such calendar year, excluding
bonuses of every type, commissions, overtime, fringe benefits,
stock options, relocation expenses, incentive payments,
non-monetary awards, directors fees and other fees, automobile
and other allowances paid to a Participant for employment
services rendered (whether or not such allowances are included
in the Employee's gross income). Base Annual Salary shall be
calculated before reduction for compensation voluntarily
deferred or contributed by the Participant pursuant to all
qualified or non-qualified plans of any Employer and shall be
calculated to include amounts not otherwise included in the
Participant's gross income under Code Sections 125, 402(e)(3),
402(h), or 403(b) pursuant to plans established by any
Employer; provided, however, that all such amounts will be
included in compensation only to the extent that, had there
been no such plan, the amount would have been payable in cash
to the Employee.
1.6 "Beneficiary" shall mean one or more persons, trusts, estates
or other entities, designated in accordance with Article 9,
that are entitled to receive benefits under this Plan upon the
death of a Participant.
1.7 "Beneficiary Designation Form" shall mean the form established
from time to time by the Committee that a Participant
completes, signs and returns to the Committee to designate one
or more Beneficiaries.
1.8 "Board" shall mean the Board of Directors of the Company.
1.9 "Change in Control" shall mean the first to occur of any of
the following events:
(a) the acquisition by an individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934 (as amended,
the "Exchange Act")) (a "Person") of beneficial
ownership
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<PAGE> 7
(within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 25% or more of either (i) the
then-outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or
(ii) the combined voting power of the
then-outstanding voting securities of the Company
entitled to vote generally in the election of
directors (the "Outstanding Company Voting
Securities"); PROVIDED, however, that for purposes of
this subsection (a), the following acquisitions shall
not constitute a Change in Control: (i) any
acquisition directly from the Company, (ii) any
acquisition by the Company, (iii) any acquisition by
any employee benefit plan (or related trust)
sponsored or maintained by the Company or any
corporation controlled by the Company, (iv) any
acquisition by John F. Cogan, Jr., or (v) any
acquisition by any corporation pursuant to a
transaction which complies with clauses (i) and (ii)
of subsection (b) of this Section 1.9; or
(b) the consummation of a reorganization, merger or
consolidation involving the Company or a sale or other
disposition of all or substantially all of the assets of the
Company (a "Business Combination"), unless, immediately
following such Business Combination, each of the following
three conditions is satisfied: (i) all or substantially all of
the individuals and entities who were the beneficial owners of
the Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more
than 50% of the then-outstanding shares of common stock and
the combined voting power of the then-outstanding voting
securities entitled to vote generally in the election of
directors, respectively, of the resulting or acquiring
corporation in such Business Combination (which shall include,
without limitation, a corporation which as a result of such
transaction owns the Company or substantially all of the
Company's assets either directly or through one or more
subsidiaries) (such resulting or acquiring corporation is
referred to herein as the "Acquiring Corporation") in
substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the
Outstanding Company Common Stock and Outstanding Company
Voting Securities, respectively, (ii) no Person (excluding the
Acquiring Corporation or any employee benefit plan (or related
trust) maintained or sponsored by the Company or the Acquiring
Corporation) beneficially owns, directly or indirectly, 30% or
more of the then outstanding shares of common stock of the
Acquiring Corporation, or of the combined voting power of the
then-outstanding voting securities of such corporation (except
to the extent that such ownership existed prior to the
Business Combination) and (iii) a majority of the members of
the board of directors of the Acquiring Corporation were
Incumbent Directors at the time of the execution of the
initial agreement, or of the action of the Board, providing
for such Business Combination; or
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<PAGE> 8
(c) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
1.10 "Claimant" shall have the meaning set forth in Section 14.1.
1.11 "Code" shall mean the Internal Revenue Code of 1986, as it may
be amended from time to time.
1.12 "Committee" shall mean the committee described in Article 12.
1.13 "Company" shall mean The Pioneer Group, Inc., a Delaware
corporation, and any successor to all or substantially all of
the Company's assets or business.
1.14 "Deduction Limitation" shall mean the following described
limitation on a benefit that may otherwise be distributable
pursuant to the provisions of this Plan. Except as otherwise
provided, this limitation shall be applied to all
distributions that are "subject to the Deduction Limitation"
under this Plan. If an Employer determines in good faith prior
to a Change in Control that there is a reasonable likelihood
that any compensation paid to a Participant for a taxable year
of the Employer would not be deductible by the Employer solely
by reason of the limitation under Code Section 162(m), then to
the extent deemed necessary by the Employer to ensure that the
entire amount of any distribution to the Participant pursuant
to this Plan prior to the Change in Control is deductible, the
Employer may defer all or any portion of a distribution under
this Plan. Any amounts deferred pursuant to this limitation
shall continue to be credited/debited with additional amounts
in accordance with Section 3.7 below. The amounts so deferred
and amounts credited thereon shall be distributed to the
Participant or his or her Beneficiary (in the event of the
Participant's death) at the earliest possible date, as
determined by the Employer in good faith, on which the
deductibility of compensation paid or payable to the
Participant for the taxable year of the Employer during which
the distribution is made will not be limited by Section
162(m), or if earlier, the effective date of a Change in
Control. Notwithstanding anything to the contrary in this
Plan, the Deduction Limitation shall not apply to any
distributions made after a Change in Control.
1.15 "Deferral Account" shall mean (i) the sum of all of a
Participant's Annual Deferral Amounts, plus (ii) amounts
credited in accordance with all the applicable crediting
provisions of this Plan that relate to the Participant's
Deferral Account, less (iii) all distributions made to the
Participant or his or her Beneficiary pursuant to this Plan
that relate to his or her Deferral Account.
1.16 "Disability" shall mean a period of disability during which a
Participant qualifies for disability benefits under the
Participant's Employer's long-term disability plan,
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<PAGE> 9
or, if a Participant does not participate in such a plan, a
period of disability during which the Participant would have
qualified for permanent disability benefits under such a plan
had the Participant been a participant in such a plan, as
determined in the sole discretion of the Committee. If the
Participant's Employer does not sponsor such a plan, or
discontinues to sponsor such a plan, Disability shall be
determined by the Committee in its sole discretion.
1.17 "Disability Benefit" shall mean the benefit set forth in
Article 8.
1.18 "Election Form" shall mean the form established from time to
time by the Committee that a Participant completes, signs and
returns to the Committee to make an election under the Plan.
1.19 "Employee" shall mean a person who is an employee of any
Employer.
1.20 "Employer(s)" shall mean the Company and/or any of its
subsidiaries (now in existence or hereafter formed or
acquired) that have been selected by the Board or any
authorized committee thereof to participate in the Plan and
have adopted the Plan as a sponsor.
1.21 "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as it may be amended from time to time.
1.22 "Participant" shall mean any Employee (i) who is selected to
participate in the Plan, (ii) who elects to participate in the
Plan, (iii) who signs a Plan Agreement, an Election Form and a
Beneficiary Designation Form, (iv) whose signed Plan
Agreement, Election Form and Beneficiary Designation Form are
accepted by the Committee, (v) who commences participation in
the Plan, and (vi) whose Plan Agreement has not terminated. A
spouse or former spouse of a Participant shall not be treated
as a Participant in the Plan or have an account balance under
the Plan, even if he or she has an interest in the
Participant's benefits under the Plan as a result of
applicable law or property settlements resulting from legal
separation or divorce.
1.23 "Plan" shall mean the Company's Deferred Compensation Plan,
which shall be evidenced by this instrument and by each Plan
Agreement, as they may be amended from time to time.
1.24 "Plan Agreement" shall mean a written agreement, as amended
from time to time, which is entered into by and between an
Employer and a Participant. Each Plan Agreement executed by a
Participant and the Participant's Employer shall provide for
the entire benefit to which such Participant is entitled under
the Plan; should there be more than one Plan Agreement, the
Plan Agreement bearing the latest date
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<PAGE> 10
of acceptance by the Employer shall supersede all previous
Plan Agreements in their entirety and shall govern such
entitlement. The terms of any Plan Agreement may be different
for any Participant, and any Plan Agreement may provide
additional benefits not set forth in the Plan or limit the
benefits otherwise provided under the Plan; provided, however,
that any such additional benefits or benefit limitations must
be agreed to by both the Employer and the Participant.
1.25 "Plan Year" shall mean a period beginning on January 1 of each
calendar year and continuing through December 31 of such
calendar year.
1.26 "Pre-Retirement Survivor Benefit" shall mean the benefit set
forth in Article 6 for purposes of this Plan only.
1.27 "Retirement", "Retire(s)" or "Retired" shall mean, with
respect to an Employee, severance from employment from all
Employers for any reason other than a leave of absence, death
or Disability on or after the earlier of the attainment of (a)
age sixty-five (65) or (b) age fifty-five (55) with ten (10)
Years of Service. The definition in this Section 1.27 shall
not have any effect on any other plan maintained by the
Employer.
1.28 "Retirement Benefit" shall mean the benefit set forth in
Article 5.
1.29 "Short-Term Payout" shall mean the payout set forth in Section
4.1.
1.30 "Termination Benefit" shall mean the benefit set forth in
Article 7.
1.31 "Termination of Employment" shall mean the severing of
employment with all Employers, voluntarily or involuntarily,
for any reason other than Retirement, Disability, death or an
authorized leave of absence.
1.32 "Trust" shall mean one or more trusts established pursuant to
one or more trust agreements between the Company and the
trustee named therein, as amended from time to time.
1.33 "Unforeseeable Financial Emergency" shall mean an
unanticipated emergency that is caused by an event beyond the
control of the Participant that would result in severe
financial hardship to the Participant resulting from (i) a
sudden and unexpected illness or accident of the Participant
or a dependent of the Participant, (ii) a loss of the
Participant's property due to casualty, or (iii) such other
extraordinary and unforeseeable circumstances arising as a
result of events beyond the control of the Participant, all as
determined in the sole discretion of the Committee.
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<PAGE> 11
ARTICLE 2
SELECTION, ENROLLMENT, ELIGIBILITY
----------------------------------
2.1 SELECTION BY COMMITTEE. Participation in the Plan shall be
limited to a select group of management and highly compensated
Employees of the Employers, as determined by the Committee in
its sole discretion. From that group, the Committee shall
select, in its sole discretion, Employees to participate in
the Plan.
2.2 ENROLLMENT REQUIREMENTS. As a condition to participation, each
selected Employee shall complete, execute and return to the
Committee a Plan Agreement, an Election Form and a Beneficiary
Designation Form, all within 30 days after he or she is
selected to participate in the Plan. In addition, the
Committee shall establish from time to time such other
enrollment requirements as it determines in its sole
discretion are necessary.
2.3 ELIGIBILITY; COMMENCEMENT OF PARTICIPATION. Provided an
Employee selected to participate in the Plan has met all
enrollment requirements set forth in this Plan and required by
the Committee, including returning all required documents to
the Committee within the specified time period, that Employee
shall commence participation in the Plan on the first day of
the month following the month in which the Employee completes
all enrollment requirements. If an Employee fails to meet all
such requirements within the period required, in accordance
with Section 2.2, that Employee shall not be eligible to
participate in the Plan until the first day of the Plan Year
following the delivery to and acceptance by the Committee of
the required documents.
2.4 TERMINATION OF PARTICIPATION AND/OR DEFERRALS. If the
Committee determines in good faith that a Participant no
longer qualifies as a member of a select group of management
or highly compensated employees, as membership in such group
is determined in accordance with Sections 201(2), 301(a)(3)
and 401(a)(1) of ERISA, the Committee shall have the right, in
its sole discretion, to (i) terminate any deferral election
the Participant has made for the remainder of the Plan Year in
which the Participant's membership status changes, (ii)
prevent the Participant from making future deferral elections
and/or (iii) immediately distribute the Participant's then
Account Balance as a Termination Benefit and terminate the
Participant's participation in the Plan.
ARTICLE 3
DEFERRAL COMMITMENTS/CREDITING/TAXES
------------------------------------
3.1 MINIMUM DEFERRALS.
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<PAGE> 12
(a) BASE ANNUAL SALARY AND ANNUAL BONUS. For each Plan
Year, a Participant may elect to defer, as his or her
Annual Deferral Amount, part or all of the
Participant's Base Annual Salary and/or Annual Bonus,
provided that the total amount deferred for a Plan
Year must be at least $10,000. The Committee may in
its sole discretion increase or decrease the minimum
deferral amount at any time or from time to time.
If an election is made for less than the applicable
minimum amount, or if no election is made, the amount
deferred shall be zero.
3.2 MAXIMUM DEFERRAL
(a) BASE ANNUAL SALARY AND ANNUAL BONUS. For each Plan
Year, a Participant may elect to defer, as his or her
Annual Deferral Amount, part or all of the
Participant's Base Annual Salary and/or Annual Bonus
up to the following maximum percentages for each
deferral elected:
Maximum
Deferral Amount
-------- ------
Base Annual Salary 50%
Annual Bonus 100%
Notwithstanding the foregoing, if a Participant first
becomes a Participant after the first day of a Plan
Year, or in the case of the first Plan Year of the
Plan itself, the amount of the Base Annual Salary
and/or Annual Bonus which may be deferred shall be
limited to the amount of compensation not yet earned
by the Participant as of the date the Participant
submits a Plan Agreement and Election Form to the
Committee for acceptance. The preceding sentence is
not intended to limit any deferral accepted under
other arrangements sponsored by the Company pursuant
to Section 3.11.
An election to defer Base Annual Salary and/or Annual
Bonus may be expressed as an election to defer (i) a
specific percentage, (ii) a specific dollar amount or
(iii) the excess over a specified dollar amount.
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<PAGE> 13
3.3 ELECTION TO DEFER; EFFECT OF ELECTION FORM. For each Plan Year
other than the Plan Year beginning in 1998, an irrevocable
deferral election for that Plan Year, and such other elections
as the Committee deems necessary or desirable under the Plan,
shall be made by timely delivering to the Committee, in
accordance with its rules and procedures, before the end of
the Plan Year preceding the Plan Year for which the election
is made, a new Election Form; provided, however, that election
to defer an Annual Bonus to be paid for a Plan Year may be
made up to June 30 of such Plan Year. Deferral elections for
the 1998 Plan Year must be made no later than 30 days after a
participant is notified that he or she is eligible to
Participate in the Plan. Deferral elections for the Plan Year
in which a Participant first becomes a participant shall be
made within 30 days after becoming a participant. If no such
Election Form is timely delivered for a Plan Year, the Annual
Deferral Amount shall be zero for that Plan Year.
3.4 WITHHOLDING OF ANNUAL DEFERRAL AMOUNTS. For each Plan Year,
the Base Annual Salary portion of the Annual Deferral Amount
shall be withheld from each regularly scheduled Base Annual
Salary payroll in equal amounts, as adjusted from time to time
for increases and decreases in Base Annual Salary. The Annual
Bonus portion of the Annual Deferral Amount shall be withheld
at the time the Annual Bonus is or otherwise would be paid to
the Participant, whether or not this occurs during the Plan
Year itself. No withholding shall be permitted within twelve
months after the Participant has received a hardship
distribution from The Pioneer Group, Inc. 401(k) Plan.
3.5 INVESTMENT OF TRUST ASSETS. The Trustee of the Trust shall be
authorized, upon written instructions received from the
Committee or investment manager appointed by the Committee, to
invest and reinvest the assets of the Trust in accordance with
the applicable Trust Agreement, including the disposition of
stock and reinvestment of the proceeds in one or more
investment vehicles designated by the Committee.
3.6 VESTING. A Participant shall at all times be 100% vested in
his or her Deferral Account.
3.7 CREDITING/DEBITING OF ACCOUNT BALANCES. In accordance with,
and subject to, the rules and procedures that are established
from time to time by the Committee, in its sole discretion,
amounts shall be credited or debited to a Participant's
Account Balance in accordance with the following rules:
(a) ELECTION OF MEASUREMENT FUNDS. A Participant, in
connection with his or her initial deferral election
in accordance with Section 3.2(a) above, shall elect,
on the Election Form, one or more Measurement Fund(s)
(as described in Section 3.7(c) below) to be used to
determine the additional
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<PAGE> 14
amounts to be credited to his or her Account Balance
for the first calendar quarter or portion thereof in
which the Participant commences participation in the
Plan and continuing thereafter for each subsequent
calendar quarter in which the Participant
participates in the Plan, unless changed in
accordance with the next sentence. Commencing with
the first calendar quarter that follows the
Participant's commencement of participation in the
Plan and continuing thereafter for each subsequent
calendar quarter in which the Participant
participates in the Plan, no later than the next to
last business day of the calendar quarter, the
Participant may (but is not required to) elect, by
submitting an Election Form to the Committee that is
accepted by the Committee, to add or delete one or
more Measurement Fund(s) to be used to determine the
additional amounts to be credited to his or her
Account Balance, or to change the portion of his or
her Account Balance allocated to each previously or
newly elected Measurement Fund. If an election is
made in accordance with the previous sentence, it
shall apply to the next calendar quarter and continue
thereafter for each subsequent calendar quarter in
which the Participant participates in the Plan,
unless changed in accordance with the previous
sentence. The Committee may permit changes to be made
more frequently than quarterly and may permit changes
to be made telephonically, in either case, pursuant
to such procedures as the Committee may adopt from
time to time.
(b) PROPORTIONATE ALLOCATION. In making any election
described in Section 3.7(a) above, the Participant
shall specify on the Election Form, in increments of
one percentage point (1%), the percentage of his or
her Account Balance to be allocated to a Measurement
Fund (as if the Participant was making an investment
in that Measurement Fund with that portion of his or
her Account Balance).
(c) MEASUREMENT FUNDS. The Participant may elect one or
more of the following measurement funds set forth on
Schedule A. As necessary, the Committee may, in its
sole discretion, discontinue, substitute or add a
Measurement Fund. Each such action will take effect
as of the first day of the calendar quarter that
follows by thirty (30) days the day on which the
Committee gives Participants advance written notice
of such change.
(d) CREDITING OR DEBITING METHOD. Subject to charges for
administrative expenses as provided in Section
3.7(f), the performance of each elected Measurement
Fund (either positive or negative) will be determined
by the Committee, in its sole discretion, based on
the performance of the Measurement Funds themselves.
A Participant's Account Balance shall be credited or
debited on a daily basis based on the performance of
each
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<PAGE> 15
Measurement Fund selected by the Participant, AS
DETERMINED BY THE COMMITTEE IN ITS SOLE DISCRETION,
as though (i) a Participant's Account Balance were
invested in the Measurement Fund(s) selected by the
Participant, in the percentages applicable to such
calendar quarter, as of the close of business on the
first business day of such calendar quarter, at the
closing price on such date; (ii) the portion of the
Annual Deferral Amount that was actually deferred
during any calendar quarter were invested in the
Measurement Fund(s) selected by the Participant, in
the percentages applicable to such calendar quarter,
no later than the close of business on the third
business day after the day on which such amounts are
actually deferred from the Participant's Base Annual
Salary through reductions in his or her payroll, at
the closing price on such date; and (iii) any
distribution made to a Participant that decreases
such Participant's Account Balance ceased being
invested in the Measurement Fund(s), in the
percentages applicable to such calendar quarter, no
earlier than three business days prior to the
distribution, at the closing price on such date.
(e) NO ACTUAL INVESTMENT. Notwithstanding any other
provision of this Plan that may be interpreted to the
contrary, the Measurement Funds are to be used for
measurement purposes only, and a Participant's
election of any such Measurement Fund, the allocation
to his or her Account Balance thereto, the
calculation of additional amounts and the crediting
or debiting of such amounts to a Participant's
Account Balance SHALL NOT be considered or construed
in any manner as an actual investment of his or her
Account Balance in any such Measurement Fund. In the
event that the Company or the Trustee (as that term
is defined in the Trust), in its own discretion,
decides to invest funds in any or all of the
Measurement Funds, no Participant shall have any
rights in or to such investments themselves. Without
limiting the foregoing, a Participant's Account
Balance shall at all times be a bookkeeping entry
only and shall not represent any investment made on
his or her behalf by the Company or the Trust.
(f) EXPENSES. The Account Balance of each Participant
shall be debited by the amount of the reasonable
administrative expenses of the Plan in the same
proportion that the Participant's Account Balance
bears to the total Account Balances of all
Participants.
3.8 FICA AND OTHER TAXES. For each Plan Year in which an Annual
Deferral Amount is being withheld from a Participant, the
Participant's Employer(s) shall withhold from that portion of
the Participant's Base Annual Salary and Bonus that is not
being deferred, in a manner determined by the Employer(s), the
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<PAGE> 16
Participant's share of FICA and other employment taxes on such
Annual Deferral Amount. If necessary, the Committee may reduce
the Annual Deferral Amount in order to comply with this
Section 3.8.
3.9 DISTRIBUTIONS. The Participant's Employer(s), or the trustee
of the Trust, shall withhold from any payments made to a
Participant under this Plan all federal, state and local
income, employment and other taxes required to be withheld by
the Employer(s), or the trustee of the Trust, in connection
with such payments, in amounts and in a manner to be
determined in the sole discretion of the Employer(s) and the
trustee of the Trust.
3.10 EMPLOYER DEFERRAL. If an Employer determines in good faith
prior to a Change in Control that there is a reasonable
likelihood that any compensation paid to a Participant for a
taxable year would not be deductible by the Employer solely by
reason of the limitation under Code Section 162(m), then to
the extent deemed necessary by the Employer to ensure that all
of the compensation payable to the Participant prior to the
Change in Control is deductible, the Employer may reduce the
Participant's Base Annual Salary and/or Annual Bonus and treat
the amount of such reduction as an amount deferred by the
Participant. The amount so deferred and amounts credited
thereon shall be distributed to the Participant (or his or her
Beneficiary in the event of the Participant's death) at the
earliest possible date, as determined by the Employer in good
faith, on which the deductibility of compensation paid or
payable to the Participant for the taxable year of the
Employer during which the distribution is made will not be
limited by Section 162(m), or if earlier, the effective date
of a Change in Control. No deferrals may be made under this
Section 3.10 after the effective date of a Change in Control.
For purposes of this Section 3.10 only, the term "Participant"
shall mean any Employee who has been selected to participate
in the Plan.
3.11 DEFERRALS FROM OTHER PLANS. The Plan may accept the transfer
of amounts or assets deferred by a Participant under any other
deferral arrangement provided by the Company, including
without limitation any shares of common stock of the Employer
which but for such deferral would (i) be issued to the
Participant upon the exercise of a stock option granted by the
Company or (ii) be vested and nonforfeitable in the case of
restricted stock issued to the Participant. Any amounts
deferred representing shares of Company common stock shall be
accounted for on a share by share basis, with appropriate
adjustments to reflect changes in the capital structure of the
Company, and shall, when distributed, be distributed in the
form of common stock of the Company. Notwithstanding any of
the provisions of the Plan to the contrary, the Participant
shall not have any right to elect to have any amounts deferred
in the form of Company common stock measured by reference to
any Measurement Fund.
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<PAGE> 17
ARTICLE 4
SHORT-TERM PAYOUT; UNFORESEEABLE FINANCIAL EMERGENCIES;
WITHDRAWAL ELECTION
-------------------
4.1 SHORT-TERM PAYOUT. In connection with each election to defer
an Annual Deferral Amount, a Participant may irrevocably elect
to receive a future "Short-Term Payout" from the Plan with
respect to such Annual Deferral Amount. Subject to the
Deduction Limitation, the Short-Term Payout shall be a lump
sum payment in an amount that is equal to the Annual Deferral
Amount plus amounts credited or debited in the manner provided
in Section 3.7 above on that amount, determined at the time
that the Short-Term Payout becomes payable (rather than the
date of a Termination of Employment). Subject to the Deduction
Limitation and the other terms and conditions of this Plan,
each Short-Term Payout elected shall be paid out during a
period beginning 1 day and ending 60 days after the last day
of any Plan Year designated by the Participant that is at
least three Plan Years after the Plan Year in which the Annual
Deferral Amount is actually deferred. By way of example, if a
three year Short-Term Payout is elected for Annual Deferral
Amounts that are deferred in the Plan Year commencing January
1, 1998, the three year Short-Term Payout would become payable
during a 60 day period commencing January 1, 2002.
4.2 OTHER BENEFITS TAKE PRECEDENCE OVER SHORT-TERM PAYOUT. Should
an event occur that triggers a benefit under Article 5, 6, 7
or 8, any Annual Deferral Amount, plus amounts credited or
debited thereon, that is subject to a Short-Term Payout
election under Section 4.1 shall not be paid in accordance
with Section 4.1 but shall instead be paid in accordance with
the other applicable Article.
4.3 WITHDRAWAL PAYOUT/SUSPENSIONS FOR UNFORESEEABLE FINANCIAL
EMERGENCIES. If the Participant experiences an Unforeseeable
Financial Emergency, the Participant may petition the
Committee to (i) suspend any deferrals required to be made by
a Participant and/or (ii) receive a partial or full payout
from the Plan. The payout shall not exceed the lesser of the
Participant's Account Balance, calculated as if such
Participant were receiving a Termination Benefit, or the
amount reasonably needed to satisfy the Unforeseeable
Financial Emergency as determined by the Committee. If,
subject to the sole discretion of the Committee, the petition
for a suspension and/or payout is approved, suspension shall
take effect upon the date of approval and any payout shall be
made within 60 days of the date of approval. The payment of
any amount under this Section 4.3 shall not be subject to the
Deduction Limitation or any withdrawal penalty.
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<PAGE> 18
4.4 WITHDRAWAL ELECTION. A Participant (or, after a Participant's
death, his or her Beneficiary) may elect, at any time, to
withdraw all of his or her Account Balance, calculated as if
there had occurred a Termination of Employment as of the day
of the election, less a withdrawal penalty equal to 10% of
such amount (the net amount shall be referred to as the
"Withdrawal Amount"). This election can be made at any time,
before or after Retirement, Disability, death or Termination
of Employment, and whether or not the Participant (or
Beneficiary) is in the process of being paid pursuant to an
installment payment schedule. If made before Retirement,
Disability or death, a Participant's Withdrawal Amount shall
be his or her Account Balance calculated as if there had
occurred a Termination of Employment as of the day of the
election. No partial withdrawals of the Withdrawal Amount
shall be allowed. The Participant (or his or her Beneficiary)
shall make this election by giving the Committee advance
written notice of the election in a form determined from time
to time by the Committee. The Participant (or his or her
Beneficiary) shall be paid the Withdrawal Amount within 60
days of his or her election. Once the Withdrawal Amount is
paid, the Participant's participation in the Plan shall
terminate and the Participant shall not be eligible to
participate in the Plan until the next enrollment period which
is at least 12 months after the date of withdrawal. The
payment of this Withdrawal Amount shall not be subject to the
Deduction Limitation.
ARTICLE 5
RETIREMENT BENEFIT
------------------
5.1 RETIREMENT BENEFIT. Subject to the Deduction Limitation, a
Participant who Retires shall receive, as a Retirement
Benefit, his or her Account Balance.
5.2 PAYMENT OF RETIREMENT BENEFIT. A Participant, in connection
with his or her commencement of participation in the Plan,
shall elect on an Election Form to receive the Retirement
Benefit in a lump sum or pursuant to an Annual Installment
Method of from 2 to 10 years. The Participant may annually
change his or her election to an allowable alternative payout
period by submitting a new Election Form to the Committee,
provided that any such Election Form is submitted at least one
year prior to the Participant's Retirement and is accepted by
the Committee in its sole discretion. The Election Form most
recently accepted by the Committee shall govern the payout of
the Retirement Benefit. If a Participant does not make any
election with respect to the payment of the Retirement
Benefit, then such benefit shall be payable in a lump sum. The
lump sum payment shall be made, or installment payments shall
commence, no later than 60 days after the date the Participant
Retires or at such later date as the Participant may designate
on a timely filed Election form. Any payment made shall be
subject to the Deduction Limitation.
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<PAGE> 19
5.3 DEATH PRIOR TO COMPLETION OF RETIREMENT BENEFIT. If a
Participant dies after Retirement but before the Retirement
Benefit is paid in full, the Participant's unpaid Retirement
Benefit payments shall continue and shall be paid to the
Participant's Beneficiary (a) over the remaining number of
months and in the same amounts as that benefit would have been
paid to the Participant had the Participant survived, or (b)
in a lump sum, if requested by the Beneficiary and allowed in
the sole discretion of the Committee, that is equal to the
Participant's unpaid remaining Account Balance.
ARTICLE 6
PRE-RETIREMENT SURVIVOR BENEFIT
-------------------------------
6.1 PRE-RETIREMENT SURVIVOR BENEFIT. Subject to the Deduction
Limitation, the Participant's Beneficiary shall receive a
Pre-Retirement Survivor Benefit equal to the Participant's
Account Balance if the Participant dies before he or she
Retires, experiences a Termination of Employment or suffers a
Disability.
6.2 PAYMENT OF PRE-RETIREMENT SURVIVOR BENEFIT. Payment of the
Pre-Retirement Survivor Benefit shall be made in a lump sum.
The lump sum payment shall be made no later than 60 days after
the date the Committee is provided with proof that is
satisfactory to the Committee of the Participant's death. Any
payment made shall be subject to the Deduction Limitation.
ARTICLE 7
TERMINATION BENEFIT
-------------------
7.1 TERMINATION BENEFIT. Subject to the Deduction Limitation, the
Participant shall receive a Termination Benefit, which shall
be equal to the Participant's Account Balance, if a
Participant experiences a Termination of Employment prior to
his or her Retirement, death or Disability.
7.2 PAYMENT OF TERMINATION BENEFIT. Payment of the Participant's
Termination Benefit shall be made in a lump sum. The lump sum
payment shall be made no later than 60 days after the date of
the Participant's Termination of Employment. Any payment made
shall be subject to the Deduction Limitation.
ARTICLE 8
DISABILITY WAIVER AND BENEFIT
-----------------------------
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<PAGE> 20
8.1 DISABILITY WAIVER.
(a) WAIVER OF DEFERRAL. A Participant who is determined
by the Committee to be suffering from a Disability
shall be excused from fulfilling that portion of the
Annual Deferral Amount commitment that would
otherwise have been withheld from a Participant's
Base Annual Salary and Annual Bonus for the Plan Year
during which the Participant first suffers a
Disability. During the period of Disability, the
Participant shall not be allowed to make any
additional deferral elections, but will continue to
be considered a Participant for all other purposes of
this Plan.
(b) RETURN TO WORK. If a Participant returns to
employment with an Employer after a Disability
ceases, the Participant may elect to defer an Annual
Deferral Amount for the Plan Year following his or
her return to employment or service and for every
Plan Year thereafter while a Participant in the Plan;
provided such deferral elections are otherwise
allowed and an Election Form is delivered to and
accepted by the Committee for each such election in
accordance with Section 3.3 above.
8.2 CONTINUED ELIGIBILITY; DISABILITY BENEFIT. A Participant
suffering a Disability shall, for benefit purposes under this
Plan, continue to be considered to be employed and shall be
eligible for the benefits provided for in Articles 4, 5, 6 or
7 in accordance with the provisions of those Articles.
Notwithstanding the foregoing, the Committee shall have the
right to, in its sole and absolute discretion and for purposes
of this Plan only, and must in the case of a Participant who
is otherwise eligible to Retire, deem the Participant to have
experienced a Termination of Employment, or in the case of a
Participant who is eligible to Retire, to have Retired, at any
time (or in the case of a Participant who is eligible to
Retire, as soon as practicable) after such Participant is
determined to be suffering a Disability, in which case the
Participant shall receive a Disability Benefit equal to his or
her Account Balance at the time of the Committee's
determination; provided, however, that should the Participant
otherwise have been eligible to Retire, he or she shall be
paid in accordance with Article 5. The Disability Benefit
shall be paid in a lump sum within 60 days of the Committee's
exercise of such right. Any payment made shall be subject to
the Deduction Limitation.
ARTICLE 9
BENEFICIARY DESIGNATION
-----------------------
9.1 BENEFICIARY. Each Participant shall have the right, at any
time, to designate his or her Beneficiary(ies) (both primary
as well as contingent) to receive any benefits payable under
the Plan to a beneficiary upon the death of a Participant. The
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<PAGE> 21
Beneficiary designated under this Plan may be the same as or
different from the Beneficiary designation under any other
plan of an Employer in which the Participant participates.
9.2 BENEFICIARY DESIGNATION; CHANGE. A Participant shall designate
his or her Beneficiary by completing and signing the
Beneficiary Designation Form, and returning it to the
Committee or its designated agent. A Participant shall have
the right to change a Beneficiary by completing, signing and
otherwise complying with the terms of the Beneficiary
Designation Form and the Committee's rules and procedures, as
in effect from time to time. Upon the acceptance by the
Committee of a new Beneficiary Designation Form, all
Beneficiary designations previously filed shall be canceled.
The Committee shall be entitled to rely on the last
Beneficiary Designation Form filed by the Participant and
accepted by the Committee prior to his or her death.
9.3 ACKNOWLEDGMENT. No designation or change in designation of a
Beneficiary shall be effective until received in writing and
acknowledged in writing by the Committee or its designated
agent.
9.4 NO BENEFICIARY DESIGNATION. If a Participant fails to
designate a Beneficiary as provided in Sections 9.1, 9.2 and
9.3 above, or if all designated Beneficiaries predecease the
Participant or die prior to complete distribution of the
Participant's benefits, then the Participant's designated
Beneficiary shall be deemed to be his or her surviving spouse.
If the Participant has no surviving spouse, the benefits
remaining under the Plan to be paid to a Beneficiary shall be
payable to the then living issue of the Participant per
stirpes and, if there is no such issue, to the executor or
personal representative of the Participant's estate.
9.5 DOUBT AS TO BENEFICIARY. If the Committee has any doubt as to
the proper Beneficiary to receive payments pursuant to this
Plan, the Committee shall have the right, exercisable in its
discretion, to cause the Participant's Employer to withhold
such payments until this matter is resolved to the Committee's
satisfaction.
9.6 DISCHARGE OF OBLIGATIONS. The payment of benefits under the
Plan to a Beneficiary shall fully and completely discharge all
Employers and the Committee from all further obligations under
this Plan with respect to the Participant, and that
Participant's Plan Agreement shall terminate upon such full
payment of benefits.
ARTICLE 10
LEAVE OF ABSENCE
----------------
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<PAGE> 22
10.1 PAID LEAVE OF ABSENCE. If a Participant is authorized by the
Participant's Employer for any reason to take a paid leave of
absence from the employment of the Employer, the Participant
shall continue to be considered employed by the Employer and
the Annual Deferral Amount shall continue to be withheld
during such paid leave of absence in accordance with Section
3.4.
10.2 UNPAID LEAVE OF ABSENCE. If a Participant is authorized by the
Participant's Employer for any reason to take an unpaid leave
of absence from the employment of the Employer, the
Participant shall continue to be considered employed by the
Employer and the Participant shall be excused from making
deferrals until the earlier of the date the leave of absence
expires or the Participant returns to a paid employment
status. Upon such expiration or return, deferrals shall resume
for the remaining portion of the Plan Year in which the
expiration or return occurs, based on the deferral election,
if any, made for that Plan Year. If no election was made for
that Plan Year, no deferral shall be withheld.
ARTICLE 11
TERMINATION, AMENDMENT OR MODIFICATION
--------------------------------------
11.1 TERMINATION. Although each Employer anticipates that it will
continue the Plan for an indefinite period of time, there is
no guarantee that any Employer will continue the Plan or will
not terminate the Plan at any time in the future. Accordingly,
each Employer reserves the right to discontinue its
sponsorship of the Plan and/or to terminate the Plan at any
time with respect to any or all of its participating
Employees, by action of its board of directors or any duly
authorized committee thereof. Notwithstanding any provision of
this Plan to the contrary, the Plan shall terminate
automatically upon the occurrence of a Change in Control
without the necessity of any action by any Employer. Upon the
termination of the Plan with respect to any Employer, the Plan
Agreements of the affected Participants who are employed by
that Employer shall terminate and their Account Balances,
determined as if they had experienced a Termination of
Employment on the date of Plan termination, or if Plan
termination occurs after the date upon which a Participant was
eligible to Retire, then with respect to that Participant as
if he or she had Retired on the date of Plan termination,
shall be paid to the Participants as follows: Prior to a
Change in Control, if the Plan is terminated with respect to
all of its Participants, an Employer shall have the right, in
its sole discretion, and notwithstanding any elections made by
the Participant, to pay such benefits in a lump sum or
pursuant to an Annual Installment Method of up to 10 years,
with amounts credited and debited during the installment
period as provided herein. If the Plan is terminated with
respect to less than all of its Participants, an Employer
shall be required to pay such benefits in a lump sum. After a
Change in Control, the Employer shall be required to pay such
benefits in a lump sum. The
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<PAGE> 23
termination of the Plan shall not adversely affect any
Participant or Beneficiary who has become entitled to the
payment of any benefits under the Plan as of the date of
termination; provided, however, that the Employer shall have
the right to accelerate installment payments without a premium
or prepayment penalty by paying the Account Balance in a lump
sum or pursuant to an Annual Installment Method using fewer
years.
11.2 AMENDMENT. Any Employer may, at any time, amend or modify the
Plan in whole or in part with respect to that Employer by the
action of its board of directors or any duly authorized
committee thereof; provided, however, that no amendment or
modification shall be effective to decrease or restrict the
value of a Participant's Account Balance in existence at the
time the amendment or modification is made, calculated as if
the Participant had experienced a Termination of Employment as
of the effective date of the amendment or modification or, if
the amendment or modification occurs after the date upon which
the Participant was eligible to Retire, the Participant had
Retired as of the effective date of the amendment or
modification. The amendment or modification of the Plan shall
not affect any Participant or Beneficiary who has become
entitled to the payment of benefits under the Plan as of the
date of the amendment or modification; provided, however, that
the Employer shall have the right to accelerate installment
payments by paying the Account Balance in a lump sum or
pursuant to an Annual Installment Method using fewer years.
11.3 PLAN AGREEMENT. Despite the provisions of Sections 11.1 and
11.2 above, if a Participant's Plan Agreement contains
benefits or limitations that are not in this Plan document,
the Employer may only amend or terminate such provisions with
the consent of the Participant.
11.4 EFFECT OF PAYMENT. The full payment of the applicable benefit
under Articles 4, 5, 6, 7 or 8 of the Plan shall completely
discharge all obligations to a Participant and his or her
designated Beneficiaries under this Plan and the Participant's
Plan Agreement shall terminate.
ARTICLE 12
ADMINISTRATION
--------------
12.1 COMMITTEE DUTIES. This Plan shall be administered by a
Committee which shall consist of the Compensation Committee of
the Board, or such other committee as the Board shall appoint.
Members of the Committee may be Participants under this Plan.
The Committee shall also have the complete discretion and
authority to (i) make, amend, interpret, and enforce all
appropriate rules and regulations for the administration of
this Plan and (ii) decide or resolve any and all questions
including
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<PAGE> 24
interpretations of this Plan, as may arise in connection with
the Plan. Any individual serving on the Committee who is a
Participant shall not vote or act on any matter relating
solely to himself or herself. When making a determination or
calculation, the Committee shall be entitled to rely on
information furnished by a Participant or the Company.
12.2 AGENTS. In the administration of this Plan, the Committee may,
from time to time, employ agents and delegate to them such
administrative duties as it sees fit (including acting through
a duly appointed representative) and may from time to time
consult with counsel who may be counsel to any Employer.
12.3 BINDING EFFECT OF DECISIONS. The decision or action of the
Committee with respect to any question arising out of or in
connection with the administration, interpretation and
application of the Plan and the rules and regulations
promulgated hereunder shall be final and conclusive and
binding upon all persons having any interest in the Plan.
12.4 INDEMNITY OF COMMITTEE. All Employers shall indemnify and hold
harmless the members of the Committee, and any Employee to
whom the duties of the Committee may be delegated, against any
and all claims, losses, damages, expenses or liabilities
arising from any action or failure to act with respect to this
Plan, except in the case of willful misconduct by the
Committee or any of its members or any such Employee.
12.5 EMPLOYER INFORMATION. To enable the Committee to perform its
functions, each Employer shall supply full and timely
information to the Committee on all matters relating to the
compensation of its Participants, the date and circumstances
of the Retirement, Disability, death or Termination of
Employment of its Participants, and such other pertinent
information as the Committee may reasonably require.
12.6 MULTIPLE COMMITTEES. The Board may divide the duties of the
Committee among more than one Committee. If more than one
Committee is established, the Board shall designate the scope
of authority of each such Committee. Each such Committee shall
have all the powers and privileges set forth above subject
only to any limitations on the scope of its authority imposed
by the Board.
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<PAGE> 25
ARTICLE 13
OTHER BENEFITS AND AGREEMENTS
-----------------------------
13.1 COORDINATION WITH OTHER BENEFITS. The benefits provided for a
Participant and such Participant's Beneficiary under the Plan
are in addition to any other benefits available to such
Participant under any other plan or program for employees of
the Participant's Employer. The Plan shall supplement and
shall not supersede, modify or amend any other such plan or
program except as may otherwise be expressly provided.
ARTICLE 14
CLAIMS PROCEDURES
-----------------
14.1 PRESENTATION OF CLAIM. Any Participant or Beneficiary of a
deceased Participant (such Participant or Beneficiary being
referred to below as a "Claimant") may deliver to the
Committee a written claim for a determination with respect to
the amounts distributable to such Claimant from the Plan. If
such a claim relates to the contents of a notice received by
the Claimant, the claim must be made within 60 days after such
notice was received by the Claimant. All other claims must be
made within 180 days of the date on which the event that
caused the claim to arise occurred. The claim must state with
particularity the determination desired by the Claimant.
14.2 NOTIFICATION OF DECISION. The Committee shall consider a
Claimant's claim within a reasonable time, and shall notify
the Claimant in writing:
(a) that the Claimant's requested determination has been
made, and that the claim has been allowed in full; or
(b) that the Committee has reached a conclusion contrary,
in whole or in part, to the Claimant's requested
determination, in which case such notice must also be
set forth in a manner calculated to be understood by
the Claimant:
1. the specific reason(s) for the denial of the
claim, or any part thereof;
2. specific reference(s) to pertinent
provisions of the Plan upon which such
denial was based;
3. a description of any additional material or
information necessary for the Claimant to
perfect the claim, and an explanation of why
such material or information is necessary;
and
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<PAGE> 26
4. an explanation of the claim review procedure
set forth in Section 14.3 below.
14.3 REVIEW OF A DENIED CLAIM. Within 60 days after receiving a
notice from the Committee that a claim has been denied, in
whole or in part, a Claimant (or the Claimant's duly
authorized representative) may file with the Committee a
written request for a review of the denial of the claim.
Thereafter, but not later than 30 days after the review
procedure began, the Claimant (or the Claimant's duly
authorized representative):
(a) may review pertinent documents;
(b) may submit written comments or other documents;
and/or
(c) may request a hearing, which the Committee, in its
sole discretion, may grant.
14.4 DECISION ON REVIEW. The Committee shall render its decision on
review promptly, and not later than 60 days after the filing
of a written request for review of the denial, unless a
hearing is held or other special circumstances require
additional time, in which case the Committee's decision must
be rendered within 120 days after such date. Such decision
must be written in a manner calculated to be understood by the
Claimant, and it must contain:
A. specific reasons for the decision;
B. specific reference(s) to the pertinent Plan
provisions upon which the decision was based; and
C. such other matters as the Committee deems relevant.
14.5 LEGAL ACTION. A Claimant's compliance with the foregoing
provisions of this Article 14 is a mandatory prerequisite to a
Claimant's right to commence any legal action with respect to
any claim for benefits under this Plan.
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<PAGE> 27
ARTICLE 15
TRUST
-----
15.1 ESTABLISHMENT OF THE TRUST. The Company shall establish the
Trust, and each Employer shall at least annually transfer over
to the Trust such assets as the Employer determines, in its
sole discretion, are necessary to provide, on a present value
basis, for its respective future liabilities created with
respect to the Annual Deferral Amounts for such Employer's
Participants for all periods prior to the transfer, as well as
any debits and credits to the Participants' Account Balances
for all periods prior to the transfer, taking into
consideration the value of the assets in the trust at the time
of the transfer.
15.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST. The provisions of
the Plan and the Plan Agreement shall govern the rights of a
Participant to receive distributions pursuant to the Plan. The
provisions of the Trust shall govern the rights of the
Employers, Participants and the creditors of the Employers to
the assets transferred to the Trust. Each Employer shall at
all times remain liable to carry out its obligations under the
Plan.
15.3 DISTRIBUTIONS FROM THE TRUST. Each Employer's obligations
under the Plan may be satisfied with Trust assets distributed
pursuant to the terms of the Trust, and any such distribution
shall reduce the Employer's obligations under this Plan.
ARTICLE 16
MISCELLANEOUS
-------------
16.1 STATUS OF PLAN. The Plan is intended to be a plan that is not
qualified within the meaning of Code Section 401(a) and that
"is unfunded and is maintained by an employer primarily for
the purpose of providing deferred compensation for a select
group of management or highly compensated employees" within
the meaning of ERISA Sections 201(2), 301(a)(3) and 401(a)(1).
The Plan shall be administered and interpreted to the extent
possible in a manner consistent with that intent.
16.2 UNSECURED GENERAL CREDITOR. Participants and their
Beneficiaries, heirs, successors and assigns shall have no
legal or equitable rights, interests or claims in any property
or assets of an Employer. For purposes of the payment of
benefits under this Plan, any and all of an Employer's assets
shall be, and remain, the general, unpledged unrestricted
assets of the Employer. An Employer's obligation under the
Plan shall be merely that of an unfunded and unsecured promise
to pay money in the future.
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<PAGE> 28
16.3 EMPLOYER'S LIABILITY. An Employer's liability for the payment
of benefits shall be defined only by the Plan and the Plan
Agreement, as entered into between the Employer and a
Participant. An Employer shall have no obligation to a
Participant under the Plan except as expressly provided in the
Plan and his or her Plan Agreement.
16.4 NONASSIGNABILITY. Neither a Participant nor any other person
shall have any right to commute, sell, assign, transfer,
pledge, anticipate, mortgage or otherwise encumber, transfer,
hypothecate, alienate or convey in advance of actual receipt,
the amounts, if any, payable hereunder, or any part thereof,
which are, and all rights to which are expressly declared to
be, unassignable and non-transferable. No part of the amounts
payable shall, prior to actual payment, be subject to seizure,
attachment, garnishment or sequestration for the payment of
any debts, judgments, alimony or separate maintenance owed by
a Participant or any other person, be transferable by
operation of law in the event of a Participant's or any other
person's bankruptcy or insolvency or be transferable to a
spouse as a result of a property settlement or otherwise.
16.5 NOT A CONTRACT OF EMPLOYMENT. The terms and conditions of this
Plan shall not be deemed to constitute a contract of
employment between any Employer and the Participant. Such
employment is hereby acknowledged to be an "at will"
employment relationship that can be terminated at any time for
any reason, or no reason, with or without cause, and with or
without notice, unless otherwise expressly provided in a
written employment agreement. Nothing in this Plan shall be
deemed to give a Participant the right to be retained in the
service of any Employer or to interfere with the right of any
Employer to discipline or discharge the Participant at any
time.
16.6 FURNISHING INFORMATION. A Participant or his or her
Beneficiary will cooperate with the Committee by furnishing
any and all information requested by the Committee and take
such other actions as may be requested in order to facilitate
the administration of the Plan and the payments of benefits
hereunder, including but not limited to taking such physical
examinations as the Committee may deem necessary.
16.7 TERMS. Whenever any words are used herein in the masculine,
they shall be construed as though they were in the feminine in
all cases where they would so apply; and whenever any words
are used herein in the singular or in the plural, they shall
be construed as though they were used in the plural or the
singular, as the case may be, in all cases where they would so
apply.
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<PAGE> 29
16.8 CAPTIONS. The captions of the articles, sections and
paragraphs of this Plan are for convenience only and shall not
control or affect the meaning or construction of any of its
provisions.
16.9 GOVERNING LAW. Subject to ERISA, the provisions of this Plan
shall be construed and interpreted according to the internal
laws of the Commonwealth of Massachusetts without regard to
its conflicts of laws principles.
16.10 NOTICE. Any notice or filing required or permitted to be given
to the Committee under this Plan shall be sufficient if in
writing and hand-delivered, or sent by registered or certified
mail, to the address below:
Deferred Compensation Committee
The Pioneer Group, Inc.
60 State Street
Boston, MA 02109
Such notice shall be deemed given as of the date of delivery
or, if delivery is made by mail, as of the date shown on the
postmark on the receipt for registration or certification.
Any notice or filing required or permitted to be given to a
Participant under this Plan shall be sufficient if in writing
and hand-delivered, or sent by mail, to the last known address
of the Participant.
16.11 SUCCESSORS. The provisions of this Plan shall bind and inure
to the benefit of the Participant's Employer and its
successors and assigns and the Participant and the
Participant's designated Beneficiaries.
16.12 VALIDITY. In case any provision of this Plan shall be illegal
or invalid for any reason, said illegality or invalidity shall
not affect the remaining parts hereof, but this Plan shall be
construed and enforced as if such illegal or invalid provision
had never been inserted herein.
16.13 INCOMPETENT. If the Committee determines in its discretion
that a benefit under this Plan is to be paid to a minor, a
person declared incompetent or to a person incapable of
handling the disposition of that person's property, the
Committee may direct payment of such benefit to the guardian,
legal representative or person having the care and custody of
such minor, incompetent or incapable person. The Committee may
require proof of minority, incompetence, incapacity or
guardianship, as it may deem appropriate prior to distribution
of the benefit. Any payment of a benefit shall be a payment
for the account of the Participant and the
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<PAGE> 30
Participant's Beneficiary, as the case may be, and shall be a
complete discharge of any liability under the Plan for such
payment amount.
16.14 DISTRIBUTION IN THE EVENT OF TAXATION.
(a) IN GENERAL. If, for any reason, all or any portion of
a Participant's benefits under this Plan becomes
taxable to the Participant prior to receipt, a
Participant may petition the Committee before a
Change in Control, or the trustee of the Trust after
a Change in Control, for a distribution of that
portion of his or her benefit that has become
taxable. Upon the grant of such a petition, which
grant shall not be unreasonably withheld (and, after
a Change in Control, shall be granted), a
Participant's Employer shall distribute to the
Participant immediately available funds in an amount
equal to the taxable portion of his or her benefit
(which amount shall not exceed a Participant's unpaid
Account Balance under the Plan). If the petition is
granted, the tax liability distribution shall be made
within 90 days of the date when the Participant's
petition is granted. Such a distribution shall affect
and reduce the benefits to be paid under this Plan.
(b) TRUST. If the Trust terminates in accordance with
Section 3.6(e) of the Trust and benefits are
distributed from the Trust to a Participant in
accordance with that Section, the Participant's
benefits under this Plan shall be reduced to the
extent of such distributions.
16.15 INSURANCE. The Employers, on their own behalf or on behalf of
the trustee of the Trust, in their sole discretion, may apply
for and procure insurance on the life of the Participant, in
such amounts and in such forms as the Trust may choose. The
Employers or the trustee of the Trust, as the case may be,
shall be the sole owner and beneficiary of any such insurance.
The Participant shall have no interest whatsoever in any such
policy or policies, and at the request of the Employers shall
submit to medical examinations and supply such information and
execute such documents as may be required by the insurance
company or companies to whom the Employers have applied for
insurance.
16.16 LEGAL FEES TO ENFORCE RIGHTS AFTER CHANGE IN CONTROL. The
Company and each Employer is aware that upon the occurrence of
a Change in Control, the Board or the board of directors of a
Participant's Employer (which might then be composed of new
members) or a shareholder of the Company or the Participant's
Employer, or of any successor corporation, might then cause or
attempt to cause the Company, the Participant's Employer or
such successor to refuse to comply with its obligations under
the Plan and might cause or attempt to cause the Company or
the Participant's Employer to institute, or may institute,
litigation seeking to deny Participants the benefits intended
under the Plan. In these circumstances, the
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<PAGE> 31
purpose of the Plan could be frustrated. Accordingly, if,
following a Change in Control, it should appear to any
Participant that the Company, the Participant's Employer or
any successor corporation has failed to comply with any of its
obligations under the Plan or any agreement thereunder, or if
the Company, such Employer or any other person takes any
action to declare the Plan void or unenforceable or institutes
any litigation or other legal action designed to deny,
diminish or to recover from any Participant the benefits
intended to be provided, then the Company and the
Participant's Employer irrevocably authorize such Participant
to retain counsel of his or her choice at the expense of the
Company and the Participant's Employer (who shall be jointly
and severally liable) to represent such Participant in
connection with the initiation or defense of any litigation or
other legal action, whether by or against the Company, the
Participant's Employer or any director, officer, shareholder
or other person affiliated with the Company, the Participant's
Employer or any successor thereto in any jurisdiction. The
Company may recover any legal fees paid if a court of
competent jurisdiction finds that the retention of counsel by
the Participant was frivolous. If the Participant prevails to
any extent, the retention of counsel shall be conclusively
determined not to be frivolous.
IN WITNESS WHEREOF, the Company has signed this Plan document as of
this 15th day of October, 1998.
"Company"
The Pioneer Group, Inc.
By: /s/ ROBERT P. NAULT
---------------------------------
Title: Senior Vice President
and General Counsel
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<PAGE> 32
Schedule A -- Measurement Funds
-28-
<PAGE> 1
EXHIBIT 10.73
[Russian translation of the English text intentionally omitted]
LOG SALES CONTRACT
NO. 99-01-01
DECEMBER 7, 1998
CLOSED JOINT-STOCK COMPANY "FOREST-STARMA" hereinafter referred to as
the SELLER, and RAYONIER INC., hereinafter referred to as the BUYER, have
entered into the present Contract with respect to the following:
1. SUBJECT OF THE CONTRACT
Seller agrees to sell and the Buyer agrees to buy, on terms contained in this
Contract and individual addenda to this Contract, all of the spruce and white
fir logs produced by Seller as provided in this Contract, up to a maximum
quantity of 150,000 m3. The approximate value of this Contract is $7,200,000.
The specific quantity, composition, and value of all log shipments shall be set
forth in separate addenda to the Contract to be executed by the parties in
connection with each shipment.
2. TIME OF PRODUCTION AND DELIVERY
2.1 PRODUCTION: This Contract shall apply to logs produced by Seller and
made available for shipment from Siziman Bay between January 1, 1999 and June
30, 1999. In the event that the volume of logs produced by June 30, 1999 is less
than 150,000 m3, the Buyer shall have an option to extend the term of this
Contract for additional periods of three (3) months each or until 150,000 m3 are
delivered, whichever comes first, by giving written notice of the exercise of
such option not later than June 30, 1999 or, if this option has been previously
exercised, the last day of the current extension.
<PAGE> 2
2.2 DELIVERY: Logs produced under this Contract shall be delivered F.O.B.
vessel between March 1, 1999 and August 31, 1999. In the event Buyer exercises
its option to extend the time for production of logs under Section 2.1, the time
period for delivery shall also be extended for an equal period of time.
3. PRICES
The Buyer shall pay the Seller the following prices for logs purchased under
this Contract. All prices under this Contract are F.O.B. vessel, Siziman Bay,
Russia.
Spruce US $/m3
- ------ -------
#1 & #2 sawlogs (standard) $74.25
#1 & #2 sawlogs (small) $42.25
#3 sawlogs $42.50
pulp logs $22.50
White Fir
- ---------
#1, #2 and #3 sawlogs $42.50
pulp logs $22.50
The above prices are based on freight to Japan West Coast for #1 and #2 sawlogs
of $18.75/m3 and #3 sawlogs and pulp to Korea of $22.50/m3. Both rates are for
CQD terms and one port discharge. If Buyer negotiates a contract of
affreightment which is higher than these freight rates, the price of logs sold
under this Contract will be reduced by 50% of the increase in the freight rate,
but not more than $1.00/m3. Any such price changes will be reconciled and set
forth in separate addenda to this Contract.
In the event the minimum percentages of long logs as set forth in Section 4.1
below are not met and as a result there is an excess volume of short logs, the
price of the excess volume of short logs will be subject to a discount of
$5.00/m3. The calculation will be as follows: the total volume delivered less
the quotient of the long log volume delivered divided by the minimum
2
<PAGE> 3
percentage equals the Excess Short Log Volume. Expressed as a formula, the
calculation is:
(Total volume) - (Long log volume) = (Excess Short Log Volume)
-----------------
(Minimum %)
The calculation will be made separately for each of the following categories
of logs:
- - #1 & #2 sawlogs (standard)
- - #1 & #2 sawlogs (small)
- - #3 sawlogs
The calculation will be made on the following dates:
- - March 31, 1999 for logs produced prior to that date;
- - April 30, 1999 for logs produced in April;
- - May 31, 1999 for logs produced in May; and
- - June 30, 1999 for logs produced in June.
If there is an Excess Short Log Volume, then the price of a volume of logs equal
to the Excess Short Log Volume taken from the first volume of short logs
delivered during the next subsequent month will be discounted by $5.00/m3 and
the reduced price will be shown on the addenda to this Contract covering such
logs executed by the parties at the time of shipment.
4. QUALITY OF GOODS
4.1. SPECIFICATIONS The logs delivered hereunder shall be exportable spruce
and white fir sawlogs and pulp logs conforming to GOST standards # 22298-76. All
sawlogs must be fresh cut and free of insect damage, ring shake, checking and
charring.
3
<PAGE> 4
Minimum diameter requirements are as follows:
<TABLE>
<CAPTION>
Length Min. Diameter
Grade (meters) (centimeters)
- ----- -------- -------------
<S> <C> <C>
#1 & #2 sawlogs (standard) 7.6; 8.1 20
#1 & #2 sawlogs (standard) 3.8 22
#1 & #2 sawlogs (small) 3.8; 7.6; 8.1 14
#3 sawlogs (standard or small) all lengths 18
pulp logs all lengths 14
</TABLE>
All White Fir will be valued and sorted as #3 sawlogs or pulp logs only.
The log volumes produced must include the following minimum percentages of long
logs:
<TABLE>
<CAPTION>
Spruce & White Fir Minimum % Long Logs
- ------------------ -------------------
<S> <C>
#1 & #2 sawlogs (standard) 60%
#1 & #2 sawlogs (small) 50%
#3 sawlogs 60%
Pulp logs None
</TABLE>
Long logs are logs which are 7.6 meters or greater in length.
4
<PAGE> 5
In addition to meeting GOST standards logs produced and delivered under this
Contract shall be of consistent quality and of reasonably comparable mix and
diameter distribution to those logs produced by Seller at Siziman Bay during the
1998 season. Logs must be manufactured and graded to avoid excessive off-center
hearts and compression in #1 and #2 sawlog sorts.
4.2. SCALING: Scaling of the logs delivered hereunder shall be performed to
GOST specifications by qualified scalers. The Seller shall be responsible for
the cost of scaling of the logs. Log scale certificates, summary reports and any
other production reports will be provided to the Buyer on a biweekly basis,
together with invoices for payment, in accordance with Section 6 below.
Measurement must be made in accordance with GOST #2708-81. Diameter of logs is
to be measured at the top (small) end, inside the bark, by adding the maximum
and minimum diameters and dividing the total by two. Diameter of logs shall be
measured as follows:
- - Diameter of 13 cm and down is to be measured with intervals of 1 cm. Margin
of 0.5 cm and up is to be counted as 1 cm (logs of 12.5 - 13.4 cm in
diameter to be counted as 13 cm).
- - Diameter of 14 cm & up is to be measured with intervals of 2 cm. Margin
less than 1 cm is not to be counted. Margin of 1 cm and up is to be counted
to the nearest even diameter (logs 13.5 - 14.9 cm in diameter to be counted
as 14 cm).
- - Logs are to be measured by each piece. Volume of logs is to be calculated
according to the tables of GOST #2708-81.
- - The marking should be put on each sawlog clearly in accordance with GOST
#2292-74.
5
<PAGE> 6
5. DELIVERY
5.1. POINT OF DELIVERY: The logs shall be delivered to the Buyer FOB vessel,
Siziman Bay, Russia. Title and risk of loss to all logs purchased hereunder
shall pass to the Buyer when the logs pass the ship's rail at Siziman Bay. The
Seller shall notify the Buyer that logs have been delivered in case an agent or
employee of the Buyer is not present at the delivery site. Seller will maintain
casualty loss insurance on the logs up to the point of delivery.
The terms describing obligations of the Seller and the Buyer with respect to
delivery of goods and establishing transfer of risk of loss or damage from the
Seller to the Buyer are specified in "INCOTERMS, 1990" and shall be binding on
the parties hereto.
5.2. EXPORT DUTIES: All Russian taxes, export fees or duties which may be
assessed on this transaction shall be paid by the Seller. Seller certifies that
it has the right to export the logs and shall obtain all necessary customs
approvals, export licenses and permits.
5.3. SHIP LOADING: The Seller shall be responsible for all sorting, storing,
handling and ship loading activities necessary to deliver the logs on board ship
at Siziman Bay, the cost of which are included in the price stated in Section 3
above. The Seller shall load a minimum of 1,800 m3 per day for each day that
ships are available for loading. If the Seller is unable to load the minimum
volume, except as a result of a force majeure event, according to Section 10
hereof, or the Buyer's negligence or failure to perform its obligations
hereunder, the Buyer shall have the option to reduce the total contract volume
by up to the amount of the short fall.
5.4. SHIPPING: The Buyer shall be responsible for arranging for vessels to
transport all logs sold under this Contract. The Buyer agrees to make ships
available for loading at Siziman Bay a minimum of 19.5 days per month, when
Siziman Bay becomes ice-free and available for shipping. Partial months will be
6
<PAGE> 7
prorated and shipments in excess of the minimum may be carried forward to meet
minimum volumes in future months. The Buyer will provide the Seller with a
monthly shipping schedule ten (10) days before the start of the month. The Buyer
will update the shipping schedule in a reasonable manner to advise Seller of
changes in the previously provided shipping schedule. The Buyer shall provide
all shipping schedules and updates to Seller's Quality Control Manager at
Siziman Bay, Russia.
5.5. LIENS AND WARRANTIES: The Seller warrants that, upon delivery of the
logs to the Buyer FOB, Buyer's vessel, Siziman Bay, Russia, under this Contract,
the logs shall be free and clear of any liens or encumbrances, prior sales
agreements, contracts or other claims which might become a lien upon the logs.
The Seller further warrants that the logs sold under this Contract may be
legally exported from the Russian Federation in the form and condition in which
they are delivered to the Buyer at the point of delivery.
6. PAYMENT
6.1. Buyer shall make payment to Seller for each shipment of logs delivered
under this Contract within 180 days after the date each shipment of logs clears
Russian customs for export.
6.2. Every two weeks after the effective date of this Contract, commencing
on January 15, 1999, the Seller shall fax to the Buyer an invoice and tally
sheets for scaled volume of logs produced during the preceding two-week period.
Within 10 days after the Buyer's receipt of each faxed invoice and tally sheet,
the Buyer shall pay the Seller 50% of the price for the volume of logs indicated
in these documents, calculated according to the price list set forth in Section
2 above.
6.3 In the event the ships are available for loading for less than the
minimum number of days provided for in a month, except as the result of a force
majeure event, and if the lack of ships
7
<PAGE> 8
available for loading causes the volume loaded to be less than 35,000 m3 (or
pro-rated portion thereof), then Buyer shall make an additional payment of
$18.00/m3 on a volume of logs calculated by multiplying the difference between
the minimum number of days ships should have been available for loading and the
actual number of days ships were available for loading by 1,800 m3/day (but in
any event such volume shall not be greater than 35,000 m3 (or pro-rated portion
thereof) less the actual volume of logs shipped during that month. This payment
shall be calculated and paid within ten (10) days of the end of the month and
shall be applied as payment of a portion of the purchase price of the first
volume shipped during the subsequent month. This adjustment will be reflected in
the applicable addendum.
6.4. The Buyer shall pay the remaining balance of the price for such logs
upon shipment of the logs within twenty (20) days after receipt from the Seller
of a faxed copy of an invoice for the balance of the purchase price, bills of
lading, log specifications and cargo plan; provided that the Seller shall have
delivered original copies of the invoice (1 set), bill of lading (3 sets), log
specification (1 set) and cargo plan (1 set) by mail or via courier to the
Buyer's representative in Vladivostok, Russia or Japan, as indicated by the
Buyer; within ten (10) days after the date stated in the bill of lading, after
completion of loading of each vessel.
6.5. Notwithstanding the force majeure provisions of Section 10 hereof, if
for any reason, any logs for which Buyer has made payments under Sections 6.2 or
6.3 of this Contract are not delivered F.O.B. vessel for export due to any cause
whatsoever, other than the Buyer's negligence or the failure to perform its
obligations under this Contract, the Seller agrees to repay any amounts received
with respect to said logs within ten (10) days of receipt of notice from the
Buyer of the failure of said logs to be exported or loaded on board ship and an
invoice for the repayment amount.
7. CLAIMS
Buyer has the right to make claims after the logs arrive at their
8
<PAGE> 9
export destination for failure to meet quality or quantity requirements. The
Buyer shall make every reasonable commercial effort to resolve all claims with
the Buyer's customer. In the event no resolution is reached, the Buyer will
notify Seller by fax of any claims within thirty (30) days after the vessel has
completed discharge in the discharge port. Seller will have fourteen (14) days
to respond to the claim presented. If Seller does not agree with the claim, it
may request to schedule an inspection of the cargo by a representative of
Seller. Buyer and Seller will use their best efforts to have their
representatives meet at the port of discharge as quickly as possible to conduct
this inspection. Each party will bear its own costs of such inspection. If
Seller does not respond and schedule an inspection, if desired, within fourteen
(14) days of receipt of the claim, the claim will be considered accepted.
Buyer will use reasonable commercial efforts to make substantially all of the
logs involved in the claim available for inspection. The inspection will be
conducted as follows:
- - If the logs are on land, a sample of 10% of the logs will be rolled out for
inspection.
- - If the logs are located in the water the representatives will conduct a
visual inspection of all sides of every log in the sample.
- - Grading will be based on GOST standard 22298-76.
- - Scaling will be based on GOST standard 2140-81.
The result of this inspection will be expanded onto the entire cargo volume to
calculate the claim settlement. Buyer will notify Seller of any necessary
deviation from the above procedure.
The amount of any claim settlement will be paid by Seller to Buyer by wire
transfer within fourteen (14) days of completion of the inspection.
9
<PAGE> 10
8. NOTICES
All notices given hereunder shall be in writing, sent to the representatives of
each party and may be sent by telex or by telecopier with confirmation of
receipt at the addresses and fax numbers shown in Section 13. Notices shall be
effective upon receipt.
9. DISPUTES
In the event of any dispute arising out of or relating to this Contract, the
parties shall use their best efforts to settle the dispute. Within thirty (30)
days of written request of any party, the individuals responsible for
administering this Contract shall meet to consult and negotiate with each other,
in good faith, in an attempt to reach an just and equitable solution
satisfactory to the parties. If the parties are unable to reach a satisfactory
solution within 60 days of the written request for negotiation, then any party
may require that the matter be finally settled by arbitration under the
Commercial Arbitration Rules of the American Arbitration Association and the
Supplemental Procedures for Large Complex Disputes. The Arbitration shall be
conducted at Seattle, Washington U.S.A. The arbitration shall be conducted by a
single arbitrator appointed in accordance with the said Rules from the Large
Complex Dispute Panel of the American Arbitration Association. The arbitration
shall be conducted in the English language. Any award shall be denominated and
paid in United States dollars and may, at the discretion of the arbitrator,
include interest, attorney fees and costs.
9.2. LIMITATION ON DAMAGES: In the event of default or failure to perform
any obligation under this Contract, the Liability of either party shall be
limited to the value of the logs to be produced, delivered, sold and purchased
hereunder. In no event shall either party be liable for incidental,
consequential or punitive damages.
10
<PAGE> 11
10. FORCE-MAJEURE
Neither party to this Contract shall be liable for any delay or default in
performance hereunder which is the result of any cause beyond its control,
including, but not limited to wars, civil strife, embargoes, acts of governments
or any government official or agency purporting to act under duly constituted
authority, earthquakes, floods or fires. Weather conditions which are within the
range of possible weather conditions to be anticipated shall not constitute
force majeure conditions. A party whose performance is affected by force majeure
conditions shall give notice to the other party of such condition and the
expected duration of the delay or prevention of performance within ten (10) days
of the occurrence of such condition.
11. COMPLETE AGREEMENT
This Contract replaces and supercedes in its entirety, Log Sales Contract No.
98-05-05-2, dated May 12, 1998 with respect to all logs produced by Seller after
December 31, 1998.
12. OTHER TERMS AND CONDITIONS
All amendments and additions hereto shall be integral parts of this Contract and
shall be valid only if made in writing and signed by duly authorized
representatives of both parties.
The language of this Contract is Russian and English but in the event of
ambiguity or inconsistency between the versions, the English version shall be
controlling.
Any correspondence pertaining to the execution of this Contract shall be carried
out in the English language.
The law of the State of Washington, without giving effect to the conflict of law
provisions thereof, shall govern this Contract. In the event the law of the
Russian Federation, or any other jurisdiction where portions of this Contract
are to be performed
11
<PAGE> 12
invalidate any of the provisions of this Contract, the parties will negotiate
amendments to this Contract to comply with such law.
Neither this Contract nor any rights or obligations hereunder may be assigned by
either party without the prior written consent of the other party.
13. LEGAL ADDRESSES OF THE PARTIES
THE BUYER: THE SELLER:
Rayonier Inc. JSC "Forest-Starma"
18000 International Blvd. 1 Chekhov St. Apt 3
Suite 900 Vanino
Sea Tac, Washington, 98188 Khabarovsk Territory
Fax # 1 206 248 4117 Russia, 682860
Fax # 7 42172 44172
with a copy to:
W. William Pope
Fax # 1-617-422-4286
14. PAYMENT REQUISITES
THE BUYER:
Bank Name: Seattle First National Bank
Bank Address:
Seattle, WA, USA
Currency A/C No. (Currency to be
Specified: 1360-403 ($, Dollars)
Correspondent Accounts with Third Banks for Monetary
Movement:
THE SELLER:
Bank Name:
Moscow Narodny Bank
Bank Address:
12
<PAGE> 13
81 King William Street London, EC4P 4JS
Currency A/C No. (Currency to be
Specified: 49506022__( $, Dollars)
Correspondent Accounts with Third Banks for Monetary
Movement:
RAYONIER INC. JSC "FOREST STARMA"
THE BUYER THE SELLER
/S/ ROBERT J. CARTANO /S/ ALBERT C. HECKER
- ----------------------------- ---------------------------------
Robert Cartano Albert C. Hecker
J. General Director
/S/ V. A. LIMARENKO
---------------------------------
V. A. Limarenko
First Deputy General Director
13
<PAGE> 14
AMENDMENT NO. 1
TO LOG SALES CONTRACT NO. 99-01-01,
DATED DECEMBER 7, 1998
THIS AMENDMENT No.1 to LOG SALES CONTRACT No. 99-01-01, dated December
7, 1998 (hereinafter referred to as "Amendment No.1") is entered into and
becomes effective as of March 2, 1999, by and between Closed Joint-Stock
Company "Forest-Starma" (hereinafter referred to as the "SELLER") and Rayonier,
Inc. (hereinafter referred to as the "BUYER") as follows:
1. The SELLER and the BUYER hereby acknowledge that they are
parties to Log Sales Contract No. 99-01-01, dated December 7, 1998 (hereinafter
referred to as "Contract No. 99-01-01").
2. This Amendment No. 1 amends and supplements Contract No.
99-01-01. Unless expressly amended by this Amendment No. 1, all provisions of
Contract No. 99-01-01 remain in full force and effect. Unless otherwise provided
in this Amendment No. 1, all terms and definitions used in this Amendment No. 1
shall have the same meanings as they do in Contract No. 99-01-01.
3. Section 6.1 of Article 6 of Contract No. 99-01-01 is hereby
amended and replaced with the following:
"6.1 Buyer shall make payment to Seller for each shipment of logs
delivered under this Contract within 90 days after the date each
shipment of logs clears Russian customs for export."
4. Both original and faxed signatures of the parties on this
Amendment No. 1 shall have equal legal force with regard to execution of this
Amendment No. 1.
IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to
Log Sales Contract No. 99-01-01, dated December 7, 1998, which shall become
effective as of March 2, 1999.
Rayonier, Inc. JSC "Forest-Starma"
BUYER SELLER
/s/ Robert J. Cartano /s/ Albert C. Hecker
- -------------------------- ----------------------------------
Robert J. Cartano Albert C. Hecker
Director, Operations General Director
/s/ V. A. Limarenko
----------------------------------
V. A. Limarenko
First Deputy General Director
<PAGE> 1
EXHIBIT 10.74
FIFTH AMENDMENT TO LEASE
This FIFTH AMENDMENT TO LEASE ("FIFTH AMENDMENT") is made as of
December 31, 1997 by and between the TRUSTEES OF 60 STATE STREET TRUST under
Declaration of Trust dated September 10, 1970, recorded with Suffolk Deeds, Book
8389, Page 286, as amended, with an address of c/o Koll Management Services, 60
State Street, Boston, Massachusetts 02109 ("LANDLORD"), and THE PIONEER GROUP,
INC., having a mailing address of 60 State Street, Boston, Massachusetts 02109
("TENANT").
RECITALS
WHEREAS, Landlord and Tenant entered into a lease dated as of July 3,
1991, as amended by a certain First Amendment to Lease dated as of January 31,
1994, as further amended by a certain Second Amendment to Lease dated September
30, 1996, as further amended by a certain Third Amendment to Lease dated
November 15, 1996, and as further amended by a certain Fourth Amendment to Lease
dated September __, 1997 (collectively, the "LEASE"), for certain space
("PREMISES") on the 3rd, 4th, 5th, 6th, 14th, 17th, 18th and 19th floors of the
building commonly known as 60 State Street, Boston, Massachusetts (the
"BUILDING");
WHEREAS, under the Lease, Tenant has the right to occupy approximately
7,120 rentable square feet of space on the sixth floor of the Building, as more
shown as the "Current Pioneer Space" on FIFTH AMENDMENT EXHIBIT A attached
hereto and made a part hereof ("FLOOR 6 PREMISES") until December 31, 1997;
WHEREAS, pursuant to a lease by and between Landlord and Thornton Early
and Naumes ("THORNTON") dated as of April __, 1994 ("THORNTON LEASE"), Thornton
has the right to occupy the balance of the space on the sixth floor consisting
of approximately 15,287 rentable square feet of space, as more particularly
shown as the "Former Thornton Early and Naumes Space" on FIFTH AMENDMENT EXHIBIT
A attached hereto and made a part hereof ("REMAINING FLOOR 6 PREMISES") until
October 31, 1998;
WHEREAS, Landlord and Tenant desire to amend the Lease (i) to extend
the term of the Lease with respect to the Floor 6 Premises until March 31, 2002,
(ii) to include the Remaining 6th Floor Premises within the Premises effective
as of the day after the effective date of the termination of the Thornton Lease
and continuing until March 31, 2002, and (iii) to amend certain terms and
conditions of the Lease as described below.
AGREEMENT
NOW, THEREFORE, in consideration of Ten Dollars ($10.00) and other good
and valuable consideration, the receipt and sufficiency of which hereby are
acknowledged and agreed, Landlord and Tenant hereby agree as follows:
1. SUBSTITUTE OPTION SPACE. Notwithstanding anything to the
contrary set forth in the Lease, Landlord and Tenant agree
that Tenant shall be deemed to have (A) exercised the
expansion option entitled "remaining two-thirds of 5" set
forth in Section 2.1.3(a) of the Lease as of January 1, 1999,
(B) exercised the expansion option entitled "remaining
one-half of 16" set forth in Section 2.1.3(a) of the Lease as
of January 1, 2000, (C) designated a total of 11,204 square
feet on the sixth floor (consisting of the entire Floor 6
Premises and 4,084 square feet of the Remaining
<PAGE> 2
Floor 6 Premises, said 4,084 square foot portion of the
Remaining Floor 6 Premises is hereinafter referred to as
"SPACE A") as "Substitute Option Space" as of January 1, 1999
pursuant to Section 2.1.3(b) of the Lease, and (D) designated
a total of 11,203 square feet of the sixth floor (consisting
of the balance of the Remaining Floor 6 Premises and
hereinafter referred to as "SPACE B") as "Substitute Option
Space" as of January 1, 2000 pursuant to Section 2.1.3(b) of
the Lease. Tenant hereby acknowledges that as of January 1,
2000 Tenant will have taken possession of, designated and
commenced receiving the benefit of two full floors of
"Substitute Option Space" in accordance with the provisions of
Sections 2.1.3(a) and Section 2.1.3(b) of the Lease (44,814
rentable square feet of space on floors five and six).
Accordingly, as of the date hereof, Tenant shall have no
further right to designate "Substitute Option Space" pursuant
to Section 2.1.3(b) of the Lease, or relocate any such space
to another floor of the Building (provided that Tenant shall
be entitled to exercise relocation rights applicable to
"Substitute Option Space" for the 6th Floor Premises in the
event all or portions of the 16th floor become available for
leasing), it being understood and agreed that any future space
offered to Tenant by Landlord pursuant to Section 2.1.4. of
the Lease shall be offered at an Annual Fixed Rent of 90% of
Fair Rental Value.
2. FLOOR 6 PREMISES. The term for the Floor 6 Premises shall be
extended until March 31, 2002, unless earlier terminated as
set forth in the Lease. Annual Fixed Rent for the Floor 6
Premises shall be as follows:
(i) For the period from January 1, 1998 through
December 31, 1998, the Annual Fixed Rent for the Floor 6
Premises shall be $19.90 per rentable square foot;
(ii) For the period from January 1, 1999 through
March 31, 1999, the Annual Fixed Rent for the Floor 6 Premises
shall be $15.50 per rentable square foot;
(iii) For the period from April 1, 1999 through March
31, 2000, the Annual Fixed Rent for the Floor 6 Premises shall
be $16.25 per rentable square foot;
(iv) For the period from April 1, 2000 through March
31, 2001, the Annual Fixed Rent for the Floor 6 Premises shall
be $17.00 per rentable square foot; and
(v) For the period from April 1, 2001 through March
31, 2002, the Annual Fixed Rent for the Floor 6 Premises shall
be $17.75 per rentable square foot.
Tenant shall continue to pay additional rent for the Floor 6
Premises on the same terms and conditions as provided in the
Lease for the initial Premises.
All of the Floor 6 Premises shall constitute Additional Space
under the Lease.
3. LEASE OF REMAINING FLOOR 6 PREMISES. Landlord shall lease to
Tenant, and Tenant shall lease from Landlord, the Remaining
Floor 6 Premises (which consists of Space A and Space B) for a
term commencing on November 1, 1998 or the Delivery Date
(defined below), if applicable, and ending on March 31, 2002.
Annual Fixed Rent for the Remaining Floor 6 Premises shall be
as follows:
2
<PAGE> 3
(i) For the period from November 1, 1998 or the
Delivery Date (defined below), if applicable, through December
31, 1998, the Annual Fixed Rent for the entire Remaining Floor 6
Premises shall be $19.90 per rentable square foot;
(ii) For the period from January 1, 1999 through March
31, 1999, the Annual Fixed Rent for the Remaining Floor 6
Premises shall be $15.50 per rentable square foot with respect
to Space A and $19.90 per rentable square foot with respect to
Space B;
(iii) For the period from April 1, 1999 through
December 31, 1999, the Annual Fixed Rent for the Remaining Floor
6 Premises shall be $16.25 per rentable square foot with respect
to Space A and $19.90 per rentable square foot with respect to
Space B;
(iv) For the period from January 1, 2000 through March
31, 2000, the Annual Fixed Rent for the entire Remaining Floor 6
Premises shall be $16.25 per rentable square foot;
(v) For the period from April 1, 2000 through March
31, 2001, the Annual Fixed Rent for the entire Remaining Floor 6
Premises shall be $17.00 per rentable square foot; and
(vi) For the period from April 1, 2001 through March
31, 2002, the Annual Fixed Rent for the entire Remaining Floor 6
Premises shall be $17.75 per rentable square foot.
Tenant shall pay additional rent for the entire Remaining Floor
6 Premises on the same terms and conditions as provided in the
Lease for the initial Premises.
4. EARLY TERMINATION OF THORNTON LEASE. If Thornton contacts
Landlord to request an early termination of the Thornton Lease,
Landlord shall notify Tenant in writing of such request and the
proposed termination date of the Thornton Lease ("PROPOSED
TERMINATION DATE"). Landlord's notice shall specify any negative
financial impact to Landlord in connection with the proposed
termination of the Thornton Lease. Tenant shall have ten (10)
days from the date of Landlord's notice to notify Landlord in
writing as to whether Tenant wishes to accept possession of the
Remaining Floor 6 Premises on the day after the Proposed
Termination Date ("DELIVERY DATE"). If Tenant timely notifies
Landlord of its intent to accept the Remaining Floor 6 Premises
on the Delivery Date and compensates Landlord for the specified
negative financial impact, if any, stated in Landlord's notice,
Landlord shall enter into a lease termination agreement with
Thornton to terminate the Thornton Lease on the Proposed
Termination Date.
5. LANDLORD'S WORK ON THE REMAINING FLOOR 6 PREMISES.
Notwithstanding any provisions of the Lease to the contrary
including, without limitation, Sections 3.1 and 3.6, the
Remaining Floor 6 Premises shall be delivered to Tenant
broom-clean and in their then "AS IS" condition.
6. TENANT'S WORK ON THE REMAINING FLOOR 6 PREMISES. Commencing on
November 1, 1998, or the Delivery Date, if applicable, Tenant
shall have the right to construct improvements to the Remaining
Floor 6 Premises, subject to Landlord's approval of Tenant's
plans and specifications, which approval shall not be
unreasonably with-
3
<PAGE> 4
held or delayed, and subject to the other terms and conditions
of the Lease including Section 3.5. All Tenant improvements to
the Remaining Floor 6 Premises shall be performed at Tenant's
sole cost and expense, and Landlord shall not be obligated to
reimburse or otherwise compensate Tenant for such improvements.
7. ADDITIONAL PARKING SPACES. Pursuant to the Second Amendment to
Lease, Tenant currently occupies one (1) non-reserved parking
space in the Building garage. Commencing on November 1, 1998, or
the Delivery Date, if applicable, Tenant shall be entitled to
occupy six (6) additional non-reserved parking spaces in the
Building garage at the then current market rates charged by the
garage operator, bringing the total to seven (7) parking spaces
for Floor 6, of which four (4) shall be reserved spaces. Tenant
shall enter into a separate parking agreement with the garage
operator with respect to the foregoing six additional parking
spaces for the periods prior to January 1, 1999 (for four (4) of
the Parking Spaces) and January 1, 2000 (for the remaining three
(3) parking spaces); after such dates parking rent shall be
governed by Section 2.5 of the Lease.
8. CAPITALIZED TERMS. Capitalized terms used herein but not defined
shall have the meanings ascribed to them in the Lease.
9. RATIFICATION. Except as amended hereby, the terms and conditions
of the Lease shall remain unaffected and the Lease shall remain
in full force and effect.
10. CONTINGENCIES. This Fifth Amendment to Lease is specifically
contingent upon (i) the receipt by Landlord of a written waiver
by Hale and Dorr of its superior rights to the Floor 6 Premises
and the Remaining Floor 6 Premises, and (ii) the delivery of the
Remaining Floor 6 Premises from Thornton to Landlord on or
before November 1, 1998 or the Delivery Date.
EXECUTED under seal as of the date first set forth above.
LANDLORD: TRUSTEES OF 60 STATE STREET TRUST
By: /s/ John A. Pirovano
John A. Pirovano, as Trustee of 60 State
Street Trust, for self and co-Trustees
but not individually
TENANT: THE PIONEER GROUP, INC.
By: /s/ Diane Benson
Its Vice President
hereunto duly authorized
4
<PAGE> 5
FIFTH AMENDMENT EXHIBIT A
PLAN OF SIXTH FLOOR IDENTIFYING THE REMAINING FLOOR 6 PREMISES ("FORMER THORNTON
EARLY AND NAUMES SPACE"), INCLUDING SPACE A AND SPACE B THEREOF AND THE FLOOR
6 PREMISES ("CURRENT PIONEER SPACE")
[Floor Plan Intentionally Omitted]
5
<PAGE> 6
CONSENT OF LENDERS
The undersigned hereby acknowledge notice of the Fifth Amendment to
Lease between the Trustees of 60 State Street Trust and The Pioneer Group, Inc.
dated as of December 31, 1997 and consent thereto.
CORNERSTONE PROPERTIES, INC.
By: /s/ Scott M. Dalrimple
its Vice President
Hereunto duly authorized
6
<PAGE> 7
CONSENT OF LENDERS
The undersigned hereby acknowledges notice of the Fifth Amendment to
Lease between the Trustees of 60 State Street Trust and The Pioneer Group, Inc.
dated as of December 31, 1997 and consent thereto.
TEACHERS INSURANCE ANNUITY
ASSOCIATION OF AMERICA
By: /s/ Joan Herman
its
hereunto duly authorized
7
<PAGE> 1
EXHIBIT 10.75
SIXTH AMENDMENT TO LEASE
This SIXTH AMENDMENT TO LEASE ("SIXTH AMENDMENT") is made as of October
5, 1998 by and between the TRUSTEES OF 60 STATE STREET TRUST under Declaration
of Trust dated September 10, 1970, recorded with Suffolk Deeds, Book 8389, Page
286, as amended, with an address of c/o Hines, 60 State Street, Boston,
Massachusetts 02109 ("LANDLORD"), and THE PIONEER GROUP, INC., having a mailing
address of 60 State Street, Boston, Massachusetts 02109 ("TENANT").
RECITALS
WHEREAS, Landlord and Tenant entered into a lease dated as of July 3,
1991, as amended by a certain First Amendment to Lease dated as of January 31,
1994, as further amended by a certain Second Amendment to Lease dated September
30, 1996, as further amended by a certain Third Amendment to Lease dated
November 15, 1996, as further amended by a certain Fourth Amendment to Lease
dated September __, 1997, and as further amended by a certain Fifth Amendment to
Lease dated as of December 31, 1997 (collectively, the "LEASE"), for certain
space ("Premises") on the 3rd, 4th, 5th, 6th, 14th, 17th, 18th and 19th floors
of the building commonly known as 60 State Street, Boston, Massachusetts (the
"BUILDING") (all capitalized terms not otherwise defined in this Sixth Amendment
shall have the meaning set forth in the Lease);
WHEREAS, Landlord and Tenant desire to amend the Lease (i) to remove
approximately 15,287 rentable square feet of space on Floor 6 of the Building
known as the "REMAINING FLOOR 6 PREMISES" from the Premises effective as of
November 1, 1998, (ii) to remove approximately 7,120 square feet of space on
Floor 6 of the Building known as the "FLOOR 6 PREMISES" from the Premises
effective as of August 1, 1999, (iii) to include the entire 16th Floor of the
Building ("FLOOR 16 PREMISES") within the Premises effective as of September 1,
1998, (iv) to include the entire 15th Floor of the Building ("FLOOR 15
PREMISES") within the Premises effective as of April 1, 1999, and (v) to amend
certain terms and conditions of the Lease as described below;
WHEREAS, Hale and Dorr LLP ("H&D") has by Seventh Amendment to Lease
executed currently herewith ("H&D SEVENTH AMENDMENT") (i) declined to exercise
its superior rights of first offer and refusal with respect to the Floor 15
Premises in connection with a certain offer letter from Landlord to H&D dated
August 18, 1998, as same has been extended, and (ii) agreed to lease a portion
of the Floor 6 Premises following Tenant's vacancy thereof and a portion of the
Remaining Floor 6 Premises effective as of August 1, 1999;
WHEREAS, Adams, Harkness and Hill, Inc. ("AH&H") has by that certain
Second Amendment to Lease by and between AH&H and Landlord to be executed
concurrently herewith ("AH&H SECOND AMENDMENT") agreed to lease the Remaining
Floor 6 Premises effective as of November 1, 1998;
<PAGE> 2
WHEREAS, Citizens Financial Group, Inc. (successor-in-interest to Bank
of Ireland First Holdings, Inc. ("BANK OF IRELAND")) has by Lease Termination
Agreement executed currently herewith ("LEASE TERMINATION Agreement") agreed to
terminate that certain Lease dated June 15, 1994, as amended, by and between
Bank of Ireland and Landlord with respect to approximately 4,045 square feet of
space on the 20th Floor of the Building ("20TH FLOOR SPACE"), as amended
("CITIZENS LEASE"), effective as of March 31, 1999; and
WHEREAS, Tenant and AH&H have acknowledged that the termination of the
Citizens Lease shall automatically terminate that certain Sublease dated as of
August 15, 1996 by and between Citizens and Tenant ("PIONEER Sublease") and that
certain temporary license agreement between Tenant and AH&H ("AH&H LICENSE")
with respect to the 20th Floor Space.
AGREEMENT
NOW, THEREFORE, in consideration of Ten Dollars ($10.00) and other good
and valuable consideration, the receipt and sufficiency of which hereby are
acknowledged and agreed, Landlord and Tenant hereby agree as follows:
1. RECITALS. The foregoing recitals are hereby incorporated by
reference.
2. LEASE OF FLOOR 6 PREMISES. Notwithstanding anything to the
contrary set forth in the Lease, including without limitation
the provisions of the Fifth Amendment to Lease, the term with
respect to the Floor 6 Premises shall expire on July 31, 1999.
Tenant hereby acknowledges and agrees that the Remaining Floor 6
Premises shall not become part of the Premises and shall,
instead, be leased, in part, to AH&H pursuant to the AH&H Second
Amendment, and, in part, to H&D pursuant to the H&D Seventh
Amendment. On or before July 31, 1999, Tenant shall surrender
the Floor 6 Premises to Landlord in accordance with the
requirements of Section 5.2 of the Lease. Pursuant to Section
2.1.3(b) of the Lease, because Tenant has (i) accepted
Landlord's right of first offer to lease the Floor 16 Premises
at the Annual Fixed Rent set forth in Section 2.5 of the Lease,
and (ii) has not elected to terminate the Lease with respect to
the Floor 6 Premises and the Remaining Floor 6 Premises (which
were previously designated as "Substitute Option Space")
effective as of September 1, 1998, the Annual Fixed Rent for the
Floor 6 Premises shall be increased to 90% of Fair Rental Value,
or $29.70 per rentable square foot, for the period from October
5, 1998 through July 31, 1999 ($211,464.00 per year; $17,622.00
per month), partial months to be prorated. Any underpayments
made by Tenant with respect to the Annual Fixed Rent due to
Landlord for the Floor 6 Premises shall be rectified with the
next installment of Annual Fixed Rent due hereunder.
3. SUBSTITUTE OPTION SPACE. Landlord and Tenant acknowledge and
agree that (i) Tenant shall have no further right to designate
or relocate "Substitute Option Space" pursuant to Section
2.1.3(b) of the Lease, and (ii) any future space offered to
Ten-
2
<PAGE> 3
ant anywhere in the Building pursuant to Section 2.1.4 of the
Lease shall be offered at an Annual Fixed Rent of 90% of Fair
Rental Value.
4. LEASE OF FLOOR 16 PREMISES. Landlord shall lease to Tenant, and
Tenant shall lease from Landlord, the Floor 16 Premises for a
term commencing on October 5, 1998 and ending on March 31, 2002.
Annual Fixed Rent for the Floor 16 Premises shall be as follows:
(i) For the period from October 5, 1998 through March 31,
1999, the Annual Fixed Rent for the Floor 16 Premises shall be
$17.85 per rentable square foot;
(ii) For the period from April 1, 1999 through March 31,
2000, the Annual Fixed Rent for the Floor 16 Premises shall be
$18.85 per rentable square foot;
(iii) For the period from April 1, 2000 through March 31,
2001, the Annual Fixed Rent for the Floor 16 Premises shall be
$19.85 per rentable square foot; and
(iv) For the period from April 1, 2001 through March 31,
2002, the Annual Fixed Rent for the Floor 16 Premises shall be
$20.85 per rentable square foot.
Tenant shall pay additional rent for the Floor 16 Premises on
the same terms and conditions as provided in the Lease for the
initial Premises. The Floor 16 Premises shall constitute
Additional Space under the Lease.
5. LANDLORD'S WORK ON THE FLOOR 16 PREMISES. Notwithstanding any
provisions of the Lease to the contrary including, without
limitation, Sections 3.1 and 3.6, the Floor 16 Premises shall be
delivered to Tenant broom-clean and in their then "AS IS"
condition, and except for "Landlord's Work" identified on SIXTH
AMENDMENT EXHIBIT B attached hereto and made a part hereof,
Landlord shall have no obligation to make any improvements or
repairs to the Floor 16 Premises. Tenant acknowledges that
Landlord shall be performing Landlord's Work within the Floor 16
Premises concurrently with Tenant's Work on the Floor 16
Premises. Landlord and Tenant each agrees that it shall
coordinate with the other in connection with the performance of
such party's work in order to minimize any interference with the
performance of the other party's work in the Floor 16 Premises.
6. TENANT'S WORK ON THE FLOOR 16 PREMISES. Commencing on October 5,
1998, Tenant shall have the right to construct improvements to
the Floor 16 Premises, subject to Landlord's approval of
Tenant's plans and specifications, which approval shall not be
unreasonably withheld or delayed, and subject to the other terms
and conditions of the Lease including Section 3.5. All Tenant
improvements to the Floor 16 Premises shall be performed at
Tenant's sole cost and expense, and Landlord shall
3
<PAGE> 4
not be obligated to reimburse or otherwise compensate Tenant for
such improvements.
7. LEASE OF FLOOR 15 PREMISES. (a) Landlord shall lease to Tenant,
and Tenant shall lease from Landlord, the Floor 15 Premises for
a term commencing on April 1, 1999 or the Delivery Date (defined
below), if applicable, and ending on March 31, 2002 ("15TH FLOOR
TERM"). Annual Fixed Rent for the Floor 15 Premises for the
entire 15th Floor Term shall be $29.70 per rentable square foot
($665,487.90 per year; $55,457.33 per month). Tenant shall pay
additional rent for the Floor 15 Premises on the same terms and
conditions as provided in the Lease for the initial Premises.
The Floor 15 Premises shall constitute Additional Space under
the Lease.
(b) In the event ITT Sheraton Corporation ("SHERATON") contacts
Landlord to request an early termination of the Lease dated as
of September 1, 1998 by between Landlord and Sheraton ("SHERATON
LEASE") with respect to its occupancy of the Floor 15 Premises,
Landlord shall notify Tenant in writing of such request and the
proposed surrender date of the Floor 15 Premises by Sheraton
("PROPOSED FLOOR 15 SURRENDER DATE"). Tenant shall have ten (10)
days from the date of Landlord's notice to notify Landlord in
writing as to whether Tenant wishes to accept possession of the
Floor 15 Premises on the day after the Proposed Floor 15
Surrender Date ("DELIVERY Date"). If Tenant timely notifies
Landlord of its intent to accept the Floor 15 Premises on the
Delivery Date, Landlord shall enter into an amendment to the
Sheraton Lease terminating the Lease with respect to the Floor
15 Premises effective as of the Proposed Surrender Date.
(c) In the event Sheraton shall fail to surrender the Floor 15
Premises to Landlord as required under the Sheraton Lease, and
Landlord shall thereafter fail to deliver the Floor 15 Premises
on or before July 31, 1999, Tenant's obligation to surrender the
Floor 6 Premises to Landlord by such date shall be extended one
day for each day beyond such date Landlord fails to deliver the
Floor 15 Premises
8. LANDLORD'S WORK ON THE FLOOR 15 PREMISES. Notwithstanding any
provisions of the Lease to the contrary including, without
limitation, Sections 3.1 and 3.6, the Floor 15 Premises shall be
delivered to Tenant broom-clean and in their then "AS IS"
condition, and except for "Landlord's Work" identified on SIXTH
AMENDMENT EXHIBIT B attached hereto and made a part hereof,
Landlord shall have no obligation to make any improvements or
repairs to the Floor 15 Premises. Tenant acknowledges that
Landlord shall be performing Landlord's Work within the Floor 15
Premises concurrently with Tenant's Work on the Floor 15
Premises. Landlord and Tenant each agrees that it shall
coordinate with the other in connection with the performance of
such party's work in order to minimize any interference with the
performance of the other party's work in the Floor 15 Premises.
9. TENANT'S WORK ON THE FLOOR 15 PREMISES. Upon delivery of
possession of the Floor 15 Premises, Tenant shall have the right
to construct improvements to the Floor 15
4
<PAGE> 5
Premises, subject to Landlord's approval of Tenant's plans and
specifications, which approval shall not be unreasonably
withheld or delayed, and subject to the other terms and
conditions of the Lease including Section 3.5. All Tenant
improvements to the Floor 15 Premises shall be performed at
Tenant's sole cost and expense, and Landlord shall not be
obligated to reimburse or otherwise compensate Tenant for such
improvements.
10. FLOOR 3 PREMISES. Notwithstanding anything to the contrary set
forth in the Lease, Tenant shall not have the right to extend
the Term with respect to the Floor 3 Premises beyond March 31,
2002. On or before such date, Tenant shall surrender the Floor 3
Premises to Landlord in the condition required under Section 5.2
of the Lease.
11. RELEASE OF FLOOR 14 PREMISES. The Fourth Amendment to Lease is
hereby deemed to be null and void.
12. PARKING SPACES. (a) FLOOR 6 PREMISES. Notwithstanding anything
to the contrary set forth in the Lease, including without
limitation the provisions of the Fifth Amendment to Lease,
Tenant shall not be entitled to occupy any additional parking
spaces in the Building garage in connection with the leasing of
the Floor 6 Premises through July 31, 1999. Tenant shall retain
its right set forth in the Second Amendment to Lease to occupy
one (1) non-reserved parking space until July 31, 1999, at which
time Tenant shall surrender said parking space.
(b) FLOOR 16 PREMISES. Commencing on October 5, 1998, in
connection with the leasing of the Floor 16 Premises, Tenant
shall be entitled to occupy three (3) additional non-reserved
parking spaces and four (4) additional reserved parking spaces
in the Building garage at the rates set forth in Section 2.5 of
the Lease. Tenant shall enter into separate parking agreements
with the garage operator with respect to the foregoing
additional parking spaces concurrently herewith.
(c) FLOOR 15 PREMISES. Commencing on the earlier of the Delivery
Date or April 1, 1999, in connection with the leasing of the
Floor 15 Premises, Tenant shall be entitled to occupy three (3)
additional unreserved parking spaces and four (4) additional
reserved parking spaces in the Building garage at the current
market rates charged by the parking garage operator. Tenant
shall enter into separate parking agreements with the garage
operator with respect to the foregoing additional parking spaces
concurrently herewith.
(d) FLOOR 3 PREMISES. In connection with the surrender of the
Floor 3 Premises, Tenant shall surrender seven (7) unreserved
parking spaces in the Building garage attributable to the
leasing of the Floor 3 Premises to Landlord as of March 31,
2002.
5
<PAGE> 6
13. TERMINATION OF PIONEER SUBLEASE. Tenant acknowledges the
termination of the Pioneer Sublease and the AH&H License
effective as of March 31, 1999 as a result of the termination of
the Citizens Lease pursuant to the Lease Termination Agreement.
14. CAPITALIZED TERMS. Capitalized terms used herein but not defined
shall have the meanings ascribed to them in the Lease.
15. RATIFICATION. Except as amended hereby, the terms and conditions
of the Lease shall remain unaffected and the Lease shall remain
in full force and effect.
16. BINDING EFFECT. This Sixth Amendment shall have the effect of an
agreement under seal and shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
17. CONTINGENCIES. Landlord's obligation to deliver possession of
the Floor 15 Premises to Tenant on or before April 1, 1999 is
specifically contingent upon the delivery of the Floor 15
Premises from ITT Sheraton Corporation to Landlord on or before
the earlier of the Delivery Date or March 31, 1999.
18. NO LIABILITY OF LANDLORD. Tenant expressly acknowledges and
agrees that (i) this Sixth Amendment, the H&D Seventh Amendment,
the AH&H Second Amendment, the Lease Termination Agreement, and
the Sheraton Lease (collectively, the "TRANSACTIOn DOCUMENTS")
have been executed as part of a larger transaction to
redistribute space within the Building amongst Tenant, H&D, and
AH&H in accordance with the terms of the Transaction Documents
(collectively, the "Transaction"); (ii) the Transaction requires
some of the tenants in the Building who are parties to the
Transaction Documents (each an "OBLIGATED PARTY" and
collectively, the "OBLIGATED PARTIES") to deliver certain
premises or parking spaces to Landlord on or before dates
certain identified in the Transaction Documents (collectively,
the "DELIVERY OBLIGATIONS"), the performance of which is a
precondition for some of the obligations of the parties under
this Sixth Amendment; and (iii) Landlord has agreed to enter
into the Transaction and execute the Transaction Documents in
order to assist Tenant and the other Obligated Parties obtain
desired space within the Building; provided Landlord will not
incur any liability to Tenant for any failure by one or more of
the Obligated Parties to perform its or their Delivery
Obligations. Tenant hereby irrevocably and unconditionally
releases Landlord and waives any and all claims which it may
have against Landlord, however and whenever arising, whether in
law or in equity, in connection with any failure by any of the
Obligated Parties to perform its or their Delivery Obligations.
Following full and complete performance by all Obligated Parties
of their respective Delivery Obligations, this release and
waiver shall be of no further force and effect.
6
<PAGE> 7
19. NO THIRD PARTY BENEFICIARIES. This Sixth Amendment shall not
confer any rights to any parties other than Landlord and Tenant,
and no third parties shall have the right to enforce the terms
hereof.
EXECUTED under seal as of the date first set forth above.
LANDLORD: TRUSTEES OF 60 STATE STREET TRUST
By: /s/ John A. Pirovano
John A. Pirovano, as Trustee of 60 State
Street Trust, for self and co-Trustees
but not individually
TENANT: THE PIONEER GROUP, INC.
By: /s/ Stephen G. Kasnet
its
hereunto duly authorized
7
<PAGE> 8
SIXTH AMENDMENT EXHIBIT A
PLANS OF FLOOR 16 PREMISES AND FLOOR 15 PREMISES
AND FLOOR 6 PREMISES
[Floor Plan Intentionally Omitted]
8
<PAGE> 9
SIXTH AMENDMENT EXHIBIT B
LANDLORD'S WORK WITH RESPECT TO THE FLOOR 16 PREMISES AND THE FLOOR 15 PREMISES
1. Install an ADA-compliant unisex rest room in a location to be selected
by Tenant and approved by Landlord, such approval not to be
unreasonably withheld; using finishes comparable to the finishes in the
unisex rest room in Tenant's existing Premises.
2. The rest rooms shall comply with operational standards reasonably
satisfactory to Tenant and with all code requirements as of the date
possession is delivered to Tenant, including toilet exhaust. All
plumbing fixtures and water, waster, and vent systems shall be in good
repair.
3. Provide sufficient cooling capacity to the Floor 16 Premises and the
Floor 15 Premises, as applicable, to comply with the provisions of
Exhibit J, Section II. Notwithstanding the foregoing or any other
provision of the Lease or this Sixth Amendment, Landlord shall not be
required to provide additional cooling capacity to the Floor 16
Premises and the Floor 15 Premises, as applicable, should Tenant
substantially change the configuration and/or use of the Floor 16
Premises and the Floor 15 Premises, as applicable, after Tenant's
initial occupancy; any modification to the existing floor fan units or
the addition of supplemental fan coil units resulting from such a
change of configuration and/or use shall be at the Tenant's sole
expense.
4. Provide electrical power to the Floor 16 Premises and the Floor 15
Premises, as applicable, sufficient to comply with the provisions of
Exhibit J, Section VI and install electrical panels if necessary in the
Floor 16 Premises and the Floor 15 Premises, as applicable, to permit
Tenant to connect its lifesafety devices as required by applicable
Building codes and the ADA.
5. Adjust the height of the elevator wall buttons adjacent to the elevator
doors within the Floor 15 Premises and the Floor 16 Premises, as
applicable, in order to make the same comply with ADA requirements.
6. Adjust the height and modify the water access mechanisms of the
existing water bubbler(s) within the Floor 15 Premises and the Floor 16
Premises, as applicable, in order to make the same comply with ADA
requirements, or provide a new ADA-compliant water bubbler for the
Floor 15 Premises and the Floor 16 Premises, as applicable, if no water
bubbler currently exists on such floor(s).
9
<PAGE> 10
CONSENT OF LENDERS
The undersigned hereby acknowledges notice of the Sixth Amendment to
Lease between the Trustees of 60 State Street Trust and The Pioneer Group, Inc.
dated as of October 5, 1998 and consents thereto.
CORNERSTONE PROPERTIES, INC.
By: /s/ Scott M. Dalrimple
Its Vice President
hereunto duly authorized
10
<PAGE> 11
CONSENT OF LENDERS
The undersigned hereby acknowledges notice of the Sixth Amendment to
Lease between the Trustees of 60 State Street Trust and The Pioneer Group, Inc.
dated as of October 5, 1998 and consents thereto.
TEACHERS INSURANCE ANNUITY
ASSOCIATION OF AMERICA
By: /s/ Joan Herman
its
hereunto duly authorized
11
<PAGE> 1
EXHIBIT 10.76
March 5, 1999
SUBLEASE
ARTICLE I
REFERENCE DATA
1.1 SUBJECTS REFERRED TO.
Each reference in this Sublease to any of the following subjects shall be
construed to incorporate the data stated for that subject in this Section 1.1:
Date of Sublease: March 5, 1999.
Sublandlord: The Pioneer Group, Inc.
Sublandlord's Address: 60 State Street
Boston, Massachusetts 02109
Sublandlord Representative: Ms. Diane Benson
Subtenant: Leerink Swann & Company
Subtenant's Address: 60 State Street
Boston, Massachusetts 02109
Subtenant Representative: Mr. Jeffrey A. Leerink
Overlandlord: Trustees of 60 State Street Trust under
Declaration of Trust dated September 10,
1970 and recorded with Suffolk Deeds in
Book 8389, Page 286, as amended by First
Amendment dated as of December 23, 1988,
recorded with said Deeds in Book 15258,
Page 66.
Overlandlord's Address: c/o CC&F Asset Management Company, Inc.
60 State Street
Boston, Massachusetts 02109
Overlease: Lease dated July 3, 1991 between
Overlandlord as Landlord and Sublandlord as
Tenant, a (redacted) copy of which is
attached hereto as Exhibit A, consisting of
the
<PAGE> 2
original lease between Overlandlord and
Sublandlord dated July 3, 1991, as
heretofore amended (as redacted) and (ii)
the Sixth Amendment to Lease dated October
5, 1998. Sublandlord represents that (a) the
redacted portions of Exhibit A and (b) the
First, Second, Third, Fourth and Fifth
Amendments to the Overlease do not affect
the terms of the Overlease applicable to
Subtenant.
Subleased Premises: That entirety of Sublandlord's Floor 15
Premises under the Overlease as described in
the Sixth Amendment to the Overlease and
shown on Exhibit B attached hereto,
containing approximately 22,407 rentable
square feet of space and up to fifteen (15)
non-reserved parking spaces in the Building
garage, according to the current market
rates and terms provided for parking, as
referenced in the Sixth Amendment to the
Overlease.
Commencement Date: April 1, 1999.
Term Expiration Date: March 31, 2002, or as specified in
accordance with Section 2.3 hereinbelow.
Annual Fixed Rent: The Annual Fixed Rent shall be $27.00 per
rentable square foot. Subtenant shall pay
additional rent for the Subleased Premises
on the same terms and conditions as provided
in the Overlease for the initial Premises,
which additional rent is currently estimated
at $13.47 per rentable square foot.
Permitted Uses: All uses permitted in the Overlease.
1.2 EXHIBITS.
The exhibits listed below in this section are incorporated in this
Sublease by reference and are to be construed as part of this Sublease:
EXHIBIT A Overlease
EXHIBIT B Floor Plan of Subleased Premises
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<PAGE> 3
ARTICLE II
SUBLEASED PREMISES AND TERM
2.1 SUBLEASED PREMISES. Subject to and with the benefit of the
provisions of this Sublease, Sublandlord hereby subleases the Subleased Premises
to Subtenant, and Subtenant subleases the Subleased Premises from Sublandlord.
The Subleased Premises are subleased in their condition "as is" on the
Commencement Date. Subtenant accepts the Subleased Premises in such condition.
Sublandlord further grants Subtenant the right to use, as appurtenant
to the Subleased Premises and in accord with the provisions of Article II,
Section 2.2 of the Overlease, attached hereto as Exhibit A, the Common
Facilities described therein. Sublandlord also grants Subtenant the right to
occupy up to fifteen (15) parking spaces at the current market rates charged
from time to time by Overlandlord for market rate parking in the Building
garage.
2.2 TERM. To have and to hold beginning on the Commencement Date and
continuing until the Term Expiration Date (the "Term").
2.3 EARLY ACCESS. Sublandlord shall use commercially reasonable efforts
to assist Subtenant to gain access to the Subleased Premises prior to the
Commencement Date in order to enable Subtenant to install its wiring and cabling
to the mechanical closet in the Premises; notwithstanding the foregoing, the
inability of Subtenant to gain early access shall not modify the terms and
provisions of this Sublease.
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<PAGE> 4
ARTICLE III
RENT
3.1 ANNUAL FIXED RENT. Commencing on the Commencement Date,
Subtenant shall pay the Annual Fixed Rent on a monthly basis at the times
specified in the Overlease, except that Subtenant shall pay the Annual Fixed
Rent to Sublandlord. Notwithstanding the foregoing provisions of this Section
3.1, Sublandlord and Subtenant agree that Subtenant shall be entitled to an
abatement of the monthly installment for Annual Fixed Rent for the following
monthly periods: (a) April 1999, (b) December 2001 and (c) January, February and
March 2002 (each individually an "Abatement Period" and collectively the
"Abatement Periods"), subject to the following provisos:
(1) Subtenant shall continue to be liable during all time periods
during the Term (including all Abatement Periods) for
Operating Expenses and Real Estate Taxes as set forth in
Sections 3.2 and 3.3 hereof, and
(2) In the event that Subtenant shall, at any time during the Term
hereof, default after the expiration of applicable notice and
grace periods (as set forth in the Overlease) on any terms and
conditions of this Sublease, the abatement of Annual Fixed
Rent set forth in this sentence shall become null and void and
Subtenant shall thereupon owe to Sublandlord the full amount
of all installments of Annual Fixed Rent for all Abatement
Periods.
3.2 ADJUSTMENTS FOR OPERATING EXPENSES. Under Article II, Section
2.6 of the Overlease, Sublandlord is required to pay "Operating Expenses
Allocable to the Premises," as defined therein. Subtenant shall pay Sublandlord
as Additional Rent that portion of the Operating Expenses Allocable to the
Premises that is attributable to the Subleased Premises (the "Operating Expenses
Allocable to the Subleased Premises") during periods of time included in the
Term. Commencing on the Commencement Date, Subtenant shall pay such amount in
advance on the first calendar day of each month included in the Term. Any
surplus shall be promptly refunded to Subtenant and any deficit in such payment
shall be promptly paid by Subtenant after the Overlandlord finally determines
the amounts payable by the Sublandlord under the Overlease.
3.3 ADJUSTMENTS FOR REAL ESTATE TAXES. Under Article II, Section
2.7 of the Overlease, Sublandlord is required to pay "Landlord's Tax Expenses
Allocable to the Premises," as defined therein. Subtenant shall pay Sublandlord
as Additional Rent the Subtenant's Percentage Share of Landlord's Tax Expenses
Allocable to the Premises (the "Landlord's Tax Expenses Allocable to the
Subleased Premises") during periods of time included in the Term. Commencing on
the Commencement Date, Subtenant shall pay such amount in advance on the first
calendar day of each month included in the Term. Any surplus shall be promptly
refunded to Subtenant and any deficit in such payment shall be promptly paid
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<PAGE> 5
by Subtenant after the Overlandlord finally determines the amounts payable by
the Sublandlord under the Overlease.
3.4 PAYMENT. All payments of Annual Fixed Rent, Operating Expenses
Allocable to the Subleased Premises and Landlord's Tax Expenses Allocable to the
Subleased Premises shall be made to Sublandlord by wire transfer or to such
other address as Sublandlord may designate by notice to Subtenant from time to
time.
ARTICLE IV
SUBLANDLORD'S COVENANTS AND WARRANTIES
4.1 SUBLANDLORD'S OBLIGATIONS. Sublandlord shall make reasonable
efforts to cause Overlandlord to fulfill its obligations set forth in the
Overlease with respect to the Subleased Premises.
4.2. OVERLEASE. The copy of the Overlease attached hereto as Exhibit A
is complete, true and accurate. Except as shown on Exhibit A, the Overlease has
not been modified, amended or terminated and is in full force and effect.
Sublandlord is not in default under the Overlease, nor has Sublandlord done or
failed to do anything which with notice, the passage of time or both could ripen
into a default. To Sublandlord's knowledge, Overlandlord is not in default under
any of its obligations under the Overlease.
4.3 QUIET ENJOYMENT. Upon payment of the rent and performance of and
compliance with the covenants, terms and conditions upon Subtenant's part to be
performed and complied with hereunder, Subtenant shall lawfully, peacefully and
quietly have, hold, occupy and enjoy the Subleased Premises during the Term
without hindrance or molestation by Sublandlord or any persons lawfully claiming
by, through or under Sublandlord, subject to the terms and conditions of this
Sublease and the Overlease.
ARTICLE V
SUBTENANT'S COVENANTS
Subtenant covenants during the Term and such further time as Subtenant
occupies any part of the Subleased Premises:
5.1 SUBTENANT'S PAYMENTS. Subtenant shall pay all Annual Fixed Rent,
Operating Expenses Allocable to the Subleased Premises and Landlord's Tax
Expenses Allocable to the Subleased Premises when due. Subtenant shall also pay
all costs of utilities furnished to the Subleased Premises.
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5.2 MAINTENANCE AND REPAIR. Subtenant shall maintain the Subleased
Premises in the condition required by the Overlease.
5.3 OCCUPANCY AND USE.
(a) Subtenant shall not use the Subleased Premises for any
uses other than the Permitted Uses, and shall not make any use of the
Subleased Premises which is prohibited by any applicable law,
ordinance, code, regulation, license, permit, variances or governmental
order.
(b) It is acknowledged and agreed that Overlandlord is
responsible for causing the Building Common Areas (i.e. not including
Premises) to comply with Boston Fire and Building Codes and ADA
Guidelines. Subtenant shall not make alterations, additions or
renovations to the Subleased Premises ("Subtenant Work") except in
accordance with plans and specifications therefor ("Subtenant's Plans")
first approved by Sublandlord and Overlandlord with respect to any of
the work on such plans which (i) might adversely affect any structural
or exterior element of the Building, any area outside of the Subleased
Premises or any Building systems, or (ii) will require unusual expense
to readapt the Subleased Premises to normal office use on Sublease
expiration or termination or increase the cost of insurance or taxes on
the Building or of any services provided to the Building. Within twenty
(20) business days after delivery to Sublandlord and Overlandlord of
Subtenant's Plans, or within ten (10) business days after delivery to
Sublandlord and Overlandlord of any revisions to Subtenant's Plans,
Sublandlord and Overlandlord shall provide Subtenant with notice of
their approval or disapproval of Subtenant's Plans or such revisions,
as appropriate. If Sublandlord and Overlandlord fail to so notify
Subtenant within said twenty (20) business day period or ten (10)
business day period, as appropriate, and if such failure shall continue
for seven (7) additional business days after notice from Subtenant,
Sublandlord and Overlandlord shall be deemed to have approved
Subtenant's Plans. In the case of disapproval, Sublandlord or
Overlandlord's notice shall specify in detail the part of Subtenant's
Plans which are being disapproved and the reasons therefor. No review
or approval by Sublandlord or Overlandlord of Subtenant's Plans shall
be deemed an acknowledgment, representation or warranty by Sublandlord
or Overlandlord that Subtenant's Plans comply with the requirements of
applicable law or sound design, architectural and engineering
standards, nor shall such review or approval relieve Subtenant of any
obligation or liability with respect to Subtenant's Plans or the
Subtenant Work.
Before starting the Subtenant Work, Subtenant shall: secure
all licenses and permits necessary therefor; cause each contractor to
carry worker's compensation insurance in statutory amounts covering all
of the contractor's and subcontractor's employees; cause its general
contractor to carry commercial general liability insurance and property
damage insurance with a combined single limit of not less than
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$3,000,000.00 and cause each subcontractor to carry commercial general
liability insurance and property damage insurance with a combined
single limit of not less than $2,000,000.00 (all such insurance to be
subject to the additional requirements as described in Article III,
Section 3.5 of the Overlease, and to include as additional insureds the
Sublandlord and Subtenant), and to deliver to Sublandlord and
Overlandlord certificates of all such insurance and renewals thereof.
Subtenant agrees to pay promptly when due the entire cost of
any Subtenant Work and not to cause or permit any liens for labor or
materials performed or furnished in connection therewith to attached to
the Subleased Premises or the Property and immediately to discharge or
cause to be bonded off any such liens which may so attach and, at the
request of Sublandlord or Overlandlord, to deliver to Sublandlord or
Overlandlord security satisfactory to Sublandlord or Overlandlord
protecting Sublandlord or Overlandlord against liens arising out of the
furnishing of such labor and material. In the event Subtenant fails to
discharge or cause to be bonded off any such liens, the Sublandlord or
Overlandlord shall have the right, but not the obligation, to pay and
discharge any such lien after ten (10) days prior notice to Subtenant
of its intent to pay and discharge any such lien, and Subtenant shall
promptly reimburse Sublandlord or Overlandlord for all reasonable costs
incurred by Sublandlord or Overlandlord in connection therewith.
(c) Subject to Sublandlord's approval (not to be unreasonably
withheld or delayed) and to Overlandlord's approval, Subtenant shall
have the right to place its corporate sign or logo in the lobby of the
Premises and Subtenant's name on the Building directory in the main
Building lobby, all such signage and installations to be at Subtenant's
sole cost and expense.
Sublandlord agrees to exercise Sublandlord's rights under Section 2.2.2
of the Overlease to the extent that such exercise may facilitate Subtenant's
carrying out of the matters covered by this Section 5.3(c).
5.4 ASSIGNMENT AND SUBLETTING. Subject to the provisions of this
Section 5.4, Subtenant shall have the right to sub-sublease all or part of the
Subleased Premises to a third party subject to the prior reasonable consent of
Sublandlord and subject to the prior consent of Overlandlord:
With respect to any sub-sublease agreement entered into by and between
Subtenant and a third party:
(a) If the aggregate rent received by Subtenant from such third
party exceeds the aggregate rent paid by Subtenant hereunder respecting
the same premises, Subtenant shall (a) first deduct its reasonable
costs and expenses, including, without limitation, marketing expenses
(including brokerage commissions and advertising expenses), legal
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fees, expenses of preparing such space for sub-subletting and costs for
tenant improvements as reasonably amortized by Subtenant over a period
no less than the initial term of the applicable sub-sublease and (b)
pay to Sublandlord, as additional rent, 100% of the remaining excess
rent received, if any; and
(b) Notwithstanding any sub-sublease agreement, Subtenant shall
continue to remain liable as a primary obligor under this Sublease.
5.5 INDEMNIFICATION. Subtenant shall indemnify Sublandlord and
hold Sublandlord harmless from and against any and all claims, demands, suits,
judgments, liabilities, costs and expenses, including reasonable attorneys fees,
arising out of or in connection with Subtenant's use and possession of the
Subleased Premises (including, without limitation, any damages to or around the
Subleased Premises or the Building caused by Subtenant's Work), or arising out
of the failure of Subtenant, its agents, contractors or employees to perform any
covenant, term or condition of this Sublease or of the Overlease to be performed
by Subtenant hereunder.
ARTICLE VI
CASUALTY AND TAKING
6.1 TERMINATION OF OVERLEASE. In the event that during the Term,
all or any part of the Subleased Premises are destroyed or damaged by fire or
other casualty or taken by eminent domain, and either Sublandlord or
Overlandlord terminates the Overlease pursuant to its terms because of such
damage, destruction or taking, then this Sublease shall likewise terminate on
the same date that the Overlease terminates. Sublandlord shall give Subtenant
prompt notice of such termination and the date on which it shall occur. In the
event that during the Term, all or any part of the Subleased Premises are
destroyed or damaged by fire or other casualty to such an extent that such
damage or destruction could not be restored (in a manner which would not have
any material adverse effect on Subtenant's business operations) within ninety
(90) days of the date of such casualty, then Subtenant shall have the right,
exercisable by notice given within fifteen (15) days of the date of such
casualty, to terminate this Sublease.
6.2 REPAIR AND RESTORATION. In the event any such damage,
destruction or taking of the Subleased Premises occurs and this Sublease is not
terminated pursuant to Section 6.1 above, then Sublandlord shall cause
Overlandlord to repair and restore the Subleased Premises as required by the
terms of the Overlease. A just proportion of the Annual Fixed Rent, Operating
Expenses Allocable to the Subleased Premises, Landlord's Tax Expenses Allocable
to the Subleased Premises and any other additional rent hereunder shall be
abated until Overlandlord shall have put the Subleased Premises or what may
remain thereof into proper condition for use and occupancy, and in the case of a
taking which permanently reduces the area of the Subleased Premises, a just
proportion of such rent shall be abated for the remainder of the Term.
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6.3 RESERVATION OF AWARD. Any and all rights to receive awards
made for damages to the Subleased Premises and the leasehold hereby created
accruing by reason of exercise of eminent domain or by reason of anything
lawfully done in pursuance of public or other authority, are reserved to
Sublandlord and Overlandlord. Subtenant hereby releases and assigns to
Sublandlord and Overlandlord all Subtenant's rights to such award and covenants
to deliver such further assignments and assurances thereof as Sublandlord or
Overlandlord may from time to time request.
ARTICLE VII
OVERLEASE
7.1 SUBLEASE SUBJECT TO OVERLEASE. This Sublease is subject to the
Overlease. Subject to this Section 7.1, all terms and conditions of the
Overlease, attached as Exhibit A, are incorporated into and made a part of this
Sublease as if Sublandlord were the landlord thereunder and Subtenant were the
tenant. Sublandlord represents that (a) the redacted portions of Exhibit A and
(b) the First, Second, Third, Fourth and Fifth Amendments to the Overlease do
not affect the terms of the Overlease applicable to Subtenant. In case of
conflict between the incorporated provisions of the Overlease and the remaining
provisions of this Sublease, the latter shall control. Subtenant assumes and
agrees to perform the tenant's obligations under the Overlease during the Term,
except that the obligation to pay rent or other amounts to Overlandlord under
the Overlease shall not be an obligation of Subtenant, and Subtenant shall
instead pay the rent under this Sublease. Subtenant shall not commit or suffer
any act or omission that will violate any of the provisions of the Overlease.
Overlandlord has covenanted under the Overlease to perform repairs and
maintenance and provide services pursuant to the Overlease. Sublandlord shall
exercise due diligence in attempting to cause Overlandlord to perform its
obligations under the Overlease for the benefit of Subtenant. In addition, if
Overlandlord defaults in its obligations under the Overlease to maintain the
Subleased Premises or to furnish services to the Subleased Premises and such
default materially interferes with Subtenant's use and enjoyment of the
Subleased Premises, Sublandlord authorizes Subtenant to deal directly with
Overlandlord regarding such default. Sublandlord agrees to perform all of the
obligations of Sublandlord (as Tenant) under the Overlease, except those agreed
to be performed by Subtenant hereunder; Subtenant shall have the right but not
the obligation to cure any Sublandlord default (as Tenant) under the Overlease.
During the Term of the Sublease, Sublandlord will, upon Subtenant's request,
exercise due diligence in attempting to obtain rent abatement from Overlandlord
when such abatement is available under the terms of the Overlease. Subtenant
shall be entitled to rent abatement under this Sublease to the extent the amount
of any rent abatement received by Sublandlord under the Overlease relates to the
Subleased Premises.
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If the Overlease terminates as a result of a default or breach of
Sublandlord or Subtenant under this Sublease and/or the Overlease, then the
defaulting party shall be liable to the non-defaulting party for the direct
damage suffered as a result of such termination. Sublandlord covenants not to
commit or suffer any act or omission that will violate the Overlease. Neither
Sublandlord nor Subtenant shall be liable to the other under this Section 7.1 of
any indirect, special or consequential damages, including business interruption
or lost profits.
7.2 EXCLUDED OBLIGATIONS. Notwithstanding anything to the contrary
herein, the incorporated provisions of the Overlease are amended or qualified as
follows:
(a) Sublandlord shall not be liable under any circumstances
for a loss of or injury to property, or interference with Subtenant's
business, however occurring, incidental to any failure to furnish any
utilities or services.
(b) Sublandlord shall have no responsibility to perform or
construct (or to pay the cost of performing or constructing) any
repair, maintenance or improvement in or to the Subleased Premises.
(c) Except as expressly set forth in Section 3.1 hereof, Rent
shall be abated under this Sublease only to the extent that Sublandlord
receives a corresponding rent abatement under the Overlease.
(d) Wherever the Overlease grants to Sublandlord a grace or
cure period, the corresponding grace or cure period under this Sublease
shall be two (2) business days shorter in duration.
The parties acknowledge that Sublandlord's ability to satisfy certain
of its obligations to Subtenant under this Sublease is contingent upon the full
and timely performance of Overlandlord's obligations under the Overlease. The
parties further acknowledge that, while Sublandlord will use reasonable efforts
to cause Overlandlord to perform its obligations under the Overlease,
Sublandlord will not be liable to Subtenant for any breach of Sublandlord's
obligations under this Sublease, nor shall such breach diminish Sublandlord's
rights hereunder, where the same is caused by or attributable to the failure of
Overlandlord to perform its obligations under the Overlease.
7.3 OVERLANDLORD'S RIGHTS. Overlandlord shall have all rights with
respect to the Subleased Premises which it has reserved to itself as landlord
under the Overlease.
7.4 TERMINATION OF OVERLEASE. In the event that Overlandlord
terminates the Overlease pursuant to its terms or the Overlease otherwise
terminates or expires, this Sublease shall likewise and simultaneously
terminate.
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ARTICLE VIII
MISCELLANEOUS
8.1 NOTICES FROM ONE PARTY TO THE OTHER. All notices required or
permitted hereunder shall be in writing and addressed, if to the Subtenant, at
Subtenant's Address or such other address as Subtenant shall have last
designated by notice in writing to Sublandlord and, if to Sublandlord, at
Sublandlord's Address or such other address as Sublandlord shall have last
designated by notice in writing to Subtenant. Any notice shall be deemed duly
given when mailed to such address postage prepaid, registered or certified mail,
return receipt requested, or when delivered to such address by hand.
Copies of any notices (default or otherwise) received from, or given
to, the Overlandlord and pertaining to the Subleased Premises will be provided
to the Subtenant by Sublandlord.
8.2 ESTOPPEL CERTIFICATE. Upon not less than 15 days prior notice
by the requesting party, either party shall execute, acknowledge and deliver to
the other a statement in writing, addressed to such person as the requesting
party shall designate, certifying (a) that this Sublease is unmodified and in
full force and effect, (b) the dates to which Annual Fixed Rent, Operating
Expenses Allocable to the Subleased Premises, Landlord's Tax Expenses Allocable
to the Subleased Premises and additional rent have been paid, and (c) that the
requesting party is not in default hereunder (or, if in default, specifying the
nature of such default in reasonable detail). Any such certificate may be relied
upon by the person to which it is addressed as to the facts stated therein.
8.3 BROKERAGE. Subtenant and Sublandlord mutually represent and
warrant that they have dealt with no broker in connection with this transaction,
other than Fallon Hines & O'Connor (the "Broker"); Sublandlord shall be
responsible for paying the fee to Broker pursuant to a separate agreement.
Subtenant and Sublandlord each agrees to defend, indemnify and save the other
harmless from and against any and all cost, expense or liability for any
compensation, commissions or charges claimed by any broker or agent other than
Broker with respect to the indemnifying party's dealings in connection with this
Sublease.
8.4. APPLICABLE LAW AND CONSTRUCTION. This Sublease shall be
governed by and construed in accordance with the laws of the Commonwealth of
Massachusetts. If any term, covenant, condition or provision of this Sublease or
the application thereof to any person or circumstances shall be declared invalid
or unenforceable by the final ruling of a court of competent jurisdiction having
final review, the remaining terms, covenants, conditions and provisions of this
Sublease and their application to persons or circumstances shall not be affected
thereby and shall continue to be enforced and recognized as valid agreements of
the parties.
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There are no oral or written agreements between Sublandlord and
Subtenant affecting this Sublease. This Sublease may be amended, and the
provisions hereof may be waived or modified, only by instruments in writing
executed by Sublandlord and Subtenant.
The titles of the several Articles and Sections contained herein are
for convenience only and shall not be considered in construing this Sublease.
Unless repugnant to the context, the words "Sublandlord" and
"Subtenant" appearing in this Sublease shall be construed to mean those named
above and their respective heirs, executors, administrators, successors and
assigns, and those claiming through or under them respectively. If there be more
than one tenant, the obligations imposed by this Sublease upon Subtenant shall
be joint and several.
Any capitalized terms used herein and not otherwise defined have the
meaning ascribed to them in the Overlease.
8.5 CONSENT BY OVERLANDLORD. This Sublease is conditioned upon
procuring the consent of Overlandlord to this Sublease in accordance with the
Overlease (the "Consent"), and the Sublandlord and Subtenant shall cooperate
with each other in seeking Overlandlord's Consent. If Consent is withheld, this
Sublease shall terminate upon the delivery of written notice to Sublandlord and
Subtenant that Overlandlord's Consent will not be given. If this Sublease is so
terminated: (i) all consideration previously paid by Subtenant to Sublandlord on
account of this Sublease shall be returned to Subtenant; and (ii) the parties
thereupon shall be relieved of any further liability or obligation under this
Sublease, except for those liabilities or obligations which have accrued and
remain unperformed as of the date this Sublease is so terminated.
Sublandlord agrees that the request for Overlandlord's consent shall
include the following matters (provided Sublandlord does not guarantee that
Overlandlord's consent shall cover all such matters):
a. Sublandlord is in possession of the Subleased Premises.
b. The Overlease is in full force and effect and has not been
modified, except for the six specified amendments.
c. Neither Overlandlord nor Sublandlord is in default under the
Overlease.
d. There are no offsets or defenses existing which Overlandlord
has against the enforcement of the Overlease by Sublandlord.
e. Overlandlord's interest in the Overlease and in any trade
fixtures, inventory, furniture, machinery, equipment or other
personal property located on the Subleased Premises has not
been assigned, pledged or transferred. Overlandlord has not
received any notice that Sublandlord's interest in the
Subleased Premises has been assigned, pledged or transferred.
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<PAGE> 13
f. Overlandlord has not received any notice from any governmental
agency or authority or any violation of applicable law
relating to the Subleased Premises.
g. There are no legal proceedings pending or threatened relating
to the Subleased Premises.
8.6 STORAGE SPACE. Sublandlord and Subtenant acknowledge that
storage space may be available in the parking garage of the Building provided
however (a) that Sublandlord makes no representations and warranties regarding
the availability of such storage space and is not leasing any such storage space
to Subtenant pursuant to this Sublease and (b) Subtenant shall deal directly
with Overlandlord as to the potential availability (and rental) of such storage
space.
8.7 ELECTRICITY. Sublandlord and Subtenant acknowledge and agree
that Subtenant shall be solely responsible for the cost of all electricity
utilized in the Premises. If and to the extent the Premises are not currently
separately metered for electrical usage, Subtenant shall cause an electrical
meter to be installed prior to the Commencement Date at Subtenant's sole cost
and expense. All of such installation by Subtenant shall be subject to the terms
and conditions of Section 5.3 hereof and the applicable provisions of the
Overlease.
8.8 CERTAIN LIMITATIONS. In no event shall Subtenant be liable for
any indirect or consequential damages; provided that this clause is not intended
to deprive Sublandlord of any of the rights and remedies available to it under
Article VII of the Overlease (as incorporated into this Sublease).
EXECUTED as a sealed instrument in two or more counterparts on the day
and year first above written.
SUBLANDLORD:
The Pioneer Group, Inc.
By: /s/ Stephen G. Kasnet
Name: Stephen G. Kasnet
Title: Executive Vice President
hereunto duly authorized
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SUBTENANT:
Leerink Swann & Company
By: /s/ Peter Flynn
Name: Peter Flynn
Title: Chief Legal Officer
hereunto duly authorized
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EXHIBIT A
The following is the Overlease, as defined in Article I, Section 1.1.
The following provisions of the Overlease are to be treated as
redacted, and are not incorporated into this Sublease:
2.1.2 - [Intentionally omitted]
2.1.3 - Options to Expand - Premises
2.1.4 - Rights of First Offer
2.1.5 - Rights of First Refusal
2.1.6 - Landlord's Recapture of Floor 18
2.2(a) - Rights to Use Common Facilities
2.2.1 - Parking
2.4 - Term and Commencement Date
2.5 - Monthly Fixed Rent Payments (redacted portions only)
Article III - Construction
4.1.2 - Additional Building Operation Services
4.1.8 - The Bay Club
4.1.11 - Restrictions on Landlord
4.1.12 - Building Management
4.4 - Redecoration
8.16 - Brokerage
8.17 - Arbitration
Article IX - Priority of Lease; Rights of Institutional Mortgagee
Exhibit D - Exceptions to Priority of Tenant's Rights
Exhibit E - Base Building Improvements
Exhibit F - Construction Schedule
Exhibit G - List of Engineers, Consultants, Contractors, and
Subcontractors
Exhibit H - Landlord's Work
Exhibit I - Plans and Schedule for Landlord's Work
Exhibit K - Arbitration Methodology
Exhibit M - Existing Leases
Exhibit N - Consultant's Budget
First Amendment to the Overlease
Second Amendment to the Overlease
Third Amendment to the Overlease
Fourth Amendment to the Overlease
Fifth Amendment to the Overlease
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EXHIBIT B
Floor Plan of Subleased Premises
[Floor Plan Intentionally Omitted]
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<PAGE> 1
EXHIBIT 10.77
ASSET PURCHASE AGREEMENT
THIS AGREEMENT made and entered into as of the 18th day of March, 1999
by and among PCC Transfer Limited Partnership, a Delaware limited partnership
(the "Purchaser"), Pioneer Capital Corp., a Massachusetts corporation ("PCC"),
Pioneer Ventures Limited Partnership, a Massachusetts limited partnership
("PVLP" and, together with PCC, the "Sellers"), and The Pioneer Group, Inc., a
Delaware corporation ("PGI").
W I T N E S S E T H
WHEREAS, PCC wishes to sell to the Purchaser, and the Purchaser wishes
to purchase from PCC, those assets listed on SCHEDULE A hereto, and all other
securities acquired by PCC from and after the date hereof and prior to the
Closing, as that term is defined below (collectively, the "PCC Assets") on the
terms and conditions set forth below;
WHEREAS, PVLP wishes to sell to the Purchaser, and the Purchaser wishes
to purchase from PVLP, those assets listed on SCHEDULE B hereto and all other
securities acquired by PVLP from and after the date hereof and prior to the
Closing, as that term is defined below (the "PVLP Assets" and, together with the
PCC Assets, the "Assets").
NOW, THEREFORE, in consideration of their mutual covenants herein
contained, the parties hereto hereby agree as follows:
1. SALE AND PURCHASE OF ASSETS. Subject to the terms and
conditions hereof, at the Closing (as defined below):
(x) PCC will sell, assign and transfer the PCC Assets to
the Purchaser, and the Purchaser shall purchase the PCC Assets from
PCC, for the aggregate amount of (i) $18,218,349, which price shall be
allocated among the PCC Assets in the manner specified on SCHEDULE A
plus (ii) the cost of all PCC Assets acquired by PCC between December
31, 1998 and the Closing, minus (iii) the amount of all cash
distributions in respect of the PCC Assets received by PCC between
December 31, 1998 and the Closing (the total amount payable pursuant to
this clause (x) being referred to as the "PCC Purchase Price"); and
(y) PVLP will sell, assign and transfer the PVLP Assets
to the Purchaser, and the Purchaser shall purchase the PVLP Assets from
PVLP, for the aggregate amount of (i) $13,011,179, which price shall be
allocated among the PVLP Assets in the manner specified on SCHEDULE B
plus (ii) the cost of all PVLP Assets acquired by PVLP between December
31, 1998 and the Closing, minus (iii) the amount of all cash
distributions in respect of the PVLP Assets received by PVLP between
December 31,
<PAGE> 2
1998 and the Closing, exclusive of $888,242 of distributions received
by PCC in respect of the sale of securities of PSI Holding Group, Inc.
(the total amount payable pursuant to this clause (y) being referred to
as the "PVLP Purchase Price", and the PVLP Purchase Price and the PCC
Purchase Price being hereinafter referred to collectively as the
"Purchase Price").
2. CLOSING, ETC. The transfer of the Assets by the Sellers, and
the purchase thereof by the Purchaser, shall take place at a closing (the
"Closing") to be held at the offices of The Pioneer Group, Inc., 60 State
Street, Boston, MA 02109, at 10:00 a.m. local time promptly after all conditions
set forth in Sections 5 and 6 hereof have been fulfilled (the "Closing Date").
If any condition in Section 5 or 6 is not satisfied in any respect (or is not
duly waived) at the Closing, the party whose obligations are subject to such
condition may extend the date of the Closing to a date not later than March 30,
1999 (during which extension period the other party shall use all reasonable
efforts to cause all such conditions to be satisfied in all respects). If all
conditions are determined to be satisfied (or are duly waived) at the Closing
(whether or not delayed), the Closing shall be consummated.
3. REPRESENTATIONS AND WARRANTIES. Each Seller, severally and not
jointly, and PGI, as to itself and as to both Sellers, hereby represents and
warrants to the Purchaser as follows:
(a) Such Seller is duly organized and validly existing, the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by all
necessary action on the part of such Seller, and this Agreement has been duly
executed and delivered by such Seller and constitutes a legal, valid and binding
obligation of such Seller. PGI is duly organized and validly existing, the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by all
necessary action on the part of PGI, and this Agreement has been duly executed
and delivered by PGI and constitutes a legal, valid and binding obligation of
PGI.
(b) Such Seller has full power and authority to enter into this
Agreement and to assign the Assets it is assigning pursuant to this Agreement,
the execution and delivery of this Agreement by such Seller and, except as set
forth on SCHEDULE C, the consummation of the transactions contemplated by this
Agreement by such Seller do not violate any of the terms and provisions of the
organizational documents of such Seller or any law, statute, regulation, decree,
license, order, agreement or other restriction applicable to such Seller or any
of the Assets it is assigning pursuant to this Agreement; provided, however,
that neither of the Sellers is making any representation or warranty in this
Agreement or any instrument delivered by it pursuant hereto as to the
application to the transactions contemplated hereby of The Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), or as to
compliance by any person with the HSR Act in connection with such transactions.
No approval, consent, waiver, authorization or other order of, and no
declaration, filing (excluding filings required
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under the HSR Act, as to which no representation or warranty is made herein),
registration, qualification or recording with, any governmental authority is
required to be obtained or made by or on behalf of such Seller in connection
with the execution, delivery or performance of this Agreement and the
transactions contemplated hereby, except as will have been obtained or made and
be in full force and effect at the Closing. PGI has full power and authority to
enter into this Agreement, the execution and delivery of this Agreement by PGI
and, except as set forth on SCHEDULE C, the consummation of the transactions
contemplated by this Agreement by PGI do not violate any of the terms and
provisions of the organizational documents of PGI or any law, statute,
regulation, decree, license, order, agreement or other restriction applicable to
PGI; provided, however, that PGI is not making any representation or warranty in
this Agreement or any instrument delivered by it pursuant hereto as to the
application to the transactions contemplated hereby of the HSR Act, or as to
compliance by any person with the HSR Act in connection with such transactions.
No approval, consent, waiver, authorization or other order of, and no
declaration, filing (excluding filings required under the HSR Act, as to which
no representation or warranty is made herein), registration, qualification or
recording with, any governmental authority is required to be obtained or made by
or on behalf of PGI in connection with the execution, delivery or performance of
this Agreement and the transactions contemplated hereby, except as will have
been obtained or made and be in full force and effect at the Closing.
(c) Except as set forth on SCHEDULE C, such Seller owns all right,
title and interest in and to the Assets it is assigning pursuant to this
Agreement, free and clear of all claims, liens, encumbrances, voting agreements
or rights of any nature of any third party (each, an "Encumbrance") and upon
payment of the Purchase Price by the Purchaser as provided in this Agreement,
the Purchaser will acquire good and valid title to the Assets such Seller is
assigning pursuant hereto, free and clear of any Encumbrances. SCHEDULE C sets
forth a list of the material documents and agreements (including amendments and
schedules thereto) that, to such Seller's knowledge, constitute all documents
and agreements to which such Seller is a party or by which it is bound relating
to its ownership of the Assets. To Sellers' knowledge, all agreements and
documents referred to in SCHEDULE C are, after giving effect to any amendments
thereto, valid and are in full force and effect, and Seller has no reason to
believe that any of such agreements will not be in full force and effect at the
Closing. Except as set forth in SCHEDULE C, such Seller (i) has no obligation to
make any capital contributions to any Portfolio Entity (as that term is defined
below) or to return any distributions or portions of distributions previously
received; (ii) is not a party to any contract, agreement or commitment (other
than those relating to the transactions contemplated by this Agreement) with
respect to the Assets or the Portfolio Entities; and (iii) is not in default,
nor to Seller's knowledge, is there any basis for any valid claim of default,
under any agreement made or obligation owed by it with respect to the Portfolio
Entities. Such Seller has furnished the Purchaser with copies of all material
correspondence and other material written communications sent by or on behalf of
such Seller to, or received by or on behalf of such Seller from, any of the
Portfolio Entities or any holder of their respective securities.
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(d) SCHEDULES A and B list (x) the financial statements of each of
the companies (a "Portfolio Entity") the securities of which are included in the
Assets which were provided by the Sellers to the Purchaser (collectively, the
"Financial Statements"), (y) the jurisdiction of the incorporation of each of
the Portfolio Entities and (z) to the knowledge of such Seller, the
capitalization of each Portfolio Entity, it being understood that the foregoing
representation is applicable to each Seller only with respect to the Assets.
Such Seller has no knowledge of any facts which cause it to believe that any of
the Financial Statements with respect to the Assets do not describe in all
material respects the financial position and operations of the respective
Portfolio Entities as of the dates of the Financial Statements. SCHEDULES A and
B contain true and accurate lists of: (A) all distributions received by Sellers
or for which a Seller has received notice of distribution from the Portfolio
Entities since December 31, 1998 (the "Cut Off Date"), showing the date and
amount of each distribution; (B) all capital contributions and other payments
made by a Seller to a Portfolio Entity since the Cut Off Date, showing the date
and amount of each payment; and (C) all obligations of a Seller to make future
capital contributions to the Portfolio Entities, showing the scheduled date and
amount of each. To such Seller's knowledge, the percentage of each Portfolio
Entity represented by the Assets on a fully diluted basis set forth on SCHEDULES
A and B is true and correct.
(e) Except as set forth on SCHEDULE C, such Seller has no
knowledge of any material adverse change in the condition (financial or
otherwise) of any Portfolio Entity whose securities are included in the Assets
since the date of the latest Financial Statement listed on Schedules A and B
with respect to such Portfolio Entity.
(f) Such Seller has employed no finder, broker, agent or other
intermediary in connection with the negotiation or consummation of this
Agreement or any of the transactions contemplated hereby.
(g) Except as set forth on SCHEDULE C or as disclosed in the
Financial Statements of the Portfolio Entities, there is no (i) action, suit,
claim, proceeding or investigation pending or, to such Seller's knowledge,
threatened against or affecting such Seller, at law or in equity, or before or
by any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, (ii) arbitration
proceeding relating to such Seller, (iii) to Seller's knowledge, governmental
inquiry pending or threatened against it or affecting it, which, if adversely
determined, would invalidate or prevent the consummation of, the transactions
contemplated by this Agreement or materially and adversely affect any of the
Assets, or (iv) to such Seller's knowledge, any action, suit, claim, proceeding
or investigation pending or threatened against or affecting any Portfolio Entity
which, if determined adversely to the interests of the Portfolio Entity, would
have a material adverse effect on the Portfolio Entity.
Any reference in this Agreement to any Seller's "knowledge" or to any
matter "known" to any Seller, or words or similar import, means the actual
knowledge of any of John F. Cogan, Stephen Kasnet, John A. Boynton, Donald
Hunter or Robert Nault, each of whom is
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<PAGE> 5
an officer of The Pioneer Group, Inc., without any investigation other than
inquiry of Christopher W. Dick, Christopher W. Lynch, Frank M. Polestra and
Leigh E. Michl.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
hereby represents and warrants to the Sellers as follows:
(a) The Purchaser is duly organized and validly existing, and the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by all
necessary action on the part of the Purchaser, and this Agreement has been
executed and delivered by the Purchaser and constitutes a legal, valid and
binding obligation of the Purchaser. (b) The Purchaser has full power and
authority to enter into this Agreement and to purchase the Assets, and the
execution and delivery of this Agreement by the Purchaser and the consummation
of the transactions contemplated by this Agreement by the Purchaser do not
violate any of the terms and provisions of the organizational documents of the
Purchaser or any law, statute, regulation, decree, license, order, agreement or
other restriction applicable to the Purchaser. No approval, consent, waiver,
authorization or other order of, and no declaration, filing, registration,
qualification or recording with, any governmental authority is required to be
obtained or made by or on behalf of the Purchaser in connection with the
execution, delivery or performance of this Agreement and the transactions
contemplated hereby, except as will have been obtained or made and be in full
force and effect at the Closing.
(c) The Purchaser is acquiring the Assets solely for its own
account for investment and not with a view to or for sale in connection with any
distribution thereof.
(d) The Purchaser is experienced in financial and business matters
and is capable of evaluating the risks of its purchase of the Assets under this
Agreement. The Purchaser understands that purchase of the Assets involves a high
degree of risk.
(e) The Purchaser has employed no finder, broker, agent or other
intermediary in connection with the negotiation or consummation of this
Agreement or any of the transactions contemplated hereby.
5. CONDITIONS OF CLOSING OF THE PURCHASER. The obligations of the
Purchaser to purchase the Assets and to transfer funds at the Closing are
subject to the fulfillment at or before the Closing of the following conditions
precedent (any one or more of which may be waived at the sole discretion of the
Purchaser, except that the conditions described in Sections 5(c) and (f) may not
be waived without the consent of the Sellers and PGI):
(a) The representations and warranties made by each of the Sellers
and PGI in this Agreement shall have been true and correct when made, and shall
be true and correct as of such Closing as if made on the date of such Closing
and each Seller and PGI shall have delivered to the Purchaser a certificate,
dated the Closing Date and signed by such Seller and PGI, to such effect.
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<PAGE> 6
(b) Sellers shall have delivered to the Purchaser, free and clear
of any Encumbrances, certificates representing all of the securities
constituting the Assets, duly endorsed in blank or accompanied by stock powers
or other instruments of transfer duly executed in blank, and bearing or
accompanied by all requisite stock transfer stamps.
(c) All consents or waivers with respect to the transfer of the
Assets shall have been obtained.
(d) The Purchaser shall have received opinions, addressed to it
and dated the Closing Date, from Testa, Hurwitz & Thibeault, LLP and Hale and
Dorr LLP, counsel to the Sellers, in form and substance reasonably satisfactory
to the Purchasers.
(e) Sellers and PGI shall have performed all agreements and
obligations and complied with all conditions required by this Agreement to be
performed or complied with by Sellers and PGI at or prior to the Closing and
each Seller and PGI shall have delivered to the Purchaser a certificate, dated
the Closing Date and signed by such Seller and PGI, to such effect.
(f) No order of any nature issued by a court of competent
jurisdiction restraining, prohibiting or affecting the consummation of the
transactions contemplated by this Agreement shall be in effect, and no claim,
suit, action, investigation, inquiry or other proceeding by any governmental
body or other person or legal or administrative proceeding shall be pending or
threatened which questions the validity or legality of the transactions
contemplated by this Agreement.
6. CONDITIONS OF CLOSING OF THE SELLERS. The obligations of the
Sellers to transfer the Assets at the Closing are subject to the fulfillment at
or before the Closing of the following conditions precedent (any one or more of
which may be waived at the sole discretion of the Sellers and PGI, except that
the condition described in Section 6(d) may not be waived without the consent of
the Purchaser):
(a) The representations and warranties made by the Purchaser in
this Agreement shall have been true and correct when made, and shall be true and
correct as of the Closing as if made on the date of the Closing and the
Purchaser shall have delivered to such Seller and PGI a certificate, dated the
Closing Date and signed by the Purchaser, to such effect.
(b) The Purchase Price to be delivered by the Purchaser hereunder
shall have been delivered to the Sellers. Such Purchase Price shall be payable
by wire transfer of same-day funds, to one or more accounts designated by the
Sellers.
(c) Purchaser shall have performed all agreements and obligations
and complied with all conditions required by this Agreement to be performed or
complied with by Purchaser
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<PAGE> 7
at or prior to the Closing and Purchaser shall have delivered to the Sellers and
PGI a certificate, dated the Closing Date and signed by the Purchaser, to such
effect.
(d) No order of any nature issued by a court of competent
jurisdiction restraining, prohibiting or affecting the consummation of the
transactions contemplated by this Agreement shall be in effect, and no claim,
suit, action, investigation, inquiry or other proceeding by any governmental
body or other person or legal or administrative proceeding shall be pending or
threatened which questions the validity or legality of the transactions
contemplated by this Agreement.
7. COVENANTS. PGI and the Sellers agree that from the date of
this Agreement until the Closing Date:
(a) PGI and each Seller shall afford to Purchaser reasonable
access to any and all properties, books, records and other information of Seller
relating to the Assets in order that Purchaser may have full opportunity to make
such investigations of the Assets as shall be reasonably necessary. PGI and each
Seller shall furnish any and all financial and operating data and other
information relating to or in connection with the Assets in its possession or
which it may obtain without undue cost or hardship as the Purchaser from time to
time may reasonably request prior to the Closing. The Purchaser shall conduct
its due diligence in a cooperative manner with minimal disruption to the
business of PGI or the Sellers, and all such due diligence shall be conducted at
the offices of PCC in Boston, Massachusetts, during normal business hours. Any
investigation by the Purchaser shall not affect the representations, covenants
and warranties of PGI or the Sellers under this Agreement.
(b) PGI and the Sellers will conduct their business as it relates
to the Assets only in the ordinary and usual course and shall comply in all
respects with all laws, ordinances and regulations of governmental authorities
applicable to them and to the conduct of such business. Except as consented to
by the Purchaser in writing, neither Seller will: (i) dispose, liquidate,
mortgage or sell any of the Assets or acquire any additional assets, except for
acquisitions contemplated by or described in SCHEDULE C; (ii) consent to amend
or modify any of the documents or agreements referred to on SCHEDULE C; (iii)
forgive, release, compromise or demand payment of any indebtedness owed to it by
any Portfolio Entity other than upon full payment thereof; (iv) make any
voluntary capital contributions or fail to make any required capital
contributions to any Portfolio Entity; (v) take any action which would result in
a reduction in a Seller's percentage of ownership in any of the Portfolio
Entities; or (vi) agree to do any of the foregoing.
(c) After the date of this Agreement and prior to any termination
of this Agreement in accordance with Section 8 below, neither PGI nor any Seller
will initiate contact with, solicit any inquiry or proposal by or enter into
discussions with, or disclose any information regarding the Assets or afford
access to the properties, books or records of a Seller relating to the Assets
to, any other corporation, general or limited partnership, limited liability
company,
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<PAGE> 8
person or other entity or group in connection with (i) any proposed sale or
transfer of any of the Assets, or (ii) any similar transaction other than
pursuant to this Agreement.
(d) Seller shall give prompt notice to the Purchaser of (i) any
notice or other communication received by such Seller relating to a default or
event which, with notice or lapse of time or both, would become a default, under
any of the documents or agreements referred to on SCHEDULE C, (ii) any material
notice or other communication from or on behalf of any Portfolio Entity or any
security holder of any Portfolio Entity, (iii) any material notice or other
material communication received by such Seller relating to any contemplated or
pending claim, action, suit, proceeding or investigation by any governmental
department, commission, board, agency, instrumentality or authority involving or
relating to any Portfolio Entity or any of the Assets, and (iv) any matter which
would cause any material change with respect to any representations made in this
Agreement. With respect to any such notice or other communication, such Seller
shall inform the Purchaser of the receipt and substance thereof and, if in
writing, shall furnish the Purchaser with a copy thereof.
(e) PGI and each Seller shall promptly supplement or amend the
Schedules to this Agreement with respect to any matter arising after the date of
this Agreement which, if existing or occurring at the date of this Agreement,
would have been required to be set forth or described in the Schedules.
(f) Prior to Closing, PGI and the Sellers shall use commercially
reasonable efforts to obtain all necessary consents and waivers to permit the
transfer of the Assets to the Purchaser free and clear of all Encumbrances. PGI
and the Sellers shall bear the full cost of obtaining all such consents and
waivers.
Each of the Sellers and PGI agrees that, from and after the Closing,
they will promptly forward to the Purchaser any notices, communications,
correspondence or distributions received by them in respect of the Assets, to
the extent that such notices, communications, correspondence and distributions
relate to periods from and after the Closing date. The Sellers and PGI agree to
promptly endorse checks and execute stock powers and similar instruments
relating to such distributions and otherwise to provide reasonable assistance
and cooperation in connection with putting the Purchaser in possession of all
such distributions, notices, communications and correspondence.
Each of the Sellers, by execution of this Agreement, hereby constitutes
and appoints the Purchaser such Seller's agent and attorney-in-fact for the
purposes of: (i) endorsing in favor of the Purchaser any checks or signing any
stock powers or similar instruments conveying title to the Purchaser in
connection with any distributions received by the Sellers; (ii) signing proxies
or similar instruments or agreements in connection with the voting or granting
of approvals with respect to any of the securities included within the Assets of
such Seller; and (iii) taking such other actions as may be necessary to convey
title to the Assets to the Purchaser on the terms contemplated by this
Agreement; and the power of attorney contained in this Section 7 is
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<PAGE> 9
coupled with an interest and, therefore, is irrevocable and shall survive the
dissolution, bankruptcy or incapacity of such Seller. Nothing in the foregoing
power of attorney is intended to, nor shall it be construed to, authorize the
Purchaser to (w) take any other action in the name and on behalf of the Sellers,
including without limitation, any action relating or with respect to any asset
of any Seller which is not included within the Assets, (y) create any obligation
in the name or on behalf of any Seller, or (z) waive any right or grant any
consent in the name and on behalf of any Seller pursuant to this Agreement.
Without limiting the foregoing, the Purchaser is not hereby authorized to take
any action on behalf of the Sellers in respect of the Sellers' share of any
escrow amounts established in respect of certain securities of the Sellers which
were sold prior to the date hereof and which are not included within the Assets.
The Purchaser shall notify the Sellers within two business days following the
Purchaser's execution of any document, agreement or instrument pursuant to the
power of attorney granted hereby, which notice shall identify in reasonable
detail the item executed and the purpose for which it was executed.
8. TERMINATION.
(a) This Agreement may be terminated at any time by the mutual
consent of the parties hereto.
(b) This Agreement may be terminated by any of the parties on or
after March 30, 1999 by written notice to the other parties if the transactions
contemplated hereby shall not have been consummated; provided, however, that the
right to terminate this Agreement under this Section 8(b) shall not be available
to a party if such party's breach of this Agreement has been the cause of or
resulted in the failure of the Closing to occur on or before that date.
(c) The representations and warranties made in this Agreement
shall expire fifteen (15) months from the Closing Date, except that the
representations and warranties made by the Sellers and PGI in the first sentence
of Section 3(c) shall expire twenty-four (24) months from the Closing Date.
9. INDEMNIFICATION.
(a) INDEMNIFICATION BY SELLER. PGI and each Seller,
jointly and severally (but severally as between the Sellers), agree to defend,
indemnify and hold harmless the Purchaser, and its partners, employees, agents
and any of its successors and assigns, from and against any and all losses,
damages, claims, suites, proceedings, liabilities, costs and expenses (including
settlement costs, interest, penalties, reasonable attorney's fees and any
reasonable legal or other expenses for investigation or defense of any actions
or threatened actions) (collectively, "Losses" or "Claims," as the context
requires) which may be imposed, sustained, incurred or suffered or asserted as a
result of, relating to or arising out of (i) the breach of any representation or
warranty of PGI or a Seller contained in this Agreement (unless specifically
waived in writing by the Purchaser at or prior to the Closing), (ii) any failure
by PGI or a
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Seller to perform any covenant, agreement or obligation contained in this
Agreement (unless specifically waived in writing by the Purchaser at or prior to
the Closing),(iii) any and all obligations (other than obligations arising from
actions on the part of the Purchaser or obligations relating to periods after
the Closing Date), if any, of the Purchaser to return distributions or portions
of distributions received by Seller prior to the Closing from any of the
Portfolio Entities, or to make capital contributions to any of the Portfolio
Entities in respect to periods occurring prior to the Closing in excess of those
set forth on SCHEDULE A or B, as applicable, whether required by the laws of the
jurisdiction in which the Portfolio Entities were organized or otherwise, (iv)
the Sellers' ownership of the Assets arising in respect of periods prior to the
Closing (provided that, except to the extent of any liability under clause (i)
above, neither the Sellers nor PGI shall have any liability under this clause
(iv) based on the value of the Assets or the Portfolio Entities); and (v) the
litigation matter described on SCHEDULE C (Shushama Gokhale Complaint).
(b) INDEMNIFICATION BY THE PURCHASER. The Purchaser
agrees to defend, indemnify and hold harmless PGI, the Sellers and their
officers, directors, employees, agents and any of their successors and assigns
from and against any and all Losses and Claims which may be imposed, sustained,
incurred or suffered or asserted as a result of, relating to or arising out of
(i) the breach of any representation or warranty of the Purchaser contained in
this Agreement (unless specifically waived in writing by PGI or the Sellers at
or prior to the Closing), (ii) any failure by the Purchaser to perform any
covenant, agreement or obligation of the Purchaser contained in this Agreement
(unless specifically waived in writing by PGI or the Sellers at or prior to the
Closing), (iii) any and all obligations, if any, of the Purchaser to return
distributions or portions of distributions received by the Purchaser after the
Closing from any of the Portfolio Entities, or to make capital contributions to
any of the Portfolio Entities in respect to periods occurring after the Closing,
whether required by the laws of the jurisdiction in which the Portfolio Entities
were organized or otherwise, and (iv) the Purchaser's ownership of the Assets,
or any rights of the Purchaser pursuant to Section 10(b) to an Excluded Interest
after the Closing, including liabilities for taxes, charges, fees and periodic
deposits (including interest and penalties) determined to be due to any
governmental entity.
(c) PROCEDURE FOR THIRD PARTY CLAIMS.
(i) If a person entitled to assert a claim for
indemnification under this Agreement shall receive notice of the assertion by
any person not a party to this Agreement of any claim or of the commencement of
any action or proceeding (a "Third Party Claim") with respect to which PGI, a
Seller or the Purchaser is obligated to provide indemnification, the indemnified
party (the "Indemnitee") shall give the indemnifying party (the "Indemnitor")
prompt written notice after becoming aware of such Third Party Claim. The
failure of the Indemnitee to give notice as provided in this Section shall not
relieve the Indemnitor of its obligations for indemnification under this
Agreement, except to the extent that the failure has materially and adversely
affected the rights of the Indemnitor. The notice from the Indemnitee shall
describe the Third Party Claim in reasonable detail.
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(ii) An Indemnitor may elect to compromise or
defend, at the Indemnitor's own expense and by such Indemnitor's own counsel,
any Third Party Claim provided that the Indemnitor acknowledges its obligation
to indemnify in respect of the Third Party Claim. If an Indemnitor does so
acknowledge its obligation, it shall have the right to compromise or defend the
Third party Claim, and shall, within thirty (30) days (or sooner, if the nature
of the Third Party Claim so requires), notify the Indemnitee of its intent to do
so. The Indemnitee shall cooperate in the compromise of, or defense against, the
Third Party Claim and the Indemnitor shall pay the Indemnitee's actual
out-of-pocket expenses reasonably incurred in connection with its cooperation.
After notice from an Indemnitor to an Indemnitee of its election to assume the
defense of a Third Party Claim, the Indemnitor shall not be liable to the
Indemnitee under this Agreement for any legal expenses subsequently incurred by
the Indemnitee in connection with the defense of the Third Party Claim, PROVIDED
that Indemnitee shall have the right to employ one counsel in each applicable
jurisdiction (if more than one jurisdiction is involved) to represent Indemnitee
if, in the Indemnitee's reasonable judgement, a conflict of interest between the
Indemnitee and the Indemnitor exists in respect of such Third Party Claim, and
in that event the fees and expenses of such separate counsel shall be paid by
the Indemnitor. Except with the written consent of each related Indemnitee
(which consent shall not be unreasonably withheld), no Indemnitor shall consent
to entry of any judgment or enter into any settlement which provides for
anything other than money damages or other money payments for which the
Indemnitee is entitled to indemnification under this Agreement or which does not
contain as an unconditional term thereof the giving by the claimant or plaintiff
to the Indemnitee of a release from all liability in respect of the Third Party
Claim. If an Indemnitor does not so acknowledge its obligation to indemnify,
elects not to defend against a Third Party Claim, or fails to notify an
Indemnitee of its election as provided in this Section, the Indemnitee may pay,
compromise or defend such Third Party Claim on behalf of and for the account and
risk of the Indemnitor; provided that the Indemnitor may participate in the
defense of such Third Party Claim at its own expense.
(iii) If there is a reasonable likelihood that a
Third Party Claim may materially and adversely affect an Indemnitee, other than
as a result of money damages or other money payments for which the Indemnitee is
entitled to indemnification hereunder, the Indemnitee will have the right, after
consultation with the Indemnitor and at the cost and expense of the Indemnitor,
to defend the Third Party Claim, with counsel reasonably acceptable to
Indemnitor.
(d) PROCEDURE FOR NON-THIRD PARTY CLAIMS. With respect to
any claim for indemnification hereunder which does not result from a Third Party
Claim, the Indemnitor shall have a period of thirty (30) days after receipt of
notice from the Indemnitee within which to respond to the Indemnitee. If the
Indemnitor does not respond within the thirty (30) day period, the Indemnitor
shall be deemed to have accepted responsibility to make payment, and shall have
no further right to contest the validity of such claim. If the Indemnitor does
respond
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<PAGE> 12
within the thirty (30) day period and rejects the claim in whole or in part, the
Indemnitee shall be free to pursue such remedies as may be available to the
Indemnitee under applicable law.
(e) REDUCTION OF CLAIM OR LOSS. If the amount of any
Claim or Loss shall, at any time subsequent to payment pursuant to this
Agreement, be reduced by recovery, settlement or otherwise, the amount of such
reduction, less any expenses incurred in connection therewith, shall promptly be
repaid by the Indemnitee to the related Indemnitor.
(f) LIMITATIONS ON INDEMNIFICATION OBLIGATIONS.
Notwithstanding anything to the contrary set forth above, (i) an Indemnitor
shall have no liability to an Indemnitee under this Agreement unless and until
the aggregate Losses and Claims of the Indemnitee (determined as provided below)
pursuant to this Agreement and pursuant to that certain Asset Purchase Agreement
dated of even date herewith between the Purchaser and PGI (the "PGI Agreement")
reach an aggregate amount of at least $100,000, in which case the Indemnitor
shall be liable for all Claims and Losses, not just those in excess of $100,000,
and (ii) the maximum aggregate liability of an Indemnitor under this Agreement
shall in no event exceed the purchase price of the Assets; provided that, the
provisions of clause (i) of this Section 9(f) shall not be applicable to any
indemnification obligation of PCC, PVLP or PGI arising under Section 10(a)(v).
The Losses and Claims of PGI, PCC and PVLP hereunder shall be aggregated with
those of PGI under the PGI Agreement for purposes of calculating the $100,000
amount referenced above in this Section 9(f).
(g) REMEDIES CUMULATIVE AND NON-EXCLUSIVE. In the case of
a claim for fraud only, the remedies provided in this Section 9 shall be
cumulative and shall not preclude the assertion by any party to this Agreement
of any other rights or the seeking of any other remedies against any other party
to this Agreement. In the case of any other claim arising out of this Agreement
or the transactions contemplated hereby, the remedies provided in this Section 9
shall be exclusive.
10. NONASSIGNABLE INVESTMENT INTERESTS.
(a) To the extent that the assignment of any of the
Assets shall require the consent of any other party, or shall be subject to any
option in any other person by virtue of a request for permission to sell, assign
or transfer or by reason of or pursuant to any sale, assignment or transfer to
the Purchaser, this Agreement shall not constitute a contract to assign the same
to the extent that an attempted assignment would constitute a breach of any
document or agreement referred to on SCHEDULE C, or create rights in others not
desired by the parties.
(b) If after pursuing its obligations set forth in
Section 7(f), PGI and the Sellers are unable to obtain any consent or waiver
with respect to one or more Assets (in each case, an "Excluded Interest") and
all other conditions to the closing have been satisfied, then the Purchaser
shall have the option to require the appropriate Seller to assign to the
Purchaser all of such Seller's economic interests in the Excluded Interest and
hold and exercise any
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residual rights with respect to the Excluded Interest for the benefit of the
Purchaser, to the extent such assignment does not constitute a breach or default
(or an event which, with notice or the passage of time, or both, would
constitute a breach or default) under any agreement to which Seller is a party.
(c) If a Seller makes an assignment to Purchaser as
described in Section 10(b) above:
(i) such Seller shall, with respect to the Excluded
Interests: (A) promptly provide the Purchaser with copies of all
written reports and other communications received by such Seller; (B)
at the option of the Purchaser, either promptly deliver to the
Purchaser or to the Purchaser's designee all distributions of any
nature received by such Seller or sell securities received as
distributions according to instructions received from the Purchaser and
following the sale, promptly remit the proceeds of the sale to the
Purchaser or the Purchaser's designee; (C) exercise its rights under
all documents and agreements pertaining to the Excluded Interests in
accordance with the directions and for the benefit of the Purchaser;
(D) take no action not otherwise described in (A) through (C) above
without the prior approval of the Purchaser, which approval shall not
be unreasonably withheld or delayed; (E) grant to the Purchaser's
successors and assigns the rights and privileges of the Purchaser under
this Section 10, PROVIDED that such successors and assigns assume the
Purchaser's obligations to such Seller set forth in Section 10(c)(ii)
below; and (F) execute and deliver to the Purchaser at the Closing an
assignment of such Seller's economic interest containing the terms
outlined in this Section 10(c)(i); and
(ii) the Purchaser shall meet all capital contributions as
described on SCHEDULE A or B, as applicable, required after the Closing
with respect to the Excluded Interests, and, without limiting the
obligations of PGI and the Sellers under Section 9, shall pay all taxes
and other payments associated with the Excluded Interests as if the
Purchaser was the owner of the Excluded Interests.
(d) It is the intent of the Purchaser, the Sellers and
PGI that in the event the parties proceed pursuant to Section 10(b) above: (i)
the applicable Seller will transfer all dominion and control over the Excluded
Interests to the Purchaser to the extent not in breach of the relevant documents
and agreements even though the Seller may continue as a security holder for
state law purposes; (ii) such Seller shall exercise its rights with respect to
the Excluded Interests solely in favor of and in the interest of the Purchaser
consistent with Section 10(c) above; (iii) for federal and state income tax
purposes, the parties will treat the Purchaser as the security holder of the
Excluded Interest; and (iv) if PGI, such Seller or the Purchaser obtains the
missing consent or waiver, the Seller shall promptly convey to the Purchaser,
without payment of any additional consideration, all of Seller's interest in the
Excluded Interest.
-13-
<PAGE> 14
11. MISCELLANEOUS.
(a) Each of the parties hereto shall perform such further acts and
execute such further documents as may reasonably be necessary to carry out and
give full effect to the provisions of this Agreement and the intentions of the
parties as reflected thereby.
(b) This Agreement shall be governed by and construed according to
the laws of Massachusetts, without regard to the conflict of laws provisions
thereof.
(c) Except as otherwise expressly limited herein, the provisions
hereof shall inure to the benefit of, and be binding upon, the successors,
assigns, heirs, executors, and administrators of the parties hereto. None of the
rights, privileges, or obligations set forth in, arising under, or created by
this Agreement may be assigned or transferred without the prior consent in
writing of each party to this Agreement.
(d) This Agreement and the Schedules hereto constitute the full
and entire understanding and agreement between the parties with regard to the
subject matters hereof and thereof. Any term of this Agreement may be amended
and the observance of any term hereof may be waived (either prospectively or
retroactively and either generally or in a particular instance) only with the
written consent of all of the parties to this Agreement.
(e) All notices and other communications required or permitted
hereunder to be given to a party to this Agreement shall be in writing and shall
be telecopied or mailed by registered or certified mail, postage prepaid, or
otherwise delivered by reputable overnight courier, by hand or by messenger,
addressed to such party's address as set forth below or at such other address as
the party shall have furnished to each other party in writing in accordance with
this provision:
If to the Purchaser:
c/o Ascent Venture Management, Inc.
60 State Street
Boston, Massachusetts 02109
with a copy to:
Landmark Partners Inc.
760 Hopmeadow Street
P.O. Box 188
Simsbury, CT 06070-9760
Attention: Mr. James P. McConnell
If to the Sellers or to PGI:
-14-
<PAGE> 15
c/o The Pioneer Group, Inc.
60 State Street
Boston, Massachusetts 02109
Attention: Stephen Kasnet and
Office of the General Counsel
or such other address with respect to a party as such party shall notify each
other party in writing as above provided. Any notice sent in accordance with
this clause (e) shall be effective (i) if mailed, by registered mail seven (7)
business days after mailing, (ii) if sent by messenger, upon delivery, and (iii)
if sent via telecopier or by reputable overnight courier, on the first business
day following transmission and electronic confirmation of receipt or delivery to
the courier.
(f) Each party hereto shall bear its own expenses in connection
with the transactions contemplated hereby.
(g) No delay or omission to exercise any right, power, or remedy
accruing to any party upon any breach or default under this Agreement, shall be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent, or approval of any kind or character on
the part of any party of any breach or default under this Agreement, or any
waiver on the part of any party of any provisions or conditions of this
Agreement, must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement or by law or otherwise afforded to any of the parties, shall be
cumulative and not alternative.
(h) If any provision of this Agreement is held by an arbitrator or
court of competent jurisdiction to be unenforceable under applicable law, then
such provision shall be excluded from this Agreement and the remainder of this
Agreement shall be interpreted as if such provision were so excluded and shall
be enforceable in accordance with its terms; PROVIDED, HOWEVER, that in such
event this Agreement shall be interpreted so as to give effect, to the greatest
extent consistent with and permitted by applicable law, to the meaning and
intention of the excluded provision as determined by such court of competent
jurisdiction.
(i) This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original and enforceable against the parties
actually executing such counterpart, and all of which together shall constitute
one and the same instrument.
(j) The titles and subtitles used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement. The preamble and Schedules are an integral and inseparable part of
this Agreement.
-15-
<PAGE> 16
IN WITNESS WHEREOF the parties have signed this Agreement as of the
date first hereinabove set forth.
PCC TRANSFER LIMITED PARTNERSHIP
By PCC Transfer GP, LLC, its General Partner
By: /s/ C.W. Dick
-----------------------------------------
Name: Christopher W. Dick
PIONEER CAPITAL CORP.
By: /s/ Frank M. Polestra
-----------------------------------------
Name: Frank M. Polestra
Title: President
PIONEER VENTURES LIMITED PARTNERSHIP
By: Pioneer SBIC Corp., Its
General Partner
By: /s/ Frank M. Polestra
-----------------------------------------
Name: Frank M. Polestra
Title: President
THE PIONEER GROUP, INC.
By: /s/ Robert P. Nault
-----------------------------------------
Name: Robert P. Nault
Title: Senior Vice President
[SCHEDULES INTENTIONALLY OMITTED}
-16-
<PAGE> 1
Exhibit 13 The Pioneer Group, Inc. 1998 Annual Report to Stockholders.
[FRONT COVER]
[Pioneer Logo]
The Pioneer Group, Inc.
[Graphic of ship sailing]
1998
<PAGE> 2
The Pioneer Group, Inc.
Pioneer Investment
Management
Pioneer Investment Management distributes mutual funds in the U.S. and
manages assets on behalf of individual and institutional clients. This
business unit also distributes abroad our core U.S. mutual funds and our
offshore, Dublin-based mutual funds.
Pioneer International
Financial Services
Pioneer International Financial Services applies Pioneer's
expertise in asset gathering and management to selected countries and
markets. This business unit builds domestic financial service franchises
that invest in their home markets and serve local investors.
Pioneer Global
Investments
Pioneer Global Investments comprises our asset development capabilities. These
currently include gold mining, timber, venture capital and real estate. Through
sale or partnership arrangements, several of our investments are now in the
value realization stage.
"Last year represented a turning point for Pioneer - one in which we sharpened
our focus on our core investment management strengths and honed our
organizational structure.
We are committed to our 70-year tradition of service and building value for our
stockholders and clients. We will continue building a company with impressive
capabilities and a discerning eye for new opportunities."
John F. Cogan, Jr., President
The Pioneer Group, Inc.
1998
<PAGE> 3
[Photo of Philip L. Carret]
Philip L. Carret
1896 - 1998
Philip L. Carret was founder of Pioneer Fund and Director Emeritus of The
Pioneer Group, Inc. In 1924, while working for C.W. Barron as a financial
reporter in Boston, Mr. Carret gathered $25,000 in a trust owned by himself,
family and friends. With the reorganization of the trust in 1928 into the
nation's fourth mutual fund - subsequently named Pioneer Fund - Mr. Carret
helped usher in the modern financial services industry.
Over the course of a rich and varied career, Mr. Carret was also a partner in a
mining venture, book publisher, and author of several classic books on
investing. He was a passionate global traveler and a connoisseur of solar
eclipses. In all his endeavors, Mr. Carret displayed a broad intellectual
curiosity, openness to new ideas, continuing optimism, patience, wit, and
exceptional common sense. He passed away in May 1998 at the age of 101. We at
Pioneer shall miss him greatly.
<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Chairman's Letter 2
Pioneer Investment
Management 6
Pioneer International
Financial Services 10
Pioneer Global
Investments 12
Financial Review 15
</TABLE>
1
<PAGE> 4
[Photo of John F. Cogan, Jr.]
John F. Cogan, Jr.
President
Fellow Stockholders:
In 1998, Pioneer experienced a confluence of challenging events that was unique
in our company's history. At home, despite great volatility in the stock market,
we enjoyed a year of record revenues and assets under management, and strong
profits from our core investment management business.
Our domestic strength, however, was not enough to offset the difficult
environment abroad. Turmoil in Russia led to devaluation of the ruble and
all of that country's assets, including our banking operations, securities
brokerage and investment management businesses. The low prices of gold
weighed heavily on our Ghanaian gold mine. And Asia's slumping economies
depressed the market for our Russian timber operations. These economic
hurdles were major factors contributing to the company's overall loss for the
year of $33.5 million, or $1.32 per share, on revenues of $324.9 million, as
compared to net income of $29.2 million, or $1.14 per share, on revenues of
$330.5 million in 1997.
A Strategic Review and Restructuring
Before elaborating on operating results for 1998, I would like to discuss the
strategic review and restructuring program that Pioneer undertook in 1998.
We believe that the new structure will be the foundation for future
profitable growth well into the next century.
Pioneer is entrepreneurial in spirit, and we have always been aware that new
opportunities carry a degree of risk. For this reason, on an ongoing and
periodic basis, we reassess whether nascent operations merit continued
investment or a change in strategy. While we certainly did not foresee the
convergence of so many difficult circumstances affecting all of our
businesses in 1998, Pioneer was fortunate to have already been in the midst
of a broad strategic review.
The conclusion of our strategic review was that we should reposition Pioneer's
assets and re-focus our energies on our core capabilities of investment
management and asset development. While it will take time to fully accomplish
this undertaking, we are now moving to capture the growth in the value of
several of our asset development endeavors. We recently sold our interests in
the assets of our U.S. venture capital business and are seeking to sell our
Ghanaian gold mine. Additionally, we are seeking a strategic partner to
strengthen and bolster our results - and mitigate Pioneer's risk - in our
Russian Far East timber operation.
2
<PAGE> 5
These are the opening moves through which we intend to reduce debt and
achieve more consistent earnings growth. To effectively implement these
priorities, we have realigned Pioneer's operating units into three strategic
business units: Pioneer Investment Management, Pioneer International
Financial Services and Pioneer Global Investments, each with a strong,
focused and committed management team.
To support and link the new business units, we have also heightened the
importance of two departments. The global operations and technology department,
under William Smith's leadership, enables Pioneer to harness the increasing
opportunities offered by new information and processing technology. This area
provides superior record keeping and transfer agent services for more than 4
million fund shareowner accounts worldwide, and maintains Pioneer's corporate
operating platform at the highest industry standards. Under the leadership of
our new chief financial officer, John Boynton, the finance department is
significantly strengthening our financial planning, and is implementing more
advanced financial performance measurement systems to drive greater discipline
and bottom-line accountability.
With the completion of Pioneer's strategic review and corporate restructuring,
we have increased our management depth, leveraged the teamwork of our
professionals, and streamlined the company's overall cost structure with
tightened expense controls. We believe that the new corporate structure and
management teams provide a strong foundation for building Pioneer's future
within our core capabilities of investment management and asset development.
Following is an overview of the major contributors to 1998's results, grouped by
our new strategic business units. A fuller discussion is included in the
sections that follow.
Pioneer Investment Management
Despite the volatility that characterized Wall Street in 1998, our core
investment management, mutual fund distribution and institutional businesses
continued their upward trends, with net income rising 12.1% to $36.0 million,
fueled both by the strong performance and sales of a number of our funds and by
the gain from the sale of our Class B Share rights. For the year, sales of
domestic mutual funds increased 39% to $3.9 billion and net sales rose over 105%
to $1.6 billion. These results are the product of years of strengthening our
investment management expertise, sharpening our mutual fund mix and broadening
our distribution channels.
Pioneer International Financial Services
The results for Pioneer International Financial Services reflect both the
turmoil in Russia and the expenses associated with building our franchise as
one of Poland's leading financial service providers. Pioneer International
Financial Services posted a loss from continuing operations of $17.7 million,
compared to net income of $5.9 million in 1997. The bulk of the losses
stemmed from Russia, as mentioned above. In response, we have reduced our
Russian operations to a prudent level and significantly pared expenses.
In sharp contrast to Russia, in 1998 Poland's transition to a free market
economy continued to mature in a measured and positive manner. However, with the
investments we are making to build market share as a part of the country's
far-reaching pension system reform program, and the relatively weak stock market
conditions that prevailed in both Poland and the Czech Republic, our Central
European operations posted a loss for the year.
3
<PAGE> 6
Pioneer Global Investments
Results for Pioneer Global Investments were shaped principally by prices for
gold and timber, which were at or near recent historic lows in 1998, as well by
various challenging operating conditions. Overall, Pioneer Global Investments
lost $41.2 million in 1998, compared to a loss of $6.9 million in 1997. Our gold
mine in Ghana, which is in the process of being sold, posted a loss of $19.8
million in 1998, compared to a loss of $2.8 million in 1997. In addition to the
lingering low commodity price for gold, the loss was also due to continuing
productivity shortfalls resulting in reduced output.
Our Russian timber operation was hindered by several factors - principally
Asia's economic woes - which led to a loss of $18.7 million in 1998, compared to
a loss of $6.7 million in 1997. However, the picture did brighten significantly
in the fourth quarter with a pick-up in productivity and a sharp rebound in
timber prices.
Priorities and Growth Initiatives
In 1999, our priorities are well defined and straightforward. We will strive to
achieve our growth objectives, control expenses, reduce debt, and divest
ourselves of the non-core ventures discussed earlier. Also, we will seek to
realize an increased level of profitability from our domestic and international
investment management businesses.
These measures will help put us on the path toward the sustainable, consistent
earnings growth that we seek for our stockholders. And they will enable us to
re-focus our energies on growth initiatives within our core capabilities, which
include:
Investment management expertise In 1998, we added senior management
professionals to both equity and fixed- income teams. Fundamental, proprietary
investment research has been Pioneer's hallmark for seven decades, and we will
continue to invest in the expertise necessary to maintain this competitive
advantage.
Domestic distribution Broadening and strengthening our mutual fund distribution
network and our institutional sales efforts are ongoing priorities at Pioneer.
Our approach in 1999 will be consistent with that of previous years: to build on
the foundation of our first-class sales and marketing team. We are combining
state-of-the-art sales presentation technology and personal service to give
investment professionals and institutional clients every reason they need to
start - and to continue - doing business with Pioneer.
Global distribution Pioneer began distribution of our funds in Germany more
than 30 years ago, and we continue to see a growing number of opportunities
throughout Europe, especially with an increasingly unified European
economic structure. Over the past several years, we have been introducing
Dublin-registered offshore funds to broaden the distribution effort not only
in Europe, but also around the globe. This effort will continue in 1999 and
beyond, with carefully targeted new funds and sales initiatives.
4
<PAGE> 7
[Photo of Pioneer's executive management team]
Pioneer's executive management team: William H. Smith, Jr., Alicja K.
Malecka, John A. Boynton, John F. Cogan, Jr., David D. Tripple, and Stephen
G. Kasnet
Global retirement services Over the last 70 years, individuals in the U.S.
have increasingly looked to mutual funds and other privately managed accounts
to provide security in retirement. This trend is now in full force globally
and represents an historic business opportunity - one that is a major focus
for Pioneer. Our unique role in Poland's pension privatization illustrates
just one way in which we are committing our resources in this area. We are
also pursuing new distribution channels with the capability to serve clients
ranging from individual investors to the largest corporations.
With the restructuring, we have set ambitious goals as we approach the
twenty-first century:
* to rank consistently as a top-tier investment manager and asset
developer, and
* to apply our unique expertise in providing first-class financial
services to individuals and institutions worldwide, founded on
increasingly sophisticated technology and innovation.
Last year represented a turning point for Pioneer - one in which we sharpened
our focus on our core strengths and honed our organizational structure to
best complement the team effort of our talented professional staff. We are
committed to our 70-year tradition of service and building value for our
stockholders and clients. We shall continue building a company with
impressive capabilities and a discerning eye for new opportunities. The
pages that follow describe our accomplishments and plans more fully, and
underscore our confidence in the course we are charting.
Sincerely,
/s/ John F. Cogan, Jr.
John F. Cogan, Jr.
President
March 25, 1999
5
<PAGE> 8
Pioneer Investment Management
[Photo of person sailing]
"In 1998, Pioneer solidified its
reputation as an asset gatherer and
manager, with some impressive performance
rankings, another year of record sales
and growing recognition as a provider of
retirement services. In 1999, we see
opportunities for significant global
expansion and for opening up new
distribution channels."
David D. Tripple, President
Pioneer Investment Management
During his 25-year career at Pioneer,
David D. Tripple previously served as
President of Pioneering Management
Corporation and Chief Investment
Officer.
<PAGE> 9
Pioneer Investment Management (Pioneer Investments), our U.S. investment
management arm, manages assets on behalf of individual and institutional
clients. Pioneer Investments also distributes abroad our core U.S. mutual funds
and offshore, Dublin-based mutual funds.
Investment Management
Over the last seven decades, Pioneer has remained true to a single goal: to
produce superior investment performance in all market environments. During
that time, we have also witnessed dramatic growth in competition in the U.S.
mutual fund arena, from four funds to well over 8,000. Competition among
money managers both here and abroad is rapidly increasing.
Staying on the leading edge of this universe requires a strong effort and
commitment of resources. To that end, over the last several years we have
broadened our product line and added depth and expertise to our investment
management staff.
In 1998, we were gratified that this commitment was securely in place as the
market proved to be a challenge for money managers in many sectors. Despite a
gain of almost 29% by the Standard & Poor's 500 Index, stocks of smaller
companies suffered their worst relative performance in the post-war period and
emerging markets plunged in economic turmoil. Managers using a value investment
style, as do most of Pioneer's fund managers, were particularly affected. Even
blue-chip managers struggled to keep up with the S&P 500, with just 13% of
equity mutual funds outperforming that benchmark.
While Pioneer's funds with exposure to the small-cap and emerging markets
sectors were not immune to the difficult environment, five of Pioneer's 22 funds
ranked in the top 25% of their respective categories. In addition, two of
Pioneer's funds were among those few that outperformed the S&P 500.
In 1998, we continued to build our investment management team with the addition
of four senior portfolio managers and team leaders, on both the equity and
fixed-income sides. These additions complemented the continuing internal
development of our investment staff. A team of investment professionals composed
of portfolio managers and analysts supports each Pioneer fund to ensure that
maximum resources are brought to bear on every portfolio we manage. We have four
teams providing comprehensive coverage of the U.S. equity markets, as well as
teams for both international equity and fixed income. A growing number of
Pioneer products draw upon the combined skills of several teams.
Pioneer has also been aggressively upgrading the technology that supports all of
our investment operations, from analysis and decision-making to execution and
confirmation. In 1998, we made significant progress in this ongoing effort,
introducing a state-of-the-art internal management and electronic trading and
compliance system.
U.S. Asset Gathering
Mutual fund distribution
Pioneer funds have always been sold exclusively through investment
representatives, and providing these professionals with top-flight service is a
major focus of our business. That is why we are particularly gratified that so
many brokers, dealers and independent financial planners rate us highly.
In the 1998 national broker survey by Dalbar, a nationally recognized broker
research firm, Pioneer ranked first in 21 of 42 mutual fund and variable
annuity categories, including general opinion, product information, overall
marketing and overall operations. These are truly exceptional results.
Quality service - along with performance - was a major factor propelling
Pioneer's 39% increase in sales for 1998 to $3.9 billion, despite one of the
most volatile stock markets in recent memory. Over the last five years,
domestic sales of Pioneer funds have increased by an annual average of 34%.
In comparison, other "non-proprietary" mutual fund
7
<PAGE> 10
groups - those not captive of a broker-dealer or other financial institution -
have increased an average of only 14% over the comparable period.
Behind the sales numbers is an equally important trend. Pioneer's service
orientation has resulted in a steadily increasing number of individual dealers
who sell a significant amount of our funds: the number of investment
professionals selling $1 million or more grew by 26% in 1998, a trend that has
been consistently positive since 1991.
Retirement Products
Enjoying a secure, comfortable retirement is a key goal of an increasing number
of individuals worldwide. The continuing national debate over the future of
Social Security has heightened awareness of the growing role performed by
Pioneer and other private-sector financial intermediaries in helping investors
meet their goals.
As Congress has added more retirement-oriented incentives to the tax code,
Pioneer has been at the forefront of educating investors about how they can best
take advantage of these measures. For example, the Roth IRA, passed into law in
1997, has been one of the most popular new products in the retirement arena.
However, the new IRA rules added another layer of complexity to financial
planning. Pioneer responded with the "IRA Roadmap," which helps investors cut
through the thicket of requirements. The Roadmap has become a standard reference
piece for investment professionals and is boosting Pioneer's brand recognition
and sales.
Pioneer provides innovative and custom-tailored retirement plans for the broad
range of needs in Corporate America. We are especially focused on small
businesses, which represent a significant market for financial service
providers. We offer traditional 401(k), SIMPLE, SEP, 403(b) and profit sharing
plans, including newer adaptations recently made possible by the tax code. A
good example is our "Double Advantage Safe Harbor" 401(k) plan, available for
the first time in 1999. The plan frees small businesses from the complexities of
"top-heavy" testing, and adds flexibility in allocating company contributions.
Sales of Pioneer retirement plans increased by 77% in 1998, including a 124%
increase in new accounts. As of the end of 1998, retirement-related assets
represented more than 40% of Pioneer's $23 billion in assets under management.
Pioneer Vision Variable Annuity represents an important option for investors, as
part of their overall retirement savings program. The product offers investors a
tax- advantaged way to save for the future while benefiting from the same
professional investment management enjoyed by shareowners of Pioneer funds. In
1998, we added two new investment portfolios to Pioneer Vision - Europe and
Emerging Markets. The 12 investment options in Pioneer Vision give investors the
full flexibility they need in creating - and living with - an investment program
designed to last through their retirement years.
Institutional
Pioneer's strengths in performance and service are well suited to the
institutional marketplace, which represents in excess of $6 trillion of assets
in the U.S. and an additional $10 trillion worldwide. Pioneer is committed to
expanding our institutional market share, building on our depth of fundamental
research, original thinking and disciplined adherence to investment style -
qualities that are in great demand by consultants and their clients.
In 1998, Pioneer invested significantly in marketing and sales, marketing
support, client service and new business development to support continued
building of institutional assets under management. Pioneer's focus is on the
entire range of institutional clients, including pension, foundation, endowment,
subadvisory and insurance accounts, both in the U.S. and abroad. In 1999 Pioneer
will be targeting pension-related asset management accounts, through a variety
of relationships with insurance companies, defined benefit plans,
municipalities, banks and other financial intermediaries.
8
<PAGE> 11
Shareowner Service
Pioneer is committed to providing our mutual fund shareowners and their
investment representatives with service that ranks among the best in the
financial services industry.
We have a philosophy of continually striving to improve account access, while
maximizing the information and educational resources at our clients' fingertips,
through materials such as our comprehensive shareowner service guide and
complete year-end tax materials. In 1998, we undertook projects to build and
improve our shareowner web site, redesign our quarterly newsletter and
completely revamp our single and combined account statements.
To guide our service efforts, we solicit feedback from shareowners on a
quarterly basis. In 1998, we received a 96.5% approval rating, based on
responses to 8,000 surveys mailed to customers over the course of the year.
Offshore Asset Gathering
In the U.S., about 40% of households own mutual funds, representing about $5.5
trillion in assets. The combined mutual fund assets of France, Italy, Japan, UK,
Germany, Spain and Canada add up to less than half of that. In the next decade,
Pioneer believes that the mutual fund will emerge on a global scale, buoyed by
several related trends, including a growing need for alternatives to bank
savings, increased consumer sophistication and the privatization of many
government-managed retirement plans.
Pioneer first began an overseas distribution network in Germany more than 30
years ago, with the offering of two U.S.-registered funds, and we have continued
to build our European presence. With the advent of the Euro in 1998 and the
prospect of further economic integration in the near future, this is an
especially exciting time to extend our franchise elsewhere in Europe and
elsewhere around the globe.
In recent years, additions to our offshore product line included seven funds
registered in Dublin, the site of our international service center. Irish
registration facilitates the global offering of these funds. In 1998, we
established a sales presence in Spain in preparation for wider distribution of
our funds. In addition, we are rapidly building partnerships with broker-dealers
and banks with global distribution capabilities.
Our U.S.-based investment professionals manage all of the offshore assets raised
by Pioneer Investments. In contrast, Pioneer International Financial Services,
discussed in the following section, develops a strong local presence by building
and managing domestic financial service franchises in selected countries. The
synergy developed through the interaction of our strategic business units adds
to the unique base of research and expertise that supports all Pioneer
investment professionals.
9
<PAGE> 12
Pioneer International Financial Services
[Photo of ship sailing]
"The demand for mutual funds has grown dramatically in recent years, fueled in
large measure by the increasing global need for individual retirement savings.
With 30 years of international experience, and a unique track record in
developing the technological infrastructures for new markets, Pioneer is
well-positioned to service - and profit from - this growing need."
Alicja K. Malecka, President
Pioneer International Financial Services
Alicja K. Malecka has over 25 years of
experience in international banking and
capital markets and has directed
Pioneer's efforts in Poland and the
Czech Republic since 1992.
<PAGE> 13
Pioneer International Financial Services applies Pioneer's expertise in asset
gathering and management to selected countries and markets. With local staff
and business partners, Pioneer International Financial Services builds
domestic financial service franchises that invest in their home markets and
serve local investors.
Poland
Since establishing the first mutual fund in Poland in 1992, Pioneer has become
one of Poland's premier financial service providers. Pioneer manages four mutual
funds with approximately $325 million under management - roughly 70% of all the
assets invested in Polish mutual funds. In addition, Pioneer provides related
record keeping and transfer agent services. This technology was adapted from
Pioneer's U.S. systems and customized to meet the unique needs of our Polish
operation.
In 1998, Pioneer became the first organization to be licensed and registered to
gather and manage assets as part of Poland's far-reaching pension system reform
program. The reform program consists of three "pillars," or stages. Pillar I is
an extension of the current "pay-as-you-go" government-managed pension system.
Pillar II, the program under which Pioneer became licensed, is a private-sector
program in which individuals select financial service providers. Participation
in Pillar II is mandatory for all employees under 30 years old, and elective for
those from 30 to 50. Pillar III is a voluntary, corporate-sponsored,
private-sector program - much like the 401(k) market in the U.S.
Clearly, 1999 will be crucial for Pioneer in terms of extending our dominant
franchise in Poland, as Pillar II gets underway. The influx of new money is
likely to spark significant growth in Poland's financial markets - currently,
just 1% of the population invests. However, competition with other financial
intermediaries will be intense and, even with Pioneer's substantial franchise in
the mutual fund sector, our pension fund programs will require additional
near-term investment to bolster our sales, distribution and processing
capabilities.
Czech Republic
In 1995, Pioneer was the first non-Czech company to establish an open-end mutual
fund in the Czech Republic. During 1998, the assets under managment in our Czech
Fund grew by nearly 60%, and by the end of the year we managed $68 million for
32,000 clients. We are pleased that in a young, rapidly growing financial
market, Pioneer Czech Investment Company has established a reputation for
integrity and expert management.
Russia
By any measure, 1998 was a year of major setbacks to Russia's effort to develop
its economy along a free-market model. The well-publicized economic turmoil
resulted in both a currency devaluation and a sharp reduction in securities
trading. In response to a truly challenging environment and trying times, our
majority-owned bank suspended operations in the second quarter and was
subsequently sold, our 51%-owned Pioneer First Investment Fund took a reduction
in the cost basis of certain of its holdings in the third and fourth quarters,
and early in 1999 we took steps to close our majority-owned brokerage company.
In sum, we have reduced our Russian operations to a prudent level required to
manage the Pioneer First Investment Fund and two smaller mutual funds, as we
await the recovery of the Russian capital markets.
India
Pioneer offers an array of mutual funds to Indian citizens through our 48%-owned
joint venture, Kothari Pioneer AMC, headquartered in Chennai (Madras). Since
1993, when we established the first private sector Indian mutual fund - Kothari
Pioneer Prima Fund - assets under management have grown to approximately $110
million, on behalf of over 300,000 accounts. Kothari Pioneer's distribution
network includes 17 regional and branch offices and more than 16,000 investment
professionals throughout the country.
The countries in which Pioneer International Financial Services builds its
franchises are chosen carefully. They boast a newly emerging middle class that
has embraced a free market economy. And they are receptive to new tools for
savings and investment in pursuit of long-term financial security. Pioneer
enters such markets only when we believe our unique expertise can be applied
profitably to help them achieve that important goal.
11
<PAGE> 14
Pioneer Global Investments
"Pioneer Global Investments seeks asset development opportunities that offer the
potential for high return on investment, where the risks are readily gauged and
the exit strategies are clearly defined. We view our strengths as those of
identifying value and nurturing young businesses to the initial
commercialization stage. As such, we expect to grow the enterprises and realize
their increased value within an intermediate-term time frame."
Stephen G. Kasnet, President
Pioneer Global Investments
[Photo of ship sailing]
Stephen G. Kasnet has 20 years of
institutional advisory, capital market and
real estate investment and management
experience. Mr. Kasnet previously served as
president of Pioneer Real Estate Advisors.
<PAGE> 15
Pioneer Global Investments leverages our asset development investments and
capabilities. These currently include gold mining, timber, venture capital and
real estate. Several of our investments are now in the value realization stage,
as discussed more fully below.
Gold Mining
In 1998, we decided to pursue the sale of Pioneer Goldfields, holder of our 90%
equity interest in Teberebie Goldfields Limited, as discussed earlier. Since
securing the site concession in 1986, Pioneer successfully proved feasibility
and developed it into a world-class gold mine, achieving full-scale commercial
production in 1991.
In light of Pioneer's overall restructuring, and the broad consolidation now
taking place in the mining industry, a sale will realize the present value of
Pioneer Goldfields and allow us to use the proceeds to reduce debt and make
investments in our core businesses. To that end, we have retained Salomon Smith
Barney as our investment-banking advisor, and an offering memorandum is being
finalized for circulation to a select group of potential buyers.
In 1998, the gold mine struggled with continuing production shortfalls due to
drought-induced hydroelectric power shortages in Ghana and unexpected
variability in gold recovery and crusher availability associated with ore that
is generally less weathered and harder than that previously processed. As a
result, gold production dropped 4% to 253,200 ounces in 1998. The average
selling price fell 10% to $305 per ounce. The resulting decline in revenues was
exacerbated by the expiration of put options in September. At prevailing gold
prices, it has been uneconomical to extend the "floor" program for our gold
sales.
Timber Production
Pioneer Forest is our timber production subsidiary in the Khabarovsk Territory
of Russia. Pioneer Forest's holdings consist of annual cutting rights to 1.2
million cubic meters of timber harvested from three long-term leaseholds on 2.7
million acres, a land area equal to roughly 90% of the state of Connecticut. We
are actively seeking to expand our cutting rights, which we believe will
significantly increase the value of our holdings and further enhance Pioneer
Forest's attractiveness to top-tier prospective partners.
Results for the timber operations were constrained in 1998 by the troubled
economies of neighboring Asian countries, principally Japan, with the average
realized selling price for the year at $37 per cubic meter, down 39% from 1997.
Additionally, harvesting and production of timber was suspended in mid-year for
over four months under a governmental decree as logging crews were redeployed to
help fight forest fires in the region.
At the same time, there were several bright spots as 1998 drew to a close.
Increasing the productivity of our crews was a key goal for the year, and we are
pleased that we exceeded our monthly production targets throughout the fourth
quarter. For the year we shipped 280,000 cubic meters, an increase of over 44%
from 1997. In addition, prices for our shipped timber mix rebounded 82% from
their average in the third quarter to an average of $51 per cubic meter in the
fourth quarter. Revenues and expenses are now at budgeted levels, and the
operations are currently self-sustaining on a cash-flow basis. To help smooth
out the timing of cash flow, Pioneer has entered into an advanced-selling
arrangement for timber harvested but not shipped during the first five months of
1999. As we seek a strategic partner, we continue our efforts to increase
production and productivity in 1999.
13
<PAGE> 16
Direct Equity / Real Estate
Pioneer is manager of several direct equity and real estate funds.
In March 1999, we sold our interests in the assets of our U.S. venture capital
business as a way to enhance liquidity, reduce debt and fund investments in our
core businesses.
While we have sold our interests in domestic venture capital investments,
Pioneer continues to view direct equity investment and management of
institutional assets as squarely within our core investment management strategy
and capabilities. We see great promise in our direct equity and real estate
funds in Central Europe. We will retain management of these funds, and expect
that they will provide value for our institutional clients. These initiatives
include the following:
$60 million Pioneer Poland Fund As of the first quarter of 1999, the fund is 70%
invested in a portfolio of growing private Polish businesses; the balance is
expected to be invested in the near term, based on commitments currently in
place.
$100 million Pioneer Central Europe Fund II Based on the success of the Poland
Fund and drawing upon Pioneer's regional presence and knowledge, in 1999 we
intend to organize a follow-on fund which will seek direct equity opportunities
in a portfolio of private businesses throughout Central Europe.
$60 million Pioneer Polish Real Estate Fund This fund, organized in 1997, is in
the process of finalizing commitments and investing in a portfolio of commercial
real estate opportunities. We anticipate that the fund will be fully invested
within three years.
$240 million Pioneer-Banc One Property Fund We intend to close this fund in
1999, in partnership with Banc One Capital Corporation, to invest in properties
in Central Europe and the Newly Independent States of the former Soviet Union.
In recognition of Pioneer's expertise in both real estate investment and the
region, the debt portion of the financing of the fund is fully guaranteed by the
Overseas Private Investment Corporation, an arm of the U.S. Commerce Department.
Pioneer will continue to focus on opportunities with highly favorable
risk/reward profiles where assets can be developed within well-defined time
frames. We will proceed on a highly selective basis, where Pioneer's unique
investment management skills can build value for our stockholders.
14
<PAGE> 17
Financial Review
[Photo of ship sailing]
<TABLE>
<S> <C>
Financial Snapshot 16
Management's Discussion
and Analysis 18
Market Risk Disclosure 29
Report of Independent
Public Accountants 31
Consolidated
Financial Statements 32
Notes to Consolidated
Financial Statements 36
</TABLE>
<PAGE> 18
Financial Snapshot
Assets Under Management at December 31:
Dollars in Millions
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
U.S. Registered Mutual Funds ............. $21,985 $19,635 $15,704 $12,701 $9,925
Non-U.S. Registered Mutual Funds ......... 814 715 502 280 589
------- ------- ------- ------- ------
Total Registered Mutual Funds .......... 22,799 20,350 16,206 12,981 10,514
Closed-end and subadvised funds
and private institutional accounts* .... 574 691 775 764 589
------- ------- ------- ------- ------
Total .................................... $23,373 $21,041 $16,981 $13,745 $11,103
======= ======= ======= ======= ======
</TABLE>
* Excludes assets of funds managed by foreign joint ventures and venture capital
pools.
Quarterly Financial Data
Dollars in Thousands Except Per Share Amounts
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
1998
Total revenues and sales .................................. $77,892 $81,583 $83,719 $81,680
------- -------- -------- --------
Net income (loss) from continuing operations .............. 5,337 (6,211) (15,937) (10,208)
Net income (loss) from discontinued operations ............ 10 (5,919) (540) --
------- -------- -------- --------
Net income (loss) ......................................... $5,347 ($12,130) ($16,477) ($10,208)
======= ======== ======== ========
Per common share:
Earnings (loss) from continuing operations .............. $0.21 ($0.25) ($0.63) ($0.40)
Earnings (loss) from discontinued operations ............ -- ($0.23) ($0.02) --
------- -------- -------- --------
Total earnings (loss) ................................... $0.21 ($0.48) ($0.65) ($0.40)
======= ======== ======== ========
Cash dividends declared ................................. $0.10 $0.10 -- --
======= ======== ======== ========
Market price range:*
High ................................................. $31-1/4 $33 $28-1/8 $19-3/4
Low .................................................. $25-1/4 $25-3/16 $15-1/16 $11-1/2
1997
Total revenues and sales .................................. $67,667 $77,422 $94,929 $90,498
------- -------- -------- --------
Net income (loss) from continuing operations .............. 7,474 5,455 8,926 7,858
Net income (loss) from discontinued operations ............ (165) (480) 596 (498)
------- -------- -------- --------
Net income (loss) ......................................... $7,309 $4,975 $9,522 $7,360
======= ======== ======== ========
Per common share:
Earnings (loss) from continuing operations .............. $0.29 $0.21 $0.35 $0.31
Earnings (loss) from discontinued operations ............ -- ($0.02) $0.02 ($0.02)
------- -------- -------- --------
Total earnings (loss) ................................... $0.29 $0.19 $0.37 $0.29
======= ======== ======== ========
Cash dividends declared ................................. $0.10 $0.10 $0.10 $0.10
======= ======== ======== ========
Market price range:*
High ................................................. $26-3/4 $26-1/2 $32-1/2 $33-3/8
Low .................................................. $22-7/8 $23 $22-3/4 $27-1/8
</TABLE>
* The Company's common stock is quoted on the NASDAQ National Market under the
symbol PIOG. Prices reflect the closing price of the common stock on the
NASDAQ National Market. At March 1, 1999, the Company had approximately 5,000
shareholders.
16
<PAGE> 19
Sales of Mutual Fund Shares:
Dollars in Millions
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
U.S. Registered Mutual Funds:
Sales* ................................. $3,971 $2,866 $2,602 $1,752 $1,499
Redemption of shares ................... 2,410 2,106 1,431 1,050 860
------ ------ ------ ------ ------
Net sales of shares .................... $1,561 $ 760 $1,171 $ 702 $ 639
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Non-U.S. Registered Mutual Funds:
Sales* ................................... $241 $410 $217 $ 25 $734
Redemption of shares ...................... 160 147 81 381 584
---- ---- ---- ----- ----
Net sales (redemptions) of shares ......... $ 81 $263 $136 $(356) $150
==== ==== ==== ===== ====
</TABLE>
* Includes reinvestment of dividends, but excludes money market funds and funds
managed by foreign joint ventures.
Five Year Summary of Selected Financial Data:
Dollars in Thousands Except Per Share Amounts
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Results of Operations
Revenues and sales ..................... $ 324,874 $ 330,516 $ 224,146 $ 196,334 $ 171,702
Costs and expenses ..................... 343,492 282,789 203,289 157,842 119,568
Unrealized and realized (gains) losses
on venture capital and marketable
securities investments, net .......... (4,418) (27,460) (12,279) (9,345) 946
Interest expense ....................... 16,303 11,395 3,318 1,024 1,305
Public offering costs .................. -- -- -- 4,863 --
Other, net ............................. 1,186 606 1,716 735 112
---------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations
before provision for income taxes and
minority interest .................... (31,689) 63,186 28,102 41,215 49,771
Provision for income taxes ............. 1,771 27,664 11,605 16,071 14,182
---------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations
before minority interest ............. (33,460) 35,522 16,497 25,144 35,589
Minority interest ...................... (6,441) 5,809 1,220 2,965 2,129
---------- ---------- ---------- ---------- ----------
Net income (loss) from
continuing operations ................ (27,019) 29,713 15,277 22,179 33,460
Income (loss) from discontinued
Russian banking operations ........... (6,449) (547) 3,560 632 --
---------- ---------- ---------- ---------- ----------
Net (loss) income ...................... $ (33,468) $ 29,166 $ 18,837 $ 22,811 $ 33,460
========== ========== ========== ========== ==========
Diluted earnings (loss) per share:
Continuing operations ................ $ (1.07) $ 1.16 $ 0.60 $ 0.88 $ 1.32
Discontinued operations .............. (0.25) (0.02) 0.14 0.02 --
---------- ---------- ---------- ---------- ----------
Total diluted earnings (loss) per share $ (1.32) $ 1.14 $ 0.74 $ 0.90 $ 1.32
---------- ---------- ---------- ---------- ----------
Cash dividends per share ............... $ 0.20 $ 0.40 $ 0.40 $ 0.40 $ 0.315
========== ========== ========== ========== ==========
Diluted shares outstanding ............. 25,350,000 25,630,000 25,460,000 25,311,000 25,354,000
Long-term notes payable ................ $ 133,395 $ 168,424 $ 149,500 $ 11,048 $ 9,101
Total assets ........................... $ 499,461 $ 567,214 $ 456,782 $ 310,790 $ 202,085
Stockholders' equity ................... $ 154,802 $ 183,687 $ 162,473 $ 150,343 $ 134,422
Stockholders' equity per share ......... $ 5.93 $ 7.28 $ 6.50 $ 6.05 $ 5.45
</TABLE>
17
<PAGE> 20
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 loss of $33.5 million in 1998, or $1.32 per share, on
revenues of $324.9 million, compared to net income of $29.2 million, or $1.14
per share, on revenues of $330.5 million in 1997. The Company had net income of
$18.8 million in 1996, or $0.74 per share, on revenues of $224.1 million.
Results for 1998 included a loss of $6.5 million, or $0.25 per share, from the
Company's discontinued Russian banking operations. These discontinued operations
lost $0.5 million in 1997, or $0.02 per share, in contrast to net income of $3.6
million, or $0.14 per share in 1996.
Worldwide assets under management were $23.4 billion at December 31, 1998,
compared to $21.0 billion at December 31, 1997. The increase in assets under
management was principally attributable to strong net sales of U.S. registered
mutual funds and a higher U.S. stock market.
Table 1 details revenues and net income by business segment for 1998, 1997 and
1996.
TABLE 1
Revenues And Net Income
(Dollars in millions)
<TABLE>
<CAPTION>
Revenues Net Income (Loss)
------------------------ ---------------------------
Year Ended December 31, Year Ended December 31,
------------------------ ---------------------------
Business Segment 1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Pioneer Investment Management:
Mutual Funds and Institutional
Accounts .......................... $200.0 $168.5 $126.4 $ 30.7 $ 32.1 $ 17.4
Sale of Class B Share Rights ........ 8.1 -- -- 5.3 -- --
------ ------ ------ ------ ------ ------
208.1 168.5 126.4 36.0 32.1 17.4
------ ------ ------ ------ ------ ------
Pioneer International Financial Services:
Russia .............................. 10.3 42.2 6.1 (13.0) 5.8 (2.3)
Central and Eastern Europe .......... 15.3 15.5 10.6 (4.2) 0.1 (3.6)
Asia ................................ -- -- -- (0.5) -- --
------ ------ ------ ------ ------ ------
25.6 57.7 16.7 (17.7) 5.9 (5.9)
------ ------ ------ ------ ------ ------
Pioneer Global Investments:
Venture Capital ..................... 2.2 2.3 2.6 1.3 4.9 3.1
Real Estate ......................... 1.2 0.6 0.1 (2.9) (1.9) (0.2)
Gold Mining ......................... 77.3 89.5 78.3 (19.8) (2.8) 2.6
Timber .............................. 10.5 11.9 -- (18.7) (6.7) (0.5)
Other ............................... -- -- -- (1.1) (0.4) (0.6)
------ ------ ------ ------ ------ ------
91.2 104.3 81.0 (41.2) (6.9) 4.4
------ ------ ------ ------ ------ ------
Interest Expense and Other Expenses ..... -- -- -- (4.1) (1.4) (0.7)
------ ------ ------ ------ ------ ------
Total From Continuing Operations $324.9 $330.5 $224.1 $(27.0) $ 29.7 $ 15.2
------ ------ ------ ------ ------ ------
Discontinued Russian Banking Operations . -- -- -- (6.5) (0.5) 3.6
------ ------ ------ ------ ------ ------
Totals ...................... $324.9 $330.5 $224.1 $(33.5) $ 29.2 $ 18.8
====== ====== ====== ====== ====== ======
</TABLE>
18
<PAGE> 21
Pioneer Investment Management
1998 Compared to 1997
Net income increased by $3.9 million to $36.0 million. Results for 1998 included
a one-time gain of $5.3 million from the Company's 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.
Pioneer Investment Management's assets under management at December 31, 1998
were approximately $23.0 billion compared to $20.6 billion at December 31, 1997.
In 1998, the Company had U.S. registered mutual fund sales (including reinvested
dividends) of $3.9 billion compared to $2.9 billion in 1997, and net sales of
$1.6 billion compared to net sales of $0.8 billion in 1997.
Revenues of $208.1 million in 1998 increased by $39.6 million, or 24%.
Management fee revenues of $130.5 million increased by $19.6 million,
principally reflecting higher assets under management resulting from gains in
the U.S. stock market and an increase in net sales of mutual fund shares. The
Company also earned $8.1 million in revenues from the sale of its Class B share
rights. Revenues from underwriting commissions, distribution fees, and
shareholder servicing fees increased by $9.3 million to $57.4 million resulting
from increased mutual fund sales, higher average Class B share assets under
management, and increased mutual fund shareowner accounts.
Costs and expenses increased by $33.2 million in 1998 to $149.5 million. The
expense increase resulted principally from higher payroll costs, mutual fund
distribution expenses and technology expenses. These increased expenses were
incurred to strengthen the investment management team, broaden and expand mutual
fund distribution and improve operating efficiencies.
Pioneer Investment Management's effective tax rate for 1998 was 37% compared to
39% in 1997. 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.
1997 Compared to 1996
Net income nearly doubled in 1997 versus 1996, increasing by $14.7 million to
$32.1 million.
Pioneer Investment Management's assets under management at December 31, 1997
were approximately $20.6 billion compared to $16.5 billion at December 31, 1996.
In 1997, the Company had U.S. registered mutual fund sales (including reinvested
dividends) of $2.9 billion compared to $2.7 billion in 1996, and net sales of
$0.8 billion compared to net sales of $1.2 billion in 1996.
Revenues of $168.5 million in 1997 increased by $42.1 million, or 33%.
Management fee revenues of $110.9 million increased by $31.4 million,
principally reflecting higher assets under management resulting from the strong
U.S. stock market performance. Revenues from underwriting commissions,
distribution fees, and shareholder servicing fees increased by $7.9 million to
$48.1 million resulting from increased mutual fund sales, higher average Class B
share assets under management, and increased mutual fund shareowner accounts.
Costs and expenses increased by $20.0 million in 1997 to $116.3 million. The
expense increase resulted principally from higher payroll costs, part of which
related to the Company's efforts to strengthen its investment management
personnel, higher expenses associated with the amortization of dealer advances
resulting from sales of back-end load mutual fund shares, and higher office
space costs.
Pioneer Investment Management's effective tax rate for 1997 was 39% compared to
37% in 1996.
Pioneer International Financial Services
1998 Compared to 1997
During 1998, Pioneer International Financial Services ("PIFS") lost $17.7
million from continuing operations on revenues of $25.6 million compared to net
income of $5.9 million on revenues of $57.7 million in 1997.
19
<PAGE> 22
Management's Discussion & Analysis (continued)
Revenues from PIFS' Russian financial services operations decreased by $31.9
million to $10.3 million principally from the brokerage business. The reduced
revenues led to a loss of $4 million in 1998 in the brokerage business. In
response, the Company announced in the first quarter of 1999 the closing of its
Russian brokerage subsidiary and reduced its remaining financial services staff
and related expenses. In addition, the Company had significant losses of $6.3
million associated with cost basis adjustments of certain securities of Pioneer
First Investment Fund, its majority-owned investment fund, to reflect the lack
of liquidity in the trading market for Russian equity securities and the
write-down of receivables of Pioneer First Investment Fund deemed uncollectible.
Central European operations lost $4.2 million in 1998 compared to net income of
$0.1 million in 1997. The 1998 loss was principally attributable to the
Company's Polish financial services operations. Polish mutual fund assets under
management decreased by approximately $100 million in 1998 to $350 million. The
Company also experienced losses associated with its Polish brokerage business
and costs from its new subsidiary established to solicit accounts and manage
pension assets under Poland's pension system reform program.
1997 Compared to 1996
PIFS had net income of $5.9 million in 1997 on revenues of $57.7 million
compared to a loss of $5.9 million on revenues of $16.7 million in 1996.
Revenues from PIFS' Russian financial services operations of $42.2 million in
1997 increased by $36.1 million. These operations reported net income of $5.8
million in 1997 compared to a loss of $2.3 million in 1996. The significant
revenue and net income improvements resulted from the Russian brokerage business
which benefited from the record volume experienced in the Russian stock market
and increased net realized gains from investments sold by Pioneer First
Investment Fund.
Revenues from the Company's Central European financial services operations of
$15.5 million in 1997 increased by $4.9 million, principally from higher
management fees. These operations had net income of $0.1 million in 1997
compared to losses of $3.6 million in 1996. The favorable net income improvement
of $3.7 million was split almost evenly between the Polish financial services
and Czech mutual fund operations.
At December 31, 1997, mutual fund assets under management in the Company's four
Polish mutual funds were $446 million, virtually unchanged from the December 31,
1996 level.
Pioneer Global Investments
1998 Compared to 1997 and 1996
During 1998, Pioneer Global Investments lost $41.2 million on revenues of $91.2
million compared to a loss of $6.9 million on revenues of $104.3 million in
1997. In 1996, Pioneer Global Investments had net income of $4.4 million on
revenues of $81.0 million.
Net income from the Company's U.S. venture capital operations was $3.3 million
in 1998, $6.3 million in 1997, and $4.5 million in 1996. The Company had
significant gains in 1997 and 1996 from two of its portfolio companies which
conducted public offerings. The Company had losses from its Central and Eastern
Europe venture capital operations of $2.0 million in 1998 and $1.4 million in
1997 and 1996, principally associated with development costs of the Company's
venture capital funds. In response, the Company announced the closing of its
Russian venture capital operations in the fourth quarter of 1998.
On March 18, 1999, the Company sold its direct investments and indirect
interests of its U.S. venture capital business for $34.9 million. The sale was
to an entity formed by management of the Company's venture capital division and
a private equity partnership managed by a third party venture capital investor.
As part of the Company's previously announced restructuring, proceeds of the
sale will be used to repay financing from the Small Business Administration, to
reduce debt outstanding under the Company's bank revolving credit facility and
to fund investments in core businesses. During the first quarter of 1999, the
Company expects to report a loss of approximately $3.1 million, or $0.12 per
share, in connection with this transaction, including costs associated with the
transaction.
20
<PAGE> 23
The Company's real estate services operations reported losses of $2.9 million
in 1998, $1.9 million in 1997 and $0.2 million in 1996. 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.
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
In the fourth quarter of 1998, TGL identified the source of lower than expected
heap-leaching recoveries. Compared with the predominant material processed since
project inception, the more recently processed ore is inherently less weathered
and harder, adversely affecting crusher throughput and availability. The Company
now believes that the hardness of the ore also contributed to lower than
expected crusher production in the second and fourth quarters of 1998. Based on
TGL's existing heap leach technology, this ore exhibits a significantly longer
leach cycle and yields extraction values below historical rates. Testing work
conducted by TGL personnel to date has confirmed that acceptable extraction
values are achievable at liberation sizes below those feasible by present
crushing methods. TGL has determined that the high incidence of the less
weathered and harder ore will necessitate a transition from heap leaching to
conventional milling. A comprehensive testing program is nearing completion,
which delineates the recovery characteristics of this ore and identifies both
its location and frequency in the current pit design.
As a result of this new finding, TGL is currently developing a new mine plan
which will: (i) synthesize the results of the comprehensive testing program,
(ii) incorporate a new, modified pit design, and (iii) specify the equipment
necessary to efficiently process the less weathered ore. Until the new mine plan
is complete, TGL cannot quantify its effect on previously reported proven and
probable in situ mineable reserves of 5.9 million ounces or on annual production
levels. TGL anticipates, however, that proven and probable in situ mineable
reserves will be reduced.
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. Upon completion of the new mine
plan, expected in April 1999, an offering document will be finalized for
circulation to a select group of potential buyers.
Results of Operations
In 1998, the gold mining segment lost $19.8 million compared to a $2.8 million
loss in 1997. In 1996, the gold mining business had net income of $2.6 million.
The effective tax rates for the segment in 1998, 1997 and 1996 were a 27%
benefit, a 15% benefit and a 32% provision, respectively.
TGL - 1998 Compared to 1997
Gold Sales. Revenues decreased by $12.2 million to $77.3 million in 1998 as gold
shipments decreased by 9,800 ounces, or 4%, to 253,200 ounces. The average
realized price of gold decreased by $35 to $305 per ounce. In 1998 and 1997, the
average realized price of gold included proceeds of $3.1 million, or $12 per
ounce, and $4.0 million, or $15 per ounce, respectively, from the sale of floor
program options.
Gold Production and Costs. Table 2 provides production results and compares
TGL's cash costs and total costs per ounce for 1998 with the prior year's costs.
<TABLE>
<CAPTION>
Table 2 Twelve months ended
-------------------
December 31,
------------
Increase/
1998 1997 (Decrease)
---- ---- ----------
<S> <C> <C> <C>
Production (ounces) ............... 253,200 263,000 (9,800)
======= ======= ======
Cash costs:
Production costs .............. $ 247 $ 189 $ 58
Royalties ..................... 9 10 (1)
General and administrative .... 28 31 (3)
--- --- --
Cash costs per ounce ....... 284 230 54
Non-cash costs:
Depreciation and amortization 100 87 13
Other ........................ 4 5 (1)
--- --- --
Cost of production per ounce 388 322 66
Interest and other costs .......... 21 15 6
--- --- --
Total costs per ounce ...... $ 409 $ 337 $ 72
=== === ==
</TABLE>
21
<PAGE> 24
Management's Discussion & Analysis (continued)
During 1998, production levels fell short of forecasted levels as TGL
experienced difficulties in crusher throughput and heap-leaching recoveries. A
drought-induced hydroelectric power shortage significantly decreased crusher
availability in the first half of 1998. During this period, crusher production
was also affected adversely by delayed parts shipments and vendor equipment
downtime associated with electrical controls and instrumentation at the gyratory
stockpile reclaim feeders. Although power shedding and rationing occurred
elsewhere in Ghana, TGL's power supply was virtually uninterrupted in the second
half of 1998. In this regard, the Republic of Ghana took several measures in
1998 to ensure continuous power supply. TGL currently leases sufficient back-up
power generation equipment to sustain all major processing equipment. During the
second half of 1998, equipment vendor representatives significantly improved the
flow of spare parts and completed remedial work on electrical controls and
instrumentation at the gyratory stockpile feeders.
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. In 1998, production costs increased by $58 to $247 per ounce
compared with 1997, principally because of higher mining and processing costs,
lower recovery rates associated with the previously discussed less weathered
ore, and a reduction in the ore grade. Mining costs per tonne hauled increased
by 18% compared with 1997 because of higher maintenance costs, higher drilling
and blasting costs and the greater use of contract drilling services. In
addition, the cost to process a tonne of ore increased by 16% because of a 300%
increase in purchased power costs, the rental and use of power generation
equipment, and higher crusher maintenance and wear parts costs related to the
processing of harder ore.
A comparison of key production statistics for the twelve months ended December
31, 1998 and 1997 is shown on Table 3.
<TABLE>
<CAPTION>
Table 3 Twelve months ended December 31
-------------------------------
1998 1997
---- ----
<S> <C> <C>
Tonnes mined (in thousands):
Waste ........................ 30,180 27,824
Run-of-mine .................. -- 610
------ ------
Tonnes Waste and Run-of-Mine 30,180 28,434
Ore .......................... 9,830 9,096
------ ------
Total Tonnes Mined ......... 40,010 37,530
====== ======
Stripping Ratio
((waste+run-of-mine)/ore) .... 3.07:1 3.13:1
Ore Processed ................ 9,888 9,072
Process Grade (grams/tonne) .. 1.25 1.29
</TABLE>
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 1998, these costs increased by $13 per ounce principally
because of higher depreciation on crushing and leaching facilities related to
the Phase III mine expansion, which were commissioned in the second quarter of
1997 and operated throughout 1998, and higher mining equipment depreciation
related to fourth quarter 1997 mining equipment additions. In addition,
run-of-mine pad depreciation was accelerated in 1998 reflecting the elimination
of this process and consequent termination of the useful lives of the underlying
assets.
Income Taxes. The statutory tax rate for mining companies in Ghana in each of
1998 and 1997 was 35%.
TGL - 1997 Compared to 1996
Gold Sales. Revenues increased by $11 million to $89.5 million as gold shipments
increased by 59,900 ounces, or 29%, to 263,000 ounces. The average realized
price of gold decreased by $45 to $340 per ounce. In 1997, the average realized
price of gold included proceeds of $4.0 million, or $15 per ounce, from the sale
of floor program options.
Gold Production and Costs. Table 4 provides production results and compares
TGL's cash costs and total costs per ounce for 1997 with the prior year's costs.
<TABLE>
<CAPTION>
Table 4 Twelve months ended
-------------------
December 31,
------------
Increase/
1998 1997 (Decrease)
---- ---- ----------
<S> <C> <C> <C>
Production (ounces) ................ 263,000 203,100 59,900
======= ======= ======
Cash costs:
Production costs ............... $189 $218 ($29)
Royalties ...................... 10 12 (2)
General and administrative ..... 31 36 (5)
---- ---- ----
Cash costs per ounce ........ 230 266 (36)
Non-cash costs:
Depreciation and amortization 87 81 6
Other ......................... 5 4 1
---- ---- ----
Cost of production per ounce 322 351 (29)
Interest and other costs ........... 15 10 5
---- ---- ----
Total costs per ounce ....... $337 $361 ($24)
==== ==== ====
</TABLE>
22
<PAGE> 25
During 1997, TGL experienced several negative factors which caused production
to fall short of the forecasted level. The most significant was the delay in
commissioning the Phase III expansion and achieving design throughputs at the
new South and modified West crushing plants. These delays added to the time lag
inherent in bringing new heaps into full production. Other contributing items
include a shortage of diesel fuel early in the year and heavy rains in June.
Production Costs. In 1997, production costs decreased by $29 to $189 per ounce
compared with 1996, principally because of the economies of scale realized upon
completion of the Phase III mine expansion, coupled with the decision to
decrease the stripping ratio to ensure a sufficient ore feed to the crushing
plants. The introduction of bulk zone mining and the elimination of run-of-mine
dump leaching also contributed to a reduction in the stripping ratio and the
elimination of run-of-mine processing costs. In response to lower gold prices,
significant emphasis was placed on mining in the South pit where ore grades are
marginally higher. This emphasis favorably affected costs on a
unit-of-production basis. During 1997, TGL also experienced a decrease in the
cost per tonne hauled because of lower explosive costs.
A comparison of key production statistics for the twelve months ended December
31, 1997 and 1996 is shown on Table 5.
<TABLE>
<CAPTION>
Table 5 Twelve months
ended December 31,
------------------
1997 1996
---- ----
<S> <C> <C>
Tonnes mined (in thousands):
Waste .................................................. 27,824 21,068
Run-of-mine ............................................ 610 6,209
------ ------
Tonnes Waste and Run-of-Mine ........................ 28,434 27,277
Ore .................................................... 9,096 7,036
------ ------
Total Tonnes Mined .................................. 37,530 34,313
====== ======
Stripping Ratio
((waste+run-of-mine)/ore) ............................. 3.13:1 3.88:1
Ore Processed .......................................... 9,072 6,540
Process Grade (grams/tonne) ........................... 1.29 1.26
</TABLE>
Depreciation and Amortization. Depreciation and amortization costs increased by
$6 per ounce in 1997 compared with the prior year principally because of mining
and crushing equipment additions associated with the Phase III mine expansion.
Increases were also experienced in run-of-mine leach pad depreciation and
capitalized rebuilds. However, such increases were largely offset by lower
development cost amortization.
Income Taxes. The statutory tax rate for mining companies in Ghana in 1997
and 1996 was 35%.
Liquidity and Capital Resources
Cash Flow. The cash balances of the gold mining segment decreased by $5.0
million to $2.6 million during 1998, $2.3 million of which remained in escrow
and was unavailable to pay short-term obligations. Cash generated from operating
activities aggregated $5.0 million while capital expenditures were $10.2
million. Major capital expenditures during the year included $5.1 million for
leach pad and pond development, $1.6 million for capitalized rebuilds, $1.2
million for conveyors and crushing equipment, and $0.8 million for facilities
construction.
Third-Party Debt. At the end of 1998, third-party debt aggregated $42.0 million,
including $15.8 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 1999 is expected to aggregate $10.7 million, of which $7.7 million
represents principal payments.
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 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.
Results of Operations
In 1998, the timber business lost $18.7 million compared to a loss of $6.7
million in 1997. In 1996, the timber business lost $0.5 million. Forest-Starma
commenced commercial operations in January 1997.
23
<PAGE> 26
Management's Discussion & Analysis (continued)
1998 Compared to 1997
Timber Sales. Although timber shipments increased by 86,000 to 280,000 cubic
meters in 1998, revenues decreased by $1.4 million to $10.5 million. The average
realized price of timber decreased by $24 to $37 per cubic meter in 1998. The
average realized price of timber in the fourth quarter of 1998 was $51 per cubic
meter.
Timber Production. Forest-Starma produced 248,000 cubic meters in 1998 which was
4% below 1997's production of 257,000 cubic meters. Production in 1998 was
hindered by a fire disruption during the second and third quarters of 1998,
which required the redeployment of logging crews and equipment to contain the
fire. The fire was contained in the third quarter of 1998. Based on aerial
reconnaissance and mapping by Forest-Starma personnel and estimates recently
prepared by the territorial administration of Khabarovsk, the damage is more
extensive than previously reported. There was damage to approximately 7.8
million cubic meters of standing timber on 76,000 hectares, as well as 5,500
cubic meters of decked logs. The Company does not believe the fire damage will
have a material impact on production over the next several years. The
territorial administration has offered to make available, on terms to be
negotiated, additional timber stands to sustain Forest-Starma's cutting rights
of 555,000 cubic meters. Productivity improved in the fourth quarter of 1998 as
Forest-Starma produced 108,000 cubic meters, or 44% of its total 1998
production.
Cost of Goods Sold. Forest-Starma values its inventory at the lower of cost or
market under the full absorption accounting method and accordingly, includes
operating costs such as payroll, fuel, spare parts, site related general and
administrative expenses, depreciation and amortization and other taxes in cost
of goods sold. Cost of goods sold increased by $6.0 million to $19.2 million in
1998. The increased cost of goods sold reflected the higher shipments in 1998
and higher inventory write-downs due to lower of cost or market adjustments.
Other Costs and Expenses. Other costs and expenses include interest expense,
management fees expense, foreign exchange gains and losses, non-income tax
expenses, bad debt expenses and other expenses. These expenses increased by $4.8
million in 1998 to $9.5 million, principally from increased interest expense,
foreign exchange losses, non-income tax expenses and other expenses.
1997 Compared to 1996
The timber business lost $6.7 million in 1997, its first year of commercial
operations. In 1996, this business lost $0.5 million from costs incurred in the
U.S. related to the Russian timber business. In 1996, Forest-Starma shipped
133,000 cubic meters of timber. Since Forest-Starma remained in the development
stage through the end of 1996, timber shipment proceeds aggregating $10.1
million were used to partially offset capitalized interest and development
costs.
Liquidity and Capital Resources
Forest-Starma had $6.2 million of external debt at December 31, 1998. Scheduled
debt service for 1999 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 December 31, 1998, Pioneer Forest, Inc. had 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
During the period between January and mid-April, the Siziman harbor is
typically frozen. In December 1998, Forest-Starma entered into an agreement
with its sales agent to sell 150,000 cubic meters at an average price of $48
per cubic meter for production covering approximately five months of
production. This agreement allows Forest-Starma to receive partial cash
payments for logs produced during this five month period.
The Company is continuing discussions with several potential strategic partners
as participants in its timber business.
Other
1998 Compared to 1997
The Company had net interest expense and other expenses of $4.1 million in 1998
compared to $1.4 million in 1997. The increase resulted principally from higher
interest expense from increased borrowings, a mark-to-market adjustment on the
Company's interest rate protection agreements and higher borrowing costs.
24
<PAGE> 27
1997 Compared to 1996
The Company had net interest expense and other expenses of $1.4 million in 1997
compared to $0.7 million in 1996. The increase resulted principally from higher
interest expense from increased borrowings.
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 $13.7 million in
1998 to $50.0 million principally from decreased cash and investments held by
the Russian financial services businesses.
IRS regulations require that, in order to serve as trustee of qualified plan
assets, the Company must maintain a net worth of at least 2% of the assets of
Individual Retirement Accounts and other qualified retirement plan accounts at
year end. At December 31, 1998, the Company served as trustee for $6.6 billion
of qualified plan assets and the ratio of net worth to qualified assets was
2.3%. The Company's stockholders' equity of $154.8 million at December 31, 1998,
would permit it to serve as trustee for up to $7.7 billion of qualified plan
assets.
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 11 (Notes Payable) to Notes to the Company's Consolidated Financial
Statements included elsewhere in this Annual Report. At December 31, 1998, the
Company had borrowed $70 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 must be adopted in the first quarter of
1999, requires that entities expense costs of start-up activities as those costs
are incurred. The Company has capitalized certain pre-operating costs in
connection with its natural resource operations, and has capitalized certain
organizational costs associated with its financial services operations. At
adoption, the Company must record a cumulative effect of a change in accounting
principle and write-off all remaining unamortized start-up costs. The Company
has estimated unamortized capitalized start-up costs of approximately $12.3
million related principally to its timber operations.
FUTURE OPERATING RESULTS
Certain of the information contained in this Annual Report, including
information with respect to the Company's plans and strategies for its domestic
and international financial services and global investment business units 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 Annual Report and presented elsewhere by management from
time to time include, but are not limited to, the following:
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. Some of the Company's competitors
have more products and product lines and substantially greater assets under
management and financial resources.
25
<PAGE> 28
Management's Discussion & Analysis (continued)
The Company and its domestic financial services subsidiaries are primarily
dependent upon their associations with the Pioneer Family of Mutual Funds with
which they have contractual relationships. In the event any of the management
contracts, underwriting contracts or service agreements was canceled or not
renewed on similarly favorable terms, the Company could 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 earnings 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.
TGL is currently executing a comprehensive testing program to determine the
location and frequency of the less weathered and harder ore at the mine and to
define the recovery characteristics of this ore. Testing work conducted by TGL
personnel to date has confirmed that acceptable extraction values are
achievable at liberation sizes below those feasible by present crushing
methods. TGL has determined that the high incidence of the less weathered and
harder ore will necessitate a transition from heap leaching to conventional
milling. TGL is not yet in a position to determine the additional costs that
will be required to mine the less weathered and harder ore efficiently but is
aware that such costs could have a material impact on the Company's financial
position.
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 economy, the primary market 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.
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 established 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.
26
<PAGE> 29
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
* local project managers within each subsidiary of the Company
responsible for executing local Year 2000 plans
The Company is separately tracking the Year 2000 readiness of each of its
corporate entities 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 may also utilize, on an
as needed basis, 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
* 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 and is
nearing completion of the repair phase with respect to its core systems. 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. At March 1, 1999, the Company had completed the repair phase for
approximately 93% of its 500 core systems. To date, the Company has tested
virtually all of its internal information technology systems and non-information
technology systems and expects to complete the remaining testing in the first
half of 1999.
The Company expects to complete the following additional activities during the
remainder of 1999:
* testing any vendor systems delivered in late 1998 or 1999 to upgrade
non-compliant systems
* correcting and retesting any problems that were discovered during
initial testing
* conducting company-wide integration tests and, with respect to the
domestic mutual fund business, participating in industry-wide testing
* participating in tests with third parties, including both
point-to-point testing with vendors with whom the Company shares
automated data transfers
* finalizing the development of contingency plans
Certain Risks and Contingency Planning. The Company is heavily dependent on
third party software and vendor services. As a result, the Company believes that
its greatest risk from the Year 2000 transition is its reliance on its material
vendors to complete their own Year 2000 projects successfully and on time.
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. With respect to each critical third
party, the Company has been monitoring closely Year 2000 progress and to date
has not identified a need to replace any of these providers.
In the U.S., the Company's other external dependencies are upon functioning
capital markets (trading, clearing and settlement), as well as
telecommunications and other basic infrastructures, such as electricity and
water. The upcoming industry-wide tests are designed to evaluate further the
Year 2000 readiness of the domestic capital markets. With respect to
telecommunications and basic infrastructure, the Company expects to be able to
react appropriately to short term or isolated disruptions based on its
contingency plans. In the event of long term or pervasive failures, however, the
27
<PAGE> 30
Management's Discussion & Analysis (continued)
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.
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 March 1, 1999, substantially all of the Company's operating units have
developed initial contingency plans. Plans will continue to be reviewed and
revised, 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.
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 December 31, 1998, the Company had incurred and expensed approximately
$1.0 million in connection with its Year 2000 project. The Company estimates its
total remaining costs to be approximately $1.5 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 whom 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 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.
Furthermore, 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.
28
<PAGE> 31
Market Risk Disclosure
The Company monitors its exposure to adverse changes in interest rates, foreign
currency rates and the market prices paid for gold and timber. Historically, the
Company has purchased certain derivative financial instruments to help mitigate
the impact of adverse changes, or in some instances to mitigate the impact of
any changes.
The Company's long term debt, taken together with the interest rate swaps for
the corporate revolver, is all at a fixed interest rate. Accordingly, the
Company's interest expense will not change as a result of changes in interest
rates, however the fair value of its long term debt will vary inversely with
changes in interest rates. A 10% change in market interest rates will result in
an approximately $2.9 million change in the fair value of the Company's long
term debt taken together with the interest rate swaps.
The Company is exposed to certain changes in foreign currency exchange rates.
While Pioneer Global Investments conducts its timber producing and gold
mining operations in foreign countries, the prices paid for the goods produced
are denominated in US dollars. However, as most of the timber produced is
exported to the Asian markets, the US dollar prices paid have been influenced by
the respective foreign currency exchange rates.
Pioneer International Financial Services conducts operations in Russia, the
Czech Republic and Poland. The functional currency of its Russian operations is
the US dollar, while the functional currencies of the Czech and Poland
operations are the respective local currencies. All of these operations have
some costs denominated in the local currency which act as a natural hedge to the
revenues denominated in local currencies.
The revenues of the Company's natural resource operations are also subject to
changes in the market prices paid for both gold and timber. In the past the
Company has purchased put options to secure certain minimum selling prices for
gold production. Currently, there are no put options outstanding with respect to
future gold production. The Company does have an agreement to sell the first
150,000 cubic meters of timber produced in 1999, at certain fixed prices.
29
<PAGE> 32
- --------------------------------------------
Report of Independent Public Accountants
To the Stockholders and Board of Directors of The Pioneer Group, Inc.:
We have audited the accompanying consolidated balance sheets of The Pioneer
Group, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1998
and 1997, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Pioneer Group, Inc. and
subsidiaries as of December 31, 1998 and 1997 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 2, 1999
(except for the matters
discussed in Note 16, as to
which the date is March 18,
1999)
31
<PAGE> 33
- -------------------------------------------------
Consolidated Statements of Operations
Dollars in Thousands Except Per Share Amounts
<TABLE>
<CAPTION>
Year Ended
December 31,
1998
------------
<S> <C>
Revenues and sales:
Investment management fees .................................... $ 142,266
Underwriting commissions and distribution fees ................ 26,511
Shareholder services fees ..................................... 31,610
Revenues from brokerage activities ............................ 2,153
Gain on sale of B share rights ................................ 8,132
Trustee fees and other income ................................. 26,422
------------
Revenues from financial services businesses .................. 237,094
Gold sales .................................................... 77,329
Timber sales .................................................. 10,451
------------
Total revenues and sales ..................................... 324,874
------------
Costs and expenses:
Management, distribution, shareholder service and
administrative expenses ...................................... 214,734
Gold mining operating costs and expenses ...................... 100,377
Timber operating costs and expenses ........................... 28,381
------------
Total costs and expenses ..................................... 343,492
------------
Other (income) expense:
Unrealized and realized gains on venture capital
and marketable securities investments, net ................... (4,418)
Interest expense .............................................. 16,303
Other, net .................................................... 1,186
------------
Total other (income) expense ................................. 13,071
------------
Income (loss) from continuing operations before provision
for income taxes and minority interest ........................ (31,689)
Provision for income taxes ..................................... 1,771
------------
Income (loss) from continuing operations before
minority interest ............................................. (33,460)
------------
Minority interest .............................................. (6,441)
------------
Net income (loss) from continuing operations ................... (27,019)
Income (loss) from discontinued Russian banking operations ..... (6,449)
------------
Net (loss) income .............................................. $ (33,468)
============
Basic earnings (loss) per share:
Continuing operations ......................................... $ (1.07)
Discontinued operations ....................................... (0.26)
------------
Total basic earnings (loss) per share .......................... $ (1.33)
============
Diluted earnings (loss) per share:
Continuing operations ......................................... $ (1.07)
Discontinued operations ....................................... (0.25)
------------
Total diluted earnings (loss) per share ........................ $ (1.32)
============
Basic shares outstanding ....................................... 25,148,000
============
Diluted shares outstanding ..................................... 25,350,000
============
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
----------- -----------
<S> <C> <C>
Revenues and sales:
Investment management fees .......................... $ 121,372 $ 87,843
Underwriting commissions and distribution fees ...... 23,322 16,636
Shareholder services fees ........................... 28,002 25,340
Revenues from brokerage activities .................. 35,570 2,232
Gain on sale of B share rights ...................... -- --
Trustee fees and other income ....................... 20,884 13,816
----------- -----------
Revenues from financial services businesses ........ 229,150 145,867
Gold sales .......................................... 89,487 78,279
Timber sales ........................................ 11,879 --
----------- -----------
Total revenues and sales ........................... 330,516 224,146
----------- -----------
Costs and expenses:
Management, distribution, shareholder service
and administrative expenses ........................ 178,395 129,996
Gold mining operating costs and expenses ............ 88,915 72,563
Timber operating costs and expenses ................. 15,479 730
----------- -----------
Total costs and expenses ........................... 282,789 203,289
----------- -----------
Other (income) expense:
Unrealized and realized gains on venture capital
and marketable securities investments, net ......... (27,460) (12,279)
Interest expense .................................... 11,395 3,318
Other, net .......................................... 606 1,716
----------- -----------
Total other (income) expense ....................... (15,459) (7,245)
----------- -----------
Income (loss) from continuing operations before
provision for income taxes and minority interest .... 63,186 28,102
Provision for income taxes ........................... 27,664 11,605
----------- -----------
Income (loss) from continuing operations
before minority interest ............................ 35,522 16,497
----------- -----------
Minority interest .................................... 5,809 1,220
----------- -----------
Net income (loss) from continuing operations ......... 29,713 15,277
Income (loss) from discontinued Russian
banking operations .................................. (547) 3,560
----------- -----------
Net (loss) income .................................... $ 29,166 $ 18,837
=========== ===========
Basic earnings (loss) per share:
Continuing operations ............................... $ 1.19 $ 0.62
Discontinued operations ............................. (0.02) 0.15
----------- -----------
Total basic earnings (loss) per share ................ $ 1.17 $ 0.77
=========== ===========
Diluted earnings (loss) per share:
Continuing operations ............................... $ 1.16 $ 0.60
Discontinued operations ............................. (0.02) 0.14
----------- -----------
Total diluted earnings (loss) per share .............. $ 1.14 $ 0.74
=========== ===========
Basic shares outstanding ............................. 24,873,000 24,620,000
=========== ===========
Diluted shares outstanding ........................... 25,630,000 25,460,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
32
<PAGE> 34
- -------------------------------------------------
Consolidated Balance Sheets
Dollars in Thousands Except Per Share Amount
<TABLE>
<CAPTION>
December 31,
1998 1997
-------- --------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents, at cost which approximates fair value ...... $ 44,519 $ 55,601
Restricted cash ....................................................... 7,815 7,078
Investment in marketable securities, at fair value .................... 3,638 10,649
Receivables:
From securities brokers and dealers for sales of mutual fund shares .. 14,072 11,752
From Pioneer Family of Mutual Funds .................................. 17,334 17,428
For securities sold .................................................. 1,089 11,466
For gold shipments ................................................... 2,851 3,451
Other ................................................................ 15,865 12,695
Mining inventory ...................................................... 18,297 22,032
Timber inventory ...................................................... 3,585 5,897
Other current assets .................................................. 14,186 10,453
-------- --------
Total current assets ............................................... 143,251 168,502
-------- --------
Noncurrent assets:
Mining operations:
Mining equipment and facilities (net of accumulated
depreciation of $94,282 in 1998 and $76,060 in 1997) ................ 86,740 99,164
Deferred mining development costs (net of accumulated
amortization of $21,819 in 1998 and $16,177 in 1997) ................ 15,030 17,521
Cost of acquisitions in excess of net assets acquired
(net of accumulated amortization of $14,900 in 1998
and $12,083 in 1997) ................................................ 17,415 20,216
Long-term venture capital investments, at fair value
(cost $117,547 in 1998 and $71,754 in 1997) .......................... 129,560 95,382
Long-term investments, at cost ........................................ 7,006 15,671
Timber operations:
Timber equipment and facilities (net of accumulated
depreciation of $5,346 in 1998 and $1,260 in 1997) .................. 18,800 17,898
Deferred timber development costs (net of accumulated
amortization of $2,841 in 1998 and $1,611 in 1997) .................. 20,034 21,264
Building (net of accumulated depreciation of
$1,413 in 1998 and $598 in 1997) ..................................... 25,136 25,087
Furniture, equipment and leasehold improvements
(net of accumulated depreciation and amortization
of $13,146 in 1998 and $8,565 in 1997) ............................... 20,309 16,521
Dealer advances (net of accumulated amortization of $17,366 in 1997) .. -- 41,871
Other noncurrent assets ............................................... 16,180 20,696
Net noncurrent assets of discontinued operations ...................... -- 7,421
-------- --------
Total noncurrent assets ............................................ 356,210 398,712
-------- --------
$499,461 $567,214
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Payable to funds for shares sold ...................................... $ 14,053 $ 11,766
Accounts payable ...................................................... 17,962 18,048
Accrued expenses ...................................................... 33,768 27,414
Brokerage liabilities ................................................. 5,669 14,702
Accrued income taxes .................................................. 19,647 7,641
Current portion of notes payable ...................................... 9,476 17,411
Current liabilities net of current assets
of discontinued operations ........................................... 413 4,939
-------- --------
Total current liabilities .......................................... 100,988 101,921
-------- --------
Noncurrent liabilities:
Notes payable, net of current portion ................................. 133,395 168,424
Deferred income taxes, net ............................................ -- 29,334
-------- --------
Total noncurrent liabilities ....................................... 133,395 197,758
-------- --------
Total liabilities .................................................. 234,383 299,679
-------- --------
Minority Interest ..................................................... 110,276 83,848
-------- --------
Commitments and Contingencies (Note 10)
Stockholders' Equity:
Common stock, $0.10 par value; authorized 60,000,000 shares;
issued 26,134,103 shares in 1998 and 25,219,567 shares in 1997 ...... 2,613 2,522
Paid-in capital ...................................................... 30,110 15,912
Retained earnings .................................................... 133,013 171,558
Treasury stock at cost, 11,303 shares in 1998
and 2,670 shares in 1997 ............................................ (265) (65)
Cumulative translation adjustment .................................... (1,855) (1,277)
-------- --------
163,616 188,650
Less--Deferred cost of restricted common stock issued ................ (8,814) (4,963)
-------- --------
Total stockholders' equity ........................................ 154,802 183,687
-------- --------
$499,461 $567,214
======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
33
<PAGE> 35
- ----------------------------------------------------------
Consolidated Statements of Changes in Stockholders' Equity
Dollars in Thousands Except Per Share Amounts
<TABLE>
<CAPTION>
Common Stock
-----------------------------
Shares Paid-in Retained
Issued Amount Capital Earnings
---------- ------ -------- ----------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 ..................... 24,833,508 $2,483 $ 7,660 $ 143,603
---------- ------ ------- ---------
Add (Deduct)
Net income .................................... -- -- -- 18,837
Dividends paid--$0.40 per share ............... -- -- -- (9,983)
Shares awarded under the 1995 restricted
stock plan (78,137 shares) ................... 74,667 8 2,041 --
Shares purchased under the 1995
employee stock purchase plan
33,433 shares) ............................... 17,368 2 351 --
Amortization of deferred cost of restricted
common stock issued .......................... -- -- -- --
Additional tax benefits from stock plans ...... -- -- 664 --
Forfeiture of shares awarded under the
1990 and 1995 restricted stock plans
(12,225 shares) .............................. -- -- -- --
Shares issued and returned to treasury ........ 10,070 -- 273 --
Exercise of stock options awarded
under the 1988 stock option plan
(80,000 shares) .............................. 78,150 8 461 --
Comprehensive income .......................... -- -- -- --
---------- ------ ------- ---------
Balance, December 31, 1996 ..................... 25,013,763 $2,501 $11,450 $ 152,457
---------- ------ ------- ---------
Add (Deduct)
Net income .................................... -- -- -- 29,166
Dividends paid--$0.40 per share ............... -- -- -- (10,065)
Shares awarded under restricted stock
plans (162,207 shares) ....................... 156,945 16 3,679 --
Shares purchased under the 1995
employee stock purchase plan
(34,527 shares) .............................. 17,682 2 330 --
Amortization of deferred cost of restricted
common stock issued .......................... -- -- -- --
Additional tax benefits from stock plans ...... -- -- 306 --
Forfeiture of shares awarded under
restricted stock plans (38,690 shares) ....... -- -- -- --
Exercise of stock options awarded
under the 1988 stock option plan
(46,000 shares) .............................. 31,177 3 147 --
Cumulative translation adjustment ............. -- -- -- --
Comprehensive income .......................... -- -- -- --
---------- ------ ------- ---------
Balance, December 31, 1997 ..................... 25,219,567 $2,522 $15,912 $ 171,558
---------- ------ ------- ---------
Add (Deduct):
Net loss ...................................... -- -- -- (33,468)
Dividends paid--$0.20 per share ............... -- -- -- (5,077)
Shares awarded under restricted stock
plan, (301,098 shares) ....................... 292,707 29 7,519 --
Shares purchased under the 1995
employee stock purchase
plan (41,938 shares) ......................... 19,420 2 282 --
Amortization of deferred cost of restricted
common stock issued .......................... -- -- -- --
Additional tax benefits from stock plans ...... -- -- 3,681 --
Forfeiture of shares awarded under
restricted stock plans (43,161 shares) ....... -- -- -- --
Exercise of stock options awarded
under the 1988 stock option plan
(628,600 shares) ............................. 602,409 60 2,716 --
Cumulative translation adjustment ............. -- -- -- --
Comprehensive income .......................... -- -- -- --
---------- ------ ------- ---------
Balance, December 31, 1998 ..................... 26,134,103 $2,613 $30,110 $ 133,013
========== ====== ======= =========
</TABLE>
<TABLE>
<CAPTION>
Deferred
Cost Total
Cumulative of Stock- Comprehensive
Treasury Translation Restricted holders' Income
Stock Adjustment Stock Equity (Loss)
-------- ----------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 ..................... $ -- $ -- $ (3,403) $ 150,343
------- -------- -------- ---------
Add (Deduct)
Net income .................................... -- -- -- 18,837 18,837
Dividends paid--$0.40 per share ............... -- -- -- (9,983) --
Shares awarded under the 1995 restricted
stock plan (78,137 shares) ................... 66 -- (1,951) 164 --
Shares purchased under the 1995
employee stock purchase plan
(33,433 shares) .............................. 365 -- -- 718 --
Amortization of deferred cost of restricted
common stock issued .......................... -- -- 1,221 1,221 --
Additional tax benefits from stock plans ...... -- -- -- 664 --
Forfeiture of shares awarded under the
1990 and 1995 restricted stock plans
(12,225 shares) .............................. (214) -- 214 -- --
Shares issued and returned to treasury ........ (273) -- -- -- --
Exercise of stock options awarded
under the 1988 stock option plan
(80,000 shares) .............................. 40 -- -- 509 --
Comprehensive income .......................... -- -- -- -- $ 18,837
------- -------- -------- --------- =========
Balance, December 31, 1996 ..................... $ (16) $ -- $ (3,919) $ 162,473
------- -------- -------- ---------
Add (Deduct)
Net income .................................... -- -- -- 29,166 29,166
Dividends paid--$0.40 per share ............... -- -- -- (10,065) --
Shares awarded under restricted stock
plans (162,207 shares) ....................... 103 -- (3,673) 125 --
Shares purchased under the 1995
employee stock purchase plan
(34,527 shares) .............................. 350 -- -- 682 --
Amortization of deferred cost of restricted
common stock issued .......................... -- -- 1,821 1,821 --
Additional tax benefits from stock plans ...... -- -- -- 306 --
Forfeiture of shares awarded under
restricted stock plans (38,690 shares) ....... (808) -- 808 -- --
Exercise of stock options awarded
under the 1988 stock option plan
(46,000 shares) .............................. 306 -- -- 456 --
Cumulative translation adjustment ............. -- (1,277) -- (1,277) (1,277)
Comprehensive income .......................... -- -- -- -- $ 27,889
------- -------- -------- --------- =========
Balance, December 31, 1997 ..................... $ (65) $ (1,277) $ (4,963) $ 183,687
------- -------- -------- ---------
Add (Deduct):
Net loss ...................................... -- -- -- (33,468) (33,468)
Dividends paid--$0.20 per share ............... -- -- -- (5,077) --
Shares awarded under restricted stock
plan, (301,098 shares) ....................... 200 -- (7,652) 96 --
Shares purchased under the 1995
employee stock purchase
plan (41,938 shares) ......................... 529 -- -- 813 --
Amortization of deferred cost of restricted
common stock issued .......................... -- -- 2,786 2,786 --
Additional tax benefits from stock plans ...... -- -- -- 3,681 --
Forfeiture of shares awarded under
restricted stock plans (43,161 shares) ....... (1,015) -- 1,015 -- --
Exercise of stock options awarded
under the 1988 stock option plan
(628,600 shares) ............................. 86 -- -- 2,862 --
Cumulative translation adjustment ............. -- (578) -- (578) (578)
Comprehensive income .......................... -- -- -- -- $ (34,046)
------- -------- -------- --------- =========
Balance, December 31, 1998 ..................... $ (265) $ (1,855) $ (8,814) $ 154,802
======= ======== ======== =========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
34
<PAGE> 36
- -------------------------------------------------
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Dollars in Thousands
Year Ended
December 31,
1998
-------------
<S> <C>
Cash flows from operating activities:
Net income (loss) ....................................................................... $ (33,468)
Less net income (loss) from discontinued operations ..................................... (6,449)
---------
Net income (loss) from continuing operations ............................................ $ (27,019)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization .......................................................... 53,649
Gain on sale of B share rights ......................................................... (8,132)
Unrealized and realized gains on venture capital, marketable securities investments,
and long term investments, net ......................................................... (4,418)
Provision on other investments ......................................................... 5,090
Restricted stock plan expense .......................................................... 2,786
(Prepaid) deferred income taxes ........................................................ (31,482)
Minority interest ...................................................................... (6,441)
Changes in operating assets and liabilities:
Investments in marketable securities, net .............................................. 5,206
Receivable from securities brokers and dealers for sales of mutual fund shares ......... (2,320)
Receivables for securities sold ........................................................ 10,377
Receivables for gold shipments ......................................................... 600
Receivables from Pioneer Family of Mutual Funds and other .............................. (3,284)
Mining inventory ....................................................................... 3,735
Timber inventory ....................................................................... 2,312
Other current assets ................................................................... (5,219)
Other noncurrent assets ................................................................ 1,945
Payable to funds for shares sold ....................................................... 2,287
Accrued expenses and accounts payable .................................................. 6,268
Brokerage liabilities .................................................................. (9,033)
Accrued income taxes ................................................................... 15,687
---------
Total adjustments and changes in operating assets and liabilities ..................... 39,613
---------
Net cash provided by continuing operating activities .................................. 12,594
---------
Net cash used in discontinued operating activities .................................... (3,554)
---------
Net cash provided by operating activities ............................................. 9,040
---------
Cash flows from investing activities:
Purchase of mining equipment and facilities ............................................. (9,808)
Deferred mining development costs ....................................................... (584)
Additions to furniture, equipment and leasehold improvements ............................ (11,770)
Building ................................................................................ (864)
Long-term venture capital investments ................................................... (45,774)
Proceeds from sale of long-term venture capital investments ............................. 22,040
Deferred timber development costs ....................................................... --
Purchase of timber equipment and facilities ............................................. (4,988)
Other investments ....................................................................... (1,373)
Proceeds from sales of other investments ................................................ --
Cost of acquisition in excess of net assets acquired .................................... (16)
Purchase of long-term investments ....................................................... (2,245)
Proceeds from sale of long-term investments ............................................. 5,007
---------
Net cash used in continuing investing activities ...................................... (50,375)
---------
Net cash used in investing activities, discontinued operations ........................ --
---------
Net cash used in investing activities ................................................. (50,375)
---------
Cash flows from financing activities:
Dividends paid .......................................................................... (5,077)
Distributions to minority interestholders subsidiary .................................... --
Distributions to limited partners of venture capital subsidiary ......................... (68)
Amounts raised by venture capital investment partnerships ............................... 34,559
Additional minority interest capital raised by foreign subsidiaries ..................... --
Employee stock purchase plan ............................................................ 813
Exercise of stock options ............................................................... 2,862
Restricted stock plan award ............................................................. 96
Dealer advances ......................................................................... (20,702)
Sale of dealer advances ................................................................. 61,631
Revolving credit agreement borrowings, net .............................................. (26,000)
Borrowings of notes payable ............................................................. 447
Repayments of notes payable ............................................................. (17,411)
Reclassification of restricted cash ..................................................... (737)
---------
Net cash provided by continuing financing activities .................................. 30,413
---------
Net cash provided by financing activities, discontinued operations .................... --
---------
Net cash provided by financing activities ............................................. 30,413
Effect of foreign currency exchange rate changes on cash and cash equivalents ............ (160)
Net increase (decrease) in cash and cash equivalents ..................................... (11,082)
Cash and cash equivalents at beginning of year ........................................... 55,601
---------
Cash and cash equivalents at end of year ................................................. $ 44,519
=========
</TABLE>
<TABLE>
<CAPTION>
Dollars in Thousands
Year Ended December 31,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ....................................................................... $ 29,166 $ 18,837
Less net income (loss) from discontinued operations ..................................... (547) 3,560
-------- ---------
Net income (loss) from continuing operations ............................................ $ 29,713 $ 15,277
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization .......................................................... 45,090 29,952
Gain on sale of B share rights ......................................................... -- --
Unrealized and realized gains on venture capital, marketable securities investments,
and long term investments, net ......................................................... (27,460) (12,279)
Provision on other investments ......................................................... 2,710 107
Restricted stock plan expense .......................................................... 1,821 1,221
(Prepaid) deferred income taxes ........................................................ 3,765 11,066
Minority interest ...................................................................... 5,097 3,280
Changes in operating assets and liabilities:
Investments in marketable securities, net .............................................. (1,632) (5,884)
Receivable from securities brokers and dealers for sales of mutual fund shares ......... (2,742) 3,375
Receivables for securities sold ........................................................ (8,866) (2,600)
Receivables for gold shipments ......................................................... (765) 2,724
Receivables from Pioneer Family of Mutual Funds and other .............................. (1,514) (17,393)
Mining inventory ....................................................................... 1,470 (7,897)
Timber inventory ....................................................................... (4,491) 81
Other current assets ................................................................... 476 (3,804)
Other noncurrent assets ................................................................ (306) (3,858)
Payable to funds for shares sold ....................................................... 2,770 (3,373)
Accrued expenses and accounts payable .................................................. 2,851 19,030
Brokerage liabilities .................................................................. 13,232 2,040
Accrued income taxes ................................................................... 6,257 1,702
-------- ---------
Total adjustments and changes in operating assets and liabilities ..................... 37,763 17,490
-------- ---------
Net cash provided by continuing operating activities .................................. 67,476 32,767
-------- ---------
Net cash used in discontinued operating activities .................................... (10,286) (13,998)
-------- ---------
Net cash provided by operating activities ............................................. 57,190 18,769
-------- ---------
Cash flows from investing activities:
Purchase of mining equipment and facilities ............................................. (11,520) (74,789)
Deferred mining development costs ....................................................... (9,568) (3,088)
Additions to furniture, equipment and leasehold improvements ............................ (9,016) (5,038)
Building ................................................................................ (2,865) (10,101)
Long-term venture capital investments ................................................... (26,945) (14,256)
Proceeds from sale of long-term venture capital investments ............................. 6,688 9,576
Deferred timber development costs ....................................................... (354) (6,716)
Purchase of timber equipment and facilities ............................................. (5,206) (2,466)
Other investments ....................................................................... (5,871) (1,824)
Proceeds from sales of other investments ................................................ 1,732 --
Cost of acquisition in excess of net assets acquired .................................... (87) (928)
Purchase of long-term investments ....................................................... (4,026) (5,353)
Proceeds from sale of long-term investments ............................................. 13,884 7,200
-------- ---------
Net cash used in continuing investing activities ...................................... (53,154) (107,783)
-------- ---------
Net cash used in investing activities, discontinued operations ........................ (2,557) (6,903)
-------- ---------
Net cash used in investing activities ................................................. (55,711) (114,686)
-------- ---------
Cash flows from financing activities:
Dividends paid .......................................................................... (10,065) (9,983)
Distributions to minority interestholders subsidiary .................................... -- (354)
Distributions to limited partners of venture capital subsidiary ......................... (94) (23)
Amounts raised by venture capital investment partnerships ............................... 21,024 7,848
Additional minority interest capital raised by foreign subsidiaries ..................... -- 6,269
Employee stock purchase plan ............................................................ 682 718
Exercise of stock options ............................................................... 456 509
Restricted stock plan award ............................................................. 125 164
Dealer advances ......................................................................... (16,331) (23,247)
Sale of dealer advances ................................................................. -- --
Revolving credit agreement borrowings, net .............................................. 8,500 35,500
Borrowings of notes payable ............................................................. 28,420 62,960
Repayments of notes payable ............................................................. (10,587) (6,059)
Reclassification of restricted cash ..................................................... (5,414) (1,664)
-------- ---------
Net cash provided by continuing financing activities .................................. 16,716 72,638
-------- ---------
Net cash provided by financing activities, discontinued operations .................... 12,843 20,901
-------- ---------
Net cash provided by financing activities ............................................. 29,559 93,539
Effect of foreign currency exchange rate changes on cash and cash equivalents ............ (728) --
Net increase (decrease) in cash and cash equivalents ..................................... 30,310 (2,378)
Cash and cash equivalents at beginning of year ........................................... 25,291 27,669
-------- ---------
Cash and cash equivalents at end of year ................................................. $ 55,601 $ 25,291
======== =========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
35
<PAGE> 37
- -------------------------------------------------
Notes to Consolidated Financial Statements
December 31, 1998
Note 1-- Nature of Operations and Organization
The operations of The Pioneer Group, Inc. and its subsidiaries (collectively,
the "Company"), are divided among three strategic business units: (i) Pioneer
Investment Management ("PIM"), (ii) Pioneer International Financial Services,
and (iii) Pioneer Global Investments.
PIM includes the (i) investment management and marketing of the Company's
25 U.S. registered investment companies (comprised of 36 investment portfolios)
in the Pioneer Family of Mutual Funds, as well as the seven offshore mutual
funds based in Ireland, (ii) distribution of shares of the Pioneer Family of
Mutual Funds by Pioneer Funds Distributor, Inc. ("PFD"), and (iii) shareowner
servicing for the Pioneer Family of Mutual Funds by Pioneering Services
Corporation. PIM also provides separate account management services for
institutional investors, and through subsidiaries also distributes and services
the Irish offshore mutual funds.
Pioneer International Financial Services includes investment management
and financial services operations in (i) Warsaw, Poland, where the Company
manages, distributes and services units of four mutual funds, owns a majority
interest in a brokerage company, owns a unitholder servicing agent, and in 1998
established a private pension fund management company, (ii) Prague, Czech
Republic, where the Company manages, distributes and services participation
certificates in a Czech mutual fund, and (iii) Moscow, Russia, where the
Company manages, distributes and services two mutual funds, and owns 51% of
Pioneer First Investment Fund. Pioneer International Financial Services also
includes investment management operations in India and Taiwan.
Pioneer Global Investments includes the Company's diversified strategic
businesses, consisting of U.S. and international venture capital operations,
U.S. and international real estate operations, gold mining and timber
harvesting. Pioneer Capital Corporation ("PCC"), and its subsidiaries, engage
in venture capital investing and management activities in the U.S.
The Company's wholly owned subsidiary, Pioneer Goldfields Limited
("PGL"), conducts mining and exploration activities in the Republic of Ghana
and exploration activities elsewhere in Africa. PGL's principal asset is its
ownership of 90% of the outstanding shares of Teberebie Goldfields Limited
("TGL"), which operates a gold mine in the western region of the Republic of
Ghana. The Republic of Ghana owns the remaining 10% of TGL. In addition, the
Company's majority-owned subsidiary Closed Joint-Stock Company "Tas-Yurjah
Mining Company" conducts mining exploration activities in the Russian Far East.
The Company's wholly owned subsidiary, Pioneer Forest, Inc. ("Pioneer
Forest"), conducts timber harvesting and timber development activities in the
Russian Far East. Pioneer Forest's principal asset is its ownership of 97% of
the outstanding shares of Closed Joint-Stock Company "Forest-Starma", which
harvests timber in the Russian Far East and which commenced commercial
production on January 1, 1997.
Note 2-- Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements include the accounts of the
Company, its wholly owned and majority-owned subsidiaries and certain
partnerships that the Company controls. The Company has consolidated the
Pioneer Ventures Limited Partnership II, Pioneer Poland U.S. L.P. and Pioneer
Poland U.K. L.P. in which the Company's ownership interest is 14.0%, 7.2% and
9.2%, respectively. Control is defined by several factors, including, but not
limited to, the fact that the Company is the general partner, the general
partner has absolute and unilateral authority to make investment decisions, the
limited partners may not remove the general partner and the general partner has
absolute and unilateral authority to declare, or not declare, distributions of
partnership income to the partners. All material intercompany balances and
transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The most
significant estimates with regard to these consolidated financial statements
relate to the valuation of venture capital investments, other investments and
the estimated future cash flows of the Company's natural resource operations,
as discussed herein.
Certain reclassifications have been made to 1997 and 1996 amounts to
conform with the 1998 presentation.
Consolidated Statements of Cash Flows
Cash and cash equivalents consist primarily of cash on deposit in banks and
amounts invested in commercial paper, Pioneer money market mutual funds and
U.S. Treasury bills with original maturities of three months or less.
Restricted cash consists of cash on deposit in banks, use of which is
restricted by certain loan covenants and cash reserved for the exclusive
benefit of brokerage customers.
Income taxes paid were approximately $14,816,000, $18,719,000 and
$1,149,000 in 1998, 1997 and 1996, respectively. In addition, $15,168,000,
$13,146,000 and $7,263,000 of interest was paid in 1998, 1997 and 1996,
respectively. The amounts paid in 1997 and 1996 include approximately
$1,353,000 and $4,800,000, respectively, of interest that was capitalized
related to the development of the Company's building, Russian timber operations
and the Phase III mining expansion operations.
Recognition of Revenues
Investment management, shareholder services, trustee and other fees are
recorded as income during the period in which services are performed.
Agreements with certain of the Pioneer Family of Mutual Funds provide for fee
reductions, which are based on the excess of annual expenses of each mutual
fund over certain limits. Fee reductions are recorded on an accrual basis.
36
<PAGE> 38
- -------------------------------------------------
Notes to Consolidated Financial Statements
(Continued)
Underwriting commissions earned from the distribution of the Pioneer
Family of Mutual Fund shares and the systematic investment plans are recorded
as income on the trade (execution) dates.
Distribution fees are earned based on 0.75% of certain Pioneer Family of
Mutual Fund net assets. In September 1998, the Company sold its rights to
receive these distribution fees. Commencing in October 1998, the gains on sales
of Class B share rights sold pursuant to the Class B Shares Rights Program were
included in distribution fees (see Note 15).
Revenues from brokerage activities are derived from net realized and
unrealized gains and losses from securities trading activities. The Company's
principal brokerage activities relate to the purchase and sale of Russian
securities, including Russian government debt securities and the equity and
debt securities of companies based in Russia.
The Company records sales of gold at sales value net of refining costs
when gold is shipped to a refinery.
Through September 30, 1998, the Company had purchased put options as
"insurance" against significant declines in the market price of gold. The
receipts from the exercise of put options are included as gold sales in the
accompanying consolidated statements of operations. During 1998 and 1997, put
option proceeds of approximately $3.2 million and $4 million, respectively,
were received.
The Company records timber sales when timber is shipped.
Building
The building represents the Meridian Commercial Tower in Russia. The Meridian
Commercial Tower is an office building which is wholly owned by the Pioneer
First Investment Fund. The Company owns a 51% interest in the Pioneer First
Investment Fund.
Furniture, Equipment and Leasehold Improvements
Depreciation and amortization are provided for financial reporting purposes on
a straight-line basis over the following estimated useful lives: furniture and
equipment, 3-5 years, and leasehold improvements, over the term of the lease.
In the event of retirement or other disposition of furniture and equipment, the
cost of the assets and the related accumulated depreciation and amortization
amounts are removed from the accounts, and any resulting gains or losses are
reflected in earnings.
Mining Inventory
Gold bullion inventory and gold-in-process contained in the processing plant
are valued at the lower of cost or market.
Material and supplies are valued at the lower of average cost or
replacement cost.
Mining Equipment and Facilities
Processing plant and equipment is recorded at cost and is depreciated on a
units-of-production basis, which anticipates recovery over ten years or less.
Mining equipment (rolling stock) is recorded at cost and is depreciated
on a units-of-production basis which anticipates recovery over seven years or
less.
Buildings and housing units are recorded at cost and are depreciated on a
straight-line basis over ten years.
Leach pads are recorded at cost and are depreciated on a
units-of-production basis.
All other equipment and facilities are recorded at cost and are
depreciated over their estimated useful lives on a straight-line basis ranging
from three to ten years. Depreciation begins at the time construction is
completed and the assets are placed into service.
Deferred Mining Development Costs
Deferred mining development costs, which include the cost of site development,
capitalized interest and infrastructure costs during the development and
construction phases of the project, are recorded at cost and amortized on a
units-of-production basis, which anticipates recovery over ten years or less.
Costs incurred to develop economically viable ore bodies, to further define
mineralization in existing ore bodies, or to secure rights to proven reserves
are capitalized as development costs.
Exploration costs associated with the initial identification of ore
reserves are expensed. Property and lease acquisition costs incurred in the
process of acquiring exploration mineral rights are expensed as incurred.
Mining Reclamation Costs
Estimated future reclamation costs are based principally on anticipated
environmental and regulatory requirements and are accrued and charged to
expense over the expected operating life of the mine on a units-of-production
basis. The accrual is maintained on an undiscounted basis.
Deferred Timber Development Costs
Deferred timber development costs principally consist of construction and
engineering expenditures and infrastructure costs incurred in developing the
site, the roads, capitalized interest, legal, timber rights, other
pre-operating costs and organizational costs. These costs are amortized on a
units-of-production basis which anticipates recovery principally over ten
years.
Timber Equipment and Facilities
Timber equipment and facilities consist of logging machinery and building and
housing units. These costs are principally depreciated on a units-of-production
basis which anticipates recovery over five to twenty years.
Cost in Excess of Net Assets Acquired
Cost in excess of net assets acquired is amortized on a straight-line basis
over five to fifteen years.
Cost in excess of net assets acquired, net, as reflected in the
accompanying consolidated balance sheets, consists of the following:
37
<PAGE> 39
- -------------------------------------------------
Notes to Consolidated Financial Statements
(Continued)
<TABLE>
<CAPTION>
December 31,
1998 1997
------- -------
(Dollars in thousands)
<S> <C> <C>
Mutual of Omaha Fund
Management Company .................. $14,482 $16,530
Russian investment operations ......... 1,811 2,163
Gold mining operations ................ 842 1,217
Polish brokerage operations ........... 280 306
------- -------
$17,415 $20,216
======= =======
</TABLE>
Valuation of Long-Term Venture Capital Investments
The Company's long-term venture capital investments consist of the following
(in thousands):
<TABLE>
<CAPTION>
December 31,
1998 1997
-------- -------
<S> <C> <C>
Domestic ......... $ 79,475 $68,937
Non-U.S. ......... 50,085 26,445
-------- -------
$129,560 $95,382
======== =======
</TABLE>
The Company's domestic and non-U.S. venture capital investments are in
companies that are primarily engaged in bringing new technology to market as
well as more mature companies in need of capital for expansion, acquisitions,
management buyouts or recapitalizations. At the time the investments are made,
the Company's investments are primarily in the form of unregistered common and
preferred stock, warrants and promissory notes. Most securities are valued at
fair value, as determined in good faith by management and approved by the Board
of Directors, when market quotes are not available. Of the total domestic
venture capital value at December 31, 1998, the value of securities for which
market quotes are not available was $63,538,000. In addition, total domestic
venture capital investments included cash that has been restricted for the
future purchase of venture capital investments of $6,026,000.
In addition, non-U.S. venture capital investments are the investments
held by certain consolidated partnerships. These venture capital investments
are in companies that are domiciled in Poland. Of the total non-U.S. venture
capital value at December 31, 1998, the value of securities for which market
quotes are not available was $27,499,000. In addition, total non-U.S. venture
capital investments included cash that has been restricted for the future
purchase of venture capital investments of $22,586,000.
In determining fair value, investments are initially stated at cost until
significant subsequent events require a change in valuation. The Company
considers the financial condition and operating results of the investee, prices
paid in subsequent private offerings of the same or similar securities, the
amount that the Company can reasonably expect to realize upon the sale of these
securities, and any other factors deemed relevant. Securities for which market
quotations are available are valued at the closing price as of the valuation
date with an appropriate discount, if restricted.
Long-term Investments
Long-term investments consists mainly of Russian investments of the Pioneer
First Investment Fund. These securities are classified as available for sale.
The securities in the Pioneer First Investment Fund are carried at cost with
adjustments made for any other-than-temporary impairment in value until such
time as the breadth and scope of the Russian securities markets develop to
certain quantifiable levels. When the breadth and scope of the Russian
securities market develop to certain quantifiable levels, the securities will
be recorded at fair value with unrealized gains and losses recorded in
stockholders' equity after income taxes and minority interest. At December 31,
1998, the approximate fair value of these securities was $13.4 million (based
upon available market quotations and appraisals).
Valuation of Financial Instruments
The Company considers the liquid nature and readily available market quotations
when estimating fair value of financial instruments. As stated in the
accompanying consolidated balance sheets, the carrying values of the Company's
financial instruments approximate fair value, except for the long-term
investments of Pioneer First Investment Fund, as discussed above.
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.
<TABLE>
<CAPTION>
Net Earnings/
Income/ (Loss)
(Loss) Shares Per Share
--------- ------ ---------
For the year ended 12/31/98 (Dollars and shares in thousands
- --------------------------------- except per share amounts)
<S> <C> <C> <C>
Basic earnings per share
calculation:
Continuing operations ........... $(27,019) 25,148 $(1.07)
Discontinued operations ......... $ (6,449) 25,148 $(0.26)
-------- ------ ------
Total .......................... $(33,468) 25,148 $(1.33)
======== ====== ======
Options ......................... 188
Restricted stock ................ 14
------
Diluted earnings per share
calculation:
Continuing operations ........... $(27,019) 25,350 $(1.07)
Discontinued operations ......... $ (6,449) 25,350 $(0.25)
-------- ------ ------
Total .......................... $(33,468) 25,350 $(1.32)
======== ====== ======
For the year ended 12/31/97
- ----------------------------------
Basic earnings per share
calculation:
Continuing operations ........... $ 29,713 24,873 $ 1.19
Discontinued operations ......... $ (547) 24,873 $(0.02)
-------- ------ ------
Total .......................... $ 29,166 24,873 $ 1.17
======== ====== ======
Options ......................... 692
Restricted stock ................ 65
------
Diluted earnings per share
calculation:
Continuing operations ........... $ 29,713 25,630 $ 1.16
Discontinued operations ......... $ (547) 25,630 $(0.02)
-------- ------ ------
Total .......................... $ 29,166 25,630 $ 1.14
======== ====== ======
</TABLE>
38
<PAGE> 40
- -------------------------------------------------
Notes to Consolidated Financial Statements
(Continued)
<TABLE>
<CAPTION>
Net Earnings/
Income/ (Loss)
(Loss) Shares Per Share
-------- ------ ---------
For the year ended 12/31/96 (Dollars and shares in thousands
- --------------------------------- except per share amounts)
<S> <C> <C> <C>
Basic earnings per share
calculation:
Continuing operations ........... $15,277 24,620 $ 0.62
Discontinued operations ......... $ 3,560 24,620 $ 0.15
------- ------ ------
Total .......................... $18,837 24,620 $ 0.77
======= ====== ======
Options ......................... 745
Restricted stock ................ 95
------
Diluted earnings per share
calculation:
Continuing operations ........... $15,277 25,460 $ 0.60
Discontinued operations ......... $ 3,560 25,460 $ 0.14
------- ------ ------
Total .......................... $18,837 25,460 $ 0.74
======= ====== ======
</TABLE>
In the second, third and fourth quarters of 1998, the Company reported a net
loss. Accordingly, all contingently issuable shares and common stock
equivalents were excluded from the computation of diluted EPS because they were
anti-dilutive.
Comprehensive Income
The Company adopted Statement of Financial Accounting Standards (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.
Foreign Currency Translation
In accordance with SFAS 52, "Foreign Currency Translation", the functional
currency of the Company's natural resource operations is the U.S. dollar, as
the revenues, costs of capital equipment and financing costs are principally
denominated in U.S. dollars. The functional currency of the Company's financial
services operations is generally the currency of the country in which those
operations are conducted. However, some of those operations are conducted in
countries having highly inflationary economies and as a result the functional
currency is currently the U.S. dollar. For those entities, the gains and losses
which result from remeasuring into the U.S. dollar for reporting purposes are
included in the accompanying consolidated statements of operations. The net
foreign currency losses were $0.7 million in 1998, $1.7 million in 1997 and
$1.3 million in 1996. For those entities for which the functional currency is
the local currency, the gains and losses which result from translating into the
U.S. dollar for reporting purposes are included in the accompanying
consolidated balance sheets' stockholders' equity section as a cumulative
translation adjustment.
Long-Lived Assets
The Company periodically reviews its long-lived assets which it continues to
hold and use for potential impairment. Those long-lived assets held and used in
connection with the Company's natural resource operations are reassessed
whenever there is a significant change in the market price of the goods
produced, and continuously during capital intensive periods of expansion.
Additionally, the building is reassessed for potential impairment when there
are significant changes in market rental rates or market values of comparable
buildings. The Company assesses the future useful life of these assets whenever
events or changes in circumstances indicate that the current useful life has
diminished.
Concentration of Risk
The Company performs ongoing evaluations of its subsidiaries and investments
and obtains political risk insurance which mitigates its exposure in foreign
countries.
Costs of Start-Up Activities
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 requires that entities expense costs of start-up
activities as those costs are incurred. The Company has capitalized certain
pre-operating costs in connection with its natural resource operations, and has
capitalized certain organizational costs associated with its financial services
operations.
The Statement must be adopted in the first quarter of 1999. At adoption,
the Company must record a cumulative effect of a change in accounting principle
and write-off all remaining unamortized start-up costs. The Company has
estimated unamortized capitalized start-up costs of approximately $12.3
million, related principally to its timber operations.
Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." The Statement
establishes accounting and reporting standards requiring that every derivative
instrument be recorded on the balance sheet as either an asset or a liability
measured at its fair value. The Statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. The Company has not yet quantified the
impact of adopting Statement 133 on its financial statements and has not
determined the timing of or method of its adoption of Statement 133. Statement
133 is effective for fiscal years beginning after June 15, 1999.
Note 3-- Mining Inventory
Mining inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
1998 1997
------- -------
(Dollars in Thousands)
<S> <C> <C>
Gold-in-process ................ $ 2,236 $ 1,998
Materials and supplies ......... 16,061 20,034
------- -------
$18,297 $22,032
======= =======
</TABLE>
39
<PAGE> 41
- ---------------------------------------------
Notes to Consolidated Financial Statements
(Continued)
Note 4-- Mining Equipment and Facilities
<TABLE>
<CAPTION>
December 31,
1998 1997
-------- --------
(Dollars in Thousands)
<S> <C> <C>
Mobile mine equipment ............................ $70,756 $70,163
Crusher, processing plant and laboratory ......... 57,609 56,752
Leach pads and ponds ............................. 30,054 26,685
Building and civil works ......................... 14,298 13,987
Office furniture and equipment ................... 2,102 2,089
Motor vehicles ................................... 3,500 3,201
Construction in progress ......................... -- 69
Other assets ..................................... 2,703 2,278
------- -------
Total cost ....................................... 181,022 175,224
Accumulated depreciation ......................... (94,282) (76,060)
------- -------
$86,740 $99,164
======= =======
</TABLE>
Note 5-- Income Taxes
The following is a summary of the components of income (loss) from continuing
operations before provision for income taxes and minority interest for
financial reporting purposes:
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C>
Domestic ......... $ 38,589 $51,394 $26,484
Foreign .......... (70,278) 11,792 1,618
-------- ------- -------
$(31,689) $63,186 $28,102
======== ======= =======
</TABLE>
The components of the provision for federal, state and foreign income taxes
consist of:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C>
Current:
Federal .......... $28,465 $13,328 $ 1,197
State ............ 4,828 2,188 376
Foreign .......... (40) 8,383 (1,034)
Deferred (Prepaid):
Federal .......... (19,100) 4,536 6,326
State ............ (4,745) (2) 2,531
Foreign .......... (7,637) (769) 2,209
------- ------- -------
$ 1,771 $27,664 $11,605
======= ======= =======
</TABLE>
Income taxes, as stated as a percentage of income (loss) from continuing
operations before provision for income taxes, are comprised of the following:
<TABLE>
<CAPTION>
1998 1997 1996
------- ----- -----
<S> <C> <C> <C>
Federal statutory tax rate .......... (35.0)% 35.0% 35.0%
Increases (decreases) in tax
rate resulting from:
State income tax (net of
effect on federal
income tax) ...................... -- 2.3 5.6
Foreign income taxes ............... 43.2 5.4 (0.8)
Other, net ......................... (2.6) 1.1 1.5
----- ---- ----
Effective tax rate ................. 5.6% 43.8% 41.3%
===== ==== ====
</TABLE>
The approximate income tax effect of each type of temporary difference is
as follows:
<TABLE>
<CAPTION>
1998 1997
-------- ---------
(Dollars in Thousands)
<S> <C> <C>
Deferred taxes related to foreign
mining operations ...................... $ -- $ (7,637)
Net operating losses of foreign
subsidiaries ........................... 21,807 4,600
Restricted stock ......................... 1,235 774
Reserves ................................. 1,530 1,041
Goodwill ................................. 620 447
Dealer advances .......................... -- (16,347)
Venture capital and other investments..... (2,111) (8,732)
Other temporary differences, net ......... 874 1,120
------- --------
23,955 (24,734)
Valuation allowance ...................... (21,807) (4,600)
------- --------
Net deferred tax asset (liability) ....... $ 2,148 $(29,334)
======= ========
</TABLE>
A valuation allowance has been established to fully reserve the tax
benefits associated with certain net operating losses of foreign subsidiaries
as the realizability of these tax benefits is not probable.
U.S. Federal income taxes have been provided on all foreign earnings
except for the amount considered to be permanently invested outside the U.S.
which approximates $50,000,000 at December 31, 1998.
Note 6-- Stock Plans
The Company has a Stock Incentive Plan (the "1997 Plan") to provide incentives
to certain employees who have contributed and are expected to contribute
materially to the success of the Company and its subsidiaries. An aggregate
total of 1,500,000 shares of the Company's common stock may be awarded to
participants under the 1997 Plan. Under the 1997 Plan, the Company may grant
restricted stock, stock options and other stock based awards. The 1997 Plan is
administered by the Compensation Committee of the Board of Directors (the
"Committee"). The 1997 Plan expires in February 2007. The Company's 1995
Restricted Stock Plan (the "1995 Plan") and 1988 Stock Option Plan (the "1988
Option Plan") were terminated upon the approval of the 1997 Plan by the
stockholders of the Company on May 20, 1997. The Company's 1990 Restricted
Stock Plan (the "1990 Plan") expired in January 1995. The 1997 Plan, 1995 Plan
and the 1990 Plan are collectively referred to as the "Plans."
Restricted stock is granted at a price to be determined by the Board of
Directors, generally $0.10 per share. The following tables summarize restricted
stock plan activity for the Plans during 1998.
<TABLE>
<CAPTION>
Unvested Shares
----------------------------------------------
1997 Plan 1995 Plan 1990 Plan Total
--------- --------- --------- -------
<S> <C> <C> <C> <C>
Balance at 12/31/97 ......... 25,355 192,760 105,884 323,999
Awarded .................... 301,098 -- -- 301,098
Vested ..................... (4,700) (27,752) (58,820) (91,272)
Forfeited .................. (4,128) (34,643) (4,390) (43,161)
------- ------- ------- -------
Balance at 12/31/98 ......... 317,625 130,365 42,674 490,664
======= ======= ======= =======
</TABLE>
40
<PAGE> 42
- ---------------------------------------------
Notes to Consolidated Financial Statements
(Continued)
<TABLE>
<CAPTION>
Vested Shares
-------------------------------------------
1997 Plan 1995 Plan 1990 Plan Total
--------- --------- --------- -------
<S> <C> <C> <C> <C>
Balance at 12/31/97 ......... 2,520 12,926 609,340 624,786
Vested ..................... 4,700 27,752 58,820 91,272
----- ------ ------- -------
Balance at 12/31/98 ......... 7,220 40,678 668,160 716,058
===== ====== ======= =======
</TABLE>
The Company awarded 27,875 shares in 1997 under the 1997 Plan. The
Company awarded 134,332 shares in 1997 and 78,137 shares in 1996 under the 1995
Plan.
The participant's right to sell the awarded stock under the Plans is
generally restricted as to 100% of the shares awarded during the first year
following the award, 75% during the second year and 25% less each year
thereafter. The Company may repurchase unvested restricted shares at $0.10 per
share upon termination of employment. Awards under the Plans are compensatory,
and accordingly, the difference between the award price and the market value of
the shares under the Plans at the award date, is being amortized on a
straight-line basis over a four-year period.
Options issuable under the 1997 Plan become exercisable as determined by
the Committee not to exceed ten years from the date of grant. Options granted
to date vest over five years at an annual rate of 20% on each anniversary date
of the date of grant. Prior to the adoption of the 1997 Plan, options were
granted under the 1988 Option Plan. As of December 31, 1998, 175,155 shares of
the Company's common stock remain available for grant under the 1997 Plan.
In May 1995, the Company adopted the 1995 Employee Stock Purchase Plan
(the "1995 Purchase Plan"), which qualifies as an "Employee Stock Purchase
Plan" within the meaning of Section 423 of the Internal Revenue Code of 1986.
An aggregate total of 500,000 shares of common stock have been authorized for
issuance under the 1995 Purchase Plan, to be implemented through one or more
offerings, each approximately six months in length beginning on the first
business day of each January and July. The price at which shares may be
purchased during each offering will be the lower of (i) 85% of the closing
price of the common stock as reported on the NASDAQ National Market (the
"closing price") on the date that the offering commences or (ii) 85% of the
closing price of the common stock on the date the offering terminates. In 1998,
1997 and 1996, the Company issued 41,938, 34,527 and 33,433 shares under the
1995 Purchase Plan, respectively.
The Company records stock compensation in accordance with Accounting
Principles Board ("APB") Opinion 25. Had the compensation cost for these plans
been determined consistent with SFAS 123, "Accounting for Stock-Based
Compensation", the Company's net income and earnings per share would have been
the following pro forma amounts:
<TABLE>
<CAPTION>
1998 1997 1996
--------- ------- -------
<S> <C> <C> <C> <C>
Net (loss)/income: As reported $(33,468) $29,166 $18,837
Pro forma $(34,983) $28,327 $18,369
Diluted EPS: As reported $ (1.32) $ 1.14 $ 0.74
Pro forma $ (1.38) $ 1.11 $ 0.72
</TABLE>
The weighted-average grant-date fair value of options granted during
1998, 1997 and 1996 was approximately $5,206,000, $4,651,000 and $2,952,000,
respectively.
For purposes of the pro forma disclosure, the fair value of each option
grant is estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Volatility 42% 36% 34%
Risk-Free interest rate 4.6% 5.8% 6.6%
Dividend yield 1.06% 1.43% 1.71%
Expected life of options 9 years 9 years 9 years
</TABLE>
The fair value of the "look-back" option feature of the 1995 Purchase
Plan is valued as the sum of its two separate components. The first component
is 15% of the value of a share of unvested common stock, and the second
component is 85% of the fair value of an option to purchase a share of common
stock at the market price on the date of grant. The following assumptions were
used for "look-back" option grants made under the 1995 Purchase Plan:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Volatility 39% 28% 18%
Risk-Free interest rate 5.5% 5.7% 5.8%
Dividend yield 1.06% 1.43% 1.71%
Expected life of options 6 months 6 months 6 months
</TABLE>
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
The following table summarizes the Option Plans activity for the three
years ended December 31, 1998.
<TABLE>
<CAPTION>
Weighted average
Number of exercise price
shares per share
---------- ----------------
<S> <C> <C>
Outstanding at December 31, 1995 1,977,000 $ 9.30
Granted 268,500 $ 24.88
Exercised (80,000) $ 6.34
--------- -------
Outstanding at December 31, 1996 2,165,500 $ 11.51
Granted 345,000 $ 29.52
Exercised (46,000) $ 9.89
Terminated (26,500) $ 19.24
--------- -------
Outstanding at December 31, 1997 2,438,000 $ 13.60
Granted 667,500 $ 15.46
Exercised (628,600) $ 5.37
Terminated (12,500) $ 27.50
--------- -------
Outstanding at December 31, 1998 2,464,400 $ 16.53
Exercisable at year end 1,264,000 $ 12.54
</TABLE>
The following table summarizes information about options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
Weighted
Weighted Average Weighted
Average Number Contractual Average
Exercise Price Outstanding Life in Years Exercise Price
-------------- ----------- ------------- --------------
<S> <C> <C> <C>
$4.19-$7.07 714,900 3.21 $ 5.26
$12.00-$19.00 809,000 9.08 $ 14.77
$21.25-$29.875 940,500 7.92 $ 26.61
---------
2,464,400
=========
</TABLE>
Note 7-- Net Capital
As a broker-dealer, PFD is subject to the Securities and Exchange Commission's
("SEC") regulations and operating guidelines which, among other things, require
PFD to maintain a specified amount
41
<PAGE> 43
- ---------------------------------------------
Notes to Consolidated Financial Statements
(Continued)
of net capital. Net capital may fluctuate on a daily basis. Effective with the
June 30, 1998 net capital computation, the Company changed its method of net
capital computation from the Aggregate Indebtedness method to the Alternative
Standard. PFD's net capital, as computed under Rule 15c3-1, was $1,946,975 at
December 31, 1998, which exceeded required net capital of $250,000 by
$1,696,975.
Note 8--Benefit Plans
The Company and its subsidiaries have two defined contribution plans for
eligible employees: a retirement benefit plan and a savings and investment plan
("the Benefit Plans") qualified under Section 401 of the Internal Revenue Code.
The Company makes contributions to a trustee, on behalf of eligible employees,
to fund both the retirement benefit and the savings and investment plans. The
Company's expenses under the Benefit Plans were approximately $3,462,000 in
1998, $2,666,000 in 1997 and $2,531,000 in 1996.
Both of the Company's qualified Benefit Plans described above cover all
full-time employees who have met certain age and length-of-service
requirements. Regarding the retirement benefit plan, the Company contributes an
amount which would purchase a certain targeted monthly pension benefit at the
participant's normal retirement date. In connection with the savings and
investment plan, participants can voluntarily contribute up to 12% of their
compensation to the plan, and the Company will match this contribution up to
2%.
Note 9--Related Party Transactions
Certain officers and/or directors of the Company and its subsidiaries are
officers and/or trustees of the Pioneer Family of Mutual Funds and the
Company's international mutual funds. Investment management fees earned from
the mutual funds were approximately $137,753,000 in 1998, $118,851,000 in 1997
and $84,178,000 in 1996. Underwriting commissions and distribution fees earned
from the sales of mutual fund shares were approximately $26,511,000 in 1998,
$23,322,000 in 1997 and $16,636,000 in 1996. Shareholder services fees earned
from the mutual funds were approximately $31,610,000 in 1998, $28,002,000 in
1997 and $25,340,000 in 1996.
Within the Pioneer Family of Mutual Funds, total revenues from Pioneer II
were approximately $47,535,000 in 1998, $50,933,000 in 1997 and $39,102,000 in
1996. Total revenues from Pioneer Fund were $42,323,000 in 1998, $28,918,000 in
1997 and $20,621,000 in 1996.
Certain partners of Hale and Dorr LLP, the Company's legal counsel, are
officers and/or directors of the Company and its subsidiaries. Amounts paid to
Hale and Dorr LLP consist of legal fees of approximately $663,000 in 1998,
$635,000 in 1997 and $1,189,000 in 1996.
Hale and Dorr LLP is a partner in the law firm Brobeck Hale and Dorr
International. The Company paid legal fees in the amount of approximately
$5,000 in 1998, $76,000 in 1997 and $188,000 in 1996 to Brobeck Hale and Dorr
International.
Note 10--Commitments
U.S. rental expense amounted to approximately $4,577,000 in 1998, $3,766,000 in
1997 and $2,977,000 in 1996, respectively. Future minimum payments under the
leases amount to approximately $5,069,000 in 1999, $4,784,000 in 2000,
$4,901,000 in 2001, $1,624,000 in 2002, $563,000 in 2003 and $1,830,000
thereafter. These future minimum rental payments include estimated annual
operating and tax expenses. In 1999, these operating and tax expenses will
approximate $2,200,000.
Rental expense for the Polish Mutual Fund operations amounted to
approximately $1,100,000, $956,000 and $963,000 in 1998, 1997 and 1996,
respectively. The lease is open-ended and can be terminated by either the
Company or the lessor upon 90 days notice.
The Company is contingently liable to the Investment Company Institute
Mutual Insurance Company for unanticipated expenses or losses in connection
with its mutual fund operations in an amount not to exceed $500,000. Two thirds
of this amount is secured by an irrevocable standby letter of credit with a
bank.
At December 31, 1998, the Company was committed to additional capital
contributions of $0.8 million to Pioneer Ventures Limited Partnership II, a
U.S. venture capital fund.
The Company acts as a passive, non-bank trustee for retirement plan
accounts. IRS regulations and operating guidelines allow a passive, non-bank
trustee to accept fiduciary accounts only if the trustee's net worth
(determined as of the end of the most recent taxable year) exceeds the greater
of (1) $100,000 or (2) two percent of the net assets of fiduciary accounts. At
December 31, 1998, the Company's net worth of $154.8 million was 2.3% of the
net assets of fiduciary accounts.
Note 11--Notes Payable
Notes payable of the Company consist of the following:
<TABLE>
<CAPTION>
December 31,
1998 1997
------- ---------
(Dollars in Thousands)
<S> <C> <C>
Revolving Credit Agreement ................. $70,000 $96,000
Senior note payable to a commercial
lender, principal payable on August 15,
2004, interest payable at 8.95%. ......... 20,000 20,000
Preferred shares financing related to the
Russian investment operations ............ -- 2,000
Small Business Administration ("SBA")
financing, notes payable to a bank,
interest payable semi-annually at rates
ranging from 6.12% to 9.8%, principal
due through 2003 ......................... 3,750 4,950
Note payable to a bank, interest and
principal payable monthly at the one-
month Warsaw Bank rate plus 1.75%
through August 2002 ...................... 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 1,897
</TABLE>
42
<PAGE> 44
- ---------------------------------------------
Notes to Consolidated Financial Statements
(Continued)
<TABLE>
<CAPTION>
December 31,
1998 1997
--------- ---------
(Dollars in Thousands)
<S> <C> <C>
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 ...................... 430 858
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 12,732
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 4,699
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 1,239
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 3,988
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 5,237
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 5,795
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% ................................... 15,832 19,000
Project financing, guaranteed by OPIC,
payable in semi-annual installments of
$620,000 through December 15, 2003,
interest payable at 9.95% .......................... 6,200 7,440
-------- --------
142,871 185,835
Less: Current portion ................................ (9,476) (17,411)
-------- --------
$133,395 $168,424
======== ========
</TABLE>
Maturities of notes payable at December 31, 1998, for each of the next
five years and thereafter are as follows (dollars in thousands):
<TABLE>
<S> <C>
1999 ............... $ 9,476
2000 ............... 16,523
2001 ............... 83,361
2002 ............... 7,309
2003 ............... 6,202
Thereafter ......... 20,000
--------
$142,871
========
</TABLE>
The Company entered into an agreement in 1996 with a syndicate of
commercial banks for a senior credit facility (the "Credit Facility"). Under
the Credit Facility, the Company could borrow up to $60 million (the "B-share
Revolver") to finance Dealer Advances relating to sales of back-end load shares
of the Company's domestic mutual funds. In September 1998, the Company sold to
a third party its rights to receive future distribution fees and deferred sales
charges from the distribution of Class B Shares of Pioneer Mutual Funds. The
agreement also provides for the sale at a premium of additional rights arising
from future sales of Class B Shares on a monthly basis through September 2001,
thereby eliminating the need to finance Class B Shares as the Company
had previously done. The Company used the proceeds from the sale of Class
B-share rights to repay the $49.5 million outstanding under the B-share
Revolver and the B-share Revolver was terminated in October 1998.
The Credit Facility also provides that the Company may borrow up to $80
million for general corporate purposes (the "Corporate Revolver"). The
Corporate Revolver is payable in full in June 2001. Advances under the
Corporate Revolver bear interest, at the Company's option, at (a) the higher of
the bank's base lending rate plus 0.25% or the federal funds rate plus 0.50% or
(b) LIBOR plus the applicable margin of 2.25%. The Credit Facility provides
that the Company must pay additional interest at the rate of 0.375% per annum
of the unused portion of the facility and an annual arrangement fee of $35,000.
At December 31, 1998, the Company had borrowed $70 million under the Corporate
Revolver.
The Credit Facility contains restrictions that limit, among other things,
encumbrances on the assets of the Company's domestic mutual fund subsidiaries
and certain mergers and sales of assets. Additionally, the Credit Facility
requires that the Company meet certain financial covenants including covenants
that require the Company to maintain certain minimum ratios with respect to
debt to cash flow and interest payments to cash flow and a minimum tangible net
worth, all as defined in the Credit Facility. In December 1998 the Credit
Facility was amended. The amendment included changes to certain financial
covenants. The amendment addressed the potential need for a reduced standard in
certain financial covenant tests through June 30, 1999. As of December 31,
1998, the Company was in compliance with all applicable covenants, as amended.
For the years ended December 31, 1998, 1997 and 1996, the weighted average
interest rate on the borrowings under the Credit Facility and lines of credit
outstanding was 8.0%, 8.0%, and 7.3%, respectively.
As of December 31, 1998, 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 $1,220,000, $976,000 and $499,000 of interest expense on these
swap agreements during 1998, 1997 and 1996, respectively. At December 31, 1998,
43
<PAGE> 45
- ---------------------------------------------
Notes to Consolidated Financial Statements
(Continued)
the Company had $30 million of overhedged swaps and recognized approximately
$1,300,000 of expense in 1998 in accordance with generally accepted accounting
principles related to these swaps. At December 31, 1998, the fair value of the
swaps was ($4,564,000), compared to a book value of ($1,300,000). If the
Company were to terminate these agreements, it would be required to pay an
amount approximating fair value.
In 1997, the Company entered into an agreement (the "Note Agreement")
with a commercial lender pursuant to which the Company issued to the lender
Senior Notes in the aggregate principal amount of $20 million. The Senior
Notes, which bear interest at the rate of 8.95% per annum, have a maturity of
seven years. Certain covenants of the Senior Notes were also amended in
December 1998. The amended restrictions and financial covenants under the Note
Agreement are substantially similar to the amended restrictions and financial
covenants under the Credit Facility.
TGL's loan agreement with OPIC contains certain covenants. TGL did not
comply with certain of these covenants during 1998 and received appropriate
waivers from OPIC.
Note 12--Minority Interest
The Company's minority interest liability includes the interests of the
other equity holders of the Company's consolidated entities. The liability
for each entity is recorded based upon the net book value of that entity at the
balance sheet date, except for those instances in which agreements could result
in the Company redeeming those interests at amounts greater than their share of
the net book value. In those instances, adjustments are made to the liability
to reflect the minority equity holders' economic interests under those
agreements. As of December 31, 1998 and 1997, the Company's minority interest
liability consisted of the following (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Gold mining operations $ 5,865 $ 7,958
Russian investment operations 15,433 26,091
Polish brokerage operations 4 13
Poland Fund--venture capital 45,649 24,269
Pioneer Ventures Limited
Partnerships--venture capital 43,325 28,346
-------- -------
Totals $110,276 $86,677
======== =======
</TABLE>
Note 13--Major Customers
During the year ended December 31, 1998, gold sales aggregated $77.3 million.
During 1998, gold shipments from TGL in Ghana to two unaffiliated European
refiners accounted for $38.5 million and $35.7 million, respectively,
representing 96% of such total sales.
During the year ended December 31, 1997, gold sales aggregated $89.5
million. During 1997, gold shipments from TGL in Ghana to two unaffiliated
European refiners accounted for $43.9 million and $41 million, respectively,
representing 95% of such total sales.
During the year ended December 31, 1996, gold sales aggregated $78.3
million. During 1996, gold shipments from TGL in Ghana to two unaffiliated
European refiners accounted for $41.2 million and $37.1 million, respectively,
representing 100% of such total sales.
Note 14--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. The 1998 loss included a provision of approximately $3,600,000 for
the expected costs and certain losses associated with liquidating the bank. In
December 1998, the Company sold its stock in the Bank to an unrelated third
party. The sale is subject to certain regulatory approvals. The remaining
liability of $0.4 million recorded at December 31, 1998 is related to certain
costs associated with the liquidation of the Bank. The following is a summary
of the results of discontinued operations for the years ended December 31,
1998, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
-------- -------- --------
(Amounts in Thousands)
<S> <C> <C> <C>
Revenues from banking
activities ............................. $ 2,150 $ 12,324 $ 14,966
------- -------- --------
Income (loss) before income
taxes and minority interest ............ (9,589) (1,376) 5,563
Income taxes ............................. (311) (117) (57)
------- -------- --------
Income (loss) from
discontinued operations
before minority interest ............... (9,278) (1,259) 5,620
------- -------- --------
Minority interest ........................ (2,829) (712) 2,060
------- -------- --------
Net income (loss) from
discontinued operations ................ $(6,449) $ (547) $ 3,560
======= ======== ========
</TABLE>
Note 15--Dealer Advances
Certain of the Pioneer Family of Mutual Funds maintain a multi-class share
structure whereby the participating funds offer both the traditional front-end
load shares (Class A shares) and back-end load shares (Class B and Class C
shares). Back-end load shares do not require the investor to pay any sales
charge unless there is a redemption before the expiration of the minimum
holding period, which ranges from three to six years in the case of Class B
shares and is one year in the case of Class C shares. However, the Company pays
upfront sales commissions (dealer advances) to broker-dealers ranging from 2%
to 4% of the sales transaction amount on Class B shares and 1% on Class C
shares. The participating Funds pay the Company distribution fees of 0.75% and
service fees of 0.25%, per annum of their net assets invested in Class B and
Class C shares, subject to annual renewal by the participating Fund's Board of
Trustees. In addition, the Company is paid a contingent deferred sales charge
(CDSC) on Class B and C shares redeemed within the minimum holding period. The
CDSC is paid based on declining rates ranging from 2% to 4% on the purchases of
Class B shares and 1% for Class C shares. In 1998, 1997, and 1996, the Company
paid B-share dealer advances in the amount of $20.8 million, $16.3 million, and
$23.2 million, respectively.
On September 30, 1998, the Company entered into an agreement to sell to a
third party its rights to receive future distribution fees and deferred sales
charges from the then outstanding Class B shares assets of the Pioneer Family
of Mutual Funds. The Class B share rights were sold for $61.7 million resulting
in a pre-tax gain on sale of $8.1 million and an after-tax gain of $5.3
million, as reported in the accompanying consolidated statements of opera-
44
<PAGE> 46
- ---------------------------------------------
Notes to Consolidated Financial Statements
(Continued)
tions. In addition, the agreement (Class B share rights program) also provides
for the sale, at a premium, of additional rights arising from future sales of
Class B shares on a monthly basis through September 30, 2001.
The Company capitalizes and amortizes Class C share dealer advances for
financial statement purposes over a twelve month period. The Company deducts
the dealer advances in full for tax purposes in the year such advances are
paid. Distribution fees received by the Company from participating Funds are
recorded in income as earned. CDSC received by the Company from redeeming
shareholders reduce unamortized dealer advances directly.
Note 16--Venture Capital Subsequent Event
On March 18, 1999, the Company sold its U.S. venture capital business to a
third party for approximately $34.9 million. The sale included certain venture
capital investments owned by a wholly owned subsidiary and a majority owned
partnership, as well as the Company's interest in a consolidated partnership
which serves as an investment vehicle for a number of institutional investors.
In connection with the sale, the Company incurred a net loss of
approximately $3.1 million, which included certain costs associated with the
transaction.
Note 17--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 segment information for 1996 has been restated to conform to these
requirements. The intersegment transactions are for management services and the
secondment of employees. These transactions are generally priced on a cost or
cost plus basis.
45
<PAGE> 47
- ---------------------------------------------
Notes to Consolidated Financial Statements
(Continued)
Note 17--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 International Financial Services
----------------------------------------------
Pioneer
Investment Czech
Management Russia Poland Republic Asia
---------- --------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998:
Gross revenues and sales ................................... $ 217,544 $ 10,289 $ 13,685 $ 1,641 $ --
========== ========= ======== ======== ======
Intersegment eliminations .................................. $ (9,521) $ -- $ -- $ -- $ --
========== ========= ======== ======== ======
Net revenues and sales ..................................... $ 208,023 $ 10,289 $ 13,685 $ 1,641 $ --
========== ========= ======== ======== ======
Income (loss) before income taxes and minority
interest ................................................. $ 57,172 $ (23,857) $ (2,660) $ (937) $ (859)
========== ========= ======== ======== ======
Income taxes .............................................. $ 21,191 $ (2,893) $ 744 $ (174) $ (344)
========== ========= ======== ======== ======
Minority interest .......................................... $ -- $ (7,961) $ (13) $ -- $ --
========== ========= ======== ======== ======
Net income (loss) ......................................... $ 35,981 $ (13,003) $ (3,391) $ (763) $ (515)
========== ========= ======== ======== ======
Depreciation and amortization ............................. $ 21,234 $ 1,407 $ 1,777 $ 132 $ --
========== ========= ======== ======== ======
Interest expense ........................................... $ 2,632 $ 328 $ 59 $ -- $ --
========== ========= ======== ======== ======
Capital expenditures ....................................... $ 7,597 $ 3,147 $ 1,737 $ 132 $ --
========== ========= ======== ======== ======
Gross identifiable assets at December 31, 1998 ............. $ 209,754 $ 49,855 $ 23,198 $ 1,148 $ --
========== ========= ======== ======== ======
Intersegment eliminations .................................. $ (118,236) $ (143) $ -- $ (86) $ --
========== ========= ======== ======== ======
Net identifiable assets at December 31, 1998 ............... $ 91,518 $ 49,712 $ 23,198 $ 1,062 $ --
========== ========= ======== ======== ======
Year ended December 31, 1997:
Gross revenues and sales ................................... $ 176,900 $ 42,384 $ 14,542 $ 1,046 $ --
========== ========= ======== ======== ======
Intersegment eliminations .................................. $ (8,427) $ (188) $ -- $ -- $ --
========== ========= ======== ======== ======
Net revenues and sales ..................................... $ 168,473 $ 42,196 $ 14,542 $ 1,046 $ --
========== ========= ======== ======== ======
Income (loss) before income taxes and minority interest .... $ 52,146 $ 14,187 $ 2,409 $ (1,406) $ --
========== ========= ======== ======== ======
Income taxes ............................................... $ 20,086 $ 5,528 $ 1,114 $ (162) $ --
========== ========= ======== ======== ======
Minority interest .......................................... $ -- $ 2,798 $ (52) $ -- $ --
========== ========= ======== ======== ======
Net income (loss) .......................................... $ 32,060 $ 5,861 $ 1,347 $ (1,244) $ --
========== ========= ======== ======== ======
Depreciation and amortization .............................. $ 17,509 $ 1,522 $ 625 $ 280 $ --
========== ========= ======== ======== ======
Interest expense ........................................... $ 2,885 $ 226 $ 6 $ -- $ --
========== ========= ======== ======== ======
Capital expenditures ....................................... $ 7,405 $ 3,561 $ 322 $ -- $ --
========== ========= ======== ======== ======
Gross identifiable assets at December 31, 1997 ............. $ 263,073 $ 99,230 $ 16,308 $ 237 $ --
========== ========= ======== ======== ======
Intersegment eliminations .................................. $ (127,705) $ (3,877) $ -- $ -- $ --
========== ========= ======== ======== ======
Net identifiable assets at December 31, 1997 ............... $ 135,368 $ 95,353 $ 16,308 $ 237 $ --
========== ========= ======== ======== ======
Year ended December 31, 1996:
Gross revenues and sales ................................... $ 130,854 $ 6,181 $ 10,374 $ 245 $ --
========== ========= ======== ======== ======
Intersegment eliminations .................................. $ (4,474) $ -- $ -- $ -- $ --
========== ========= ======== ======== ======
Net revenues and sales ..................................... $ 126,380 $ 6,181 $ 10,374 $ 245 $ --
========== ========= ======== ======== ======
Income (loss) before income taxes and minority interest $ 27,683 $ (2,908) $ (885) $ (3,172) $ --
========== ========= ======== ======== ======
Income taxes ............................................... $ 10,246 $ (1,749) $ (72) $ (272) $ --
========== ========= ======== ======== ======
Minority interest .......................................... $ -- $ 1,065 $ (83) $ -- $ --
========== ========= ======== ======== ======
Net income (loss) .......................................... $ 17,437 $ (2,224) $ (730) $ (2,900) $ --
========== ========= ======== ======== ======
Depreciation and amortization .............................. $ 13,388 $ 501 $ -- $ -- $ --
========== ========= ======== ======== ======
Interest expense ........................................... $ 2,328 $ 450 $ -- $ -- $ --
========== ========= ======== ======== ======
Capital expenditures ....................................... $ 3,599 $ 10,445 $ 213 $ 631 $ --
========== ========= ======== ======== ======
Gross identifiable assets at December 31, 1996 ............. $ 211,661 $ 56,646 $ 9,507 $ 313 $ --
========== ========= ======== ======== ======
Intersegment eliminations .................................. $ (96,894) $ (1,315) $ -- $ -- $ --
========== ========= ======== ======== ======
Net identifiable assets at December 31, 1996 ............... $ 114,767 $ 55,331 $ 9,507 $ 313 $ --
========== ========= ======== ======== ======
</TABLE>
<TABLE>
<CAPTION>
Subtotal-Pioneer
International
Financial Services
-------------------
<S> <C>
Year ended December 31, 1998:
Gross revenues and sales ................................... $ 25,615
=========
Intersegment eliminations .................................. $ --
=========
Net revenues and sales ..................................... $ 25,615
=========
Income (loss) before income taxes and minority
interest ................................................. $ (28,313)
=========
Income taxes .............................................. $ (2,667)
=========
Minority interest .......................................... $ (7,974)
=========
Net income (loss) ......................................... $ (17,672)
=========
Depreciation and amortization ............................. $ 3,316
=========
Interest expense ........................................... $ 387
=========
Capital expenditures ....................................... $ 5,016
=========
Gross identifiable assets at December 31, 1998 ............. $ 74,201
=========
Intersegment eliminations .................................. $ (229)
=========
Net identifiable assets at December 31, 1998 ............... $ 73,972
=========
Year ended December 31, 1997:
Gross revenues and sales ................................... $ 57,972
=========
Intersegment eliminations .................................. $ (188)
=========
Net revenues and sales ..................................... $ 57,784
=========
Income (loss) before income taxes and minority interest .... $ 15,190
=========
Income taxes ............................................... $ 6,480
=========
Minority interest .......................................... $ 2,746
=========
Net income (loss) .......................................... $ 5,964
=========
Depreciation and amortization .............................. $ 2,427
=========
Interest expense ........................................... $ 232
=========
Capital expenditures ....................................... $ 3,883
=========
Gross identifiable assets at December 31, 1997 ............. $ 115,775
=========
Intersegment eliminations .................................. $ (3,877)
=========
Net identifiable assets at December 31, 1997 ............... $ 111,898
=========
Year ended December 31, 1996:
Gross revenues and sales ................................... $ 16,800
=========
Intersegment eliminations .................................. $ --
=========
Net revenues and sales ..................................... $ 16,800
=========
Income (loss) before income taxes and minority interest .... $ (6,965)
=========
Income taxes ............................................... $ (2,093)
=========
Minority interest .......................................... $ 982
=========
Net income (loss) .......................................... $ (5,854)
=========
Depreciation and amortization .............................. $ 501
=========
Interest expense ........................................... $ 450
=========
Capital expenditures ....................................... $ 11,289
=========
Gross identifiable assets at December 31, 1996 ............. $ 66,466
=========
Intersegment eliminations .................................. $ (1,315)
=========
Net identifiable assets at December 31, 1996 ............... $ 65,151
=========
</TABLE>
46
<PAGE> 48
- ---------------------------------------------
Notes to Consolidated Financial Statements
(Continued)
<TABLE>
<CAPTION>
Pioneer Global Investments
- ----------- ---------------------------------------------------------------
Real Estate U.S. Venture Cent. & East. Europe Gold Russian
Services Capital Venture Capital Mining Timber
- ----------- ------------ -------------------- --------- ----------
<S> <C> <C> <C> <C>
$ 1,208 $ 1,666 $ 4,668 $ 77,329 $ 10,451
======== ======= ========= ========= =========
$ -- $ -- $ (4,086) $ -- --
======== ======= ========= ========= =========
$ 1,208 $ 1,666 $ 582 $ 77,329 $ 10,451
======== ======= ========= ========= =========
$ (3,939) $15,443 $ (11,207) $ (29,066) $ (23,250)
======== ======= ========= ========= =========
$ (1,074) $ 2,347 $ (3,074) $ (7,186) $ (4,548)
======== ======= ========= ========= =========
$ -- $ 9,800 $ (6,175) $ (2,092) $ --
======== ======= ========= ========= =========
$ (2,865) $ 3,296 $ (1,958) $ (19,788) $ (18,702)
======== ======= ========= ========= =========
$ 108 $ 183 $ 371 $ 25,603 $ 5,481
======== ======= ========= ========= =========
$ 24 $ 333 $ -- $ 5,082 $ 4,211
======== ======= ========= ========= =========
$ -- $ 21 $ -- $ 9,808 $ 4,988
======== ======= ========= ========= =========
$ 6,311 $86,602 $ 49,323 $ 131,476 $ 52,921
======== ======= ========= ========= =========
$ (953) $ (7) $ -- $ (39) $ --
======== ======= ========= ========= =========
$ 5,358 $86,595 $ 49,323 $ 131,437 $ 52,921
======== ======= ========= ========= =========
$ 543 $ 1,828 $ 603 $ 89,487 $ 11,879
======== ======= ========= ========= =========
$ -- $ -- $ (81) $ -- $ --
======== ======= ========= ========= =========
$ 543 $ 1,828 $ 522 $ 89,487 $ 11,879
======== ======= ========= ========= =========
$ (2,939) $14,678 $ (2,454) $ (2,818) $ (6,996)
======== ======= ========= ========= =========
$ (1,035) $ 4,348 $ 297 $ (426) $ (270)
======== ======= ========= ========= =========
$ -- $ 4,005 $ (1,386) $ 444 $ --
======== ======= ========= ========= =========
$ (1,904) $ 6,325 $ (1,365) $ (2,836) $ (6,726)
======== ======= ========= ========= =========
$ 55 $ 176 $ 214 $ 23,260 $ 2,871
======== ======= ========= ========= =========
$ -- $ 402 $ -- $ 2,766 $ 3,045
======== ======= ========= ========= =========
$ 344 $ 38 $ 34 $ 11,520 $ 5,206
======== ======= ========= ========= =========
$ 7,173 $77,101 $ 28,767 $ 152,866 $ 50,998
======== ======= ========= ========= =========
$ (1,847) $ (7) $ -- $ -- $ --
======== ======= ========= ========= =========
$ 5,326 $77,094 $ 28,767 $ 152,866 $ 50,998
======== ======= ========= ========= =========
$ 104 $ 1,989 $ 594 $ 78,279 $ --
======== ======= ========= ========= =========
$ -- $ -- $ -- $ -- $ --
======== ======= ========= ========= =========
$ 104 $ 1,989 $ 594 $ 78,279 $ --
======== ======= ========= ========= =========
$ (463) $ 9,272 $ (3,689) $ 4,737 $ (729)
======== ======= ========= ========= =========
$ (186) $ 2,964 $ (90) $ 1,519 $ (246)
======== ======= ========= ========= =========
$ -- $ 1,804 $ (2,210) $ 644 $ --
======== ======= ========= ========= =========
$ (277) $ 4,504 $ (1,389) $ 2,574 $ (483)
======== ======= ========= ========= =========
$ 2 $ 124 $ -- $ 16,371 $ 116
======== ======= ========= ========= =========
$ -- $ 403 $ -- $ 137 $ --
======== ======= ========= ========= =========
$ 14 $ 14 $ 24 $ 74,789 $ 2,466
======== ======= ========= ========= =========
$ 2,692 $58,454 $ 15,603 $ 149,613 $ 43,367
======== ======= ========= ========= =========
$ -- $ (7) $ -- $ -- $ --
======== ======= ========= ========= =========
$ 2,692 $58,447 $ 15,603 $ 149,613 $ 43,367
======== ======= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Other -Subtotal-
Natural Pioneer Global
Resources Investments Other Total
- --------- -------------- ---------- -----------
<C> <C> <C> <C>
$ -- $ 95,322 $ 12,747 $ 351,228
======== ========= ========= ==========
$ -- $ (4,086) $ (12,747) $ (26,354)
======== ========= ========= ==========
$ -- $ 91,236 $ -- $ 324,874
======== ========= ========= ==========
$ (1,537) $ (53,556) $ (6,992) $ (31,689)
======== ========= ========= ==========
$ (427) $ (13,962) $ (2,791) $ 1,771
======== ========= ========= ==========
$ -- $ 1,533 $ -- $ (6,441)
======== ========= ========= ==========
$ (1,110) $ (41,127) $ (4,201) $ (27,019)
======== ========= ========= ==========
$ 6 $ 31,752 $ 133 $ 56,435
======== ========= ========= ==========
$ -- $ 9,650 $ 3,634 $ 16,303
======== ========= ========= ==========
$ -- $ 14,817 $ -- $ 27,430
======== ========= ========= ==========
$ 895 $ 327,528 $ 31,774 $ 643,257
======== ========= ========= ==========
$ -- $ (999) $ (24,332) $ (143,796)
======== ========= ========= ==========
$ 895 $ 326,529 $ 7,442 $ 499,461
======== ========= ========= ==========
$ -- $ 104,340 $ 9,667 $ 348,879
======== ========= ========= ==========
$ -- $ (81) $ (9,667) $ (18,363)
======== ========= ========= ==========
$ -- $ 104,259 $ -- $ 330,516
======== ========= ========= ==========
$ (761) $ (1,290) $ (2,860) $ 63,186
======== ========= ========= ==========
$ (298) $ 2,616 $ (1,518) $ 27,664
======== ========= ========= ==========
$ -- $ 3,063 $ -- $ 5,809
======== ========= ========= ==========
$ (463) $ (6,969) $ (1,342) $ 29,713
======== ========= ========= ==========
$ 3 $ 26,579 $ 396 $ 46,911
======== ========= ========= ==========
$ -- $ 6,213 $ 2,065 $ 11,395
======== ========= ========= ==========
$ -- $ 17,142 $ 177 $ 28,607
======== ========= ========= ==========
$ 1,169 $ 318,074 $ 23,030 $ 719,952
======== ========= ========= ==========
$ -- $ (1,854) $ (19,302) $ (152,738)
======== ========= ========= ==========
$ 1,169 $ 316,220 $ 3,728 $ 567,214
======== ========= ========= ==========
$ -- $ 80,966 $ 2,679 $ 231,299
======== ========= ========= ==========
$ -- $ -- $ (2,679) $ (7,153)
======== ========= ========= ==========
$ -- $ 80,966 $ -- $ 224,146
======== ========= ========= ==========
$ (959) $ 8,169 $ (785) $ 28,102
======== ========= ========= ==========
$ (320) $ 3,641 $ (189) $ 11,605
======== ========= ========= ==========
$ -- $ 238 $ -- $ 1,220
======== ========= ========= ==========
$ (639) $ 4,290 $ (596) $ 15,277
======== ========= ========= ==========
$ -- $ 16,613 $ 671 $ 31,173
======== ========= ========= ==========
$ -- $ 540 $ -- $ 3,318
======== ========= ========= ==========
$ 17 $ 77,324 $ 182 $ 92,394
======== ========= ========= ==========
$ 1,136 $ 270,865 $ 16,973 $ 565,965
======== ========= ========= ==========
$ -- $ (7) $ (10,967) $ (109,183)
======== ========= ========= ==========
$ 1,136 $ 270,858 $ 6,006 $ 456,782
======== ========= ========= ==========
</TABLE>
47
<PAGE> 49
The Pioneer Group, Inc. Directors
and Executive Officers
Wholly and Majority Owned Subsidiaries
Pioneer Investment Management, Inc., Pioneer Funds Distributor, Inc.,
Pioneering Services Corporation, Pioneer Investment Poland Limited, Pioneer
Fonds Marketing GmbH, PGIA Corporation, Pioneer International Corporation,
Pioneer First Polish Investment Fund Joint Stock Company S.A., Pioneer
Financial Services Limited, Pioneer Polski Dom Maklerski, S.A., Pioneer
Universal Pension Fund Company, Pioneer Management (Ireland) Limited, Pioneer
Omega, Inc., Pioneer First Russia, Inc., "Pioneer First Investment Fund,"
Closed Joint Stock Company "Pioneer Securities," UKS Securities Limited, Closed
Joint Stock Company "Pioneer Services," Closed Joint Stock Company "Pioneer
First," Pioneer Czech Investment Company, A.S., Pioneer Czech Financial
Company, s.r.o., Beijing Pioneer Zhong Investment Consulting Company, Limited,
Pioneer Goldfields Holdings, Inc., Pioneer Goldfields Limited, PGH Nebraska,
Inc., Teberebie Goldfields Limited, Pioneer Forest, Inc., Closed Joint-Stock
Company "Forest-Starma," Closed Joint-Stock Company "Amgun-Forest," Closed
Joint-Stock Company "Udinskoye," Pioneer Metals and Technology, Inc., Closed
Joint-Stock Company "Pioneer Metals International," Closed Joint-Stock Company
"Tas-Yurjah Mining Company," PIOGlobal Corporation, Pioneer Real Estate
Advisors, Inc., Pioneer Investments Corporation, PIOGlobal Insurance Company
Limited, Pioneer Explorer, Inc., Pioneer Real Estate Advisors Poland.
Joint Ventures
Kothari Pioneer AMC Limited,
Pioneer-Banc One Property Capital, LP.
John F. Cogan, Jr., Chairman of the
Board, Director and President
Chairman of the Board, President and
Trustee of each of the Pioneer Family of
Mutual Funds
Alan J. Strassman, Vice Chairman
of the Board and Director Partner
and Chairman of the Board of Martingale
Asset Management
Robert L. Butler, Director
Senior Managing Director - International
Fund Distribution, Pioneer Investment
Management, Inc.
Maurice Engelman, Director
Chairman and CEO of Professional Equity
Corporation and Marketing Two, Inc.;
Principal, Engelman & Associates
Jaskaran S. Teja, Director
Senior Vice President of Pioneer
International Corporation
David D. Tripple, Director and
Executive Vice President
Executive Vice President and Trustee of
each of the Pioneer Family of Mutual
Funds; President of Pioneer Investment
Management, Inc.
John H. Valentine, Director
Director of Entrepreneurial Management
of Health Policy Institute; Director of
Visualization Technology, Inc.
John A. Boynton, Executive Vice
President, Chief Financial Officer
and Treasurer Treasurer of each of the
Pioneer Family of Mutual Funds
Stephen G. Kasnet, Executive
Vice President President of Pioneer
Global Investments
Alicja K. Malecka, Executive Vice
President President of Pioneer
International Financial Services
William H. Smith, Jr., Executive Vice
President - Global Operations and
Technology.
Timothy T. Frost, Senior Vice President
- -Corporate Communications and Planning
Robert P. Nault, Senior Vice
President, General Counsel and
Assistant Secretary
Joseph P. Barri, Esq., Secretary
Legal Counsel
Hale and Dorr LLP, Boston, Massachusetts
Transfer Agent
State Street Bank and Trust Company,
Boston, Massachusetts
Independent Public Accountants
Arthur Andersen LLP, Boston, Massachusetts
The Company has filed an Annual Report on Form 10-K with the Securities and
Exchange Commission for the year ended December 31, 1998. A copy of that
Report is available, free of charge, to stockholders of the Company, upon
request to Timothy Frost, Senior Vice President, The Pioneer Group, Inc., 60
State Street, Boston, MA 02109.
<PAGE> 50
[BACK COVER]
[Pioneer Logo] The Pioneer Group, Inc.
60 State Street
Boston, MA 02109
www.pioneerfunds.com 0399-6041
(C) The Pioneer Group, Inc.
<PAGE> 1
Exhibit 21
Subsidiaries
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------
Pioneer Investment Management, Inc. Delaware
- ----------------------------------------------------------------------------------------
Pioneer Funds Distributor, Inc. Massachusetts
- ----------------------------------------------------------------------------------------
Pioneering Services Corporation Massachusetts
- ----------------------------------------------------------------------------------------
Pioneer Investments Poland, Ltd. Poland
- ----------------------------------------------------------------------------------------
Pioneer Fonds Marketing GmbH Germany
- ----------------------------------------------------------------------------------------
PGIA Corporation Delaware
- ----------------------------------------------------------------------------------------
Pioneer International Corporation Delaware
- ----------------------------------------------------------------------------------------
Pioneer First Polish Investment Fund Joint Stock Company s.a. Poland
- ----------------------------------------------------------------------------------------
Pioneer Financial Services Ltd. Poland
- ----------------------------------------------------------------------------------------
Pioneer Polski Dom Maklerski, S.A. Poland
- ----------------------------------------------------------------------------------------
Pioneer Universal Pension Fund Company Poland
- ----------------------------------------------------------------------------------------
Pioneer Management (Ireland) Limited Ireland
- ----------------------------------------------------------------------------------------
Pioneer Omega, Inc. Delaware
- ----------------------------------------------------------------------------------------
Pioneer First Russia, Inc. Delaware
- ----------------------------------------------------------------------------------------
"Pioneer First Investment Fund" Russian Federation
- ----------------------------------------------------------------------------------------
Closed Joint Stock Company "Pioneer Securities" Russian Federation
- ----------------------------------------------------------------------------------------
UKS Securities Limited United Kingdom
- ----------------------------------------------------------------------------------------
Closed Joint Stock Company "Pioneer Services" Russian Federation
- ----------------------------------------------------------------------------------------
Closed Joint Stock Company "Pioneer First" Russian Federation
- ----------------------------------------------------------------------------------------
Pioneer Czech Investment Company, A.S. Czech Republic
- ----------------------------------------------------------------------------------------
Pioneer Goldfields Holdings, Inc. Delaware
- ----------------------------------------------------------------------------------------
Pioneer Czech Financial Company, s.r.o. Czech Republic
- ----------------------------------------------------------------------------------------
Beijing Pioneer Zhong Investment Consulting Co., Ltd. China
- ----------------------------------------------------------------------------------------
Pioneer Goldfields Limited Guernsey, Channel Islands
- ----------------------------------------------------------------------------------------
PGH Nebraska, Inc. Delaware
- ----------------------------------------------------------------------------------------
Teberebie Goldfields Limited Republic of Ghana
- ----------------------------------------------------------------------------------------
Pioneer Forest, Inc. Delaware
- ----------------------------------------------------------------------------------------
Closed Joint-Stock Company "Forest-Starma" Russian Federation
- ----------------------------------------------------------------------------------------
Closed Joint-Stock Company "Amgun-Forest" Russian Federation
- ----------------------------------------------------------------------------------------
Closed Joint Stock Company "Udinskoye" Russian Federation
- ----------------------------------------------------------------------------------------
Pioneer Metals and Technology, Inc. Delaware
- ----------------------------------------------------------------------------------------
Closed Joint-Stock Company "Pioneer Metals International" Russian Federation
- ----------------------------------------------------------------------------------------
Closed Joint-Stock Company "Tas-Yurjah Mining Company" Russian Federation
- ----------------------------------------------------------------------------------------
PIOGlobal Corporation Delaware
- ----------------------------------------------------------------------------------------
Pioneer Real Estate Advisors, Inc. Delaware
- ----------------------------------------------------------------------------------------
Pioneer Investments Corporation Massachusetts
- ----------------------------------------------------------------------------------------
PIOGlobal Insurance Company Limited Bermuda
- ----------------------------------------------------------------------------------------
Pioneer Explorer, Inc. Delaware
- ----------------------------------------------------------------------------------------
Pioneer Real Estate Advisors Poland Sp.z o.o. Poland
- ----------------------------------------------------------------------------------------
Pioneer Plans Corporation Delaware
- ----------------------------------------------------------------------------------------
Theta Enterprises, Inc. Delaware
- ----------------------------------------------------------------------------------------
Luscinia, Inc. Delaware
- ----------------------------------------------------------------------------------------
Closed Joint Stock Company "Starma-Holding" Russian Federation
- ----------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
Exhibit 21
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------
JSL Co. Dalplaz Russian Federation
- ----------------------------------------------------------------------------------------
Closed Joint Stock Company "Starma-Port" Russian Federation
- ----------------------------------------------------------------------------------------
Closed Joint Stock Company "Pioneer Starma Equipment" Russian Federation
- ----------------------------------------------------------------------------------------
Pioneer Mercury Sp z.o.o. Poland
- ----------------------------------------------------------------------------------------
Closed Joint Stock Company "Gradient" Russian Federation
- ----------------------------------------------------------------------------------------
AS Holdings, Inc. Delaware
- ----------------------------------------------------------------------------------------
Pioneer Poland US (Jersey) Limited Guernsey, Channel Islands
- ----------------------------------------------------------------------------------------
Pioneering Management (Jersey) Limited Guernsey, Channel Islands
- ----------------------------------------------------------------------------------------
Pioneer Global Funds Distributor, Ltd. Bermuda
- ----------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report, incorporated by reference into this Form 10-K, into the Company's
previously filed Registration Statement File Nos. 33-61932, 33-59185, 33-59183,
333-31847.
Arthur Andersen LLP
Boston, Massachusetts
March 31, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 44,519
<SECURITIES> 3,638
<RECEIVABLES> 51,211
<ALLOWANCES> 0
<INVENTORY> 21,882
<CURRENT-ASSETS> 143,251
<PP&E> 265,172
<DEPRECIATION> (114,187)
<TOTAL-ASSETS> 499,461
<CURRENT-LIABILITIES> 100,988
<BONDS> 133,395
0
0
<COMMON> 2,613
<OTHER-SE> 152,189
<TOTAL-LIABILITY-AND-EQUITY> 499,461
<SALES> 0
<TOTAL-REVENUES> 324,874
<CGS> 0
<TOTAL-COSTS> 343,492
<OTHER-EXPENSES> (9,673)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,303
<INCOME-PRETAX> (25,248)
<INCOME-TAX> 1,771
<INCOME-CONTINUING> (27,019)
<DISCONTINUED> (6,449)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (33,468)
<EPS-PRIMARY> (1.330)
<EPS-DILUTED> (1.320)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 55,601
<SECURITIES> 10,649
<RECEIVABLES> 56,792
<ALLOWANCES> 0
<INVENTORY> 27,929
<CURRENT-ASSETS> 168,502
<PP&E> 245,153
<DEPRECIATION> (86,483)
<TOTAL-ASSETS> 567,214
<CURRENT-LIABILITIES> 101,921
<BONDS> 168,424
0
0
<COMMON> 2,522
<OTHER-SE> 181,165
<TOTAL-LIABILITY-AND-EQUITY> 567,214
<SALES> 0
<TOTAL-REVENUES> 330,516
<CGS> 0
<TOTAL-COSTS> 282,789
<OTHER-EXPENSES> (21,045)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,395
<INCOME-PRETAX> 57,377
<INCOME-TAX> 27,664
<INCOME-CONTINUING> 29,713
<DISCONTINUED> (547)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,166
<EPS-PRIMARY> 1.170
<EPS-DILUTED> 1.140
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 25,291
<SECURITIES> 8,484
<RECEIVABLES> 43,186
<ALLOWANCES> 0
<INVENTORY> 24,908
<CURRENT-ASSETS> 115,222
<PP&E> 227,903
<DEPRECIATION> (69,436)
<TOTAL-ASSETS> 456,782
<CURRENT-LIABILITIES> 64,769
<BONDS> 149,500
0
0
<COMMON> 2,501
<OTHER-SE> 159,972
<TOTAL-LIABILITY-AND-EQUITY> 456,782
<SALES> 0
<TOTAL-REVENUES> 224,146
<CGS> 0
<TOTAL-COSTS> 203,289
<OTHER-EXPENSES> (9,343)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,318
<INCOME-PRETAX> 26,882
<INCOME-TAX> 11,605
<INCOME-CONTINUING> 15,277
<DISCONTINUED> 3,560
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,837
<EPS-PRIMARY> 0.770
<EPS-DILUTED> 0.740
</TABLE>
