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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, 1999
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 IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</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
Stock Market(R) of $20.063 on March 1, 2000, the aggregate market value of the
shares of voting stock held by non-affiliates of the Registrant on that date was
$306,371,901. (Shares of Common Stock held by each executive officer, director
and holder of 5% or more of the outstanding Common Stock have been excluded as
such persons may be deemed to be affiliates, for purposes of this calculation
only.)
As of March 1, 2000, 26,770,455, shares of the Registrant's Common Stock,
$0.10 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
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 2000 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," which may be referred
to as "we," "us" or "our"), and its wholly owned subsidiaries, in 1999 consisted
of three strategic business units: (i) Pioneer Investment Management, (ii)
Pioneer International Financial Services, and (iii) Pioneer Global Investments.
The following discussion summarizes the operations of each unit during the year.
PIONEER INVESTMENT MANAGEMENT. The business of this unit includes:
- investment management, marketing and distribution of our 25 open-end
registered investment companies (comprised of 37 investment
portfolios) and one closed-end registered investment company
(collectively, the "mutual funds") based in the United States and
available to domestic and certain non-U.S. investors, as well as the
nine offshore open-end investment funds based in Ireland and available
to non-U.S. investors
- shareholder servicing for the open-end mutual funds and offshore funds
- separate account management services for institutional investors
PIONEER INTERNATIONAL FINANCIAL SERVICES. The business of this unit
includes investment management and financial services operations in:
- Warsaw, Poland, where we manage and distribute units of four mutual
funds available to Polish citizens, operate a unitholder servicing
agent for the mutual funds and own 70% of a private pension fund
management company
- Prague, the Czech Republic, where we manage, distribute and service a
Czech open-end mutual fund
- Moscow, Russia, where we distribute shares of, manage and service two
open-end mutual funds available to Russian citizens and manage and own
approximately 52% of the Pioneer First Investment Fund, a closed-end
fund
- Madras, India, where we own 47.61% of an Indian company that serves as
the investment adviser, distributor and shareholder servicing agent to
22 private sector mutual funds available to Indian citizens
- Taiwan, where we own a 10% interest in an investment management
operation
PIONEER GLOBAL INVESTMENTS. The business of this unit includes our
diversified strategic businesses of:
- international venture capital management and investing
- real estate management and advisory services
- timber harvesting and development
You can learn more about our businesses by visiting our homepage on the
Internet at WWW.PIONEERFUNDS.COM.
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PIONEER INVESTMENT MANAGEMENT
DOMESTIC INVESTMENT MANAGEMENT
Our domestic investment management business includes the U.S. registered
mutual funds, the offshore funds registered in Ireland and private institutional
accounts. Our wholly owned subsidiary, Pioneer Investment Management, Inc.
("Pioneer Management"), advises all of these investments. This business also
includes distribution, shareholder servicing and transfer agency activities
related to these investment products.
U.S. Mutual Funds. Pioneer Management serves as investment manager to 25
domestic open-end mutual funds (consisting of 37 investment portfolios,
comprised of eight U.S. growth portfolios, eight international growth
portfolios, 10 growth and income portfolios, eight income portfolios, one
tax-free income portfolio and two money market portfolios) and one U.S.
closed-end mutual fund (also an income portfolio). These portfolios include
Pioneer Strategic Income Fund, which commenced operations in April 1999, Pioneer
Tax-Managed Fund, which commenced operations in November 1999, and Pioneer High
Yield Fund, which commenced operations in March 2000. All of these funds (the
"U.S. Funds") are registered under the Investment Company Act of 1940, as
amended (the "1940 Act").
At February 1, 2000, the U.S. Funds had aggregate net assets of
approximately $22.5 billion.
Pioneer Management manages each U.S. Fund pursuant to a management
contract. Each year 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 must vote to renew the management contract
for each U.S. Fund. Each management contract will terminate automatically if
either party assigns it, which may be deemed to occur in the event of a change
of control of the Company. Either party may elect to terminate the contract,
without penalty, on 60 days' written notice. All management contracts for the
U.S. Funds (other than the U.S. Funds that were established in 1999 or 2000)
were renewed for an additional year in 1999. These contracts authorize Pioneer
Management in its discretion to buy and sell securities for the accounts of the
U.S. Funds, subject to certain limitations. In addition, each management
contract specifies how the ordinary operating expenses are divided between the
U.S. Fund and Pioneer Management.
As compensation for its management services, Pioneer Management receives
annual management fees from the U.S. Funds that range from 0.40% to 1.25% of
average daily net assets, depending on the U.S. Fund. Five 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 1999, 1998 and 1997, management fee revenues from all
U.S. Funds in the aggregate and from Pioneer Fund and Pioneer II, our two
largest U.S. Funds, is shown in the chart below:
<TABLE>
<CAPTION>
1999 1998 1997
(IN MILLIONS) (IN MILLIONS) (IN MILLIONS)
------------- ------------- -------------
<S> <C> <C> <C>
Management Fee Revenues from all U.S. Funds........ $134 $125 $107
Management Fee Revenues from Pioneer Fund.......... $ 43 $ 32 $ 21
Management Fee Revenues from Pioneer II............ $ 28 $ 36 $ 40
</TABLE>
In certain limited circumstances, Pioneer Management has agreed temporarily
not to impose a portion of its management fees and to make other arrangements,
if necessary, to subsidize operating expenses of selected U.S. Funds. During
1999, 1998 and 1997, Pioneer Management limited management fees or otherwise
incurred expenses pursuant to expense limitation agreements as shown in the
chart below:
<TABLE>
<CAPTION>
1999 1998 1997
(IN MILLIONS) (IN MILLIONS) (IN MILLIONS)
------------- ------------- -------------
<S> <C> <C> <C>
Management Fees Limited or Expenses Incurred....... $2.0 $1.5 $1.8
</TABLE>
Pioneer Management employed, at February 1, 2000, 146 persons on a
full-time basis, including 17 fund managers and 31 investment analysts.
Irish Funds. Our wholly owned subsidiary, Pioneer Management (Ireland)
Limited ("Pioneer Ireland"), serves as investment manager, distributor and
shareholder servicing agent for nine offshore funds incorporated under the laws
of the Republic of Ireland. These funds consist of five growth portfolios, one
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growth and income portfolio, two income portfolios and one money market
portfolio (collectively, the "Irish Funds"). Pioneer Management serves as
investment adviser for the Irish Funds. As compensation for its management
services, Pioneer Ireland receives annual management fees from the Irish Funds
of 0.60% to 1.25% of average daily net assets. The Irish Funds are currently
sold primarily in Germany and Austria and in other locations outside of the
United States and Europe.
At February 1, 2000, the Irish Funds had aggregate net assets of
approximately $538 million. Pioneer Ireland's main office is located in Dublin,
Ireland. It also maintains an office in Hamburg, Germany, which provides
shareholder servicing to German, Austrian and Swiss shareholders of both the
U.S. and Irish Funds. At February 1, 2000, Pioneer Ireland had 171 employees,
including management and support staff.
Institutional Accounts. Pioneer Management acts as an investment manager
to five private institutional accounts for institutional investors. These
accounts had aggregate assets of approximately $64 million at February 1, 2000.
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 1999, Pioneer Distributor's
sales of U.S. Funds were approximately $3.7 billion. The breakdown of the
classes of shares sold in 1999 is set forth in the chart below.
<TABLE>
<CAPTION>
PIONEER VARIABLE
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Y SHARES CONTRACTS TRUST
-------------- -------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Aggregate Offering Price
(in millions)......... $2,341.5 $784.1 $332.7 $36.1 $196.6
</TABLE>
In connection with selling Class A Shares of the U.S. Funds, Pioneer
Distributor received aggregate commissions in each of 1999, 1998 and 1997 as
shown in the chart below. During those years, 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 12% of sales in 1999, 11% of
sales in 1998 and 10% of sales in 1997.
<TABLE>
<CAPTION>
1999 1998 1997
(IN MILLIONS) (IN MILLIONS) (IN MILLIONS)
------------- ------------- -------------
<S> <C> <C> <C>
Commissions Received.................................. $ 60.2 $ 75.9 $ 60.9
Commissions Reallowed................................. $ 52.7 $ 66.1 $ 53.8
</TABLE>
Underwriting Contracts. Pioneer Distributor provides its underwriting and
distribution services pursuant to an underwriting contract with each of the U.S.
Funds. The contracts are substantially identical for each of the U.S. Funds.
Each year either 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 the U.S. Fund's shareholders must vote to approve the one-year contract. Each
contract will terminate automatically if either party assigns it. Either party
may elect to terminate the contract, without penalty, on 60 days' written
notice. All underwriting contracts for the U.S. Funds (other than the U.S. Funds
that were established in 1999 or 2000) were renewed for an additional year in
1999.
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 the
difference between the offering price of the shares and the net asset value of
the shares. The sales charge varies generally as a percentage of the offering
price. Shares that are subject to 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. Pioneer Distributor
reallows most of the sales charge on Class A Shares to broker-dealers who sell
the shares. This reallowance varies 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. Pioneer Distributor may increase the
reallowances on new funds and during certain short-term promotions to 100% or
more of the sales charge.
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Most U.S. Funds also offer other classes of shares. We sometimes refer to
these U.S. Funds as the "multiclass funds." Pioneer Interest Shares and Pioneer
Independence Fund are the only U.S. Funds that offer only one class of shares.
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 institutional class of shares ("Class Y Shares"). On Class B Shares, the
investor does not pay any sales charge unless the investor redeems before the
expiration of the minimum holding period, which ranges from three to six years.
The investor must pay a contingent deferred sales charge (a "CDSC"), ranging
from 2.0% to 4.0%, on these early redemptions. 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 the investor pays a 1.0% CDSC. Class Y Shares are not
subject to a front-end load, back-end load or Rule 12b-1 distribution fee. We
began offering Class B Shares in April 1994, Class C Shares in January 1996 and
Class Y Shares in April 1998. We do not offer Class C Shares and Class Y Shares
on all multiclass funds.
Pioneer Distributor may, in its discretion, pay a commission to
broker-dealers that initiate and are responsible for individual sales of Class A
Shares totaling at least $1 million but less than $50 million. The commission
can range 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 generally will pay
broker-dealers commissions 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 broker-dealers commissions of 1.0%
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 1999, 1998 and 1997, in connection with sales of Class B Shares, Pioneer
Distributor paid aggregate commissions to broker-dealers as shown in the chart
below:
<TABLE>
<CAPTION>
1999 1998 1997
(IN MILLIONS) (IN MILLIONS) (IN MILLIONS)
------------- ------------- -------------
<S> <C> <C> <C>
Broker-Dealer Commissions Paid............. $28.2 $27.5 $16.3
</TABLE>
Previously, vigorous sales of back-end load shares strained Pioneer
Distributor's cash flow because Pioneer Distributor had to wait several years
before fully recovering the cost of commissions it paid to dealers, pursuant to
Rule 12b-1 distribution plans. During this period, we bore the cost of financing
and the risk of market decline. 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 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 continuing sale at a slight premium of
additional rights arising out of future sales of Class B Shares on a monthly
basis through September 2001. The purpose of this transaction was to provide us
liquidity and reduce the continuous strain on our cash flow.
Distribution Plans. Each of the U.S. Funds (except Pioneer Interest Shares)
has one or more distribution plans pursuant to Rule 12b-1 under the 1940 Act.
These plans provide for certain payments to be made to Pioneer Distributor. With
respect to Class A Shares, the distribution plans (the "Class A Plans") provide
that such U.S. Funds will pay 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 that U.S. Funds will pay fees
for 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. The Class B Plans and
Class C Plans also require the U.S. Funds to pay fees for 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. Annually, each U.S. Fund's Board of
Trustees, including a majority of Trustees who are not "interested persons,"
must approve the U.S. Fund's distribution plans. In 1999, the Trustees of the
U.S. Funds (other than U.S. Funds that were established in 1999 or 2000) renewed
the
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Class A, Class B and Class C Plans. In 1999, 1998 and 1997, Pioneer Distributor
received aggregate distribution fees as shown in the chart below:
<TABLE>
<CAPTION>
1999 1998 1997
(IN MILLIONS) (IN MILLIONS) (IN MILLIONS)
------------- ------------- -------------
<S> <C> <C> <C>
Total Distribution Fees Received........... $2.2 $14.0 $13.1
</TABLE>
Domestic Sales of Shares of the U.S. Funds. Pioneer Distributor is a
registered broker-dealer, employing at February 1, 2000 155 full-time personnel,
including 22 wholesalers who are responsible for territories comprising most of
the United States and Puerto Rico. The sales representatives 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 Securities Dealers,
Inc. (the "NASD") who act as representatives of broker-dealer firms, which are
members of the NASD. All of these broker-dealer firms have signed sales
agreements with Pioneer Distributor. Shares of our U.S. Funds are available for
sale 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"), is
registered under the laws of the Republic of Germany. Pioneer Fonds Marketing
performs marketing and sales activities with respect to sales of shares of
certain of the U.S. Funds in Europe, primarily in Germany, Austria and
Switzerland. Pioneer Fonds Marketing had 27 full-time employees as of February
1, 2000. In 1999, approximately 12% of the total sales of the U.S. Funds' shares
were sold outside of the United States, as compared with 13% in 1998 and 16% in
1997. Pioneer Fonds Marketing also performs marketing and sales activities with
respect to sales of the Irish Funds in Western Europe.
Since 1998, Pioneer Global Funds Distributor, Ltd. ("Global Funds
Distributor") has served 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.
Sales of the Irish Funds in the last three years were in the aggregate
amounts shown in the chart below:
<TABLE>
<CAPTION>
1999 1998 1997
(IN MILLIONS) (IN MILLIONS) (IN MILLIONS)
------------- ------------- -------------
<S> <C> <C> <C>
Aggregate Sales of Irish Funds....... $111 $174 $168
</TABLE>
SHAREHOLDER AND RELATED SERVICES
Pioneering Services Corporation. At December 31, 1999, the U.S. Funds had
approximately 1,393,000 active shareholder accounts, including approximately
512,000 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. Our wholly owned subsidiary, Pioneering Services
Corporation ("Pioneering Services"), has been providing transfer agent and
shareholder services to the U.S. Funds since 1985. At February 1, 2000,
Pioneering Services employed 304 full-time personnel, including 67 employees who
are located in Omaha, Nebraska.
As shareholder servicing agent for the U.S. Funds, Pioneering Services has
entered into service agreements with each U.S. Fund (except Pioneer Interest
Shares). Each agreement entitled Pioneering Services in 1999 to receive an
annual active account fee of $25.25 for equity fund accounts and $33.00 for
fixed-income fund and money market fund accounts. Each U.S. Fund's Board,
including a majority of members who are not "interested persons," must approve
the U.S. Fund's agreement with Pioneering Services
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each year. Either party may cancel the agreement on 60 days' notice. For 1999,
1998 and 1997, Pioneering Services received revenues from service fees from the
U.S. Funds as shown in the chart below:
<TABLE>
<CAPTION>
1999 1998 1997
(IN MILLIONS) (IN MILLIONS) (IN MILLIONS)
------------- ------------- -------------
<S> <C> <C> <C>
Service Fee Revenues................. $38.0 $30.9 $27.0
</TABLE>
Since February 1997, Pioneer Ireland has served as sub-shareholder
servicing agent for certain of the U.S. Funds, representing approximately
128,000 active shareholder accounts. Under the direction of Pioneering Services,
Pioneer Ireland provides 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 37,000 active shareholder accounts.
Trustee/Custodian. The Company acts as the trustee/custodian for accounts
that are IRAs or other tax-qualified retirement accounts. Shareholders with
these accounts pay an annual fee of $10 for each such account, up to a maximum
annual fee 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 1999, 1998 and 1997, we received fees for serving
as trustee/custodian as shown in the chart below:
<TABLE>
<CAPTION>
1999 1998 1997
(IN MILLIONS) (IN MILLIONS) (IN MILLIONS)
------------- ------------- -------------
<S> <C> <C> <C>
Trustee/Custodian Fees Received...... $5.3 $5.5 $4.4
</TABLE>
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 our competitors have
more products and product lines and substantially greater assets under
management and financial resources than we do. We believe we are competitive in
terms of price and performance both with firms that advise investment companies,
pension plans and endowment funds and with firms that distribute investment
company shares, but we cannot guarantee our success.
The following trends have significantly affected the distribution of mutual
fund shares:
- 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
- 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
- the increasing costs of distribution, particularly payments that
Pioneer Management makes to certain third parties to gain access to
distribution channels
- the development and implementation of complex distribution systems
employing multiple classes of shares and master-feeder fund structures
Each mutual fund has a distribution plan that complies with Rule 12b-1
under the 1940 Act. Typically, the mutual fund reimburses or compensates the
underwriter or distributor that pays a service fee. In order to remain
competitive with other mutual fund complexes, all of the U.S. Funds that Pioneer
Distributor distributes now pay service fees to broker-dealers.
Success in the investment advisory and mutual fund share distribution
businesses depends primarily on the U.S. Funds' investment performance. Good
performance stimulates sales of the U.S. Funds' shares and tends to keep
redemptions low. Higher sales of the 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 1999, the
majority of the U.S. Funds performed favorably in
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comparison with relevant indices and benchmarks approved by the U.S. Funds'
Boards, and fewer than half were generally competitive with comparable mutual
funds offered by other firms.
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. We believe 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, we believe that Pioneering Services and Pioneer Ireland
generally outperform their competitors because they are dedicated exclusively to
the 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 (such as Germany, Austria and Switzerland) 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, as transfer agent for the U.S. Funds, and
Pioneer Ireland, as sub-transfer agent for the U.S. Funds, is registered as a
transfer agent pursuant to the 1934 Act. By being registered as transfer agents,
they are 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. In the event of a
violation of applicable rules or regulations, the SEC could take actions that
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, certain of our Polish subsidiaries organized
and began distributing units of Pioneer First Polish Trust Fund, the first
mutual fund in Poland. Since 1992, those subsidiaries have
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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 were established under the Public
Trading in Securities and Trust Funds Act of March 22, 1991, as amended. At
February 21, 1998 when the new Investment Fund Act of August 28, 1997 became
effective in Poland, Pioneer First Polish converted from a trust fund company to
an investment fund company. As of April 7, 1999, when the other Polish Funds
completed the required procedures with the Polish Securities and Exchange
Commission, those funds also were transformed into open-end investment funds. At
February 1, 2000, Pioneer First Polish employed 93 full-time persons, including
management and support staff. At February 1, 2000, the Polish Funds had
aggregate net assets of approximately $338 million. Sales of units of the Polish
Funds in 1999, 1998 and 1997 were in the amounts shown in the chart below:
<TABLE>
<CAPTION>
1999 1998 1997
(IN MILLIONS) (IN MILLIONS) (IN MILLIONS)
------------- ------------- -------------
<S> <C> <C> <C>
Aggregate Sales of Polish Funds............ $ 28 $ 39 $203
</TABLE>
Pioneer Financial Services Limited. In January 1992, we established Pioneer
Financial Services Limited ("PFSL") to provide services to the Polish Funds. At
that time, we owned 50% of PFSL, and Bank Polska Kasa Opieki, S.A ("Bank PKO")
owned the remaining 50%. During the fourth quarter of 1998, we acquired the half
of PFSL owned by Bank PKO. PFSL acts as the unitholder servicing agent for the
Polish Funds, and Pioneering Services provides ongoing support to PFSL. Under
the terms of its agreement with Pioneer Privatization Trust Fund, as of March
1999, PFSL began receiving a servicing fee of 1.75% of the total assets under
management. For servicing each of the other three Polish Funds, PFSL receives
annual fees equal to the Polish zloty ("PLN") equivalent of $21.00 per account.
In 1999, PFSL received total fees of approximately PLN 16 million (approximately
$4.1 million) from the Polish Funds. At December 31, 1999, PFSL serviced
approximately 236,000 unitholder accounts. At February 1, 2000, PFSL employed
145 full-time persons.
Polish Brokerage Operations. In March 1996, we acquired approximately 86%
of Pioneer Polski Dom Maklerski, S.A., a Polish full-service brokerage operation
("PPDM"). During 1998 we reduced our interest in PPDM to 80%, and in the fourth
quarter of 1999, we sold our entire interest in PPDM for $1.8 million, resulting
in a gain of $1.2 million.
Polish Pension Fund Company. In October 1998, we established a wholly owned
subsidiary, Pioneer Pension Fund Company ("Pioneer Pension"), which was one of
Poland's first universal pension fund societies. Initially capitalized with $10
million, Pioneer Pension manages pension assets accumulated in Pioneer Open
Pension Funds, operating in the second pillar of Poland's reformed pension
system. Pioneer Pension is licensed by the Pension Fund Supervisory Office in
Poland under the Act on Organization and Operation of Pension Funds. In June
1999, we sold a 30% interest in Pioneer Pension to Nationwide Global Holdings,
Inc. ("Nationwide") for $20 million. We recognized a gain on the sale of
approximately $12.2 million, which we reflected as a credit to stockholders'
equity in the second quarter of 1999. In our financial statements, we have
deconsolidated Pioneer Pension because we share control with Nationwide. We have
accounted for our investment in Pioneer Pension under the equity method
retroactive to January 1, 1999. We used the consolidation method of accounting
during the fourth quarter of 1998, when we formed Pioneer Pension. During 1999,
Pioneer Pension lost $13.5 million as a result of high start-up costs and
advertising expenses and lower than expected sales. Our share of this loss is
$11.3 million. At February 1, 2000, Pioneer Pension had approximately 125,000
accounts. At that date, Pioneer Pension employed 145 persons.
FINANCIAL SERVICES -- CZECH REPUBLIC
In 1995, we organized and began distributing Pioneer Czech Investment
Company, a.s. - open end mutual fund (the "Pioneer Czech Fund") in the Czech
Republic. As of February 1, 2000, the Pioneer Czech Fund had net assets with a
market value of approximately $100 million. Pioneer Czech Investment Company,
a.s. ("Pioneer Czech") serves as investment adviser and distributor of
participation certificates in the Pioneer
8
<PAGE> 10
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 Czech Securities and Exchange Commission in accordance with the new
Securities Commission Act, Securities Act and Investment Company and Investment
Funds Act. As of February 1, 2000, Pioneer Czech employed 33 full-time persons.
We have a second Czech subsidiary, Pioneer Czech Financial Company s.r.o., which
provides distribution services generally and which also helps to distribute the
Irish Funds in the Czech Republic.
FINANCIAL SERVICES -- RUSSIA
Our Russian investment operations, which include Pioneer First (Company for
the Management of Investment Funds) and Pioneer Services, are consolidated under
our subsidiary, Pioneer First Russia, Inc. ("PFR"). In 1997, the International
Finance Corporation ("IFC"), a member of the World Bank Group, invested $4
million in PFR, acquiring an 18.35% equity interest. At February 1, 2000, PFR
and its subsidiaries employed 44 persons.
As of February 1, 2000, the Pioneer First Investment Fund, which Pioneer
First manages, had over 2 million shareholders and approximately 87 portfolio
investments. A significant portion of the revenues of the Pioneer First
Investment Fund is lease revenue from the Meridian Commercial Towers in Moscow,
which Pioneer Real Estate Advisors, Inc., our real estate management subsidiary,
manages.
Pioneer First also serves as investment manager to our two Russian open-end
unit investment funds. Launched in November 1996, Pioneer First Unit Investment
Fund was one of Russia's first open-end unit investment funds. The Pioneer First
Unit Investment Fund invests mainly in Russian government bonds. In November
1997, we launched our second open-end unit investment fund, Pioneer First Liquid
Shares, which invests mainly in Russian equities. Pioneer Services provides
shareholder services both to the First Investment Fund and the two open-end unit
investment funds.
In the first quarter of 1999, we decided to shut down our Russian brokerage
subsidiary, Pioneer Securities.
In 1999, 1998 and 1997, our Russian financial services had revenues and net
income (loss) from continuing operations as shown in the chart below:
<TABLE>
<CAPTION>
1999 1998 1997
(IN MILLIONS) (IN MILLIONS) (IN MILLIONS)
------------- ------------- -------------
<S> <C> <C> <C>
Revenues................................... $10.7 $ 10.3 $42.2
Net Income (Loss).......................... $(2.1) $(13.0) $ 5.8
</TABLE>
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 22 private sector mutual funds for Indian
citizens. These funds had aggregate net assets of approximately $475 million at
February 1, 2000.
Taiwan. We own 10% of a joint venture in Taiwan, which was organized to
manage and distribute investments in investment companies to Taiwanese
investors.
COMPETITION
We continually compete for investors for the Polish Funds, the Czech Fund,
our Russian open-end unit investment funds and the Indian funds. Along with the
other firms in those markets, we are seeking to attract assets of potential
investors. We believe that these markets represent opportunities for us, but we
are not alone in these pursuits. Many of our competitors have substantially
greater resources to pursue such opportunities.
Under the Polish government's pension privatization program, eligible
Polish citizens may select a private pension company (those under 30 years old
must select a private pension company), such as our Polish pension subsidiary,
before the end of 1999. Competition for these accounts was fierce, and
competition for the
9
<PAGE> 11
future asset growth of these accounts will continue to be fierce. In addition,
the costs associated with this competition were high, particularly for
advertising and commission expenses.
PIONEER GLOBAL INVESTMENTS
TIMBER BUSINESS
We hold 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. The current leasehold rights of each of the projects appear in the
chart 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>
Currently, the local timber authorities are reviewing the cutting rights
for Forest-Starma and Udinskoye. As a result of losses due to natural drying and
other causes, we expect our annual cutting rights will be reduced. At the same
time, we are completing negotiations with the territorial government to obtain
replacement cutting rights for these projects in the surrounding area.
Ownership Structure. Pioneer Forest owns 100% of Forest-Starma, having
acquired the final 3% during 1999. Pioneer Forest has an 80.6% direct interest
in Amgun-Forest, and Forest-Starma has an additional 18.8% interest. Pioneer
Forest has a 72% direct interest in Udinskoye, and Forest-Starma owns the
remaining 28%.
Timber Operations. Forest-Starma harvests timber 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. Production crews consisting, in the 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 processors
that 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 self constructed 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.
10
<PAGE> 12
Timber Production. Timber harvesting commenced in the first quarter of
1995, and the first shipments of timber occurred in the third and fourth
quarters of 1995. In January 1997, Forest-Starma commenced commercial production
of timber. The following chart shows Forest-Starma's total production and
shipments of timber during the last three years.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Timber produced (m(3))............... 313,000 248,000 257,000
Timber shipped (m(3))................ 336,000 280,000 194,000
</TABLE>
A three-year financial summary for the timber business segment is shown
below:
<TABLE>
<CAPTION>
1999 1998 1997
(IN MILLIONS) (IN MILLIONS) (IN MILLIONS)
------------- ------------- -------------
<S> <C> <C> <C>
Revenues............................. $14.4 $ 10.5 $11.9
Net Income (Loss).................... $(6.7) $(18.7) $(6.7)
Total Assets......................... $41.3 $ 52.9 $51.0
</TABLE>
Customers. In 1999, Forest-Starma shipped 56% of its timber to ten
unaffiliated customers in South Korea, 35% of its timber to six unaffiliated
customers in Japan and 9% of its timber to three unaffiliated customers in
China.
Employees. At February 1, 2000, Forest-Starma had 479 Russian employees.
In addition, our employment company subsidiary seconds expatriate employees and
consultants to Forest-Starma. These 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 our investment in Forest-Starma, we maintain
Overseas Private Investment Corporation ("OPIC") political risk insurance in an
amount that would protect 90% of our equity investment and loans reduced by
cumulative losses. In addition, we have 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.
Recent Developments. During the period between January and mid-April, the
Siziman harbor typically is frozen. In January 2000, Forest-Starma entered into
an agreement with its sales agent to receive a 50% prepayment for production
during this period. This arrangement allows Forest-Starma to cover ongoing
expenditures prior to commencement of the shipping season.
We are actively exploring strategic alternatives with respect to our
interest in the timber business.
VENTURE CAPITAL
U.S. VENTURE CAPITAL OPERATIONS
We were engaged in venture capital investment and management in the U.S.
for a number of years through our wholly owned subsidiary, Pioneer Capital
Corporation, a majority-owned limited partnership, Pioneer Ventures Limited
Partnership, and Pioneer Ventures Limited Partnership II, an institutional
investor fund in which the Company had a 14% interest. In March 1999, we sold
our domestic venture capital business for $34.9 million, resulting in a loss of
$3.4 million. We used the proceeds from the sale to repay loans from the Small
Business Administration and to reduce debt outstanding under our revolving
credit facility.
11
<PAGE> 13
POLISH VENTURE CAPITAL OPERATIONS
In 1995, we organized two limited partnerships, Pioneer Poland U.S. L.P.
("PPUSLP") and Pioneer Poland UK L.P. ("PPUKLP"), for the purpose of raising
funds for venture capital investment in Poland. During 1995, PPUSLP and PPUKLP
(collectively, the "Pioneer Poland Fund") raised $60 million in commitments from
U.S. and European investors. We have invested approximately $4.1 million in
these limited partnerships. This investment provides the Company with a 7%
indirect interest in PPUSLP and a 9% indirect interest in PPUKLP. At December
31, 1999, Pioneer Poland Fund held investments valued at approximately $39.9
million in 10 privately held Polish companies, had committed contractually to
invest an additional $1.0 million in these companies and had reserved an
additional $7.5 million for future financing rounds of the existing portfolio.
Pioneer Poland US (Jersey) Limited, our indirect wholly owned subsidiary,
manages the Pioneer Poland Fund.
REAL ESTATE MANAGEMENT AND ADVISORY SERVICES
In 1996, we established a wholly owned subsidiary, 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 October 1999, Pioneer Real Estate closed a $33.5 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, provides professional real estate investment advice to the
Polish Real Estate Fund. Pioneer Real Estate has invested $285,000 in the Polish
Real Estate Fund and has committed to invest an additional $5.4 million. The
other investors, which are Polish and non-U.S. institutional investors, have
invested a total of $1.39 million and have committed to invest the remainder of
the $33.5 million.
In May 1998, Pioneer Real Estate, together with its partner, Banc One
Capital Corporation, established a pooled investment vehicle (the "PBO Property
Fund") sponsored by OPIC. The PBO Fund 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 and has funded $1.5 million of that
commitment. Since the inception of the PBO Property Fund in mid 1998, the PBO
Property Fund has been seeking capital commitments from investors. Pioneer Real
Estate expects to close this fund by April 2000.
Through its representative office in Moscow, Pioneer Real Estate manages
the Meridian Commercial Towers, an 18 story office tower located in Northern
Moscow, which is owned by the First Investment Fund. As of February 1, 2000,
Pioneer Real Estate had 36 employees.
COMPETITION
Venture Capital. The venture capital industry is extremely competitive. In
the process of investing and attempting to raise funds from third parties, we
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.
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.
12
<PAGE> 14
DISCONTINUED OPERATIONS
GOLD MINING BUSINESS
During the second quarter of 1999, we reflected the gold mining segment as
a discontinued operation. The gold mining segment consists of Pioneer Goldfields
Limited, a corporation organized under the laws of Guernsey, Channel Islands
("Pioneer Goldfields"), and its 90%-owned Ghanaian operating subsidiary,
Teberebie Goldfields Limited ("TGL"), and Closed Joint Stock Company "Tas-Yurjah
Mining Company," a Russian company in which we have a 95% beneficial interest.
Losses from the discontinued gold mining operations were $72.3 million in 1999,
including $18.7 million from operations and $53.6 million from the estimated
loss on the disposition of the gold mining segment.
We engaged the services of an investment banking firm to sell Pioneer
Goldfields, including its African exploration rights and its 90% interest in
TGL. We continue to actively negotiate a possible sale, although we can provide
no assurance that a sale will occur. Regardless if a sale is consummated or not
we are proceeding with an orderly closure of the mine. All mining operations
ceased at the end of 1999, and all processing activities will be completed by
the end of the first half of 2000.
A three-year financial summary for the gold mining business segment is
shown below:
<TABLE>
<CAPTION>
1999 1998 1997
(IN MILLIONS) (IN MILLIONS) (IN MILLIONS)
------------- ------------- -------------
<S> <C> <C> <C>
Revenues................................ $ 76.7 $ 77.3 $ 89.5
Net Income (Loss)....................... $(72.3) $(19.8) $ (2.4)
Total Assets.................. $101.8 $131.4 $152.9
</TABLE>
Gold Production and Sales. Set forth below is a chart showing TGL's gold
shipments for the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
(OUNCES) (OUNCES) (OUNCES)
------------- ------------- -------------
<S> <C> <C> <C>
TGL Gold Shipments...................... 276,000 253,000 263,000
</TABLE>
The average realized price of gold sold by TGL during the past three years
is shown in the chart below:
<TABLE>
<CAPTION>
1999 1998 1997
(PER OUNCE) (PER OUNCE) (PER OUNCE)
------------- ------------- -------------
<S> <C> <C> <C>
Average Price of Gold Sold.............. $278 $305 $340
</TABLE>
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.
TGL's cash costs per ounce and total costs per ounce for 1999, 1998 and
1997 are summarized on the following table:
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Cash Costs Per Ounce.................... $203 $284 $230
Total Costs Per Ounce................... $336 $409 $337
</TABLE>
Exploration Activities of Pioneer Goldfields
Since the end of 1993, in addition to continuing to develop the Teberebie
mine, Pioneer Goldfields has engaged in exploration activities in the Republic
of Ghana and in other African countries. These activities were conducted by TGL
in Ghana and by Pioneer Goldfields in Niger. During the fourth quarter of 1999,
we scaled down exploration activities in Ghana and Niger. In 1999, 1998 and
1997, Pioneer Goldfields incurred exploration costs of approximately $1.3
million, $1.8 million and $1.9 million, respectively. Of these amounts,
approximately $1.1 million, $1.4 million and $1.7 million related to exploration
activities outside of Ghana in 1999, 1998 and 1997, respectively.
13
<PAGE> 15
Exploration Activities of Tas-Yurjah Mining Company
In 1994, we 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. We currently own 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"). We are
actively exploring strategic alternatives with respect to our interest in
Tas-Yurjah. At December 31, 1999, we had spent a total of approximately $6.4
million for exploration work related to Tas-Yurjah, $1.0 million of which we
spent in 1999.
POWDERED METALS
We reflected our powdered metals business as a discontinued operation in
the second quarter of 1999 and sold this business for nominal value at the end
of the third quarter of 1999. We incurred $1.4 million of expenses in 1999
associated with these operations, including $0.9 million from the loss on the
disposition of this business.
RUSSIAN BANKING OPERATIONS
In the third quarter of 1998, we liquidated our Russian banking operations.
We reported losses of $6.5 million in 1998 and losses of $0.5 million in 1997
for this discontinued operation. In December 1998, we sold our stock in the bank
to an unrelated third party.
EMPLOYEES
We employ a total of 2,186 employees worldwide, including 704 at our
headquarters in Boston. We believe that we have good relations with our
employees throughout our worldwide locations.
14
<PAGE> 16
ITEM 2. DESCRIPTION OF PROPERTY.
Our principal properties represent fixed assets at our headquarters in
Boston, and our timber production facilities in the Russian Far East.
Additionally, we lease properties in several locations for our 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 156,121 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
$6.0 million in 1999. After expansion in the last year, we believe that our
facilities are adequate for our current needs and that additional space will be
available as needed. We recently signed a non-binding letter of intent to lease
approximately 80,000 square feet of office space outside of Boston and continue
to negotiate a lease agreement. We plan to move some of our operations
departments to this new space by the end of 2000. The lease would expire in
2010, with two five-year renewal options.
Our wholly 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.
15
<PAGE> 17
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. ....... 73 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 Pioneer Real Estate, First Investment
Fund, Pioneer Forest, and PIOGlobal Corporation. Chairman
and Director of Pioneer Goldfields, TGL, Forest-Starma, and
Global Funds Distributor. Chairman of Supervisory Board of
Pioneer First Polish, Pioneer Czech and Pioneer Fonds
Marketing. Director of Pioneer Ireland and each of the Irish
Funds. Member of Supervisory Board of Pioneer Pension. Of
Counsel to the Boston law firm, Hale and Dorr LLP, counsel
to the Company.
Eric W. Reckard........... 43 Executive Vice President and Chief Financial Officer of the
Company since June 1999. 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. Vice President of Corporate Finance from
February 1999 to June 1999. Manager of Fund Accounting,
Business Planning and Internal Audit from September 1996 to
February 1999. Manager of Fund Accounting and Compliance
from May 1994 to September 1996. Assistant Treasurer of each
of the registered investment companies in the Pioneer Family
of Mutual Funds from April 1994 to June 1999.
Stephen G. Kasnet......... 54 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 from
1995 until 1998. President of Pioneer Real Estate since
January 1996. Director of Pioneer Real Estate, Pioneer
Goldfields, TGL, Pioneer Forest and Forest-Starma. 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......... 53 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. Chairman of Pioneer First
Polish and the Polish Funds. Chairman of Supervisory Board
of Pioneer Pension and Pioneer Nationwide. Member of the
Supervisory Board of PFSL, Pioneer Czech and Pioneer Asset
Management S.A.
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY AND ITS SIGNIFICANT SUBSIDIARIES
---- --- ------------------------------------------------------------
<S> <C> <C>
William H. Smith, Jr. .... 64 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. Chairman of the
Supervisory Board of PFSL. Member of the Supervisory Board
of Pioneer Czech.
David D. Tripple.......... 56 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, PIOGlobal Corporation,
Pioneer Omega, Pioneer Ireland and each of the Irish Funds.
Member of Supervisory Board of Pioneer First Polish, Pioneer
Czech and Pioneer Asset Management, S.A.
Adriana Stadecker......... 53 Senior Vice President and Director of Human Resources since
October 1999. Assistant Secretary of PIOGlobal Corporation.
Previously, Director of Human Resources at BTR plc from 1997
to 1999 and Founder/President of Epic International from
1994 to 1997.
Robert P. Nault........... 36 Senior Vice President of the Company since 1998. General
Counsel and Assistant Secretary of the Company since 1995.
Secretary of Pioneer Real Estate, Pioneer Forest and
PIOGlobal Corporation. 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, Pioneer Goldfields, and Pioneer Global
Funds Distributor. Previously, Junior Partner of the Boston
law firm, Hale and Dorr LLP, counsel to the Company.
Joseph P. Barri........... 53 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>
17
<PAGE> 19
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS
<S> <C> <C> <C> <C>
1999
Total revenues and sales.......................... $ 57,759 $ 63,633 $ 64,109 $ 64,403
--------- --------- --------- ---------
Net income (loss) from continuing operations...... (2,404) (377) 822 4,784
Net income (loss) from discontinued operations.... (6,044) (24,794) (42,844) --
Cumulative effect of change in accounting
principle....................................... (12,112) -- -- --
--------- --------- --------- ---------
Net income (loss)................................. ($ 20,560) ($ 25,171) ($ 42,022) $ 4,784
========= ========= ========= =========
Per common share:
Earnings (loss) from continuing operations...... ($ 0.09) ($ 0.01) $ 0.03 $ 0.18
Earnings (loss) from discontinued operations.... ($ 0.24) ($ 0.96) ($ 1.63) --
Cumulative effect of change in accounting
principle.................................... ($ 0.47) -- -- --
--------- --------- --------- ---------
Total earnings (loss)........................... ($ 0.80) ($ 0.97) ($ 1.60) $ 0.18
========= ========= ========= =========
Cash dividends declared......................... -- -- -- --
========= ========= ========= =========
Market price range:*
High......................................... $ 21 1/8 $ 19 1/4 $ 18 3/4 $ 17 3/4
Low.......................................... $14 13/16 $14 13/16 $ 14 1/8 $ 11 3/4
1998
Total revenues and sales.......................... $ 54,519 $ 64,324 $ 65,964 $ 62,738
--------- --------- --------- ---------
Net income (loss) from continuing operations...... 6,491 (492) (7,789) (4,611)
Net income (loss) from discontinued operations.... (1,144) (11,638) (8,688) (5,597)
--------- --------- --------- ---------
Net income (loss)................................. $ 5,347 ($ 12,130) ($ 16,477) ($ 10,208)
========= ========= ========= =========
Per common share:
Earnings (loss) from continuing operations...... $ 0.26 ($ 0.02) ($ 0.31) ($ 0.18)
Earnings (loss) from discontinued operations.... ($ 0.05) ($ 0.46) ($ 0.34) ($ 0.22)
--------- --------- --------- ---------
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
</TABLE>
- ---------------
* The Company's common stock is quoted on The Nasdaq Stock Market(R) under the
symbol PIOG. Prices reflect the closing price of the common stock on The
Nasdaq Stock Market(R). At March 1, 2000, the Company had approximately 5,000
shareholders of record.
18
<PAGE> 20
ITEM 6. SELECTED FINANCIAL DATA.
ASSETS UNDER MANAGEMENT AT DECEMBER 31:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
DOLLARS IN MILLIONS
<S> <C> <C> <C> <C> <C>
U.S. Funds....................................... $23,364 $21,985 $19,635 $15,704 $12,701
Irish Funds...................................... 551 398 226 54 5
Closed-end and subadvised funds and private
institutional accounts*........................ 158 574 691 769 764
------- ------- ------- ------- -------
24,073 22,957 20,552 16,527 13,470
Other funds...................................... 418 416 489 454 275
------- ------- ------- ------- -------
Total.................................. $24,491 $23,373 $21,041 $16,981 $13,745
======= ======= ======= ======= =======
</TABLE>
- ---------------
* Excludes assets of funds managed by foreign joint ventures and venture capital
pools.
SALES OF MUTUAL FUND SHARES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
DOLLARS IN MILLIONS
<S> <C> <C> <C> <C> <C>
U.S. REGISTERED MUTUAL FUNDS:
Sales*........................................... $ 3,691 $ 3,971 $ 2,866 $ 2,602 $ 1,752
Redemption of shares............................. 4,005 2,410 2,106 1,431 1,050
------- ------- ------- ------- -------
Net sales of shares.............................. $ (314) $ 1,561 $ 760 $ 1,171 $ 702
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
DOLLARS IN MILLIONS
<S> <C> <C> <C> <C> <C>
NON-U.S. REGISTERED MUTUAL FUNDS:
Sales*........................................... $ 171 $ 241 $ 410 $ 217 $ 25
Redemption of shares............................. 193 160 147 81 381
------- ------- ------- ------- -------
Net sales of shares.............................. $ (22) $ 81 $ 263 $ 136 $ (356)
======= ======= ======= ======= =======
</TABLE>
- ---------------
* Includes reinvestment of dividends, but excludes money market funds and funds
managed by foreign joint ventures.
19
<PAGE> 21
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS
<S> <C> <C> <C> <C> <C>
Results of Operations
Revenues and sales............... $ 249,904 $ 247,545 $ 241,029 $ 145,867 $ 106,092
Costs and expenses............... 216,098 241,432 194,050 131,134 92,743
Unrealized and realized (gains)
losses on venture capital and
marketable securities
investments, net............... 1,082 (4,418) (27,460) (12,279) (9,345)
Interest expense................. 7,013 11,897 8,629 3,181 746
Equity in (earnings) losses of
affiliated companies........... 11,291 -- -- -- --
Public offering costs............ -- -- -- -- 4,863
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing
operations before provision for
income taxes and minority
interest....................... 14,420 (1,366) 65,810 23,831 17,085
Provision for income taxes....... 9,256 9,384 28,202 10,405 7,820
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing
operations before minority
interest....................... 5,164 (10,750) 37,608 13,426 9,265
Minority interest................ 2,339 (4,349) 5,365 576 1,158
----------- ----------- ----------- ----------- -----------
Net income (loss) from continuing
operations..................... 2,825 (6,401) 32,243 12,850 8,107
Net income (loss) from
discontinued operations........ (73,682) (27,067) (3,077) 5,987 14,704
Cumulative effect of change in
accounting principle........... (12,112) -- -- -- --
----------- ----------- ----------- ----------- -----------
Net income (loss)................ $ (82,969) $ (33,468) $ 29,166 $ 18,837 $ 22,811
=========== =========== =========== =========== ===========
Diluted earnings (loss) per
share:
Continuing operations.......... $ 0.11 $ (0.25) $ 1.26 $ 0.50 $ 0.32
Discontinued operations........ (2.82) (1.07) (0.12) 0.24 0.58
Cumulative effect of change in
accounting principle........ (0.46) -- -- -- --
----------- ----------- ----------- ----------- -----------
Total diluted earnings
(loss) per share..... $ (3.17) $ (1.32) $ 1.14 $ 0.74 $ 0.90
=========== =========== =========== =========== ===========
Cash dividends per share......... $ -- $ 0.20 $ 0.40 $ 0.40 $ 0.40
=========== =========== =========== =========== ===========
Diluted shares outstanding....... 26,184,000 25,350,000 25,630,000 25,460,000 25,311,000
=========== =========== =========== =========== ===========
Long-term notes payable.......... $ 63,892 $ 99,035 $ 126,406 $ 101,890 $ 8,950
Total assets..................... $ 299,832 $ 439,218 $ 404,054 $ 378,533 $ 300,002
Stockholders' equity............. $ 87,098 $ 154,802 $ 183,687 $ 162,473 $ 150,343
Stockholders' equity per share... $ 3.28 $ 5.93 $ 7.28 $ 6.50 $ 6.05
</TABLE>
20
<PAGE> 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Our consolidated financial statements include the Company's three strategic
business units, Pioneer Investment Management, Pioneer International Financial
Services and Pioneer Global Investments. We are in the process of disposing of
our gold mining operations and as such are reporting those results as
discontinued operations. Management's Discussion and Analysis of Financial
Condition and Results of Operations is presented in four sections: Results of
Operations, Liquidity and Capital Resources-General, Future Operating Results
and Year 2000.
RESULTS OF OPERATIONS
CONSOLIDATED OPERATIONS
In 1999, we reported net income from continuing operations of $2.8 million,
or $0.11 per share, losses from discontinued gold mining and powdered metals
operations of $73.7 million, or $2.82 per share, and the impact of the first
quarter write-off of unamortized capitalized start-up costs of $12.1 million, or
$0.46 per share, as a result of the required change in accounting principle.
Also included in the 1999 net income from continuing operations is the one-time
$3.4 million loss on the sale of our U.S. venture capital operations and the
one-time $1.2 million gain on the sale of our Polish brokerage operations.
In contrast, we reported 1998 losses from continuing operations of $6.4
million, or $0.25 per share, and losses from discontinued gold mining, powdered
metals and Russian banking operations of $27.1 million, or $1.07 per share. For
1997, we had net income from continuing operations of $32.3 million, or $1.26
per share, and losses from discontinued gold mining and Russian banking
operations of $3.1 million, or $0.12 per share.
Worldwide assets under management were $24.5 billion at December 31, 1999,
compared to $23.4 billion at December 31, 1998.
Table 1 details revenues and net income by business segment for 1999, 1998
and 1997.
<TABLE>
<CAPTION>
REVENUES NET INCOME
-------------------------- -----------------------
12 MONTHS ENDED 12 MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------------- -----------------------
BUSINESS SEGMENT 1999 1998 1997 1999 1998 1997
---------------- ------ -------- ------ ------ ------ -----
(DOLLARS IN MILLIONS) (DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Pioneer Investment Management:
Mutual Funds and Institutional Accounts.......... $203.9 $199.9 $168.5 $ 35.4 $ 30.7 $31.7
Sale of Class B Share Rights..................... -- 8.1 -- -- 5.3 --
------ ------ ------ ------ ------ -----
203.9 208.0 168.5 35.4 36.0 31.7
------ ------ ------ ------ ------ -----
Pioneer International Financial Services:
Russia........................................... 10.7 10.3 42.2 (1.6) (13.0) 5.8
Central and Eastern Europe....................... 18.3 15.3 15.5 (12.0) (4.2) 0.1
Asia............................................. -- -- -- (0.3) (0.5) --
------ ------ ------ ------ ------ -----
29.0 25.6 57.7 (13.9) (17.7) 5.9
------ ------ ------ ------ ------ -----
Pioneer Global Investments:
Venture Capital.................................. 1.1 2.2 2.3 (3.9) 1.3 4.9
Real Estate...................................... 1.5 1.2 0.6 (3.5) (2.9) (1.9)
Timber........................................... 14.4 10.5 11.9 (6.7) (18.7) (6.7)
------ ------ ------ ------ ------ -----
17.0 13.9 14.8 (14.1) (20.3) (3.7)
------ ------ ------ ------ ------ -----
Interest Expense and Other Expenses................ -- -- -- (4.6) (4.4) (1.6)
------ ------ ------ ------ ------ -----
Total From Continuing Operations............... 249.9 247.5 241.0 2.8 (6.4) 32.3
------ ------ ------ ------ ------ -----
Discontinued Operations............................ -- -- -- (73.7) (27.1) (3.1)
------ ------ ------ ------ ------ -----
Change in Accounting Principle (Start-up costs).... -- -- -- (12.1) -- --
------ ------ ------ ------ ------ -----
Totals...................................... $249.9 $247.5 $241.0 $(83.0) $(33.5) $29.2
====== ====== ====== ====== ====== =====
</TABLE>
21
<PAGE> 23
PIONEER INVESTMENT MANAGEMENT ("PIM")
1999 Compared to 1998
PIM recorded 1999 net income of $35.4 million compared to 1998 net income
of $36.0 million, including $30.7 million of operating income and a gain of $5.3
million from the sale of our rights to receive future distribution fees and
deferred sales charges from the distribution of Class B Shares of our U.S. based
mutual funds. Excluding the one-time gain, PIM's net income increased by $4.7
million, or 15%.
PIM's assets under management at December 31, 1999 were approximately $24.1
billion compared to $23.0 billion at December 31, 1998. In 1999, we had U.S.
registered mutual fund sales (including reinvested dividends) of $3.7 billion
compared to $3.9 billion in 1998, and net redemptions of $0.3 billion compared
to net sales of $1.6 billion in 1998.
Since October 1998, we have sold each month, at a slight premium,
additional rights arising from sales of Class B Shares. In consideration for the
sale, we relinquish our rights to receive future distribution fees and certain
sales charges. The net gain on these sales is included in distribution fee
revenues. As a result, distribution fee revenues and the expenses associated
with the amortization of Class B Share dealer advances have both decreased
significantly in 1999.
Excluding the 1998 Class B Share rights sale, revenues of $203.9 million in
1999 increased by $4.0 million. Management fee revenues of $139.2 million
increased by $8.7 million, principally reflecting higher assets under management
resulting from gains in the U.S. stock market. Revenues from underwriting
commissions, distribution fees, and shareholder servicing fees decreased by $3.9
million to $53.5 million as increased shareholder service fees partially offset
lower distribution fees.
Costs and expenses increased by $0.2 million in 1999 to $149.7 million.
Excluding the $8.4 million decrease in dealer advance amortization expenses in
1998, overall expenses increased by $8.6 million as a result of higher payroll
costs, technology expenditures and higher costs related to additional office
space. These increased expenses were incurred to strengthen the investment
management team and improve operating efficiencies.
PIM's effective tax rate for 1999 was 34% compared to 37% in 1998. The
decrease was due primarily to increased profitability at Pioneer Management
(Ireland) Limited, which is taxed at a lower effective rate.
1998 Compared to 1997
Net income increased by $4.3 million to $36.0 million. Results for 1998
included a one-time gain of $5.3 million from the sale of our rights to receive
future distribution fees and deferred sales charges from the distribution of
Class B Shares of our U.S. based mutual funds.
PIM's assets under management at December 31, 1998 were approximately $23.0
billion compared to $20.6 billion at December 31, 1997. In 1998, we 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 $208.0 million in 1998 increased by $39.5 million, or 23%.
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. We
also earned $8.1 million in revenues from the sale of our 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.
PIM's effective tax rate for 1998 was 37% compared to 39% in 1997.
22
<PAGE> 24
PIONEER INTERNATIONAL FINANCIAL SERVICES ("PIFS")
1999 Compared to 1998
During 1999, PIFS lost $13.9 million on revenues of $29.0 million compared
to a loss of $17.7 million on revenues of $25.6 million in 1998.
Revenues from PIFS' Russian financial services operations increased by $0.4
million in 1999 to $10.7 million. Net loss declined by $11.4 million to $1.6
million as operating expenses were significantly reduced with the closure of our
brokerage business, along with reductions in other financial services staff. In
addition, we had significant losses in 1998 of $6.3 million associated with cost
basis adjustments of certain securities of Pioneer First Investment Fund, our
majority-owned investment fund. These losses were recorded in response to the
economic turmoil resulting in the Russian government's default on its sovereign
debt and represent our prorata share of the fund write-down.
Central European operations lost $12.0 million in 1999 on revenues of $18.3
million. A substantial portion ($11.6 million) of the 1999 loss occurred in
Poland, $11.3 million of which related to our 70% owned pension subsidiary.
Responding to Poland's pension reform initiative, the pension subsidiary
incurred significant one-time start-up costs during 1999 in order to develop
sales, distribution and processing capabilities. In addition, we recorded a
one-time after-tax gain of $1.2 million on the sale of our Polish brokerage
business, offset by losses in Polish financial services operations. Polish
mutual fund assets under management decreased by approximately $23 million in
1999 to $327 million.
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.
Revenues from PIFS' Russian financial services operations decreased by
$31.9 million to $10.3 million. Most of the decline ($31.0 million) resulted
from the reduction in trading activity at our majority-owned brokerage business.
The reduced revenues led to a loss of $4.0 million in 1998 in the brokerage
business. In response, we announced in the first quarter of 1999 the closing of
our Russian brokerage operations and reduced the remaining financial services
staff and related expenses. In addition, we had significant losses of $6.3
million associated with cost basis adjustments of certain securities of Pioneer
First Investment Fund, our 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
our Polish financial services operations. Polish mutual fund assets under
management decreased by approximately $100 million in 1998 to $350 million. We
also experienced losses associated with our Polish brokerage business and costs
from our new subsidiary established to solicit accounts and manage pension
assets under Poland's pension system reform program.
PIONEER GLOBAL INVESTMENTS
1999 Compared to 1998 and 1997
During 1999, Pioneer Global Investments lost $14.1 million on revenues of
$17.0 million compared to a loss of $20.3 million on revenues of $13.9 million
in 1998. In 1997, Pioneer Global Investments lost $3.7 million on revenues of
$14.8 million.
In 1999, our U.S. venture capital operations lost $3.6 million, compared to
net income of $3.3 million in 1998 and $6.3 million in 1997. In March 1999, we
sold our direct investments and indirect interests of our U.S. venture capital
business for $34.9 million, resulting in a loss of $3.4 million.
We had losses from our Central and Eastern Europe venture capital
operations of $0.3 million in 1999, $2.0 million in 1998 and $1.4 million in
1997, principally associated with development costs of venture capital funds.
23
<PAGE> 25
Our real estate services operations reported losses of $3.5 million in
1999, $2.9 million in 1998 and $1.9 million in 1997. Most of the losses were
attributable to costs associated with the development of our Polish and Eastern
European real estate investments and related management operations.
TIMBER BUSINESS
The results of our timber business are substantially attributable to the
operations of Closed Joint-Stock Company "Forest-Starma," the wholly owned
principal operating subsidiary of 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.
In 1995, Closed Joint-Stock Company "Amgun-Forest" and Closed Joint-Stock
Company "Udinskoye," our 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, 1999, Pioneer Forest, Inc. had an 80.6% direct
interest and 18.8% indirect interest in Amgun-Forest and a 72% direct interest
and 28% indirect interest in Udinskoye.
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,
seasonal operating losses from fixed costs in the first quarter of our fiscal
year.
RESULTS OF OPERATIONS.
In 1999, the timber business lost $6.7 million compared to a loss of $18.7
million in 1998. The decrease in losses was attributable principally to higher
prices and production, and lower interest expense associated with an
intercompany debt-to-equity conversion. In 1997, the timber business lost $6.7
million. Forest-Starma commenced commercial operations in January 1997.
TIMBER PRODUCTION AND SALES
We had timber shipments of 336,000 cubic meters in 1999, compared to
280,000 cubic meters in 1998 and 194,000 cubic meters in 1997. Production
amounted to 313,000 cubic meters in 1999, compared to 248,000 cubic meters in
1998 and 257,000 cubic meters in 1997. Revenue increased to $14.4 million in
1999, up from $10.5 million in 1998 and $11.9 million in 1997. The average
realized price of timber was $43 per cubic meter in 1999, compared to $37 in
1998 and $61 in 1997. We expect to produce over 325,000 cubic meters in 2000.
Production in 1998 was hindered by a fire disruption which required the
redeployment of logging crews and equipment to contain the fire. 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. We do not believe the
fire damage will have a material impact on production over the next several
years. We are continuing negotiations with the territorial government for both
replacement and additional cutting rights.
Cost of Goods Sold. Forest-Starma values 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 the
cost of goods sold.
THIRD-PARTY DEBT
Forest-Starma had $5.0 million of external debt outstanding at December 31,
1999. We are subject to recourse on this borrowing. Scheduled debt service for
2000 is expected to aggregate $1.7 million.
24
<PAGE> 26
RECENT DEVELOPMENTS
During the period between January and mid-April, the Siziman harbor is
typically frozen. In January 2000, Forest-Starma entered into an agreement with
its sales agent to receive a 50% prepayment for production during this period.
This allows Forest Starma to cover ongoing expenditures prior to commencement of
the shipping season.
We are actively exploring strategic alternatives with respect to our
interest in the timber business.
DISCONTINUED OPERATIONS
During the second quarter of 1999, we reflected the gold mining segment as
a discontinued operation. The gold mining segment consists of Pioneer Goldfields
Limited ("Pioneer Goldfields"), and its 90%-owned Ghanaian operating subsidiary,
Teberebie Goldfields Limited ("TGL"), and Closed Joint-Stock Company "Tas-Yurjah
Mining Company", our majority owned (95%) Russian subsidiary. We also reflected
our powdered metals and Russian banking operations as discontinued operations in
the second quarter of 1999 and the third quarter of 1998, respectively. The
following table summarizes discontinued operations for the three years ended
December 31:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------
1999 1998 1997
------ ------ -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Discontinued gold mining.................................... $(72.3) $(19.8) $(2.4)
Discontinued powdered metals................................ (1.4) (0.8) (0.2)
Discontinued Russian banking................................ -- (6.5) (0.5)
------ ------ -----
Total............................................. $(73.7) $(27.1) $(3.1)
====== ====== =====
</TABLE>
GOLD MINING
Losses from discontinued gold mining operations during 1999 were $72.3
million, including $18.7 million from operations and $53.6 million from the
estimated loss on the disposition of the gold mining segment.
We engaged the services of an investment banking firm to sell Pioneer
Goldfields, including its African exploration rights and its 90% interest in
TGL. We continue to actively negotiate a possible sale, although we can provide
no assurance that a sale will occur. Regardless if a sale is consummated or not
we are proceeding with an orderly closure of the mine. All mining operations
ceased at the end of 1999, and all processing activities will be completed by
the end of the first half of 2000.
POWDERED METALS
We sold, for nominal value, our powdered metals operations at the end of
the third quarter of 1999. We incurred $1.4 million of expenses in 1999
associated with these operations, including $0.9 million from the loss on the
disposition of this business.
RUSSIAN BANKING OPERATIONS
In the third quarter of 1998, we liquidated our Russian banking operations.
Accordingly, losses of $0.5 million and $6.5 million were recorded in the years
ended December 31, 1997 and 1998. In December 1998, we sold our stock in the
bank to an unrelated third party.
OTHER
1999 Compared to 1998 and 1997
We had net interest expense and other expenses of $4.6 million in 1999
compared to $4.4 million in 1998 and $1.6 million in 1997. The 1999 increase of
$0.2 million resulted from an increase in the cost of borrowing
25
<PAGE> 27
and increased expenses associated with modifications to debt agreements,
partially offset by lower average outstanding balances and favorable adjustments
to the market value of overhedged interest rate swaps. The 1998 increase of $2.8
million resulted principally from higher interest expense from increased
borrowings and a mark-to-market adjustment on our interest rate protection
agreements.
LIQUIDITY AND CAPITAL RESOURCES -- GENERAL
Liquid assets consisting of cash and marketable securities decreased by
$7.3 million in 1999 to $40.6 million. Proceeds from the sale of our domestic
venture operations ($34.9 million) and the sale of our Polish brokerage business
($1.6 million) were used principally for the repayment of corporate debt. Also,
deconsolidation of the Polish pension subsidiary contributed to a $10.1 million
reduction in reported cash during 1999.
During 1999, we, along with our commercial banking syndicate, amended the
senior credit facility, which, among other things reduced the availability under
the facility from $80 million to $55 million and shortened the maturity date to
March 31, 2001. For a description of our $55 million senior credit facility and
$20 million senior notes, including interest rates and applicable covenants, see
Note 9 (Notes Payable) in the Notes to Consolidated Financial Statements
included elsewhere in the Annual Report on Form 10-K. At December 31, 1999, we
had borrowed $40 million under the senior credit facility and had $20 million of
senior notes outstanding.
We believe that we are in sound financial condition, that we have
sufficient liquidity from operations and financing facilities to cover
short-term commitments and contingencies and that we have adequate capital
resources to provide for long-term commitments.
FUTURE OPERATING RESULTS
From time to time, management may make forward-looking statements in this
Annual Report on Form 10-K, in other documents that we file with the Securities
and Exchange Commission (including those documents incorporated by reference
into the Form 10-K), in press releases or in other public discussions. The
Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for
these statements. For this purpose, a forward-looking statement is any statement
that is not a statement of historical fact. Forward-looking statements include
those about our plans or strategies for our domestic and international financial
services and global investment businesses, our anticipated revenue growth,
changes we expect in the amount or composition of our assets under management,
our anticipated expenses, our liquidity and capital resources and our
expectations about market conditions. You can identify forward-looking
statements by the words "may," "believes," "anticipates," "plans," "expects,"
"estimates" and similar expressions. Our forward-looking statements are based on
currently available information and management's expectations of future results
but necessarily involve certain assumptions. We caution readers that our
assumptions involve substantial risks and uncertainties. Consequently, any
forward-looking statement could turn out to be wrong. Many factors could cause
actual results to differ materially from our expectations. Below we describe
some of the important factors that could affect our revenues or results of
operations.
We recently hired two investment banks to review strategic alternatives
that would maximize shareholder value, including the possible sale of the
Company. Also recently, Lens Investment Management, LLC filed a preliminary
proxy statement on Schedule 14A for the purpose of soliciting proxies for the
election of its four nominees to the Company's Board of Directors to replace
five of our directors. The news of these events creates uncertainty for our
stockholders and employees. During these times of uncertainty, we are subject to
the risks of reduced investor confidence, redemptions in our mutual funds, loss
of business opportunities, and difficulty in hiring and retaining quality
employees. We cannot guarantee that the uncertainties will not adversely affect
our financial condition and financial results.
A significant portion of our revenues comes from investment management fees
and underwriting and shareholder services fees. Our success in the investment
management and mutual fund share distribution businesses results primarily from
good investment performance. If our investments perform well, we tend to
26
<PAGE> 28
see higher sales of shares and lower redemptions of shares. Sales of shares
result in increased assets under management, which, in turn, generate higher
management fees. Good performance also attracts institutional accounts. On the
other hand, relatively poor performance tends to cause decreased sales and
increased redemptions and the loss of institutional accounts. As a result, we
see a corresponding decrease in our revenues. In addition, economic and market
conditions that are beyond our control can impact investment performance. Also,
five of our mutual funds (including the two largest funds) have management fees
that depend upon the funds' performance relative to the performance of
established stock indexes. As a result, management fee revenues may be subject
to unexpected volatility.
The mutual fund industry is intensely competitive and continues to go
through 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 also with other financial services products. Many
of our competitors have more products and product lines to offer, substantially
greater assets under management, better financial resources and higher name
recognition than we do. As a result, we could be at a disadvantage as we try to
market our products to the same customers that our competitors are targeting.
Our domestic investment management business is primarily dependent upon the
contractual relationships between our U.S. mutual funds and our management
company. If any of these agreements were terminated (for any reason, including a
change of control of the Company) or not renewed on similarly favorable terms,
our revenues and our investment management business would suffer greatly.
The performance of a particular mutual fund depends in large part on the
ability of its portfolio manager. Our ability to attract and retain talented
portfolio managers and other key personnel is critical to our success in the
investment management business. We cannot guarantee that we will be able to
market our products successfully or maintain long-term relationships with our
clients if we do not employ top quality personnel.
The investment management business is subject to periodic shifts depending
on market conditions and investor preferences. Firms like ours tend to focus on
certain asset classes and certain management styles. Shifting trends in the
investment management industry tend to favor firms that manage particular types
of assets or use particular management styles. As a result, firms need to be
able to adapt to these shifts in order to remain competitive. Historically, we
have focused on "value" investing. We cannot guarantee that we will be
successful as we broaden our asset classes and management styles in order to
adapt to market demands.
Our investment management operation is subject to extensive regulation in
the United States, including regulation by the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc. Also, we are
subject to the laws of non-U.S. jurisdictions and non-U.S. regulatory agencies
or bodies. If we do not comply with applicable laws or regulations, we could
suffer fines, suspension of personnel or other sanctions. Certain changes in
laws or regulations or in government policies could have a material adverse
effect on our business.
We have several operations and investments outside of the United States,
including the timber operations in the Russian Far East and the financial
services operations in Eastern and Central Europe. Many factors unique to these
foreign locations can have negative effects on our operations and investments
there. Some of these factors are exchange controls, currency fluctuations,
taxation, political and economic instability, ineffective regulatory oversight
and laws or policies of the particular countries in which we have operations. We
cannot guarantee that we will be able to obtain permits, authorizations,
regulatory approvals or agreements to implement plans at our foreign projects in
a manner or within time frames that make these plans economically feasible.
Also, we do not know whether applicable laws or the governing political
authorities in the relevant locations will change unfavorably or whether any
such changes will cost us material amounts of money or effort.
The commercial feasibility of Forest-Starma depends on a number of factors
that we cannot control. Some of these factors are the price of timber, weather
conditions, political instability in Russia and the strength of the Japanese and
Korean economies, which are the primary markets for Forest-Starma's timber.
27
<PAGE> 29
We continue to actively negotiate a possible sale of our gold mining
operations, although we can provide no assurance that a sale will occur. If for
any reason a sale is not consummated, our financial results and financial
condition may be materially adversely affected.
YEAR 2000
We did not experience any interruptions to our business or operations as a
result of the transition to the year 2000, nor did we have to implement any of
our contingency plans. Although we incurred costs in preparation for the
transition, those costs did not affect our financial position in any material
way.
28
<PAGE> 30
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We monitor our exposure to adverse changes in interest rates, foreign
currency exchange rates and the market price paid for timber. Historically, we
have purchased certain derivative financial instruments to help mitigate the
impact of adverse changes, or in some instances, to mitigate the impact of any
changes.
Our long term debt, taken together with the interest rate swaps for the
senior credit facility, is at a fixed interest rate. Accordingly, our interest
expense will not change as a result of changes in interest rates. However, the
fair value of our long term debt will vary inversely with changes in interest
rates. A 10% change in market interest rates will result in an approximate $1.0
million change in the fair value of our long term debt taken together with
interest rate swaps.
We are exposed to certain changes in foreign currency exchange rates. We
conduct operations in Russia, the Czech Republic and Poland. The functional
currency of our Russian operations is the U.S. dollar, while the functional
currencies of the Czech and Polish operations are the respective local
currencies. All of these operations have some costs denominated in the local
currency, which acts as a natural hedge to the revenues denominated in local
currencies.
We conduct timber operations in Russia. The prices we receive for the
timber products sold are denominated in U.S. dollars; however, as most of the
timber produced is sold to the Asian markets, the U.S. dollar prices are
influenced by the foreign currency exchange rates. The revenues of this business
are also subject to changes in the market price paid for timber.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company's financial statements required by this Item 8 are submitted as
a separate section beginning on page F-1 at the end of this Annual Report on
Form 10-K. The Pioneer Pension Fund Company Financial Statements are included as
Exhibit 99 in the "Index of Exhibits" below. The schedule required by this Item
8 is included at Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
29
<PAGE> 31
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 2000 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."
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:
Reference is made to the Report of Independent Public Accountants, the
Consolidated Financial Statements, the Notes to Consolidated Financial
included in this Annual Report on Form 10-K at pages F-1 through F-24.
2. FINANCIAL STATEMENT SCHEDULES:
Schedule II -- Valuation and Qualifying Accounts
All other 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.
Pioneer Pension Fund Company Financial Statements (included as Exhibit
99 in the "Index to Exhibits" below).
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.
30
<PAGE> 32
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 21, 2000.
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
--------- ----- ----
<C> <S> <C>
/s/ JOHN F. COGAN, JR. Principal Executive Officer and March 21, 2000
- ----------------------------------------------------- Director
JOHN F. COGAN, JR.
/s/ ERIC W. RECKARD Principal Financial Officer and March 21, 2000
- ----------------------------------------------------- Principal Accounting Officer
ERIC W. RECKARD
/s/ JOHN D. CURTIN JR. Director March 21, 2000
- -----------------------------------------------------
JOHN D. CURTIN JR.
/s/ MAURICE ENGLEMAN Director March 21, 2000
- -----------------------------------------------------
MAURICE ENGLEMAN
/s/ ALYCE J. LEE Director March 21, 2000
- -----------------------------------------------------
ALYCE J. LEE
/s/ W. REID SANDERS Director March 21, 2000
- -----------------------------------------------------
W. REID SANDERS
/s/ ALAN J. STRASSMAN Director March 21, 2000
- -----------------------------------------------------
ALAN J. STRASSMAN
/s/ JASKARAN S. TEJA Director March 21, 2000
- -----------------------------------------------------
JASKARAN S. TEJA
/s/ DAVID D. TRIPPLE Director March 21, 2000
- -----------------------------------------------------
DAVID D. TRIPPLE
/s/ JOHN H. VALENTINE Director March 21, 2000
- -----------------------------------------------------
JOHN H. VALENTINE
</TABLE>
31
<PAGE> 33
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of The Pioneer Group, Inc.:
We have audited in accordance with generally accepted auditing standards,
the financial statements of The Pioneer Group, Inc. and subsidiaries (the
Company) included in this Form 10-K and have issued our report thereon dated
February 4, 2000. Our report on the financial statements includes an explanatory
paragraph with respect to the change in the accounting for start-up costs as
discussed in Note 2 to the financial statements. Our audit was made for the
purpose of forming an opinion on the basic financial statements taken as a
whole. This schedule listed in Item 14 is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 4, 2000
32
<PAGE> 34
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING COSTS AND BALANCE AT
OF YEAR EXPENSES DEDUCTIONS END OF YEAR
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Discontinued gold mining operations reserve
for future losses, severance and closing
costs, December 31, 1999................. $ -- $14.9 ($13.1)* $1.8
</TABLE>
- ---------------
* Consists of operating losses of $6.9 million and severance expense of $6.2
million in 1999.
33
<PAGE> 35
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<S> <C> <C>
3.1(17) -- Certificate of Incorporation, as amended
3.2* -- Amended and Restated By-Laws
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
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
</TABLE>
34
<PAGE> 36
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<S> <C> <C>
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
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
</TABLE>
35
<PAGE> 37
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<S> <C> <C>
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(23) -- 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(23) -- Supplemental Agreement No. 3 to Note Agreement dated as of
December 30, 1998, by and between the Company and Travelers
Insurance Company
10.72(23)(7) -- 1998 Deferred Compensation Plan
10.73(23) -- Agreement dated as of December 7, 1998 between Closed Joint
Stock Company "Forest Starma" and Rayonier Inc., and
Amendment No. 1 thereto
10.74(23) -- 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(23) -- 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(23) -- Sublease Agreement dated as of March 5, 1999, by and between
Leerink, Swann & Company and the Company
10.77(23) -- 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
Company
10.78(24) -- Shareholders' Agreement dated April 8, 1999 between the
Company and Nationwide Global Holdings, Inc. ("Nationwide")
10.79(24) -- Share Subscription Agreement dated as of April 8, 1999
between the Company, Nationwide and Pioneer Powszechne
Towarzystwd Emerytalne S.A.
10.80(25) -- Amendment No. 8 to Credit Agreement dated as of June 30,
1999, by and among the Company, certain of its subsidiaries,
the Lenders and BankBoston, N.A., f/k/a The First National
Bank of Boston
</TABLE>
36
<PAGE> 38
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<S> <C> <C>
10.81(25) -- Supplemental Agreement No. 4 to Note Agreement dated as of
June 30, 1999, by and between the Company and Travelers
Insurance Company
10.82(25) -- Amendment to Finance Agreement dated as of June 3, 1999
between Closed Joint-Stock Company "Forest-Starma" and
Overseas Private Investment Corporation
10.83(25) -- Amendment to Project Completion Agreement dated as of June
3, 1999 among Closed Joint-Stock Company "Forest-Starma",
the Company, Pioneer Forest, Inc., International Joint-Stock
Company "Starma-Holding" and Overseas Private Investment
Corporation
10.84(25) -- Agreement with Respect to Project Completion Agreement dated
as of June 3, 1999 among Closed Joint-Stock Company
"Forest-Starma", the Company, Pioneer Forest, Inc. and
Overseas Private Investment Corporation
10.85(25) -- Contract of Pledge of Shares in Closed Joint-Stock Company
"Forest Starma" dated as of June 3, 1999 between Pioneer
Forest, Inc. and Overseas Private Investment Corporation
10.86(26) -- Shareholders Agreement dated as of April 8, 1999 between the
Company and Nationwide Global Holdings, Inc.
10.87* -- Amendment No. 9 to Credit Agreement dated as of November 9,
1999, by and among the Company, certain of its subsidiaries,
the Lenders and BankBoston, N.A., f/k/a The First National
Bank of Boston
10.88* -- Amendment No. 10 to Credit Agreement dated as of December
13, 1999, by and among the Company, certain of its
subsidiaries, the Lenders and BankBoston, N.A., f/k/a The
First National Bank of Boston
10.89* -- Supplemental Agreement No. 5 to Note Agreement dated as of
November 11, 1999, by and between the Company and Travelers
Insurance Company
10.90* -- Amendment to Finance Agreement and Limited Waiver dated as
of December 28, 1999 between Closed Joint-Stock Company
"Forest-Starma" and Overseas Private Investment Corporation
10.91* -- Agreement with Respect to Project Completion dated as of
December 28, 1999 among Closed Joint-Stock Company
"Forest-Starma", the Company, Pioneer Forest, Inc., Pioneer
Forest L.L.C. and Overseas Private Investment Corporation
10.92* -- Contract of Pledge of Shares dated as of December 28, 1999
between Pioneer Forest, L.L.C. and Overseas Private
Investment Corporation
10.93* -- Agreement with Respect to Subordination Agreement dated as
of December 28, 1999 among the Company, Pioneer Forest,
Inc., Pioneer Forest, L.L.C., Closed Joint-Stock Company
"Forest-Starma" and Overseas Private Investment Corporation
10.94(7)* -- Form of Executive Retention Agreement
21* -- Subsidiaries
23* -- Consent of Arthur Andersen LLP
27.99* -- Financial Data Schedule (1999)
27.98* -- Financial Data Schedule (1998)
27.97* -- Financial Data Schedule (1997)
99* -- Pioneer Pension Fund Company Financial Statements
</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 (File No. 0-8841).
(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 (File No. 0-8841).
(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 (File No. 0-8841).
(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 (File No. 0-8841).
(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 (File No. 0-8841).
37
<PAGE> 39
(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 (File No. 0-8841).
(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 (File No. 0-8841).
(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 (File No. 0-8841).
(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.
(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.
(23) Incorporated herein by reference to the exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
(24) Incorporated herein by reference to the exhibits to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999.
(25) Incorporated herein by reference to the exhibits to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999.
(26) Incorporated herein by reference to the exhibits to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1999.
38
<PAGE> 40
THE PIONEER GROUP, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-1
Consolidated Statements of Operations -- Years Ended
December 31, 1999, 1998 and 1997.......................... F-2
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... F-3
Consolidated Statements of Changes in Stockholders'
Equity -- Years Ended December 31, 1999, 1998 and 1997.... F-4
Consolidated Statements of Cash Flows -- Years Ended
December 31, 1999, 1998 and 1997.......................... F-5
Notes to Consolidated Financial Statements.................. F-6
</TABLE>
39
<PAGE> 41
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, 1999
and 1998, 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, 1999. 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, 1999 and 1998 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, the Company changed its
method of accounting for the costs of start-up activities in 1999.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 4, 2000
F-1
<PAGE> 42
THE PIONEER GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1999 1998 1997
------------ ----------- -----------
DOLLARS IN THOUSANDS EXCEPT
PER SHARE AMOUNTS
<S> <C> <C> <C>
Revenues and sales:
Investment management fees................................ $ 147,188 $ 142,266 $ 121,372
Underwriting commissions and distribution fees............ 14,539 26,511 23,322
Shareholder service fees.................................. 43,740 31,610 28,002
Revenues from brokerage activities........................ 1,405 2,153 35,570
Gain on sale of B share rights............................ -- 8,132 --
Trustee fees and other income............................. 28,649 26,422 20,884
----------- ----------- -----------
Revenues from financial services businesses............. 235,521 237,094 229,150
Timber sales.............................................. 14,383 10,451 11,879
----------- ----------- -----------
Total revenues and sales........................... 249,904 247,545 241,029
----------- ----------- -----------
Costs and expenses:
Management, distribution, shareholder service and
administrative expenses................................. 197,940 213,051 178,571
Timber operating costs and expenses....................... 18,158 28,381 15,479
----------- ----------- -----------
Total costs and expenses........................... 216,098 241,432 194,050
----------- ----------- -----------
Other (income) expense:
Unrealized and realized (gains) losses on venture capital
and marketable securities investments, net.............. 1,082 (4,418) (27,460)
Equity in losses of affiliated companies.................. 11,291 -- --
Interest expense.......................................... 7,013 11,897 8,629
----------- ----------- -----------
Total other (income) expense....................... 19,386 7,479 (18,831)
----------- ----------- -----------
Income (loss) from continuing operations before provision
for income taxes and minority interest.................... 14,420 (1,366) 65,810
Provision for income taxes.................................. 9,256 9,384 28,202
----------- ----------- -----------
Income (loss) from continuing operations before minority
interest.................................................. 5,164 (10,750) 37,608
Minority interest........................................... 2,339 (4,349) 5,365
----------- ----------- -----------
Net income (loss) from continuing operations before
cumulative effect of change in accounting principle....... 2,825 (6,401) 32,243
Net income (loss) from discontinued operations.............. (73,682) (27,067) (3,077)
Cumulative effect of change in accounting principle
(start-up costs, net of income taxes of $261)............. (12,112) -- --
----------- ----------- -----------
Net income (loss)........................................... $ (82,969) $ (33,468) $ 29,166
=========== =========== ===========
Basic earnings (loss) per share:
Continuing operations..................................... $ 0.11 $ (0.25) $ 1.29
Discontinued operations................................... (2.84) (1.08) (0.12)
Cumulative effect of change in accounting principle....... (0.47) -- --
----------- ----------- -----------
Total basic earnings (loss) per share.............. $ (3.20) $ (1.33) $ 1.17
=========== =========== ===========
Diluted earnings (loss) per share:
Continuing operations..................................... $ 0.11 $ (0.25) $ 1.26
Discontinued operations................................... (2.82) (1.07) (0.12)
Cumulative effect of change in accounting principle....... (0.46) -- --
----------- ----------- -----------
Total diluted earnings (loss) per share..................... $ (3.17) $ (1.32) $ 1.14
=========== =========== ===========
Basic shares outstanding.................................... 25,931,000 25,148,000 24,873,000
=========== =========== ===========
Diluted shares outstanding.................................. 26,184,000 25,350,000 25,630,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE> 43
THE PIONEER GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
-------- --------
DOLLARS IN THOUSANDS
EXCEPT SHARE AMOUNTS
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $ 36,740 $ 44,212
Restricted cash............................................. 99 5,512
Investment in marketable securities, at fair value.......... 3,850 3,638
Receivables:
From securities brokers and dealers for sales of mutual
fund shares............................................. 9,429 14,072
From Pioneer Family of Mutual Funds....................... 20,610 17,334
For securities sold....................................... 194 1,089
Other..................................................... 8,022 15,247
Timber inventory............................................ 3,908 3,585
Other current assets........................................ 9,749 13,310
Net current assets of discontinued operations............... -- 5,233
-------- --------
Total current assets................................ 92,601 123,232
-------- --------
Noncurrent assets:
Cost of acquisitions in excess of net assets acquired (net
of accumulated amortization of $13,842 in 1999 and $12,071
in 1998).................................................. 14,539 16,572
Long-term venture capital investments, at fair value (cost
$55,504 in 1999 and $117,547 in 1998)..................... 51,093 129,560
Long-term investments, at cost.............................. 6,712 7,006
Timber operations:
Timber equipment and facilities (net of accumulated
depreciation of $6,231 in 1999 and $3,800 in 1998)...... 19,496 18,800
Deferred timber development costs (net of accumulated
amortization of $2,279 in 1999 and $2,841 in 1998)...... 8,609 19,031
Building (net of accumulated depreciation of $1,990 in 1999
and $1,413 in 1998)....................................... 24,559 25,136
Furniture, equipment and leasehold improvements (net of
accumulated depreciation and amortization of $17,646 in
1999 and $13,002 in 1998)................................. 17,266 20,169
Other noncurrent assets..................................... 26,633 15,016
Net noncurrent assets of discontinued operations............ 38,324 64,696
-------- --------
Total noncurrent assets............................. 207,231 315,986
-------- --------
$299,832 $439,218
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Payable to funds for shares sold............................ $ 9,420 $ 14,053
Accounts payable............................................ 5,832 9,162
Accrued expenses............................................ 22,023 23,172
Distribution and service fees due to brokers and dealers.... 9,043 7,449
Brokerage liabilities....................................... 265 5,669
Accrued income taxes........................................ 6,899 19,647
Current portion of notes payable............................ 1,343 1,818
Net current liabilities of discontinued operations.......... 31,815 --
-------- --------
Total current liabilities........................... 86,640 80,970
-------- --------
Noncurrent liabilities:
Notes payable, net of current portion....................... 63,892 99,035
-------- --------
Total noncurrent liabilities........................ 63,892 99,035
-------- --------
Total liabilities................................... 150,532 180,005
-------- --------
Minority Interest........................................... 62,202 104,411
-------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 8)
STOCKHOLDERS' EQUITY:
Common stock, $0.10 par value; authorized 60,000,000
shares; issued 26,532,064 shares in 1999 and 26,134,103
shares in 1998.......................................... 2,653 2,613
Paid-in capital......................................... 47,372 30,110
Retained earnings....................................... 50,044 133,013
Treasury stock at cost, 50,885 shares in 1999 and 11,303
shares in 1998......................................... (1,804) (265)
Cumulative translation adjustment....................... (3,943) (1,855)
-------- --------
94,322 163,616
Less -- Deferred cost of restricted common stock issued... (7,224) (8,814)
-------- --------
Total stockholders' equity.......................... 87,098 154,802
-------- --------
$299,832 $439,218
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 44
THE PIONEER GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------- CUMULATIVE
SHARES PAID-IN RETAINED TREASURY TRANSLATION
ISSUED AMOUNT CAPITAL EARNINGS STOCK ADJUSTMENT
---------- ------ ------- -------- -------- -----------
DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996......... 25,013,763 $2,501 $11,450 $152,457 $ (16) $ --
---------- ------ ------- -------- ------- -------
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 -- 103 --
Shares issued under the 1995
employee stock purchase plan
(34,527 shares)................ 17,682 2 330 -- 350 --
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)................ -- -- -- -- (808) --
Exercise of stock options awarded
under the 1988 stock option
plan (46,000 shares)........... 31,177 3 147 -- 306 --
Cumulative translation
adjustment..................... -- -- -- -- -- (1,277)
Comprehensive income (loss)...... -- -- -- -- -- --
---------- ------ ------- -------- ------- -------
Balance, December 31, 1997......... 25,219,567 $2,522 $15,912 $171,558 $ (65) $(1,277)
---------- ------ ------- -------- ------- -------
Add (Deduct):
Net loss......................... -- -- -- (33,468) -- --
Dividends paid ($0.20 per
share)......................... -- -- -- (5,077) -- --
Shares awarded under restricted
stock plans (301,098 shares)... 292,707 29 7,519 -- 200 --
Shares issued under the 1995
employee stock purchase plan
(41,938 shares)................ 19,420 2 282 -- 529 --
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)................ -- -- -- -- (1,015) --
Exercise of stock options awarded
under the 1988 stock option
plan (628,600 shares).......... 602,409 60 2,716 -- 86 --
Cumulative translation
adjustment..................... -- -- -- -- -- (578)
Comprehensive income (loss)...... -- -- -- -- -- --
---------- ------ ------- -------- ------- -------
Balance, December 31, 1998......... 26,134,103 $2,613 $30,110 $133,013 $ (265) $(1,855)
---------- ------ ------- -------- ------- -------
Add (Deduct):
Net loss......................... -- -- -- (82,969) -- --
Shares awarded under restricted
stock plans (219,666 shares)... 200,312 21 3,603 -- 460 --
Shares issued under the 1995
employee stock purchase plan
(44,274 shares)................ 44,274 4 618 -- -- --
Amortization of deferred cost of
restricted common stock
issued......................... -- -- -- -- -- --
Additional tax benefits from
stock plans.................... -- -- 963 -- -- --
Forfeiture of shares awarded
under restricted stock plans
(114,835 shares)............... -- -- -- -- (2,684) --
Gain on sale of stock issued by a
subsidiary..................... -- -- 12,282 -- -- --
Exercise of stock options awarded
under the 1988 stock option
plan (222,900 shares).......... 153,375 15 (204) -- 685 --
Cumulative translation
adjustment..................... -- -- -- -- -- (2,088)
Comprehensive income (loss)...... -- -- -- -- -- --
---------- ------ ------- -------- ------- -------
Balance, December 31, 1999......... 26,532,064 $2,653 $47,372 $ 50,044 $(1,804) $(3,943)
========== ====== ======= ======== ======= =======
<CAPTION>
DEFERRED
COST OF TOTAL COMPREHENSIVE
RESTRICTED STOCKHOLDERS' INCOME
STOCK EQUITY (LOSS)
---------- ------------- -------------
DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS
<S> <C> <C> <C>
Balance, December 31, 1996......... $(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)... (3,673) 125 --
Shares issued under the 1995
employee stock purchase plan
(34,527 shares)................ -- 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 -- --
Exercise of stock options awarded
under the 1988 stock option
plan (46,000 shares)........... -- 456 --
Cumulative translation
adjustment..................... -- (1,277) (1,277)
--------
Comprehensive income (loss)...... -- -- $ 27,889
------- -------- ========
Balance, December 31, 1997......... $(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 plans (301,098 shares)... (7,652) 96 --
Shares issued under the 1995
employee stock purchase plan
(41,938 shares)................ -- 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 -- --
Exercise of stock options awarded
under the 1988 stock option
plan (628,600 shares).......... -- 2,862 --
Cumulative translation
adjustment..................... -- (578) (578)
--------
Comprehensive income (loss)...... -- -- $(34,046)
------- -------- ========
Balance, December 31, 1998......... $(8,814) $154,802
------- --------
Add (Deduct):
Net loss......................... -- (82,969) (82,969)
Shares awarded under restricted
stock plans (219,666 shares)... (4,052) 32 --
Shares issued under the 1995
employee stock purchase plan
(44,274 shares)................ -- 622 --
Amortization of deferred cost of
restricted common stock
issued......................... 2,969 2,969 --
Additional tax benefits from
stock plans.................... -- 963 --
Forfeiture of shares awarded
under restricted stock plans
(114,835 shares)............... 2,673 (11) --
Gain on sale of stock issued by a
subsidiary..................... -- 12,282 --
Exercise of stock options awarded
under the 1988 stock option
plan (222,900 shares).......... -- 496 --
Cumulative translation
adjustment..................... -- (2,088) (2,088)
--------
Comprehensive income (loss)...... -- -- $(85,057)
------- -------- ========
Balance, December 31, 1999......... $(7,224) $ 87,098
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 45
THE PIONEER GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
DOLLARS IN THOUSANDS
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).......................................... $(82,969) $(33,468) $ 29,166
Less net loss from discontinued operations................. (73,682) (27,067) (3,077)
Less cumulative effect of change in accounting principle... (12,112) -- --
-------- -------- --------
Net income (loss) from continuing operations............... $ 2,825 $ (6,401) $ 32,243
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................ 16,011 28,038 21,827
Gain on sale of B share rights........................... -- (8,132) --
Unrealized and realized gains on venture capital,
marketable securities investments, and long term
investments, net....................................... 1,082 (4,418) (27,460)
Equity in losses of affiliated companies................. 11,291 -- --
Provision on other investments........................... -- 3,983 2,710
Restricted stock plan expense............................ 2,969 2,786 1,821
(Prepaid) deferred income taxes.......................... (2,879) (28,167) 4,081
Minority interest........................................ 2,339 (4,349) 4,653
Changes in operating assets and liabilities:
Investments in marketable securities, net................ (725) 5,206 (1,632)
Receivable from securities brokers and dealers for sales
of mutual fund shares.................................. 4,643 (2,320) (2,742)
Receivables for securities sold.......................... 895 10,377 (8,866)
Receivables from Pioneer Family of Mutual Funds and
other.................................................. 3,875 1,145 (8,312)
Timber inventory......................................... (323) 2,312 (4,491)
Other current assets..................................... 1,418 (5,252) 512
Other noncurrent assets.................................. 914 1,795 (154)
Payable to funds for shares sold......................... (4,633) 2,287 2,770
Accrued expenses and accounts payable.................... (2,885) 4,640 4,406
Brokerage liabilities.................................... (5,404) (9,033) 13,232
Accrued income taxes..................................... (11,785) 18,873 5,872
-------- -------- --------
Total adjustments and changes in operating assets and
liabilities.......................................... 16,803 19,771 8,227
-------- -------- --------
Net cash provided by continuing operating
activities........................................... 19,628 13,370 40,470
-------- -------- --------
Net cash provided by (used in) discontinued operating
activities........................................... 480 (4,330) 16,720
-------- -------- --------
Net cash provided by operating activities............ 20,108 9,040 57,190
-------- -------- --------
Cash flows from investing activities:
Additions to furniture, equipment and leasehold
improvements............................................. (5,468) (11,940) (8,557)
Building................................................... -- (864) (2,865)
Long-term venture capital investments...................... (2,777) (45,774) (26,945)
Proceeds from sale of long-term venture capital
investments.............................................. 1,458 22,040 6,688
Proceeds from sale of domestic venture capital
operations............................................... 34,945 -- --
Deferred timber development costs.......................... -- -- (354)
Purchase of timber equipment and facilities................ (3,127) (4,988) (5,206)
Other investments.......................................... (379) (1,373) (5,871)
Proceeds from sales of other investments................... -- -- 1,732
Cost of acquisition in excess of net assets acquired....... -- (16) (87)
Deconsolidation of pension company subsidiary.............. (10,070) -- --
Purchase of long-term investments.......................... (189) (2,245) (4,026)
Proceeds from sale of long-term investments................ 768 5,007 13,884
-------- -------- --------
Net cash provided by (used in) continuing investing
activities........................................... 15,161 (40,153) (31,607)
-------- -------- --------
Net cash provided by (used in) investing activities,
discontinued operations.............................. (4,874) (10,222) (24,104)
-------- -------- --------
Net cash provided by (used in) investing
activities........................................... 10,287 (50,375) (55,711)
-------- -------- --------
Cash flows from financing activities:
Dividends paid............................................. -- (5,077) (10,065)
Liquidation of venture capital partnership................. (1,972) -- --
Distributions to limited partners of venture capital
subsidiary............................................... (1,288) (68) (94)
Amounts raised by venture capital investment
partnerships............................................. -- 34,559 21,024
Sale of stock by subsidiary................................ 555 -- --
Employee stock purchase plan............................... 622 813 682
Exercise of stock options.................................. 496 2,862 456
Restricted stock plan award................................ 32 96 125
Dealer advances............................................ (221) (20,702) (16,331)
Sale of dealer advances.................................... -- 61,631 --
Revolving credit agreement borrowings, net................. (30,000) (26,000) 8,500
Borrowings of notes payable................................ -- 447 21,897
Repayments of notes payable................................ (5,618) (5,881) (3,240)
Reclassification of restricted cash........................ 5,413 (881) (3,587)
-------- -------- --------
Net cash provided by (used in) continuing financing
activities........................................... (31,981) 41,799 19,367
-------- -------- --------
Net cash provided by (used in) financing activities,
discontinued operations.............................. (5,726) (6,513) 5,415
-------- -------- --------
Net cash provided by (used in) financing
activities........................................... (37,707) 35,286 24,782
Effect of foreign currency exchange rate changes on cash and
cash equivalents........................................... (160) (160) (728)
Net increase (decrease) in cash and cash equivalents........ (7,472) (6,209) 25,533
Cash and cash equivalents at beginning of year.............. 44,212 50,421 24,888
-------- -------- --------
Cash and cash equivalents at end of year.................... $ 36,740 $ 44,212 $ 50,421
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 46
THE PIONEER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
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 37 investment portfolios)
in the Pioneer Family of Mutual Funds, as well as the nine 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 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
approximately 52% of Pioneer First Investment Fund. Pioneer International
Financial Services also includes minority interests in 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, and timber harvesting.
The Company is in the process of disposing its gold mining operations and
as such is reporting those results as discontinued operations.
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
Poland U.S. L.P. and Pioneer Poland U.K. L.P. in which the Company's ownership
interest is 7.2% and 9.2%, respectively. In 1998 and 1997, the Company also
consolidated Pioneer Ventures Limited Partnership II in which it owned a 14%
interest. 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 and the estimated future
cash flows of the Company's timber operations, as discussed herein.
F-6
<PAGE> 47
THE PIONEER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Certain reclassifications have been made to 1998 and 1997 amounts to
conform with the 1999 presentation.
In the second quarter of 1999, the Company reached an agreement with an
unrelated third party to sell newly issued shares of its Polish pension company
subsidiary representing a 30% interest for $20 million. As a result of the
transaction, the Company realized a gain of approximately $12.3 million that was
reflected as a credit to stockholders' equity. In addition, the Company
deconsolidated the Polish pension company as control is shared with the
unrelated third party and has accounted for its investment in the pension
company under the equity method retroactive to January 1, 1999.
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 reserved for the exclusive benefit of brokerage and mutual fund
customers.
Interest paid was approximately $9,218,000 in 1999, $12,110,000 in 1998 and
$9,359,000 in 1997. The amounts paid in 1997 include approximately $1,353,000 of
interest that was capitalized related to the development of the Company's
building, Russian timber operations and the gold mining expansion operations.
Income taxes paid were approximately $20,981,000, $14,816,000 and $18,719,000 in
1999, 1998 and 1997, respectively.
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.
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 distribution fees and contingent deferred sales charges on then
outstanding Class B shares. Since October 1998, the gains on sales of Class B
share rights sold pursuant to the Class B shares rights program have been
included in distribution fees (see Note 12).
Revenues from brokerage activities were derived from net realized and
unrealized gains and losses from securities trading activities. The Company's
brokerage operations were located in Russia and Poland, which have been closed
and sold, respectively. (See Note 13.)
The Company records timber sales when title passes and the 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.
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
F-7
<PAGE> 48
THE PIONEER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
assets and the related accumulated depreciation and amortization amounts are
removed from the accounts, and any resulting gains or losses are reflected in
earnings.
Deferred Timber Development Costs
Deferred timber development costs consist of construction and engineering
expenditures and infrastructure costs incurred in developing the site and the
roads, capitalized interest, legal, timber rights, other pre-operating costs and
organizational costs. Certain of these costs constitute start-up costs that were
expensed in 1999 (see "Costs of Start-Up Activities"). 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 a jetty, 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 of Acquisitions in Excess of Net Assets Acquired
Cost of acquisitions in excess of net assets acquired is amortized on a
straight-line basis over five to fifteen years and, as reflected in the
accompanying consolidated balance sheets, consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Mutual of Omaha Fund Management Company.................. $13,015 $14,482
Russian investment operations............................ 1,524 1,810
Polish brokerage operations.............................. -- 280
------- -------
$14,539 $16,572
======= =======
</TABLE>
Valuation of Long-Term Venture Capital Investments
The Company's long-term venture capital investments consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
-------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Domestic.............................................. $ -- $ 79,475
Non-U.S. ............................................. 51,093 50,085
------- --------
$51,093 $129,560
======= ========
</TABLE>
The Company's 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. 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. No
market quotes are available for the non-U.S. venture capital investments.
Included in the total non-U.S. venture capital investments is cash that has been
restricted for the future purchase of venture capital investments of
$11,233,000.
F-8
<PAGE> 49
THE PIONEER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Most securities are valued at fair value, as determined in good faith by
management, when market quotes are not available. 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 consist mainly of Russian investments of the Pioneer
First Investment Fund. These securities are carried at cost with adjustments
made for any other-than-temporary impairment in value until such time as the
breadth and scope of Russian securities markets develop to certain quantifiable
levels. When the breadth and scope of the Russian securities market develops 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. The carrying value of these securities was $6.7 million
at December 31, 1999 and $7.0 million at December 31, 1998. The approximate fair
value of these securities was $20.6 million at December 31, 1999 and $13.4
million at December 31, 1998 (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
--------- ------- ----------
(DOLLARS AND SHARES IN THOUSANDS
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
FOR THE YEAR ENDED 12/31/99
Basic earnings (loss) per share calculation:
Continuing operations................................. $ 2,825 25,931 $ 0.11
Discontinued operations............................... $(73,682) 25,931 $(2.84)
Cumulative effect of change in accounting principle... $(12,112) 25,931 $(0.47)
-------- ------ ------
Total............................................ $(82,969) 25,931 $(3.20)
======== ====== ======
Options............................................... 253
Restricted stock...................................... --
------
</TABLE>
F-9
<PAGE> 50
THE PIONEER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
NET EARNINGS/
INCOME/ (LOSS)
(LOSS) SHARES PER SHARE
--------- ------- ----------
(DOLLARS AND SHARES IN THOUSANDS
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Diluted earnings (loss) per share calculation:
Continuing operations................................. $ 2,825 26,184 $ 0.11
Discontinued operations............................... $(73,682) 26,184 $(2.82)
Cumulative effect of change in accounting principle... $(12,112) 26,184 $(0.46)
-------- ------ ------
Total............................................ $(82,969) 26,184 $(3.17)
======== ====== ======
FOR THE YEAR ENDED 12/31/98
Basic earnings (loss) per share calculation:
Continuing operations................................. $ (6,401) 25,148 $(0.25)
Discontinued operations............................... $(27,067) 25,148 $(1.08)
-------- ------ ------
Total............................................ $(33,468) 25,148 $(1.33)
======== ====== ======
Options............................................... 188
Restricted stock...................................... 14
------
Diluted earnings (loss) per share calculation:
Continuing operations................................. $ (6,401) 25,350 $(0.25)
Discontinued operations............................... $(27,067) 25,350 $(1.07)
-------- ------ ------
Total............................................ $(33,468) 25,350 $(1.32)
======== ====== ======
FOR THE YEAR ENDED 12/31/97
Basic earnings (loss) per share calculation:
Continuing operations................................. $ 32,243 24,873 $ 1.29
Discontinued operations............................... $ (3,077) 24,873 $(0.12)
-------- ------ ------
Total............................................ $ 29,166 24,873 $ 1.17
======== ====== ======
Options............................................... 692
Restricted stock...................................... 65
------
Diluted earnings (loss) per share calculation:
Continuing operations................................. $ 32,243 25,630 $ 1.26
Discontinued operations............................... $ (3,077) 25,630 $(0.12)
-------- ------ ------
Total............................................ $ 29,166 25,630 $ 1.14
======== ====== ======
</TABLE>
Excluded from diluted earnings per share were options to purchase 944,000,
791,000 and 520,500 shares in 1999, 1998 and 1997, respectively, because the
options' exercise price was greater than the average market price of the common
shares during the respective years.
Comprehensive Income (Loss)
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 (loss).
F-10
<PAGE> 51
THE PIONEER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Foreign Currency Translation
In accordance with SFAS 52, "Foreign Currency Translation," the functional
currency of the Company's timber 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 $0.4 million in 1999, $0.7 million in 1998 and $1.7 million in 1997.
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 reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the book value of the asset may not be
recoverable. In accordance with SFAS 121, "Accounting for the Impairment of
Long-Lived Assets and for the Long-Lived Assets to be Disposed of," the Company
uses an estimate of the future undiscounted net cash flows of the related asset
or asset grouping over the remaining life in measuring whether the assets are
recoverable. The Company periodically reviews its long-lived assets and 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
On January 1, 1999, the Company adopted the American Institute of Certified
Public Accountants' Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities." This Standard requires that entities expense costs of
start-up activities as those costs are incurred. The Company previously
capitalized certain pre-operating costs in connection with its natural resource
operations and certain organizational costs associated with its financial
services operations. In the first quarter of 1999, the Company recorded the
cumulative effect of a change in accounting principle and wrote-off unamortized
capitalized start-up costs, net of tax, of $12.1 million. The amount of pro
forma net income in 1998 did not differ materially from the amount reported
after giving effect to the change in accounting principle.
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. In June 1999, SFAS 137, "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB Statement No. 133 -- An Amendment to FASB Statement No. 133," deferred
the effective date of SFAS 133 to fiscal years beginning after June 15, 2000.
The Company has not yet quantified the impact of adopting SFAS 133 on its
financial statements and has not determined the timing of or method of its
adoption of SFAS 133.
F-11
<PAGE> 52
THE PIONEER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- 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>
1999 1998 1997
-------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Domestic............................................ $ 25,652 $ 37,868 $54,506
Foreign............................................. (11,232) (39,234) 11,304
-------- -------- -------
$ 14,420 $ (1,366) $65,810
======== ======== =======
</TABLE>
The components of the provision for federal, state and foreign income taxes
on continuing operations consist of:
<TABLE>
<CAPTION>
1999 1998 1997
------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................ $12,086 $ 28,465 $13,518
State.............................................. 110 4,828 2,220
Foreign............................................ (61) (64) 8,699
Deferred (Prepaid):
Federal............................................ (2,976) (19,100) 4,536
State.............................................. 97 (4,745) (2)
Foreign............................................ -- -- (769)
------- -------- -------
$ 9,256 $ 9,384 $28,202
======= ======== =======
</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>
1999 1998 1997
---- ------ ----
<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).... 0.9 6.0 2.2
Foreign income taxes...................................... 25.6 900.0 4.5
Other, net................................................ 2.7 (184.0) 1.1
---- ------ ----
Effective tax rate........................................ 64.2% 687.0% 42.8%
==== ====== ====
</TABLE>
F-12
<PAGE> 53
THE PIONEER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The approximate income tax effect of each type of temporary difference
related to continuing operations and the change in accounting principle is as
follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net operating losses of foreign subsidiaries........... $ 29,610 $ 21,807
Restricted stock....................................... 831 1,235
Reserves............................................... 781 1,530
Goodwill............................................... 557 620
Venture capital and other investments.................. 2,225 (2,111)
Other temporary differences, net....................... 1,743 874
-------- --------
35,747 23,955
Valuation allowance.................................... (30,720) (21,807)
-------- --------
Net deferred tax asset................................. $ 5,027 $ 2,148
======== ========
</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.
The total income tax provision included in the accompanying consolidated
statements of operations is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Continuing operations....................................... $ 9,256 $ 9,384 $28,202
Discontinued operations..................................... (14,571) (7,497) (543)
Change in accounting principle.............................. (261) -- --
-------- ------- -------
$ (5,576) $ 1,887 $27,659
======== ======= =======
</TABLE>
NOTE 4 -- 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. In
1999, an amendment to the 1997 Plan was approved to increase the number of
shares of the Company's common stock that may be awarded to participants from
1,500,000 to 3,000,000. 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."
F-13
<PAGE> 54
THE PIONEER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 1999.
<TABLE>
<CAPTION>
UNVESTED SHARES
-----------------------------------------------
1997 PLAN 1995 PLAN 1990 PLAN TOTAL
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Balance at 12/31/98.............................. 317,625 130,365 42,674 490,664
Awarded........................................ 219,666 -- -- 219,666
Vested......................................... (68,969) (54,054) (29,964) (152,987)
Forfeited...................................... (89,091) (22,354) (3,390) (114,835)
------- --------- ------- --------
Balance at 12/31/99.............................. 379,231 53,957 9,320 442,508
======= ========= ======= ========
</TABLE>
<TABLE>
<CAPTION>
VESTED SHARES
-----------------------------------------------
1997 PLAN 1995 PLAN 1990 PLAN TOTAL
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Balance at 12/31/98.............................. 7,220 40,678 668,160 716,058
Vested......................................... 68,969 54,054 29,964 152,987
------- --------- ------- --------
Balance at 12/31/99.............................. 76,189 94,732 698,124 869,045
======= ========= ======= ========
</TABLE>
The Company awarded 301,098 shares in 1998 and 27,875 shares in 1997 under
the 1997 Plan. The Company awarded 134,332 shares in 1997 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. As of December 31, 1999, 1,297,080 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 Stock Market(R) (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 1999, 1998 and 1997,
the Company issued 44,274, 41,938 and 34,527 shares under the 1995 Purchase
Plan, respectively.
F-14
<PAGE> 55
THE PIONEER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company records stock compensation in accordance with Accounting
Principles Board ("APB") Opinion 25, "Accounting for Stock Issued to Employees."
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>
1999 1998 1997
----------- ----------- ----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Net (loss)/income:
As reported....................................... $(82,969) $(33,468) $29,166
Pro forma......................................... $(84,540) $(34,983) $28,327
Diluted EPS:
As reported....................................... $ (3.17) $ (1.32) $ 1.14
Pro forma......................................... $ (3.23) $ (1.38) $ 1.11
</TABLE>
The weighted-average grant-date fair value of all options granted during
1999, 1998 and 1997 was approximately $4,149,000, $5,206,000 and $4,651,000,
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>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Volatility.............................................. 44% 42% 36%
Risk-Free interest rate................................. 4.8% 4.6% 5.8%
Dividend yield.......................................... -- 1.06% 1.43%
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>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Volatility........................................ 41% 39% 28%
Risk-Free interest rate........................... 4.8% 5.5% 5.7%
Dividend yield.................................... -- 1.06% 1.43%
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.
F-15
<PAGE> 56
THE PIONEER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the Option Plans activity for the three
years ended December 31, 1999.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
--------- ----------------
<S> <C> <C>
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
Granted........................................... 457,500 $15.15
Exercised......................................... (222,900) $ 6.12
Terminated........................................ (286,500) $19.06
--------- ------
Outstanding at December 31, 1999.................. 2,412,500 $16.93
Exercisable at year end........................... 1,255,300 $15.29
</TABLE>
The following table summarizes information about options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
AVERAGE NUMBER CONTRACTUAL AVERAGE
EXERCISE PRICE OUTSTANDING LIFE IN YEARS EXERCISE PRICE
- -------------- ----------- ------------- --------------
<S> <C> <C> <C>
$4.19-$7.07 507,000 2.33 $ 5.08
$12.00-$19.00 1,071,500 8.80 $14.91
$21.25-$29.875 834,000 6.98 $26.73
---------
2,412,500
=========
</TABLE>
NOTE 5 -- 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 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 $1,488,455 at December 31, 1999, which exceeded
required net capital of $250,000 by $1,238,455.
NOTE 6 -- 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 Benefit Plans. The Company's expenses under the Benefit Plans were
approximately $3,076,000 in 1999, $3,462,000 in 1998 and $2,666,000 in 1997.
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
F-16
<PAGE> 57
THE PIONEER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 7 -- 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 $146,509,000 in 1999, $137,753,000 in 1998 and
$118,851,000 in 1997. Underwriting commissions, distribution fees and other
revenue earned from the sales of mutual fund shares were approximately
$16,606,000 in 1999, $29,097,000 in 1998 and $25,261,000 in 1997. Shareholder
services fees earned from the mutual funds were approximately $43,740,000 in
1999, $31,610,000 in 1998 and $28,002,000 in 1997.
Within the Pioneer Family of Mutual Funds, total revenues from Pioneer II
were approximately $38,963,000 in 1999, $47,535,000 in 1998 and $50,933,000 in
1997. Total revenues from Pioneer Fund were $57,201,000 in 1999, $42,323,000 in
1998 and $28,918,000 in 1997.
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 $514,000 in 1999,
$663,000 in 1998 and $635,000 in 1997.
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
$17,000 in 1999, $5,000 in 1998 and $76,000 in 1997 to Brobeck Hale and Dorr
International.
NOTE 8 -- COMMITMENTS
At December 31, 1999, the Company had $34 million of debt attributable to
its discontinued gold mining operations. Included in this amount is $9 million
from Overseas Private Investment Corporation ("OPIC") for which the Company is
subject to recourse.
The Company has committed to subscribe up to $5.7 million for Class B
shares of the Pioneer Poland Real Estate Fund, of which $0.3 million has been
contributed as of December 31, 1999.
U.S. rental expense amounted to approximately $6,004,000 in 1999,
$4,577,000 in 1998 and $3,766,000 in 1997, respectively. Future minimum payments
under the leases amount to approximately $5,563,000 in 2000, $5,445,000 in 2001,
$1,800,000 in 2002, $633,000 in 2003, $633,000 in 2004 and $1,424,000
thereafter. These future minimum rental payments include estimated annual
operating and tax expenses. In 2000, these operating and tax expenses will
approximate $2,724,000.
Rental expense for the Polish Mutual Fund operations amounted to
approximately $1,106,000, $1,100,000 and $956,000 in 1999, 1998 and 1997,
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 ICI 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.
F-17
<PAGE> 58
THE PIONEER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- NOTES PAYABLE
Notes payable of the Company consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
--------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Revolving Credit Agreement.............................. $40,000 $ 70,000
Senior note payable to a commercial lender, principal
payable on August 15, 2004, interest payable at
9.45%................................................. 20,000 20,000
Small Business Administration ("SBA") financing, notes
payable to a bank..................................... -- 3,750
Note payable to a bank, interest and principal payable
monthly at the one-month Warsaw Bank rate plus 1.75%
through August 2002................................... 275 447
Note payable to a bank, interest payable quarterly at
the three month LIBOR rate plus 6%, principal due in
eight quarterly installments through January, 1999,
secured by lease rental payments and proceeds from
insurance policies.................................... -- 456
Project financing, guaranteed by OPIC, payable in
semiannual installments of $620,000 through December
15, 2003, interest payable at 9.95%................... 4,960 6,200
------- --------
65,235 100,853
Less: Current portion................................... (1,343) (1,818)
------- --------
$63,892 $ 99,035
======= ========
</TABLE>
Maturities of notes payable at December 31, 1999, for each of the next five
years and thereafter are as follows (dollars in thousands):
<TABLE>
<S> <C>
2000....................................................... $ 1,343
2001....................................................... 41,343
2002....................................................... 1,309
2003....................................................... 1,240
2004....................................................... 20,000
Thereafter................................................. --
-------
$65,235
=======
</TABLE>
The Company entered into an agreement in 1996 with a syndicate of
commercial banks for a senior credit facility (the "Credit Facility"). The
Credit Facility was amended in 1999. The amendments reduced the maximum amount
of revolving credit and increased the pricing. The following information
reflects the amended terms. The Credit Facility provides that the Company may
borrow up to $55 million for general corporate purposes (the "Corporate
Revolver"). The Corporate Revolver is payable in full in March 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 2.75%. 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, 1999, the Company had borrowed $40 million under the
Corporate Revolver.
The Credit Facility, as amended, contains restrictions that limit, among
other things, encumbrances on the assets of the Company's domestic mutual fund
subsidiaries, certain mergers and sales of assets and cash expenditures on
foreign operations. Additionally, the Credit Facility requires that the Company
meet certain
F-18
<PAGE> 59
THE PIONEER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
financial covenants, including covenants that require the Company to maintain
certain minimum ratios with respect to debt to cash flow and interest payments
to cash flow and a minimum tangible net worth, all as defined in the Credit
Facility. As of December 31, 1999, the Company was in compliance with all
applicable covenants, as amended. For the years ended December 31, 1999, 1998
and 1997, the weighted average interest rate on the borrowings under the Credit
Facility and lines of credit outstanding was 9.2%, 7.3% and 7.2%, respectively.
In the second quarter of 1999, the Company terminated $40 million of
overhedged swaps and recognized $426,000 of income on the transaction. As of
December 31, 1999, the Company had two five-year interest rate swap agreements
with a member of the Company's banking syndicate which has effectively fixed the
interest rate on notional amounts totaling $60 million. Under these agreements,
the Company will pay the bank a weighted average fixed rate of 6.9% on the
notional principal. The bank will pay the Company interest on the notional
principal at the current variable base rate stated under the swap agreements.
The Company has incurred approximately $1,127,000, $1,220,000 and $976,000 of
interest expense on its swap agreements during 1999, 1998 and 1997,
respectively. At December 31, 1999, the Company had $20 million of overhedged
swaps that the Company is marking to market in accordance with generally
accepted accounting principles. At December 31, 1999, the fair value of the
swaps was an obligation of ($359,000), compared to a book value of ($95,000). 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 9.45% per annum, have a maturity of seven years.
Certain covenants of the Senior Notes were also amended in November 1999. The
amended restrictions and financial covenants under the Note Agreement are
substantially similar to the amended restrictions and financial covenants under
the Credit Facility.
F-19
<PAGE> 60
THE PIONEER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- 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, 1999 and 1998, the Company's minority interest liability
consisted of the following:
<TABLE>
<CAPTION>
1999 1998
--------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Russian investment operations........................... $15,716 $ 15,433
Polish brokerage operations............................. -- 4
Poland Fund -- venture capital.......................... 46,486 45,649
Pioneer Ventures Limited Partnerships -- venture
capital............................................... -- 43,325
------- --------
Totals.................................................. $62,202 $104,411
======= ========
</TABLE>
NOTE 11 -- DISCONTINUED OPERATIONS
In the second quarter of 1999, the Company reflected the gold mining
segment as a discontinued operation. The gold mining segment consists of Pioneer
Goldfields Ltd. ("PGL") and its 90%-owned Ghanaian operating subsidiary,
Teberebie Goldfields Ltd. ("TGL"), and Closed Joint-Stock Company "Tas-Yurjah
Mining Company," the Company's majority owned (95%) Russian subsidiary. The
Company engaged the services of an investment banking firm to sell PGL,
including its African exploration rights and its interest in TGL. The Company
continues to actively negotiate a possible sale, although it can provide no
assurance that a sale will occur. Regardless if a sale is consummated or not, it
is proceeding with an orderly closure of the mine. All mining operations ceased
at the end of 1999, and all processing activities will be completed by the end
of the first half of 2000.
The Company also reflected its powdered metals and Russian banking
operations as discontinued operations in the second quarter of 1999 and the
third quarter of 1998, respectively. Losses from the Company's discontinued
operations for 1999 of $73.7 million include $53.6 million from the estimated
loss on disposition of the gold mining segment, principally from the impairment
of long-lived assets. Losses of discontinued gold mining and powdered metals
segments for the years ending December 31, 1999, 1998 and 1997, respectively, as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
-------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Losses from operations of discontinued gold mining
segment, net of taxes of ($371), ($7,186) and
($426)............................................ $(18,705) $(19,788) $(2,344)
Estimated loss on disposal of gold mining segment,
net of taxes of ($14,200)......................... (53,580) -- --
Loss from operations of discontinued powdered metals
business, net of taxes of ($85), ($427) and
($112)............................................ (498) (830) (186)
Loss on disposal of powdered metals business, net of
taxes of ($154)................................... (899) -- --
-------- -------- -------
Total loss from discontinued operations............. $(73,682) $(20,618) $(2,530)
======== ======== =======
</TABLE>
F-20
<PAGE> 61
THE PIONEER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Operating results of the discontinued gold mining operations for the years
ended December 31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
-------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues from gold mining activities................ $ 76,669 $ 77,329 $89,487
-------- -------- -------
Loss before income tax benefit and minority
interest.......................................... (88,882) (29,066) (2,326)
-------- -------- -------
Income tax benefit.................................. 14,571 7,186 426
Minority interest................................... 2,026 2,092 (444)
-------- -------- -------
Net loss from discontinued operations............... $(72,285) $(19,788) $(2,344)
======== ======== =======
</TABLE>
Results of the discontinued gold mining operations include an allocation of
directly attributable corporate interest expense of $995,000, $676,000 and
$210,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
Interest expense was allocated based upon the intercompany financing provided to
the gold mining operations.
Through September 30, 1998, the Company purchased put options as
"insurance" against significant declines in the market price of gold. During
1998 and 1997, put option proceeds of approximately $3.2 million and $4 million,
respectively, were received.
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 continuing operations and reported separately
on the consolidated statements of operations for all periods presented. The 1998
loss included a provision of approximately $3,600,000 for 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. A liability of $0.4 million
was recorded at December 31, 1998 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 and 1997,
respectively.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Revenues from banking activities....................... $ 2,150 $12,324
------- -------
Loss before income taxes and minority interest......... (9,589) (1,376)
Income tax benefit..................................... 311 117
------- -------
Loss from discontinued operations before minority
interest............................................. (9,278) (1,259)
Minority interest...................................... (2,829) (712)
------- -------
Net loss from discontinued operations.................. $(6,449) $ (547)
======= =======
</TABLE>
NOTE 12 -- 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
F-21
<PAGE> 62
THE PIONEER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 and 1997, the
Company paid Class B share dealer advances in the amount of $20.8 million and
$16.3 million, respectively.
In 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 operations. 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 13 -- DIVESTITURES
In the first quarter of 1999, the Company sold its U.S. venture capital
business to a third party for $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 served as an investment vehicle for a number of institutional investors.
In connection with the sale, the Company incurred a net loss of $3.4 million,
which included certain costs associated with the transaction. The net loss is
included in unrealized and realized (gains) losses on venture capital and
marketable securities, net, in the accompanying consolidated statements of
operations.
In the fourth quarter of 1999, the Company sold its interest in the Polish
brokerage business to an unrelated third party for $1.8 million. As a result of
the transaction, the Company recognized a gain of $1.2 million. The gain is
included in management, distribution, shareholder service and administrative
expenses in the accompanying consolidated statements of operations.
NOTE 14 -- FINANCIAL INFORMATION BY BUSINESS SEGMENT
The Company presents its segment information for continuing operations
using the management approach. The management approach is based on the way that
management organizes the segments within a Company for making operating
decisions and assessing performance. The Company's operating segments are
organized around services and products provided, as well as geographic regions.
The intersegment transactions are for management services and the secondment of
employees. These transactions are generally priced on a cost or cost plus basis.
F-22
<PAGE> 63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14 -- FINANCIAL INFORMATION BY BUSINESS SEGMENT -- (CONTINUED)
The following details selected financial information by business segment
and geographic region (dollars in thousands):
<TABLE>
<CAPTION>
PIONEER INTERNATIONAL FINANCIAL SERVICES
------------------------------------------------------------
PIONEER SUBTOTAL-PIONEER
INVESTMENT CZECH INTERNATIONAL
MANAGEMENT RUSSIA POLAND REPUBLIC ASIA FINANCIAL SERVICES
---------- -------- -------- -------- ------ ------------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999:
Gross revenues and sales................. $ 208,897 $ 11,448 $ 16,658 $ 2,037 $ -- $ 30,143
========= ======== ======== ======= ====== ========
Intersegment eliminations................ $ (4,988) $ (731) $ (359) $ -- $ -- $ (1,090)
========= ======== ======== ======= ====== ========
Net revenues and sales................... $ 203,909 $ 10,717 $ 16,299 $ 2,037 $ -- $ 29,053
========= ======== ======== ======= ====== ========
Income (loss) before income taxes,
minority interest and cumulative effect
of accounting change..................... $ 53,965 $ (2,074) $(12,653) $ (630) $ (425) $(15,782)
========= ======== ======== ======= ====== ========
Income taxes............................. $ 18,594 $ (804) $ (902) $ (236) $ (149) $ (2,091)
========= ======== ======== ======= ====== ========
Minority interest........................ $ -- $ 282 $ (130) $ -- $ -- $ 152
========= ======== ======== ======= ====== ========
Net income (loss) before cumulative
effect of accounting change.............. $ 35,371 $ (1,552) $(11,621) $ (394) $ (276) $(13,843)
========= ======== ======== ======= ====== ========
Cumulative effect of change in accounting
principle................................ $ (205) $ (521) $ -- $ (14) $ -- $ (535)
========= ======== ======== ======= ====== ========
Net income (loss)........................ $ 35,166 $ (2,073) $(11,621) $ (408) $ (276) $(14,378)
========= ======== ======== ======= ====== ========
Depreciation and amortization............ $ 13,472 $ 1,721 $ 1,233 $ 86 $ -- $ 3,040
========= ======== ======== ======= ====== ========
Interest expense......................... $ -- $ 10 $ 60 $ 1 $ -- $ 71
========= ======== ======== ======= ====== ========
Capital expenditures..................... $ 4,977 $ 595 $ -- $ 16 $ -- $ 611
========= ======== ======== ======= ====== ========
Gross identifiable assets at December 31,
1999..................................... $ 231,325 $ 46,616 $ 5,825 $ 1,099 $ -- $ 53,540
========= ======== ======== ======= ====== ========
Intersegment eliminations................ $(125,839) $ (97) $ -- $ (5) $ -- $ (102)
========= ======== ======== ======= ====== ========
Net identifiable assets at December 31,
1999..................................... $ 105,486 $ 46,519 $ 5,825 $ 1,094 $ -- $ 53,438
========= ======== ======== ======= ====== ========
YEAR ENDED DECEMBER 31, 1998:
Gross revenues and sales................. $ 217,544 $ 10,289 $ 13,685 $ 1,641 $ -- $ 25,615
========= ======== ======== ======= ====== ========
Intersegment eliminations................ $ (9,521) $ -- $ -- $ -- $ -- $ --
========= ======== ======== ======= ====== ========
Net revenues and sales................... $ 208,023 $ 10,289 $ 13,685 $ 1,641 $ -- $ 25,615
========= ======== ======== ======= ====== ========
Income (loss) before income taxes and
minority interest........................ $ 57,172 $(23,857) $ (2,660) $ (937) $ (859) $(28,313)
========= ======== ======== ======= ====== ========
Income taxes............................. $ 21,191 $ (2,893) $ 744 $ (174) $ (344) $ (2,667)
========= ======== ======== ======= ====== ========
Minority interest........................ $ -- $ (7,961) $ (13) $ -- $ -- $ (7,974)
========= ======== ======== ======= ====== ========
Net income (loss)........................ $ 35,981 $(13,003) $ (3,391) $ (763) $ (515) $(17,672)
========= ======== ======== ======= ====== ========
Depreciation and amortization............ $ 21,234 $ 1,407 $ 1,777 $ 132 $ -- $ 3,316
========= ======== ======== ======= ====== ========
Interest expense......................... $ 3,308 $ 328 $ 59 $ -- $ -- $ 387
========= ======== ======== ======= ====== ========
Capital expenditures..................... $ 7,597 $ 3,147 $ 1,737 $ 132 $ -- $ 5,016
========= ======== ======== ======= ====== ========
Gross identifiable assets at December 31,
1998..................................... $ 209,754 $ 49,855 $ 23,198 $ 1,148 $ -- $ 74,201
========= ======== ======== ======= ====== ========
<CAPTION>
PIONEER GLOBAL INVESTMENTS
--------------------------------------------------------------------------
CENT. & EAST.
EUROPE SUBTOTAL-PIONEER
REAL ESTATE U.S. VENTURE VENTURE RUSSIAN GLOBAL
SERVICES CAPITAL CAPITAL TIMBER INVESTMENTS OTHER
----------- ------------ --------------- -------- ---------------- --------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999:
Gross revenues and sales................. $ 1,737 $ 109 $ 1,235 $ 14,383 $ 17,464 $ 9,156
======= ======= ======== ======== ======== ========
Intersegment eliminations................ $ (243) $ -- $ (279) $ -- $ (522) $ (9,156)
======= ======= ======== ======== ======== ========
Net revenues and sales................... $ 1,494 $ 109 $ 956 $ 14,383 $ 16,942 $ --
======= ======= ======== ======== ======== ========
Income (loss) before income taxes,
minority interest and cumulative effect
of accounting change..................... $(4,746) $(4,151) $ 515 $ (7,992) $(16,374) $ (7,389)
======= ======= ======== ======== ======== ========
Income taxes............................. $(1,268) $(1,882) $ (69) $ (1,336) $ (4,555) $ (2,692)
======= ======= ======== ======== ======== ========
Minority interest........................ $ -- $ 1,349 $ 838 $ -- $ 2,187 $ --
======= ======= ======== ======== ======== ========
Net income (loss) before cumulative
effect of accounting change.............. $(3,478) $(3,618) $ (254) $ (6,656) $(14,006) $ (4,697)
======= ======= ======== ======== ======== ========
Cumulative effect of change in accounting
principle................................ $ (115) $ (182) $ (382) $(10,693) $(11,372) $ --
======= ======= ======== ======== ======== ========
Net income (loss)........................ $(3,593) $(3,800) $ (636) $(17,349) $(25,378) $ (4,697)
======= ======= ======== ======== ======== ========
Depreciation and amortization............ $ 126 $ (128) $ 12 $ 2,327 $ 2,337 $ 131
======= ======= ======== ======== ======== ========
Interest expense......................... $ 7 $ 234 $ -- $ 586 $ 827 $ 6,115
======= ======= ======== ======== ======== ========
Capital expenditures..................... $ (112) $ -- $ 4 $ 3,127 $ 3,019 $ (12)
======= ======= ======== ======== ======== ========
Gross identifiable assets at December 31,
1999..................................... $ 1,571 $ -- $ 52,176 $ 41,323 $ 95,070 $ 13,161
======= ======= ======== ======== ======== ========
Intersegment eliminations................ $ -- $ -- $ (279) $ -- $ (279) $ (5,368)
======= ======= ======== ======== ======== ========
Net identifiable assets at December 31,
1999..................................... $ 1,571 $ -- $ 51,897 $ 41,323 $ 94,791 $ 7,793
======= ======= ======== ======== ======== ========
YEAR ENDED DECEMBER 31, 1998:
Gross revenues and sales................. $ 1,208 $ 1,666 $ 4,668 $ 10,451 $ 17,993 $ 12,747
======= ======= ======== ======== ======== ========
Intersegment eliminations................ $ -- $ -- $ (4,086) $ -- $ (4,086) $(12,747)
======= ======= ======== ======== ======== ========
Net revenues and sales................... $ 1,208 $ 1,666 $ 582 $ 10,451 $ 13,907 $ --
======= ======= ======== ======== ======== ========
Income (loss) before income taxes and
minority interest........................ $(3,939) $15,443 $(11,207) $(23,250) $(22,953) $ (7,272)
======= ======= ======== ======== ======== ========
Income taxes............................. $(1,074) $ 2,347 $ (3,074) $ (4,548) $ (6,349) $ (2,791)
======= ======= ======== ======== ======== ========
Minority interest........................ $ -- $ 9,800 $ (6,175) $ -- $ 3,625 $ --
======= ======= ======== ======== ======== ========
Net income (loss)........................ $(2,865) $ 3,296 $ (1,958) $(18,702) $(20,229) $ (4,481)
======= ======= ======== ======== ======== ========
Depreciation and amortization............ $ 108 $ 183 $ 371 $ 5,481 $ 6,143 $ 133
======= ======= ======== ======== ======== ========
Interest expense......................... $ 24 $ 333 $ -- $ 4,211 $ 4,568 $ 3,634
======= ======= ======== ======== ======== ========
Capital expenditures..................... $ -- $ 21 $ -- $ 4,988 $ 5,009 $ --
======= ======= ======== ======== ======== ========
Gross identifiable assets at December 31,
1998..................................... $ 6,311 $86,602 $ 49,323 $ 52,921 $195,157 $ 32,669
======= ======= ======== ======== ======== ========
<CAPTION>
TOTAL
---------
<S> <C>
YEAR ENDED DECEMBER 31, 1999:
Gross revenues and sales................. $ 265,660
=========
Intersegment eliminations................ $ (15,756)
=========
Net revenues and sales................... $ 249,904
=========
Income (loss) before income taxes,
minority interest and cumulative effect
of accounting change..................... $ 14,420
=========
Income taxes............................. $ 9,256
=========
Minority interest........................ $ 2,339
=========
Net income (loss) before cumulative
effect of accounting change.............. $ 2,825
=========
Cumulative effect of change in accounting
principle................................ $ (12,112)
=========
Net income (loss)........................ $ (9,287)
=========
Depreciation and amortization............ $ 18,980
=========
Interest expense......................... $ 7,013
=========
Capital expenditures..................... $ 8,595
=========
Gross identifiable assets at December 31,
1999..................................... $ 393,096
=========
Intersegment eliminations................ $(131,588)
=========
Net identifiable assets at December 31,
1999..................................... $ 261,508
=========
YEAR ENDED DECEMBER 31, 1998:
Gross revenues and sales................. $ 273,899
=========
Intersegment eliminations................ $ (26,354)
=========
Net revenues and sales................... $ 247,545
=========
Income (loss) before income taxes and
minority interest........................ $ (1,366)
=========
Income taxes............................. $ 9,384
=========
Minority interest........................ $ (4,349)
=========
Net income (loss)........................ $ (6,401)
=========
Depreciation and amortization............ $ 30,826
=========
Interest expense......................... $ 11,897
=========
Capital expenditures..................... $ 17,622
=========
Gross identifiable assets at December 31,
1998..................................... $ 511,781
=========
</TABLE>
F-23
<PAGE> 64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
PIONEER INTERNATIONAL FINANCIAL SERVICES
------------------------------------------------------------
PIONEER SUBTOTAL-PIONEER
INVESTMENT CZECH INTERNATIONAL
MANAGEMENT RUSSIA POLAND REPUBLIC ASIA FINANCIAL SERVICES
---------- -------- -------- -------- ------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Intersegment eliminations................ $(116,971) $ (143) $ -- $ (86) $ -- $ (229)
========= ======== ======== ======= ====== ========
Net identifiable assets at December 31,
1998..................................... $ 92,783 $ 49,712 $ 23,198 $ 1,062 $ -- $ 73,972
========= ======== ======== ======= ====== ========
YEAR ENDED DECEMBER 31, 1997:
Gross revenues and sales................. $ 176,900 $ 42,384 $ 14,542 $ 1,046 $ -- $ 57,972
========= ======== ======== ======= ====== ========
Intersegment eliminations................ $ (8,427) $ (188) $ -- $ -- $ -- $ (188)
========= ======== ======== ======= ====== ========
Net revenues and sales................... $ 168,473 $ 42,196 $ 14,542 $ 1,046 $ -- $ 57,784
========= ======== ======== ======= ====== ========
Income (loss) before income taxes and
minority interest........................ $ 51,654 $ 14,187 $ 2,409 $(1,406) $ -- $ 15,190
========= ======== ======== ======= ====== ========
Income taxes............................. $ 20,086 $ 5,528 $ 1,114 $ (162) $ -- $ 6,480
========= ======== ======== ======= ====== ========
Minority interest........................ $ -- $ 2,798 $ (52) $ -- $ -- $ 2,746
========= ======== ======== ======= ====== ========
Net income (loss)........................ $ 31,568 $ 5,861 $ 1,347 $(1,244) $ -- $ 5,964
========= ======== ======== ======= ====== ========
Depreciation and amortization............ $ 17,509 $ 1,522 $ 625 $ 280 $ -- $ 2,427
========= ======== ======== ======= ====== ========
Interest expense......................... $ 2,885 $ 226 $ 6 $ -- $ -- $ 232
========= ======== ======== ======= ====== ========
Capital expenditures..................... $ 7,405 $ 3,561 $ 322 $ -- $ -- $ 3,883
========= ======== ======== ======= ====== ========
Gross identifiable assets at December 31,
1997..................................... $ 263,073 $ 91,809 $ 16,308 $ 237 $ -- $108,354
========= ======== ======== ======= ====== ========
Intersegment eliminations................ $(130,575) $ (3,880) $ -- $ -- $ -- $ (3,880)
========= ======== ======== ======= ====== ========
Net identifiable assets at December 31,
1997..................................... $ 132,498 $ 87,929 $ 16,308 $ 237 $ -- $104,474
========= ======== ======== ======= ====== ========
<CAPTION>
PIONEER GLOBAL INVESTMENTS
--------------------------------------------------------------------------
CENT. & EAST.
EUROPE SUBTOTAL-PIONEER
REAL ESTATE U.S. VENTURE VENTURE RUSSIAN GLOBAL
SERVICES CAPITAL CAPITAL TIMBER INVESTMENTS OTHER
----------- ------------ --------------- -------- ---------------- --------
<S> <C> <C> <C> <C> <C> <C>
Intersegment eliminations................ $ (953) $ (7) $ -- $ -- $ (960) $(24,332)
======= ======= ======== ======== ======== ========
Net identifiable assets at December 31,
1998..................................... $ 5,358 $86,595 $ 49,323 $ 52,921 $194,197 $ 8,337
======= ======= ======== ======== ======== ========
YEAR ENDED DECEMBER 31, 1997:
Gross revenues and sales................. $ 543 $ 1,828 $ 603 $ 11,879 $ 14,853 $ 9,667
======= ======= ======== ======== ======== ========
Intersegment eliminations................ $ -- $ -- $ (81) $ -- $ (81) $ (9,667)
======= ======= ======== ======== ======== ========
Net revenues and sales................... $ 543 $ 1,828 $ 522 $ 11,879 $ 14,772 $ --
======= ======= ======== ======== ======== ========
Income (loss) before income taxes and
minority interest........................ $(2,939) $14,678 $ (2,454) $ (6,996) $ 2,289 $ (3,323)
======= ======= ======== ======== ======== ========
Income taxes............................. $(1,035) $ 4,348 $ 297 $ (270) $ 3,340 $ (1,704)
======= ======= ======== ======== ======== ========
Minority interest........................ $ -- $ 4,005 $ (1,386) $ -- $ 2,619 $ --
======= ======= ======== ======== ======== ========
Net income (loss)........................ $(1,904) $ 6,325 $ (1,365) $ (6,726) $ (3,670) $ (1,619)
======= ======= ======== ======== ======== ========
Depreciation and amortization............ $ 55 $ 176 $ 214 $ 2,871 $ 3,316 $ 399
======= ======= ======== ======== ======== ========
Interest expense......................... $ -- $ 402 $ -- $ 3,045 $ 3,447 $ 2,065
======= ======= ======== ======== ======== ========
Capital expenditures..................... $ 344 $ 38 $ 34 $ 5,206 $ 5,622 $ 177
======= ======= ======== ======== ======== ========
Gross identifiable assets at December 31,
1997..................................... $ 7,173 $77,101 $ 28,767 $ 50,998 $164,039 $ 24,199
======= ======= ======== ======== ======== ========
Intersegment eliminations................ $(1,847) $ (7) $ -- $ -- $ (1,854) $(19,302)
======= ======= ======== ======== ======== ========
Net identifiable assets at December 31,
1997..................................... $ 5,326 $77,094 $ 28,767 $ 50,998 $162,185 $ 4,897
======= ======= ======== ======== ======== ========
<CAPTION>
TOTAL
---------
<S> <C>
Intersegment eliminations................ $(142,492)
=========
Net identifiable assets at December 31,
1998..................................... $ 369,289
=========
YEAR ENDED DECEMBER 31, 1997:
Gross revenues and sales................. $ 259,392
=========
Intersegment eliminations................ $ (18,363)
=========
Net revenues and sales................... $ 241,029
=========
Income (loss) before income taxes and
minority interest........................ $ 65,810
=========
Income taxes............................. $ 28,202
=========
Minority interest........................ $ 5,365
=========
Net income (loss)........................ $ 32,243
=========
Depreciation and amortization............ $ 23,651
=========
Interest expense......................... $ 8,629
=========
Capital expenditures..................... $ 17,087
=========
Gross identifiable assets at December 31,
1997..................................... $ 559,665
=========
Intersegment eliminations................ $(155,611)
=========
Net identifiable assets at December 31,
1997..................................... $ 404,054
=========
</TABLE>
F-24
<PAGE> 1
Exhibit 3.2
BY-LAWS
OF
THE PIONEER GROUP, INC.
ARTICLE 1 - Stockholders
-------------------------------
1.1 Place of Meetings. All meetings of stockholders shall be held at such
place within or without the State of Delaware as may be designated from time to
time by the Board of Directors or the President or, if not so designated, at the
registered office of the corporation.
1.2 Annual Meeting.
(a) The annual meeting of stockholders for the election of directors
and for the transaction of such other business as may properly be brought before
the meeting shall be held on the second Tuesday in May in each year, at a time
fixed by the Board of Directors or the President. If this date shall fall upon a
legal holiday at the place of the meeting, then such meeting shall be held on
the next succeeding business day at the same hour. If no annual meeting is held
in accordance with the foregoing provisions, the Board of Directors shall cause
the meeting to be held as soon thereafter as convenient.
(b) Notice of Business at Annual Meetings. At an annual meeting of
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
such business must be (i) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (ii) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors, or (iii) otherwise properly brought before the meeting by a
stockholder. For business to be properly brought before an annual meeting by a
stockholder, if such business relates to the election of directors of the
Corporation, the procedures in subsection (c) of this Section 1.2 must be
complied with. If such business relates to any other matter, the stockholder
must have given timely notice thereof in writing to the Secretary. To be timely,
a stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation not less than 60 days nor more
than 90 days prior to the meeting; provided, however, that in the event that
less than 70 days' notice or prior public disclosure of the date of the meeting
is given or made to stockholders, notice by the stockholder to be timely must be
so received not later than the close of business on the 10th day following the
date on which such notice of the date of the meeting was mailed or such public
disclosure was made, whichever occurs first. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting (a) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (b) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business, (c) the class
and number of shares of the Corporation which are beneficially owned by the
stockholder, and (d) any material interest of the stockholder in such business.
Notwithstanding anything in the By-laws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedure set
forth in this Section 1.2(b) and except that any stockholder proposal which
complies with Rule 14a-8 of the
<PAGE> 2
proxy rules (or any successor provisions) promulgated under the Securities
Exchange Act of 1934, as amended, and is to be included in the Corporation's
proxy statement for an annual meeting of stockholders shall be deemed to comply
with the requirements of this Section 1.2(b).
(c) Nomination of Directors. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors. Nomination for election to the Board of Directors of the Corporation
at an annual meeting of stockholders may be made by the Board of Directors or by
any stockholder of the Corporation entitled to vote for the election of
directors at such meeting who complies with the notice procedures set forth in
this Section 1.2(c). Such nominations, other than those made by or on behalf of
the Board of Directors, shall be made by notice in writing delivered or mailed
by first class United States mail, postage prepaid, to the Secretary, and
received not less than 60 days nor more than 90 days prior to such meeting;
provided, however, that if less than 70 days' notice or prior public disclosure
of the date of the meeting is given to stockholders, such nomination shall have
been mailed or delivered to the Secretary not later than the close of business
on the 10th day following the day on which the notice of the meeting was mailed
or such public disclosure was made, whichever occurs first. Such notice shall
set forth (i) as to each proposed nominee, (A) the name, age, business address
and, if known, residence address of each such nominee, (B) the principal
occupation or employment of each such nominee, (C) the number of shares of stock
of the Corporation which are beneficially owned by each such nominee, and (D)
any other information concerning the nominee that must be disclosed as to
nominees in proxy solicitations pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (including such person's written consent to be
named as a nominee and to serve as a director if elected); and (ii) as to the
stockholder giving the notice (A) the name and address, as they appear on the
Corporation's books, of such stockholder and (B) the class and number of shares
of the Corporation which are beneficially owned by such stockholder. The
Corporation may require any proposed nominee to furnish such other information
as may reasonably be required by the Corporation to determine the eligibility of
such proposed nominee to serve as a director of the Corporation.
The Chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
1.3 Special Meetings. Special meetings of stockholders may be called at
any time by the President or by the Board of Directors. Special meetings of
stockholders shall be called by the President or Secretary upon the written
request of one or more stockholders who hold in the aggregate at least ten
percent of the shares of the capital stock entitled to vote at the meeting; such
request must state the purpose or purposes of the proposed meeting. Business
transacted at any special meeting of stockholders shall be limited to matters
relating to the purpose or purposes stated in the notice of meeting.
1.4 Notice of Meetings. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The
-2-
<PAGE> 3
notices of all meetings shall state the place, date and hour of the meeting. The
notice of a special meeting shall state, in addition, the purpose or purposes
for which the meeting is called. If mailed, notice is given when deposited in
the United States mail, postage prepaid, directed to the stockholder at his
address as it appears on the records of the corporation.
1.5 Voting List. The officer who has charge of the stock ledger of the
corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, at a place within the city where the meeting is to
be held. The list shall also be produced and kept at the time and place of the
meeting during the whole time of the meeting, and may be inspected by any
stockholder who is present.
1.6 Quorum. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 Adjournments. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be held
under these By-Laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present., by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
1.8 Voting and Proxies. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
in the Certificate of Incorporation. Each stockholder of record entitled to vote
at a meeting of stockholders, or to express consent or dissent to corporate
action in writing without a meeting, may vote or express such consent or dissent
in person or may authorize another person or persons to vote or act for him by
written proxy executed by the stockholder or his authorized agent and delivered
to the Secretary of the corporation. No such proxy shall be voted or acted upon
after three years from the date of its execution, unless the proxy expressly
provides for a longer period.
1.9 Action at Meeting. When a quorum is present at any meeting, the
holders of a majority of the stock present or represented and voting on a matter
(or if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of a majority of the
stock of that class present or represented and voting on a matter) shall decide
any matter to be voted upon by the stockholders at such meeting, except when a
different vote is required by express provision of law, the Certificate of
Incorporation or these
-3-
<PAGE> 4
By-Laws. Any election by stockholders shall be determined by a plurality of the
votes cast by the stockholders entitled to vote at the election.
1.10 Action without Meeting. Any action required or permitted to be taken
at any annual or special meeting of stockholders of the corporation may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, is signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote on such action were present and voted. Prompt notice of the
taking of corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
ARTICLE 2 - Directors
---------------------------
2.1 General Powers. The business and affairs of the corporation shall be
managed by or under the direction of a Board of Directors, who may exercise all
of the powers of the corporation except as otherwise provided by law, the
Certificate of Incorporation or these By-Laws. In the event of a vacancy in the
Board of Directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full Board until the vacancy is filled.
2.2 Number; Election; Tenure and Qualification. The number of directors
which shall constitute the whole Board shall be fixed by resolution of the Board
of Directors, but in no event shall be less than one. Each director shall be
elected by the stockholders at the annual meeting and shall hold office until
the next annual meeting and until his successor is elected and qualified, or
until his earlier death, resignation or removal. Directors need not be
stockholders of the corporation.
2.3 Enlargement of the Board. The number of the Board of Directors may be
increased at any time by vote of a majority of the directors then in office.
2.4 Vacancies. Unless and until filled by the stockholders, any vacancy in
the Board of Directors, however occurring, including a vacancy resulting from an
enlargement of the Board, may be filled by vote of a majority of the directors
then in office, although less than a quorum, or by a sole remaining director. A
director elected to fill a vacancy shall be elected for the unexpired term of
his predecessor in office, and a director chosen to fill a position resulting
from an increase in the number of directors shall hold office until the next
annual meeting of stockholders and until his successor is elected and qualified,
or until his earlier death, resignation or removal.
2.5 Resignation and Removal. Any director may resign by delivering his
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
Any director or the entire Board of Directors may be removed, with or
without cause, by the holders of a majority of the shares then entitled to vote
at an election of directors.
-4-
<PAGE> 5
2.6 Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
2.7 Special Meetings. Special meetings of the Board of Directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, President, two or more directors, or by
one director in the event that there is only a single director in office.
2.8 Notice of Special Meetings. Notice of any special meeting of directors
shall be given to each director by the Secretary or by the officer or one of the
directors calling the meeting. Notice shall be given to each director in person,
by telephone or by telegram sent to his business or home address at least 48
hours in advance of the meeting, or by written notice mailed to his business or
home address at least 72 hours in advance of the meeting. A notice or waiver of
notice of a meeting of the Board of Directors need not specify the purposes of
the meeting.
2.9 Meetings by Telephone Conference Calls. Directors or any members of any
committee designated by the directors may participate in a meeting of the Board
of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
2.10 Quorum. A majority of the number of directors fixed pursuant to
Section 2.2 shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorum. In the absence of a quorum at
any such meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice other than announcement at the meeting,
until a quorum shall be present.
2.11 Action at Meeting. At any meeting of the Board of Directors at which
a quorum is present, the vote of a majority of those present shall be sufficient
to take any action, unless a different vote is specified by law, the Certificate
of Incorporation or these By-Laws.
2.12 Action by Consent. Any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board or committee.
-5-
<PAGE> 6
2.13 Removal. Any one or more or all of the directors may be removed, with
or without cause, by the holders of a majority of the shares then entitled to
vote at an election of directors.
2.14 Committees. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members of the committee present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors and subject to the
provisions of the General Corporation Law of the State of Delaware, shall have
and may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation and may authorize the
seal of the corporation to be affixed to all papers which may require it. Each
such committee shall keep minutes and make such reports as the Board of
Directors may from time to time request. Except as the Board of Directors may
otherwise determine, any committee may make rules for the conduct of its
business, but unless otherwise provided by the directors or in such rules, its
business shall be conducted as nearly as possible in the same manner as is
provided in these By-Laws for the Board of Directors.
2.15 Compensation of Directors. Directors may be paid such compensation
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
ARTICLE 3 - Officers
--------------------------
3.1 Enumeration. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice Chairman of the Board, and one or more Vice-Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
3.2 Election. The President, Treasurer and Secretary shall be elected
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 Qualification. The President shall be a director. No officer need be a
stockholder. Any two or more offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-Laws, each officer shall hold office until his
successor is elected and qualified,
-6-
<PAGE> 7
unless a different term is specified in the vote choosing or appointing him, or
until his earlier death, resignation or removal.
3.5 Resignation and Removal. Any officer may resign by delivering his
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
The Board of Directors, or a committee duly authorized to do so, may
remove any officer with or without cause. Except as the Board of Directors may
otherwise determine, no officer who resigns or is removed shall have any right
to any compensation as an officer for any period following his resignation or
removal, or any right to damages on account of such removal, whether his
compensation be by the month or by the year or otherwise, unless such
compensation is expressly provided in a duly authorized written agreement with
the corporation.
3.6 Vacancies. The Board of Directors may fill any vacancy occurring in
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
3.7 Chairman of the Board and Vice-Chairman of the Board. If the Board of
Directors appoints a Chairman of the Board, he shall, when present, preside at
all meetings of the Board of Directors. He shall perform such duties and possess
such powers as are usually vested in the office of the Chairman of the Board or
as may be vested in him by the Board of Directors. If the Board of Directors
appoints a Vice-Chairman of the Board, he shall, in the absence or disability of
the Chairman of the Board, perform the duties and exercise the powers of the
Chairman of the Board and shall perform such other duties and possess such other
powers as may from time to time be vested in him by the Board of Directors.
3.8 President. The President shall be the chief operating officer of the
corporation. He shall also be the chief executive officer of the corporation
unless such title is assigned to a Chairman of the Board. The President shall,
subject to the direction of the Board of Directors, have general supervision and
control of the business of the corporation. Unless otherwise provided by the
directors, he shall preside at all meetings of the stockholders and of the Board
of Directors (except as provided in Section 3.7 above). The President shall
perform such other duties and shall have such other powers as the Board of
Directors may from time to time prescribe.
3.9 Vice Presidents. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice
-7-
<PAGE> 8
President the title of Executive Vice President, Senior Vice President or any
other title selected by the Board of Directors.
3.10 Secretary and Assistant Secretaries. The Secretary shall perform such
duties and shall have such powers as the Board of Directors or the President may
from time to time prescribe. In addition, the Secretary shall perform such
duties and have such powers as are incident to the office of the secretary,
including without limitation the duty and power to give notices of all meetings
of stockholders and special meetings of the Board of Directors, to attend all
meetings of stockholders and the Board of Directors and keep a record of the
proceedings, to maintain a stock ledger and prepare lists of stockholders and
their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the President or the Secretary may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Secretary, the Assistant Secretary, (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any meeting
of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.11 Treasurer and Assistant Treasurers. The Treasurer shall perform such
duties and shall have such powers as may from time to time be assigned to him by
the Board of Directors or the President. In addition, the Treasurer shall
perform such duties and have such powers as are incident to the office of
treasurer, including without limitation the duty and power to keep and be
responsible for all funds and securities of the corporation, to deposit funds of
the corporation in depositories selected in accordance with these By-Laws, to
disburse such funds as ordered by the Board of Directors, to make proper
accounts of such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
corporation.
The Assistant Treasurers shall perform such duties and possess such powers
as the Board of Directors, the President or the Treasurer may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Treasurer, the Assistant Treasurer, (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.
3.12 Bonded Officers. The Board of Directors may require any officer to
give the corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors upon such terms and conditions
as the Board of Directors may specify, including without limitation a bond for
the faithful performance of his duties and for the restoration to the
corporation of all property in his possession or under his control belonging to
the corporation.
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3.13 Salaries. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE 4 - Capital Stock
-------------------------------
4.1 Issuance of Stock. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 Certificates of Stock. Every holder of stock of the corporation shall
be entitled to have a certificate, in such form as may be prescribed by law and
by the Board of Directors, certifying the number and class of shares owned by
him in the corporation. Each such certificate shall be signed by, or in the name
of the corporation by, the Chairman or Vice Chairman, if any, of the Board of
Directors, or the President or a Vice-President, and the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
By-Laws, applicable securities laws or any agreement among any number of
shareholders or among such holders and the corporation shall have conspicuously
noted on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restriction.
4.3 Transfers. Subject to the restrictions, if any, stated or noted on the
stock certificates, shares of stock may be transferred on the books of the
corporation by the surrender to the corporation or its transfer agent of the
certificate representing such shares properly endorsed or accompanied by a
written assignment or power of attorney properly executed, and with such proof
of authority or the authenticity of signature as the corporation or its transfer
agent may reasonably require. Except as may be otherwise required by law, by the
Certificate of Incorporation or by these By-Laws, the corporation shall be
entitled to treat the record holder of stock as shown on its books as the owner
of such stock for all purposes, including the payment of dividends and the right
to vote with respect to such stock, regardless of any transfer, pledge or other
disposition of such stock until the shares have been transferred on the books of
the corporation in accordance with the requirements of these By-Laws.
4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue a
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
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4.5 Record Date. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders or to express consent (or dissent) to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 60 days prior to any other action to
which such record date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held. The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is expressed. The record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE 5 - Indemnification
---------------------------------
5.1 Actions, Suits or Proceedings Other than by or in the Right of the
Corporation. The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was or has agreed to become a director or officer of the
Corporation, or is or was serving or has agreed to serve at the request of the
Corporation as a director, officer, employee or trustee of another corporation,
partnership, joint venture, trust or other enterprise (all such persons being
referred to hereafter as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted in such capacity, against costs, charges, expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or on his behalf in connection with such
action, suit or proceeding and any appeal therefrom, if he acted in good faith
and in a manner he reasonably believed to be, or not opposed to, the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in, or not opposed to, the best
interests of the Corporation and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Notwithstanding anything to the contrary in this Article, except as set forth in
Section 5, the Corporation shall not indemnify an Indemnitee seeking
indemnification in connection with a proceeding (or part
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thereof) initiated by the Indemnitee unless the initiation thereof was approved
by the Board of Directors of the Corporation.
5.2 Actions or Suits by or in the Right of the Corporation. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was or has agreed to become a director or officer of the
Corporation or by reason of any action alleged to have been taken or omitted in
such capacity, against costs, charges and expenses (including attorneys' fees)
actually and reasonably incurred by him or on his behalf in connection with the
defense or settlement of such action or suit and any appeal therefrom, if he
acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the Corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of Delaware or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of such liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such costs, charges and expenses which the Court of Chancery or
such other court shall deem proper.
5.3 Indemnification for Costs, Charges and Expenses of Successful Party.
Notwithstanding the other provisions of this Article, to the extent that an
Indemnitee has been successful, on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice or the settlement of an
action without admission of liability, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of any
claim, issue or matter therein, or on appeal from any such action, suit or
proceeding, he shall be indemnified against all costs, charges and expense
(including attorneys' fees) actually and reasonably incurred by him or on his
behalf in connection therewith.
5.4 Notification and Defense of Claim. As a condition precedent to his
right to be indemnified, the Indemnitee must give to the Corporation notice in
writing as soon as practicable of any action, suit, proceeding or investigation
involving him for which indemnity will or could be sought. With respect to an
action, suit, proceeding or investigation of which the Corporation is so
notified, the Corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to such Indemnitee. After notice from the
Corporation to the Indemnitee of its election so to assume such defense, the
Corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such claim,
other than as provided below in this Section. The Indemnitee shall have the
right to employ his own counsel in connection with such claim, but the fees and
expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a conflict of interest or position on any significant issue
between the Corporation and the Indemnitee in the conduct of the defense of such
action or (iii) the Corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel for the Indemnitee shall be at the expense of the Corporation, except
as
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<PAGE> 12
otherwise expressly provided by this Article. The Corporation shall not be
entitled to assume the defense of any claim brought by or on behalf of the
Corporation or as to which counsel for the Indemnitee shall have reasonably made
the conclusion provided for in (ii) above.
5.5 Advances of Costs, Charges and Expenses. In the event that the Company
does not assume the defense pursuant to Section 4 of this Article of any action,
suit, proceeding or investigation about which the Corporation receives notice
under this Article, any costs, charges and expenses (including attorneys' fees)
incurred by an Indemnitee in defending a civil or criminal action, suit,
proceeding or investigation or any appeal therefrom shall be paid by the
Corporation in advance of the final disposition of such matter, provided,
however, that the payment of such costs, charges and expenses incurred by an
Indemnitee in advance of the final disposition of such matter shall be made only
upon receipt of an undertaking by or on behalf of the Indemnitee to repay all
amounts so advanced in the event that it shall ultimately be determined that
such Indemnitee is not entitled to be indemnified by the Corporation as
authorized in this Article.
5.6 Procedure for Indemnification. Any indemnification or advancement of
expenses pursuant to Section 1, 2, 3 or 5 of this Article shall be made
promptly, and in any event within 60 days after receipt by the Corporation of
the written request of the Indemnitee, unless with respect to requests under
Section 1 or 2, a determination is made within such 60-day period by the Board
of Directors of the Corporation by a majority vote of a quorum of disinterested
directors that such Indemnitee did not meet the applicable standard of conduct
set forth in Section 1 or Section 2, as the case may be. In the event no quorum
of disinterested directors is obtainable, the Board of Directors shall promptly
direct that independent legal counsel shall determine, based on facts known to
such counsel at such time, whether such Indemnitee met the applicable standard
of conduct set forth in such Sections; and, in such event, indemnification shall
be made to the Indemnitee unless within 60 days after receipt by the Corporation
of the request by such Indemnitee for indemnification, such independent legal
counsel in a written opinion determines that the Indemnitee has not met the
applicable standard of conduct. The right to indemnification or advances as
granted by this Article shall be enforceable by the Indemnitee in any court of
competent jurisdiction if the Corporation denies such request, in whole or in
part, or if no disposition thereof is made within the 60-day period referred to
above. Such Indemnitee's costs and expenses incurred in connection with
successfully establishing his right to indemnification, in whole or in part, in
any such proceeding shall also be indemnified by the Corporation.
5.7 Subsequent Amendment. No amendment, termination or repeal of this
Article or of relevant provisions of the Delaware General Corporation Law or any
other applicable laws shall affect or diminish in any way the rights of any
Indemnitee to indemnification under the provisions hereof with respect to any
action, suit, proceeding or investigation arising out of, or relating to any
actions, transactions or facts occurring prior to the final adoption of such
amendment, termination or repeal.
5.8 Other Rights. The indemnification provided by this Article shall not
be deemed exclusive of any other rights to which an Indemnitee seeking
indemnification may be entitled under any law (common or statutory), agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in any other capacity while
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<PAGE> 13
holding office for the Corporation, and shall continue as to a person who has
ceased to be a director or officer, and shall inure to the benefit of the
estate, heirs, executors and administrators of such person. Nothing contained in
this Article shall be deemed to prohibit, and the Corporation is specifically
authorized to enter into, agreements with officers and directors providing
indemnification rights and procedures different from those set forth herein. In
addition, the Corporation, acting through its Board of Directors, may grant
indemnification rights to other employees or agents of the Corporation and such
rights may be equivalent to or greater or less than those set forth in this
Article.
5.9 Partial Indemnification. If an Indemnitee is entitled under any
provision of this Article to indemnification by the Corporation for some or a
portion of the costs, charges, expenses, judgments or fines actually and
reasonably incurred by him in the investigation, defense, appeal or settlement
of any proceeding but not, however, for the total amount thereof, the
Corporation shall nevertheless indemnify the Indemnitee for the portion of such
costs, charges, expenses, judgments or fines to which such Indemnitee is
entitled.
5.10 Insurance. The Corporation may purchase and maintain insurance, at
its expense, to protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise against any expense, liability or loss incurred by him in any
such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
5.11 Merger, Consolidation, Etc. If the Corporation is merged into or
consolidated with another corporation and the Corporation is not the surviving
corporation, or if substantially all of the assets or stock of the Corporation
is acquired by any other corporation, or in the event of any other similar
reorganization involving the Corporation, the Board of Directors of the
Corporation or the board of directors of any corporation assuming the
obligations of the Corporation shall assume the obligations of the Corporation
under this Article, with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger, consolidation, acquisition or
reorganization.
5.12 Savings Clause. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any costs,
charges, expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement with respect to any action, suit, proceeding or investigation,
whether civil, criminal or administrative, including an action by or in the
right of the Corporation, to the full extent permitted by any applicable portion
of this Article that shall not have been invalidated and to the full extent
permitted by applicable law.
5.13 Definitions. Terms used herein and defined in Section 145(h) and
Section 145(i) of the Delaware General Corporation Law shall have the respective
meanings assigned to such terms in such Section 145(h) and Section 145(i).
5.14 Subsequent Legislation. If the Delaware General Corporation Law is
amended after adoption of this Article to further expand the indemnification
permitted to Indemnitees,
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then the Corporation shall indemnify such persons to the fullest extent
permitted by the Delaware General Corporation Law, as so amended."
ARTICLE 6 - General Provisions
------------------------------------
6.1 Fiscal Year. Except as from time to time otherwise designated by the
Board of Directors, the fiscal year of the corporation shall begin on the first
day of January in each year and end on the last day of December in each year.
6.2 Corporate Seal. The corporate seal shall be in such form as shall be
approved by the Board of Directors.
6.3 Execution of Instruments. The President or the Treasurer shall have
power to execute and deliver on behalf and in the name of the corporation any
instrument requiring the signature of an officer of the corporation, except as
otherwise provided in these By-Laws, or where the execution and delivery of such
an instrument shall be expressly delegated by the Board of Directors to some
other officer or agent of the corporation.
6.4 Waiver of Notice. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these By-Laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telegraph, cable or any other
available method, whether before, at or after the time stated in such waiver, or
the appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
6.5 Voting of Securities. Except as the directors may otherwise designate,
the President or Treasurer may waive notice of, and act as, or appoint any
person or persons to act as, proxy or attorney-in-fact for this corporation
(with or without power of substitution) at, any meeting of stockholders or
shareholders of any other corporation or organization, the securities of which
may be held by this corporation.
6.6 Evidence of Authority. A certificate by the Secretary, or an Assistant
Secretary, or a temporary Secretary, as to any action taken by the stockholders,
directors, a committee or any officer or representative of the corporation shall
as to all persons who rely on the certificate in good faith be conclusive
evidence of such action.
6.7 Certificate of Incorporation. All references in these By-Laws to the
Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
6.8 Transactions with Interested Parties. No contract or transaction
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his or their votes are counted for such purpose, if:
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<PAGE> 15
(1) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board or committee
in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors,
even though the disinterested directors be less than a quorum;
(2) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of
the stockholders; or
(3) The contract or transaction is fair as to the corporation as of
the time it is authorized, approved or ratified, by the Board
of Directors, a committee of the Board of Directors, or the
stockholders.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
6.9 Severability. Any determination that any provision of these By-Laws is
for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-Laws.
6.10 Pronouns. All pronouns used in these By-Laws shall be deemed to refer
to the masculine, feminine or neuter, singular or plural, as the identity of the
person or persons may require.
ARTICLE 7 - Amendments
----------------------------
7.1 By the Board of Directors. These By-Laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
7.2 By the Stockholders. These By-Laws may be altered, amended or repealed
or new by-laws may be adopted by the affirmative vote of the holders of a
majority of the shares of the capital stock of the corporation issued and
outstanding and entitled to vote at any regular meeting of stockholders, or at
any special meeting of stockholders, provided notice of such alteration,
amendment, repeal or adoption of new by-laws shall have been stated in the
notice of such special meeting.
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Exhibit 10.87
EXECUTION COPY
--------------
THE PIONEER GROUP, INC.
CREDIT AGREEMENT
Amendment No. 9
---------------
This Agreement, dated as of November 9, 1999, is among The Pioneer
Group, Inc., a Delaware corporation (the "Company"), certain of its subsidiaries
listed on the signature pages hereto, the Lenders (as defined in the Credit
Agreement referenced below) and BankBoston, N.A., f/k/a The First National Bank
of Boston, as agent (the "Agent") for itself and the other Lenders. The parties
agree as follows:
1. Reference to Credit Agreement; Definitions. Reference is made to the
Credit Agreement dated as of June 6, 1996, among the Company, certain of its
subsidiaries, the Lenders and the Agent (as amended, modified and in effect
prior to giving effect to this Agreement, the "Credit Agreement"). Terms defined
in the Credit Agreement as amended hereby (the "Amended Credit Agreement") and
not otherwise defined herein are used herein with the meanings so defined.
Except as the context otherwise explicitly requires, the capitalized terms
"Section" and "Exhibit" refer to sections hereof and exhibits hereto.
2. Amendments to Credit Agreement. Subject to all of the terms and
conditions hereof and in reliance upon the representations and warranties set
forth in Section 3, the Credit Agreement is amended as follows, effective upon
the date (the "Amendment Date") that the conditions specified in Section 4 are
satisfied, which conditions must be satisfied no later than November 9, 1999 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, 2.75%, and (2) with respect
to each other portion of the Revolving Loan, 0.25%."
2.2. Amendment to Section 1.101. Section 1.101 of the Credit Agreement
is amended to read in its entirety as follows:
"1.101. "Maximum Amount of Revolving Credit" means the lesser of (i)
$55,000,000 or such lesser amount to which the lending commitment of
the Lenders may be reduced pursuant to Section 4, and (ii) such amount
(in a minimum amount of $10,000,000 and an integral multiple of
$5,000,000) less than the Maximum Amount of Revolving Credit then in
effect as specified by irrevocable notice from the Company to the
Agent."
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<PAGE> 2
2.3. 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)
determined in accordance with GAAP on a Consolidated basis, minus
(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 its Subsidiaries' international operations, up to an
aggregate of all such write-downs of $12,500,000."
2.4. 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) prior to September 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 September 30, 1999, at all times equal or exceed
$72,500,000; 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 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."
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<PAGE> 3
2.5. Addition of a new Section 7.9.A Section 7.9.A of the Credit
Agreement is added immediately after 7.9 to read in its entirety as follows:
"7.9.A Cash Expenditures. The Company and each of its Subsidiaries
shall restrict the net amount of cash expended on international
operations and timber operations as follows:
7.9.A.1. On and after October 1, 1999, and through March 31, 2000, the
Company and each of its Subsidiaries shall not expend cash in
connection with the Company's or any Subsidiary's international
operations that exceeds $10,000,000, net of any cash provided by such
international operations.
7.9.A.2. In the twelve (12) month period commencing April 1, 2000 and
ending March 31, 2001, the Company and each of its Subsidiaries shall
not expend cash in connection with the Company's or any Subsidiary's
international operations that in the aggregate exceeds $15,000,000, net
of any cash provided by such international operations.
7.9.A.3. On and after October 1, 1999, the Company and each of its
Subsidiaries shall not expend cash in connection with the Company's or
any Subsidiary's timber operations that exceed $3,000,000, net of any
cash provided by such timber operations.
7.9.A.4. For purposes of this Section 7.9.A, references to
international operations shall not include any operations of the
Company's Core Mutual Fund Subsidiaries and any Subsidiaries of such
Core Mutual Fund Subsidiaries."
2.6 Amendment to Exhibit 9.1.2. Exhibit 9.1.2 of the Credit Agreement
(Officers of the Company) is amended to read in its entirety as set forth on
Exhibit 9.1.2 hereto.
2.7 Amendment to Exhibit 11.1. Exhibit 11.1 of the Credit Agreement
(Percentage Interests) is amended to read in its entirety as set forth on
Exhibit 11.1 hereto.
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-
<PAGE> 4
3.2. Enforceability. The Company and each of its Subsidiaries which are
signatories hereto have duly executed and delivered this Agreement. Each of this
Agreement and the Amended Credit Agreement is the legal, valid and binding
obligation of the Company and such Subsidiaries and is enforceable in accordance
with its terms.
3.3. No Legal Obstacle to Agreements. Neither the execution, delivery
or performance of this Agreement, nor the performance of the Amended Credit
Agreement, nor the consummation of any other transaction referred to in or
contemplated by this Agreement, nor the fulfillment of the terms hereof or
thereof, has constituted or resulted in or will constitute or result in:
(1) any breach or termination of the provisions of any agreement,
instrument, deed or lease to which the Company or any
Subsidiary is a party or by which it is bound, or of the
Charter or By-laws of the Company or any Subsidiary;
(2) the violation of any law, judgment, decree or governmental
order, rule or regulation applicable to the Company or any
Subsidiary;
(3) the creation under any agreement, instrument, deed or lease
of any Lien upon any of the assets of the Company or any
Subsidiary; or
(4) any redemption, retirement or other repurchase obligation of
the Company or any Subsidiary under any Charter, By-law,
agreement, instrument, deed or lease.
No approval, authorization or other action by, or declaration to or filing with,
any governmental or administrative authority or any other Person is required to
be obtained or made by the Company or any Subsidiary in connection with the
execution, delivery and 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. After giving effect to the amendments set forth in
Section 2, no Default will exist.
3.5. Incorporation of Representations and Warranties. The
representations and warranties set forth in Section 8 of the Credit Agreement,
or in the case of the Guarantors, Section 6.6 of the Credit Agreement are true
and correct on the date hereof as if originally made on and as of the date
hereof (except to the extent any representation or warranty refers to a specific
earlier date).
4. Conditions. The effectiveness of this Agreement shall be subject to the
satisfaction of the following conditions:
4.1. 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
-4-
<PAGE> 5
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 Assets 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 30, 1999, including all
information specified in Section 7.4.2 of the Credit Agreement; provided,
however, that the Company's Form 10-Q for the fiscal year ended September 30,
1999, shall be delivered as soon as it becomes available.
(b) The Company shall have provided for the period commencing October
1, 1999 through June 30, 2000, monthly cash flow forecasts.
4.4. Fees.
(a) In accordance with their Percentage Interests, in exchange for an
affirmative vote for entering into this Agreement, the Borrower shall have paid
to the Agent for the account of the Lenders, an amount equal to 0.50% 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.
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 immediately prior to and after giving
effect to this Agreement; as of the Amendment Date, no Material Adverse Change
shall have occurred; and the Company shall have furnished to the Agent on the
Amendment Date a certificate to these effects, in substantially the form of
Exhibit 4.5, 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 which the Agent
may have requested in connection therewith, such documents, where appropriate,
to be certified by proper corporate or governmental authorities.
4.7. Legal Opinion. The Lenders shall have received from Robert P.
Nault, General Counsel of The Pioneer Group, Inc., Counsel of the Company and
the Subsidiaries, an opinion
-5-
<PAGE> 6
with respect to the transactions contemplated by this Amendment, which opinion
shall be in form and substance satisfactory to the Lenders.
4.8. Execution by Lenders. The Lenders owning at least a majority of
the Percentage Interests under the Credit Agreement shall have executed and
delivered this Agreement to the Company.
5. Further Assurances. Each of the Company and the Subsidiaries will,
promptly upon request of the Agent from time to time, execute, acknowledge and
deliver, and file and record, all such instruments and notices, and take all
such action, as the Agent deems necessary or advisable to carry out the intent
and purposes of this Agreement.
6. General. The Amended Credit Agreement and all of the other Credit
Documents are each confirmed as being in full force and effect. This Agreement,
the Amended Credit Agreement and the other Credit Documents referred to herein
or therein constitute the entire understanding of the parties with respect to
the subject matter hereof and thereof and supersede all prior and current
understandings and agreements, whether written or oral, with respect to such
subject matter. The invalidity or unenforceability of any provision hereof shall
not affect the validity or enforceability of any other term or provision hereof.
The headings in this Agreement are for convenience of reference only and shall
not alter, limit or otherwise affect the meaning hereof. Each of this Agreement
and the Amended Credit Agreement is a Credit Document and may be executed in any
number of counterparts, which together shall constitute one instrument, and
shall bind and inure to the benefit of the parties and their respective
successors and assigns, including as such successors and assigns all holders of
any 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. PIONEERING SERVICES CORPORATION
By : /s/ Eric W. Reckard By: /s/ Eric W. Reckard
-------------------------------------- -------------------------------
Title: Executive Vice President, Title: Treasurer
Chief Financial Officer and Treasurer
60 State Street
60 State Street Boston, Massachusetts 02109-1820
Boston, Massachusetts 02109-1820
PIONEER INVESTMENT MANAGEMENT, INC.
By: /s/ Eric W. Reckard
--------------------------------------
Title: Treasurer
60 State Street
Boston, Massachusetts 02109-1820
PIONEER MANAGEMENT (IRELAND) LTD.
By: /s/ John F. Cogan, Jr.
--------------------------------------
Title: Director
60 State Street
Boston, Massachusetts 02109-1820
PIONEER FUNDS DISTRIBUTOR, INC.
By: /s/ Eric W. Reckard
--------------------------------------
Title: Treasurer
60 State Street
Boston, Massachusetts 02109-1820
-7-
<PAGE> 8
BANKBOSTON, N.A.
By:/s/ Matthew Steinaway
---------------------------
Title: Vice President
Financial Institutions Division
100 Federal Street - 15th Floor
Boston, Massachusetts 02110
Telecopy: (617) 434-1537
Telex: 940581
THE BANK OF NEW YORK
By:/s/ Scott H. Buitekant
---------------------------
Title: Vice President
One Wall Street, 17th Floor
Mutual Fund Banking Division
New York, NY 10286
Telecopy: (212) 635-6348
Telex:
SOCIETE GENERALE
By:/s/ Dabney Giles Treacy
---------------------------
Title: Vice President
1221 Avenue of the Americas
New York, New York 10020
Telecopy: (212) 278-7153
-8-
<PAGE> 9
CITIZENS BANK OF MASSACHUSETTS
By:/s/ Michael St. Jean
---------------------------
Title: Vice President
100 Summer Street
Boston, MA 02110
Telecopy: (617) 338-4041
BANQUE NATIONALE DE PARIS
By: /s/ Laurent Vanderzyppe
---------------------------
Title: Vice President
By: /s/ Marguerite L. Lebon
---------------------------
Title: Assistant Vice President
499 Park Avenue, 2nd Floor
New York, 10022
Telecopy: (212) 415-9707
MELLON BANK, N.A.
By: /s/ John R. Cooper
---------------------------
Title: Vice President
One Mellon Bank Center
Mail Code: 1510370
Pittsburgh, PA 15258
Telecopy: (412) 234-8087
-9-
<PAGE> 10
EXHIBIT 4.5
OFFICER'S CERTIFICATE
Pursuant to Section 4.5 of Amendment No. 9 to Credit Agreement dated as
of November __, 1999 (the "Amendment") among The Pioneer Group, Inc., a Delaware
corporation (the "Company"), certain of its subsidiaries signatories thereto,
the Lenders and BankBoston, N.A., f/k/a The First National Bank of Boston, as
agent (the "Agent") for itself and the other Lenders, which amends the Credit
Agreement dated as of June 6, 1996 (as amended, modified and in effect after
giving effect to the Amendment, the "Credit Agreement"), among the Company,
certain of its subsidiaries signatories thereto, the Lenders and the Agent, the
Company hereby certifies that the representations and warranties contained in
Section 3 of the Amendment are true and correct on and as of the date hereof
with the same force and effect as though originally made on and as of the date
hereof; no Default exists on the date hereof or will exist after giving effect
to the Amendment; and as of the date hereof, no Material Adverse Change has
occurred; and, as of the date hereof, the aggregate investment assets under
management by the Company and its Subsidiaries equals or exceeds
$15,000,000,000.
Terms defined in the Credit Agreement and not otherwise defined herein
are used herein with the meanings so defined.
This certificate has been executed by a duly authorized Executive
Officer or Financial Officer this 9th day of November, 1999.
THE PIONEER GROUP, INC.
By: /s/ Eric W. Reckard
----------------------
Name: Eric W. Reckard
Title: Executive Vice President,
Chief Financial Officer and Treasurer
<PAGE> 11
EXHIBIT 9.1.2
OFFICERS OF THE COMPANY
1. John F. Cogan, Jr. Chairman of the Board, Chief Executive Officer and
President of the Company
2. Eric W. Reckard Executive Vice President, Chief Financial Officer
and Treasurer of the Company and Subsidiaries
3. David D. Tripple Executive Vice President of the Company and
President of Pioneer Investment Management, Inc.
and Pioneer Funds Distributor, Inc.
4. William H. Smith, Jr. Executive Vice President of the Company and
Director of Pioneering Services Corporation
5. Roger K. Leonard Managing Director and Chief Executive of Pioneer
Goldfields Limited and Managing Director of
Teberebie Goldfields Limited
-11-
<PAGE> 12
EXHIBIT 11.1
PERCENTAGE INTERESTS
<TABLE>
<CAPTION>
Total B Share Revolving Percentage
Lender Commitment Loan Loan Interest
----------------- ----------- -------- --------- ----------
<S> <C> <C> <C> <C>
BankBoston, N.A. $14,347,826.08 - $14,347,826.08 26.1%
Mellon Bank $11,956,521.74 - $11,956,521.74 21.7%
Citizens Bank of Massachusetts $ 9,565,217.39 - $ 9,565,217.39 17.4%
Societe Generale $ 7,173,913.04 - $ 7,173,913.04 13.0%
Bank of New York $ 7,173,913.04 - $ 7,173,913.04 13.0%
Bank Nationale de Paris $ 4,782,608.70 - $ 4,782,608.70 8.7%
-------------- -------------- -----
TOTAL $55,000,000.00 $55,000,000.00 100.0%
============== ==============
</TABLE>
-12-
<PAGE> 1
Exhibit 10.88
EXECUTION COPY
--------------
THE PIONEER GROUP, INC.
CREDIT AGREEMENT
Amendment No. 10
----------------
This Agreement, dated as of December 13, 1999, is among The Pioneer
Group, Inc., a Delaware corporation (the "Company"), certain of its subsidiaries
listed on the signature pages hereto, the Lenders (as defined in the Credit
Agreement referenced below) and BankBoston, N.A., f/k/a The First National Bank
of Boston, as agent (the "Agent") for itself and the other Lenders. The parties
agree as follows:
1. Reference to Credit Agreement; Definitions. Reference is made to the Credit
Agreement dated as of June 6, 1996, among the Company, certain of its
subsidiaries, the Lenders and the Agent (as amended, modified and in effect
prior to giving effect to this Agreement, the "Credit Agreement"). Terms defined
in the Credit Agreement as amended hereby (the "Amended Credit Agreement") and
not otherwise defined herein are used herein with the meanings so defined.
Except as the context otherwise explicitly requires, the capitalized terms
"Section" and "Exhibit" refer to sections hereof and exhibits hereto.
2. Amendments to Credit Agreement. Subject to all of the terms and conditions
hereof and in reliance upon the representations and warranties set forth in
Section 3, the Credit Agreement is amended as follows, effective upon the date
(the "Amendment Date") that the conditions specified in Section 4 are satisfied,
which conditions must be satisfied no later than December 13, 1999 or this
Agreement shall be of no force or effect:
2.1 Amendment of Section 1.80. Section 1.80 of the Credit Agreement is
amended to read in its entirety as follows:
"1.80. "Guarantor" means the Company and each of the Core Mutual Fund
Subsidiaries (initially other than the Excluded Subsidiaries) and other
Subsidiaries, including the Excluded Subsidiaries, from time to time
becoming party to this Agreement as a Guarantor, provided, however,
that effective on and after January 1, 1999, Pioneer Management
(Ireland) Ltd. shall no longer be a Guarantor."
2.2 Amendment of Section 1.106. Section 1.106 of the Credit Agreement
is amended to read in its entirety as follows:
"1.106 "Obligors" means (i) before January 1, 1999, the
Borrowers and the Guarantors and (ii) on and after January 1,
1999, the Borrowers, the Guarantors and Pioneer Management
(Ireland) Ltd."
-1-
<PAGE> 2
2.3. Amendment to Section 6.2. Section 6.2 of the Credit Agreement is
amended to read in its entirety as follows:
"6.2. Continuing Obligation. Each Guarantor acknowledges that the
Lenders have entered into this Agreement (and, to the extent that the
Lenders may enter into any future Credit Document, will have entered
into such agreement) in reliance on this Section 6 being a continuing
irrevocable agreement, and such Guarantor agrees that its guarantee may
not be revoked in whole or in part without the approval of the Required
Lenders. The obligations of the Guarantors hereunder shall terminate
when the commitment of the Lenders to extend credit under this
Agreement shall have terminated and all of the Credit Obligations have
been indefeasibly paid in full in immediately available funds and
discharged; provided, however, that
(i) if a claim is made upon the Lenders at any time
for repayment or recovery of any amounts or any property
received by the Lenders from any source on account of any of
the Credit Obligations and the Lenders repay or return any
amounts or property so received (including interest thereon to
the extent required to be paid by the Lenders) or
(ii) if the Lenders become liable for any part of
such claim by reason of (a) any judgment or order of any court
or administrative authority having competent jurisdiction or
(b) any settlement or compromise of any such claim,
then the Guarantors shall remain liable under this Agreement for the amounts so
repaid or returned or the amounts for which the Lenders become liable (such
amounts being deemed part of the Credit Obligations) to the same extent as if
such amounts had never been received by the Lenders, notwithstanding any
termination hereof or the cancellation of any instrument or agreement evidencing
any of the Credit Obligations. The Guarantors shall, not later than five days
after receipt of notice from the Agent, pay to the Agent an amount equal to the
amount of such repayment or return for which the Lenders have so become liable.
Payments hereunder by a Guarantor may be required by the Agent or the Required
Lenders on any number of occasions."
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
-2-
<PAGE> 3
of this Agreement, the Amended Credit Agreement and each other Credit Document
to which it is party the valid and enforceable obligations they purport to be.
3.2. Enforceability. The Company and each of its Subsidiaries which are
signatories hereto have duly executed and delivered this Agreement. Each of this
Agreement and the Amended Credit Agreement is the legal, valid and binding
obligation of the Company and such Subsidiaries and is enforceable in accordance
with its terms.
3.3. No Legal Obstacle to Agreements. Neither the execution, delivery
or performance of this Agreement, nor the performance of the Amended Credit
Agreement, nor the consummation of any other transaction referred to in or
contemplated by this Agreement, nor the fulfillment of the terms hereof or
thereof, has constituted or resulted in or will constitute or result in:
(1) any breach or termination of the provisions of any agreement,
instrument, deed or lease to which the Company or any Subsidiary is a
party or by which it is bound, or of the Charter or By-laws of the
Company or any Subsidiary;
(2) the violation of any law, judgment, decree or governmental order,
rule or regulation applicable to the Company or any Subsidiary;
(3) the creation under any agreement, instrument, deed or lease of any
Lien upon any of the assets of the Company or any Subsidiary; or
(4) any redemption, retirement or other repurchase obligation of the
Company or any Subsidiary under any Charter, By-law, agreement,
instrument, deed or lease.
No approval, authorization or other action by, or declaration to or filing with,
any governmental or administrative authority or any other Person is required to
be obtained or made by the Company or any Subsidiary in connection with the
execution, delivery and 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. Prior to and after giving effect to the amendments set
forth in Section 2, no Default will exist.
3.5. Incorporation of Representations and Warranties. The
representations and warranties set forth in Section 8 of the Credit Agreement,
or in the case of the Guarantors, Section 6.6 of the Credit Agreement are true
and correct on the date hereof as if originally made on and as of the date
hereof (except to the extent any representation or warranty refers to a specific
earlier date).
-3-
<PAGE> 4
3.6. Income of Released Guarantor. The Company projects that the
operating income of Pioneer Management (Ireland) Ltd. for the fiscal year 1999
and fiscal year 2000 will be less than $2 million.
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 release Pioneer
Management (Ireland) Ltd. as a Guarantor on terms and conditions shall be
satisfactory to the Lenders.
4.2. Investment Assets 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. Fees.
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.
4.4. Officer's Certificate. The representations and warranties
contained in Section 3 shall be true and correct as of the Amendment Date with
the same force and effect as though originally made on and as of such date; no
Default shall exist on the Amendment Date immediately prior to and after giving
effect to this Agreement; as of the Amendment Date, no Material Adverse Change
shall have occurred; and the Company shall have furnished to the Agent on the
Amendment Date a certificate to these effects, in substantially the form of
Exhibit 4.5, signed by an Executive Officer or a Financial Officer.
4.5. Proper Proceedings. All proper corporate proceedings shall have
been taken by each of the Company and the Subsidiaries to authorize this
Agreement, the Amended Credit Agreement and the transactions contemplated hereby
and thereby. The Agent shall have received copies of all documents, including
legal opinions of counsel and records of corporate proceedings which the Agent
may have requested in connection therewith, such documents, where appropriate,
to be certified by proper corporate or governmental authorities.
4.6. Legal Opinion. The Lenders shall have received from Robert P.
Nault, General Counsel of The Pioneer Group, Inc., Counsel of the Company and
the Subsidiaries, an opinion with respect to the transactions contemplated by
this Amendment, which opinion shall be in form and substance satisfactory to the
Lenders.
-4-
<PAGE> 5
4.7. Execution by Lenders. The Lenders owning 100% of the Percentage
Interests under the Credit Agreement 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 successors and assigns all holders of
any Note. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS (OTHER THAN THE CONFLICT OF LAWS RULES) OF THE COMMONWEALTH OF
MASSACHUSETTS.
-5-
<PAGE> 6
Each of the undersigned has caused this Agreement to be executed and delivered
by its duly authorized officer as an agreement under seal as of the date first
above written.
THE PIONEER GROUP, INC.
PIONEERING SERVICES CORPORATION
By: /s/ Eric W. Reckard By: /s/ Eric W. Reckard
-------------------------- -----------------------
Title: Executive Vice President Title: Treasurer
Chief Financial Officer and Treasurer
60 State Street 60 State Street
Boston, Massachusetts 02109-1820 Boston, Massachusetts 02109-1820
PIONEER INVESTMENT MANAGEMENT, INC.
By: /s/ Eric W. Reckard
----------------------------
Title: Treasurer
60 State Street
Boston, Massachusetts 02109-1820
PIONEER MANAGEMENT (IRELAND) LTD.
By: /s/ John F. Cogan, Jr.
----------------------------
Title: Director
60 State Street
Boston, Massachusetts 02109-1820
PIONEER FUNDS DISTRIBUTOR, INC.
By: /s/ Eric W. Reckard
----------------------------
Title: Treasurer
60 State Street
Boston, Massachusetts 02109-1820
-6-
<PAGE> 7
BANKBOSTON, N.A.
By:/s/ Matthew Steinaway
----------------------------
Title: Vice President
Financial Institutions Division
100 Federal Street - 15th Floor
Boston, Massachusetts 02110
Telecopy: (617) 434-1537
Telex: 940581
THE BANK OF NEW YORK
By:/s/ Michael B. Scaduto
----------------------------
Title: Vice President
One Wall Street, 17th Floor
Mutual Fund Banking Division
New York, NY 10286
Telecopy: (212) 635-6348
Telex:
SOCIETE GENERALE
By:/s/ Daniel P. Kelly
Title: Vice President
1221 Avenue of the Americas
New York, New York 10020
Telecopy: (212) 278-7153
-7-
<PAGE> 8
CITIZENS BANK OF MASSACHUSETTS
By:/s/ Michael St. Jean
----------------------------
Title: Vice President
100 Summer Street
Boston, MA 02110
Telecopy: (617) 338-4041
BANQUE NATIONALE DE PARIS
By:/s/ Laurent Vanderzyppe
----------------------------
Title: Vice President
By:/s/ Marguerite L. Lebon
----------------------------
Assistant Vice President
499 Park Avenue, 2nd Floor
New York, 10022
Telecopy: (212) 415-9707
MELLON BANK, N.A.
By:/s/ John R. Cooper
----------------------------
Title: Vice President
One Mellon Bank Center
Mail Code: 1510370
Pittsburgh, PA 15258
Telecopy: (412) 234-8087
-8-
<PAGE> 9
EXHIBIT 4.4
OFFICER'S CERTIFICATE
Pursuant to Section 4.4 of Amendment No. 10 to Credit Agreement dated
as of December 13, 1999 (the "Amendment") among The Pioneer Group, Inc., a
Delaware corporation (the "Company"), certain of its subsidiaries signatories
thereto, the Lenders and BankBoston, N.A., f/k/a The First National Bank of
Boston, as agent (the "Agent") for itself and the other Lenders, which amends
the Credit Agreement dated as of June 6, 1996 (as amended, modified and in
effect after giving effect to the Amendment, the "Credit Agreement"), among the
Company, certain of its subsidiaries signatories thereto, the Lenders and the
Agent, the Company hereby certifies that the representations and warranties
contained in Section 3 of the Amendment are true and correct on and as of the
date hereof with the same force and effect as though originally made on and as
of the date hereof; no Default exists on the date hereof or will exist after
giving effect to the Amendment; and as of the date hereof, no Material Adverse
Change has occurred; and, as of the date hereof, the aggregate investment assets
under management by the Company and its Subsidiaries equals or exceeds
$15,000,000,000.
Terms defined in the Credit Agreement and not otherwise defined herein
are used herein with the meanings so defined.
This certificate has been executed by a duly authorized Executive
Officer or Financial Officer this 13th day of December, 1999.
THE PIONEER GROUP, INC.
By: /s/ Eric W. Reckard
----------------------------
Name: Eric W. Reckard
Title: Executive Vice President, Chief Financial
Officer and Treasurer
<PAGE> 1
- --------------------------------------------------------------------------------
Exhibit 10.89
THE PIONEER GROUP, INC.
------------------------
SUPPLEMENTAL AGREEMENT NO. 5
Dated as of November 11, 1999
amending the
Note Agreement dated as of August 14, 1997
(as amended)
------------------------
Senior Notes due 2004
- --------------------------------------------------------------------------------
<PAGE> 2
THE PIONEER GROUP, INC.
SUPPLEMENTAL AGREEMENT NO. 5
as of November 11, 1999
Re: Senior Notes due 2004
The Travelers Insurance Company
One Tower Square
Hartford, CT 06183-2030
Ladies and Gentlemen:
THE PIONEER GROUP, INC., a Delaware corporation (the
"Company"), hereby agrees with you as follows:
Section 1. NOTE AGREEMENT AMENDMENTS. Pursuant to the Note
Agreement dated as of August 14, 1997, as amended by Supplemental Agreement No.
1 and Supplemental Agreement No. 2, each dated as of September 30, 1998,
Supplemental Agreement No. 3, dated as of December 29, 1998 and Supplemental
Agreement No. 4, dated as of June 30, 1999 (as so amended, the "Note
Agreement"), entered into by the Company with The Travelers Insurance Company,
the Company issued and sold $20,000,000 aggregate principal amount of its Senior
Notes due 2004 (the "Notes"). Unless the context otherwise requires, capitalized
terms used herein without definition have the respective meanings ascribed
thereto in the Note Agreement. The Notes originally bore an interest rate of
7.95% per annum. Pursuant to Supplemental Agreement No. 1, such interest rate
was changed to a floating rate of interest as therein described. Pursuant to
Supplemental Agreement No. 3, such interest rate was changed to a fixed rate of
8.95% per annum. The Company has requested you, as the holder of all of the
outstanding Notes, further to amend the Note Agreement and the Notes. Subject to
this Supplemental Agreement No. 5 (this "Supplemental Agreement") becoming
effective as hereinafter provided, the Company and the holder of the Notes do
hereby agree that the Note Agreement is amended pursuant to Section 11.1 of the
Note Agreement as follows:
<PAGE> 3
2
A. Section 1 of the Note Agreement is amended by:
1. deleting the definitions of "Consolidated Tangible Net
Worth", "Default Rate" and "Subsidiary Guarantors" 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) determined in accordance with GAAP on
a consolidated basis, minus
(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 its Subsidiaries' international
operations, up to an aggregate of all such write-downs of
$12,500,000."
* * * *
"'Default Rate' means that rate of interest that is
the greater of (i) 11.45% 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 at its prime
rate."
* * * *
<PAGE> 4
3
B. Section 4.6 of the Note Agreement is amended by changing
the definition of "Remaining Scheduled Payments" by deleting the phrase
"determined for such purpose at the rate of 8.95%" and replacing it with the
phrase "determined for such purpose at the rate of 9.45%".
C. Section 7.5.3 is amended to read in its entirety as
follows:
"7.5.3. Consolidated Tangible Net Worth.
Consolidated Tangible Net Worth shall, on and after September
30, 1999, at all times equal or exceed $72,500,000; 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 amount equal to 50% of the sum, for the fiscal
quarter then most recently ended, 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 Goldfield Entities."
D. Section 7.6.1 is amended to read in its entirety as
follows:
"7.6.1. Indebtedness in respect of the Credit Obligations and
the Bank Credit Facility, provided that after such Indebtedness under
the Bank Credit Facility has been repaid in full and the Bank Credit
Facility has been terminated, other Indebtedness of the Company
(including without limitation in respect of the Credit Obligations)
shall not exceed $105,000,000."
E. A new Section 7.9.A is hereby added to the Note Agreement
immediately after Section 7.9 to read as follows:
"7.9.A. Cash Expenditures.The Company and each of its
Subsidiaries shall restrict the net amount of cash expended on
international operations and timber operations as follows:
7.9.A.1. During the period commencing September 30, 1999 and
ending March 31, 2000, the Company and its Subsidiaries shall not
expend cash in connection with the Company's or any Subsidiary's
international operations that in the aggregate exceeds $10,000,000, net
of any cash provided during such period by such international
operations.
7.9.A.2. During the period commencing April 1, 2000 and ending
March 31, 2001, the Company and each of its
<PAGE> 5
4
Subsidiaries shall not expend cash in connection with the Company's or
any Subsidiary's international operations that in the aggregate exceeds
$15,000,000, net of any cash provided during such period by such
international operations.
7.9.A.3. On and after October 1, 1999, the Company and each of
its Subsidiaries shall not expend cash in connection with the Company's
or any Subsidiary's timber operations that in the aggregate exceeds
$3,000,000, net of any cash provided during such period by such timber
operations.
7.9.A.4. For purposes of this Section 7.9.A, references to
international operations shall not include any operations of the
Company's Core Mutual Fund Subsidiaries and any Subsidiaries of such
Core Mutual Fund Subsidiaries."
F. Amendment to Exhibit 2.1. Exhibit 2.1 of the Note Agreement
is deleted in its entirety and replaced with Exhibit A hereto.
G. Amendment to Exhibit 9.1.12. Exhibit 9.1.12 of the Note
Agreement, entitled "Officers of the Company," is deleted in its entirety and
replaced with Exhibit B hereto.
Section 2. AMENDMENT OF OUTSTANDING NOTE. Subject to this
Supplemental Agreement becoming effective, the text of the outstanding Note
(other than the date, the name of the payee and the principal amount, which are
unchanged), is amended pursuant to Section 11.1 of the Note Agreement, to read
as provided in Exhibit A to this Supplemental Agreement.
Section 3. 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.
The execution, delivery and performance of this Supplemental Agreement
has been duly authorized by all necessary corporate and, if required,
stockholder action on the part of the Company and each Subsidiary Guarantor, as
applicable. This Supplemental Agreement is a legal, valid and binding obligation
of the Company and the Subsidiary Guarantors, as applicable, enforceable against
the Company or such Subsidiary Guarantors in accordance with its terms, except
as enforceability may be limited by bankruptcy,
<PAGE> 6
5
insolvency, reorganization, fraudulent transfer, moratorium or other similar
laws relating to or affecting creditors' rights generally and by general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
B. Compliance with Laws, Other Instruments, Etc. The execution,
delivery and performance by the Company or the Subsidiary Guarantors of this
Supplemental Agreement does not and will not (A) contravene, result in any
breach of, or constitute a default under, or result in the creation of any Lien
in respect of any property of the Company or any Subsidiary under any indenture,
mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate
charter or by-laws, or any other agreement or instrument to which the Company or
any Subsidiary is bound or by which the Company or any Subsidiary or any of
their respective properties may be bound or affected, (B) conflict with or
result in a breach of any of the terms, conditions or provisions of any order,
judgment, decree, or ruling of any court, arbitrator or Governmental Authority
applicable to the Company or any Subsidiary or (C) violate any provision of any
statute or other rule or regulation of any Governmental Authority applicable to
the Company or any Subsidiary.
C. Governmental Authorizations, Etc. No consent, approval or
authorization of, or registration, filing or declaration with, any Governmental
Authority is required in connection with the execution, delivery or performance
by the Company or any Subsidiary Guarantor of this Supplemental Agreement.
D. No Default, etc. No Event of Default or Default has occurred
and is continuing, and neither the Company nor any Core Mutual Fund Subsidiary
is in default (whether or not waived) in the performance or observance of any of
the terms, covenants or conditions contained in any instrument evidencing any
Indebtedness and there is no pending request by the Company (except pursuant to
this Supplemental Agreement) or any such Subsidiary for any amendment or waiver
in respect of any contemplated or possible default with respect to such
Indebtedness and no event has occurred and is continuing which, with notice or
lapse of time or both, would become such a default.
E. No Undisclosed Fees. The Company has not, directly or
indirectly, other than with respect to the payment of consideration disclosed to
the Noteholders, paid or caused to be paid any consideration (as supplemental or
additional interest, a fee or otherwise) to any party to the Bank Credit
Facility in order to induce such party to enter into an agreement
<PAGE> 7
6
substantially similar to this Supplemental Agreement, nor has the Company agreed
to made any such payment.
Section 4. REPRESENTATION OF THE NOTEHOLDER. You represent to
the Company that you are the beneficial owner of Notes in an aggregate principal
amount of $20,000,000.
Section 5. EFFECTIVENESS OF THIS SUPPLEMENTAL AGREEMENT. This
Supplemental Agreement shall become effective on the date (the "Effective Date")
on which all of the following conditions precedent shall have been satisfied:
A. Proceedings. All proceedings taken by the Company and the
Subsidiary Guarantors in connection with the transactions contemplated hereby
and all documents and papers incident thereto shall be satisfactory to you, and
you and your special counsel shall have received all such counterpart originals
or certified or other copies of such documents and papers, all in form and
substance satisfactory to you, as you or they may reasonably request in
connection therewith.
B. Representations and Warranties. The representations and
warranties of the Company contained in Section 3 of this Supplemental Agreement
shall be true on and as of the Effective Date as though such representations and
warranties had been made on and as of the Effective Date, and you shall have
received a certificate of a senior financial officer of the Company, dated the
Effective Date, to such effect.
C. Opinion of Counsel for the Company. You shall have received
an opinion in form and substance satisfactory to you, dated the date of this
Supplemental Agreement, from Robert P. Nault, General Counsel for the Company,
concerning the due authorization, execution, delivery and performance of this
Supplemental Agreement and such other matters incident to the transactions
contemplated hereby as you may reasonably request.
D. Cash Flow Forecasts. The Company shall have provided
monthly cash flow forecasts for the period commencing October 1, 1999 and ending
June 30, 2000.
E. Payment of Fees. The Company shall have paid you an
amendment fee equal to 0.50% of the unpaid principal amount of the Notes and an
administrative fee of $36,000. The Company shall have also paid the fees and
disbursements of your special counsel as contemplated by Section 8 of this
Supplemental Agreement.
Section 6. CONDITION SUBSEQUENT. You agree to release Pioneer
Management (Ireland) Limited from the Guarantee subject
<PAGE> 8
7
to the condition subsequent that the Company shall have obtained from the
lenders party to the Bank Credit Facility within thirty days of the Effective
Date, as defined herein, documentation sufficient to release Pioneer Management
(Ireland) Limited as guarantor under the Bank Credit Facility. You agree that
this release is effective as of January 1, 1999.
Section 7. EXCHANGE OR NOTATION OF NOTES. Prior to any
transfer of an outstanding Note you agree that you will either make a notation
of the amendment of such Note pursuant to this Supplemental Agreement, or
surrender such Note in exchange for a new Note in accordance with Section 12.2
of the Note Agreement. Any Note executed and delivered on or after the Effective
Date shall be in the form of Exhibit A hereto.
Section 8. EXPENSES. Without limiting the generality of
Section 5.8 of the Note Agreement, the Company agrees, whether or not the
transactions contemplated hereby are consummated, to pay the reasonable fees and
disbursements and other charges of Willkie Farr & Gallagher, your special
counsel, for their services rendered in connection with such transactions and
with respect to this Supplemental Agreement and any other document delivered
pursuant to this Supplemental Agreement and reimburse you for your out-of-pocket
expenses in connection with the foregoing.
<PAGE> 9
8
Section 9. RATIFICATION. Except as amended hereby, the Note
Agreement is in all respects ratified and confirmed and the provisions thereof
shall remain in full force and effect, and the Subsidiary Guarantors hereby
ratify their obligations thereunder and under the Subsidiary Guarantees to which
they are a party.
Section 10. COUNTERPARTS. This Supplemental Agreement may be
executed in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
Section 11. GOVERNING LAW. This Supplemental Agreement shall
be governed by and construed in accordance with the laws of the State of New
York.
If you are in agreement with the foregoing, please sign the
form of acceptance in the space below provided, whereupon this Supplemental
Agreement shall become a binding agreement between you and the Company, with the
approval of the Subsidiary Guarantors, subject to becoming effective as
hereinabove provided.
THE PIONEER GROUP, INC.
By:/s/ Eric W. Reckard
----------------------------------
Title: Executive Vice President,
Chief Financial Officer and
Treasurer
60 State Street
Boston, MA 02109-1820
SUBSIDIARY GUARANTORS
PIONEER INVESTMENT MANAGEMENT, INC.
By:/s/ Eric W. Reckard
----------------------------------
Title: Treasurer
60 State Street
Boston, MA 02109-1820
PIONEER MANAGEMENT (IRELAND) LTD.
By:/s/ John F. Cogan, Jr.
----------------------------------
Title: Director
60 State Street
Boston, MA 02109-1820
<PAGE> 10
9
PIONEERING SERVICES CORPORATION
By:/s/ Eric W. Reckard
----------------------------------
Title: Treasurer
60 State Street
Boston, MA 02109-1820
ACCEPTED
THE TRAVELERS INSURANCE COMPANY
By: /s/ Pamela Westmoreland
-------------------------
Title: Investment Officer
<PAGE> 11
EXHIBIT A
EXHIBIT 2.1
[FORM OF NOTE]
THE PIONEER GROUP, INC.
9.45% Senior Note due 2004
No. R- New York, New York
$______________ [Date]
PPN:[ ]
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
9.45% 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) 11.45% and (ii) 2% above the rate of interest publicly
announced by Citibank, N.A. from 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, Supplemental Agreement No. 3
dated as of December 30, 1998, Supplemental Agreement No. 4 dated as of June 30,
1999 and Supplemental Agreement No. 5 dated as of November 11, 1999 (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
<PAGE> 12
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 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 the State of New York.
THE PIONEER GROUP, INC.
By_______________________________
Title:
<PAGE> 13
EXHIBIT B
Exhibit 9.1.12
OFFICERS OF THE COMPANY
1. John F. Cogan, Jr. Chairman of the Board, Chief Executive Officer and
President of the Company
2. Eric W. Reckard Executive Vice President, Chief Financial Officer and
Treasurer of the Company and Subsidiaries
3. David D. Tripple Executive Vice President of the Company and President
of Pioneer Investment Management, Inc. and Pioneer
Funds Distributor, Inc.
4. William H. Smith, Jr. Executive Vice President of the Company and Director
of Pioneering Services Corporation
5. Roger K. Leonard Managing Director and Chief Executive of Pioneer
Goldfields Limited and Managing Director of Teberebie
Goldfields Limited
<PAGE> 1
Exhibit 10.90
AMENDMENT TO FINANCE AGREEMENT AND LIMITED WAIVER
AMENDMENT (the "Amendment"), dated as of December 28, 1999, between
CLOSED JOINT-STOCK COMPANY "FOREST-STARMA", (the "Company"), a closed
joint-stock company organized and existing under the laws of the Russian
Federation, and OVERSEAS PRIVATE INVESTMENT CORPORATION, an agency of the United
States of America ("OPIC").
WITNESSETH:
WHEREAS, the Company and OPIC are parties to a finance agreement dated
as of December 21, 1995, as amended, March 6, 1996, March 26, 1996, May 29,
1996, June 24, 1996 and June 3, 1999 (the "Finance Agreement");
WHEREAS, all capitalized terms used herein and not otherwise defined
herein shall have their respective meanings set forth in the Finance Agreement;
WHEREAS, PFI owns 100% of the shares of capital stock of the
Company and wishes to transfer all of this stock to PFI's wholly owned Delaware
subsidiary, "Pioneer Forest, L.L.C." ("PFLLC"), such that as a result of this
transaction (the "Share Transfer") PFLLC will own 100% of the capital stock of
the Company and PFI will no longer be shareholder of the Company; and
WHEREAS, in order that PFI may proceed with the Share Transfer, the
Company, PGI and PFI have requested that OPIC agree with the Company to amend
certain provisions of the Finance Agreement and to waive certain other
provisions of the Finance Agreement, in accordance with Section 8.06 of the
Finance Agreement; and OPIC is willing to do so.
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants, provisions and undertakings herein and in the Finance Agreement and
for other good and valuable consideration, the receipt and and adequacy of which
is hereby acknowledged by the parties hereto, OPIC and the Company agree as
follows:
1. Amendments.
(a) The following definition is hereby added after the definition
of "PFI" in Section 1.01 of the Finance Agreement:
"PFLLC" means Pioneer Forest, L.L.C., a Delaware limited
liability company.
<PAGE> 2
(b) Paragraph (m) of Section 7.01 of the Finance Agreement is
hereby revised to read in its entirety as follows:
(m) The U.S. Sponsor ceases to hold 100% of the legal and
beneficial title to the equity of PFI; or PFI ceases to hold
100% of the legal and beneficial title to the equity of PFLLC;
or prior to the Share Transfer PFI ceases to own 100% of the
legal and beneficial title to the equity of the Company; or
following the Share Transfer PFLLC ceases to hold 100% of the
equity of the Company or the U.S. Sponsor ceases to retain
management control of the Company; or
2. Waiver. The Company has requested that OPIC waive any Event of
Default under paragraphs (i) or (m) of Section 7.01 of the Finance
Agreement arising out of the acquisition of equity of the Company
by PFLLC in connection with the Share Transfer as set forth in
Exhibit A annexed hereto and made a part hereof.
OPIC hereby waives any such Events of Default; provided, however,
that the waiver contained in paragraph (a) of this Section 2 shall
not be effective unless and until OPIC shall have received one or
more of an amended, restated or additional Contract of Pledge of
Shares, in form and substance satisfactory to OPIC, and an
opinion, in form and substance satisfactory to OPIC, from counsel
satisfactory to OPIC, with respect to OPIC's security interest in
shares of capital stock of the Company pledged to OPIC.
3. Representations and Warranties. The Company represents and warrants
that :
(a) This Amendment constitutes a legal, valid and binding
obligation of the Company, enforceable against the Company in
accordance with its terms.
(b) All representations and warranties made by the Company in the
Finance Agreement are true and accurate as of the date hereof,
except that the record and beneficial ownership of the capital
stock of the Company set forth in Section 3.04 of the Finance
Agreement has changed, or will change, as a result of the
Share Transfer as set forth in Exhibit A annexed hereto.
4. Ratification and Confirmation. As amended hereby, all the terms and
provisions of the Finance Agreement are hereby ratified and
confirmed in all respects and shall apply in full force and effect.
5. No Waiver. The Company acknowledges and agrees that except as
expressly provided in Section 2 of this Amendment, OPIC, in
executing and delivering this Amendment, has not and shall not be
deemed to have waived, released or modified any right or power that
it may have under the Finance Agreement, as amended herein, to
claim that any Event of Default has occurred or is occurring,
<PAGE> 3
and the execution and delivery of this Amendment shall not be
deemed a waiver by OPIC of any such Event of Default.
6. Effective Date. This Amendment shall be effective as of the date
hereof, except as otherwise expressly provided herein.
7. Counterparts. This Amendment may be executed in counterparts, each
of which when so executed and delivered shall be deemed an original
and all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their authorized representatives as of the day and year
first above written.
CLOSED JOINT-STOCK COMPANY "FOREST-STARMA"
By: /s/ Donald H. Hunter
----------------------------------------
Donald H. Hunter
On the basis of power of attorney No. 73,
Dated December 3, 1999
By: /s/ Catherine V. Mannick
----------------------------------------
Catherine V. Mannick
On the basis of power of attorney No. 74,
Dated December 3, 1999
By: /s/ Inna Verdini
----------------------------------------
Inna Verdini
On the basis of power of attorney No. 72,
Dated December 3, 1999
OVERSEAS PRIVATE INVESTMENT CORPORATION
By: /s/ Steven S. Smith
----------------------------------------
Its: Investment Officer
<PAGE> 1
Exhibit 10.91
AGREEMENT WITH RESPECT TO PROJECT COMPLETION AGREEMENT
AGREEMENT (the "Agreement"), dated as of December 28, 1999, among
CLOSED JOINT-STOCK COMPANY "FOREST-STARMA", a closed joint stock company,
organized and existing under the legislation of the Russian Federation (the
"Company"), THE PIONEER GROUP, INC., a corporation organized and existing under
the laws of the state of Delaware (the "U.S. Sponsor"), PIONEER FOREST, INC., a
corporation organized and existing under the laws of the state of Delaware and a
wholly owned subsidiary of the U.S. Sponsor (the "U.S. Sponsor Subsidiary"),
PIONEER FOREST, L.L.C., a limited liability company organized and existing under
the laws of the state of Delaware and a wholly owned subsidiary of the U.S.
Sponsor Subsidiary ("PFLLC"), and OVERSEAS PRIVATE INVESTMENT CORPORATION, an
agency of the United States of America ("OPIC").
WITNESSETH:
WHEREAS, the Company, the U.S. Sponsor, International Joint Stock
Company "Starma Holding" (the "Russian Sponsor") and OPIC are parties to a
Project Completion Agreement, dated as of December 21, 1995 (the "Project
Completion Agreement");
WHEREAS, the Company, the U.S. Sponsor, the U.S. Sponsor Subsidiary and
OPIC entered into an Agreement with respect to Project Completion Agreement,
dated as of June 3, 1999 (the "APCA"), pursuant to which the U.S. Sponsor
Subsidiary agreed to be bound by, and jointly and severally responsible for, all
obligations of the U.S. Sponsor under the terms and conditions of the Project
Completion Agreement;
WHEREAS, all capitalized terms used herein and not otherwise defined
herein shall have their respective meanings set forth in the Finance Agreement,
dated as of December 21, 1995, as amended to and including the date hereof,
between the Company and OPIC, the Project Completion Agreement and the APCA; and
WHEREAS, as a result of the Share Transfer, the PFLLC will own 100 % of
the shares of capital stock of the Company and the U.S. Sponsor Subsidiary will
no longer hold any capital stock of the Company.
NOW, THEREFORE, the parties agree as follows:
1. Indemnity.
The U.S. Sponsor hereby indemnifies and holds harmless the
Indemnified Persons from and against any and all losses,
liabilities, obligations, damages, penalties, actions, judgments,
suits, costs, expenses, or disbursements of any kind or nature
whatsoever (Losses) that may be imposed on, incurred by, or
<PAGE> 2
2
asserted against any Indemnified Person in any way relating to the
Contract of Pledge of Shares between PFLLC and OPIC or the Share
Transfer, if such Losses would not have occurred had the U.S.
Sponsor Subsidiary not transferred its shares of the Company,
directly or indirectly, to PFLLC in connection with the Share
Transfer. In particular, but without limitation, this indemnity
extends to any Losses incurred by an Indemnified Person as a
result of the bankruptcy of PFLLC or due to the existence of any
contract for pledge of shares in the Company which PFLLC may have
entered into, and having priority to, the contract for the Pledge
of Shares with OPIC."
2. Representations and Warranties.
(a) Each of the Company, the U.S. Sponsor, the U.S. Sponsor
Subsidiary and PFLLC represents and warrants to OPIC that
this Agreement constitutes a legal, valid and binding
obligation of it, enforceable against it in accordance with
its terms.
(b) Each of the U.S. Sponsor, the U.S. Sponsor Subsidiary and
PFLLC represents and warrants to OPIC, jointly and severally
that:
(i) (x) as of the effective date hereof the U.S. Sponsor
Subsidiary owns of record and beneficially, and the
U.S. Sponsor owns beneficially, 100%, and (y) upon
completion of the Share Transfer, the U.S. Sponsor
Subsidiary and the U.S. Sponsor will own
beneficially, and PFLLC will own of record and
beneficially, 100% of the issued and outstanding
shares of capital stock of the Company;
(ii) as of the effective date hereof the U.S. Sponsor
Subsidiary owns, and upon completion of the Share
Transfer will own, of record and beneficially all of
the issued and outstanding shares of capital stock of
PFLLC;
(iii) as of the date hereof the U.S. Sponsor owns, and upon
completion of the Share Transfer will own, of record
and beneficially all of the issued and outstanding
shares of the capital stock of the U.S. Sponsor
Subsidiary; and
(iv) as of the date hereof each of the representation and
warranties of the Sponsors in paragraphs (b) through
(j) of Section 8.A of the Project Completion
Agreement are true and accurate.
3. Undertakings of the U.S. Sponsor Subsidiary and PFLLC. PFLLC hereby
agrees to be bound by, and jointly and severally responsible and
liable for all obligations and liabilities of the U.S. Sponsor and
the U.S. Sponsor Subsidiary under, the terms of Project Completion
Agreement and the APCA and to appoint an agent for service of
process satisfactory to OPIC in connection with this undertaking in
compliance with the terms of Section 14(b) of the Project
Completion Agreement and give written notice thereof to OPIC within
30 days after the date hereof. Notices to PFLLC may be given to it
at the following address:
<PAGE> 3
3
60 State Street
Boston, MA 02109
Tel: 617-742-7825
Fax: 617-422-4286
Attention: President
4. Ratification and Confirmation. All the terms and provisions of the
Project Completion Agreement and the APCA are hereby ratified and
confirmed by the U.S. Sponsor, the U.S. Sponsor Subsidiary and
PFLLC and shall apply in full force and effect.
5. Effective Date. This Agreement shall be effective as of the date
hereof.
6. Counterparts. This Agreement may be executed in counterparts, each
of which when so executed and delivered shall be deemed an original
and all of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their authorized representatives as of the day and year first
above written.
CLOSED JOINT-STOCK COMPANY "FOREST-STARMA"
By: /s/ Donald H. Hunter
------------------------
Donald H. Hunter
On the basis of power of attorney No. 73,
Dated December 3, 1999
By: /s/ Catherine V. Mannick
------------------------
Catherine V. Mannick
On the basis of power of attorney No. 74,
Dated December 3, 1999
By: /s/ Inna Verdini
------------------------
Inna Verdini
On the basis of power of attorney No. 72,
Dated December 3, 1999
<PAGE> 4
4
THE PIONEER GROUP, INC.
By: /s/ Stephen G. Kasnet
------------------------
Its: Executive Vice President
PIONEER FOREST, INC.
By: /s/ Stephen G. Kasnet
------------------------
Its: President
PIONEER FOREST, L.L.C.
By: /s/ Stephen G. Kasnet
------------------------
Its: President
OVERSEAS PRIVATE INVESTMENT CORPORATION
By: /s/ Steven S. Smith
------------------------
Its: Investment Officer
<PAGE> 1
Exhibit 10.92
DECEMBER 28, 1999
PIONEER FOREST, L.L.C.
OVERSEAS PRIVATE INVESTMENT CORPORATION
========================================
CONTRACT OF PLEDGE OF SHARES
========================================
<PAGE> 2
CONTENTS
<TABLE>
<CAPTION>
CLAUSE PAGE
<S> <C>
1. INTERPRETATION. ............................................... 1
Definitions ................................................... 1
Interpretation ................................................ 2
Headings ...................................................... 3
2. ACKNOWLEDGEMENT OF INDEBTEDNESS OF THE COMPANY ................ 3
3. PLEDGE ........................................................ 3
Pledge ........................................................ 3
Assurance ..................................................... 3
4. PLEDGE IN ACCORDANCE WITH THIS CONTRACT AND OTHER RIGHTS ...... 4
5. DUTIES OF THE PLEDGOR ......................................... 4
Duties ........................................................ 4
Warranty ...................................................... 6
Rights ........................................................ 6
6. RIGHTS OF OPIC ................................................ 7
Failure to Perform Conditions of Finance Agreement ............ 7
Exercise of Rights ............................................ 7
Levy of execution ............................................. 8
7. APPLICATION OF PROCEEDS ....................................... 8
Accounts ...................................................... 8
8. PROTECTION OF RIGHTS OF OPIC .................................. 9
9. ADDITIONAL ASSURANCES AND POWER OF ATTORNEY ................... 9
Additional Assurances ......................................... 9
Powers of Attorney ............................................ 9
10. OBLIGATIONS IN ACCORDANCE WITH THIS CONTRACT SHALL NOT LEAD
TO MERGER OR COMBINING OF RIGHTS OF PLEDGE .................... 9
11. CHANGE OF NAME ................................................ 10
12. AVOIDANCE OF PAYMENTS ......................................... 10
13. NOTIFICATIONS AND DEMANDS ..................................... 10
14. CONCLUDING PROVISIONS ......................................... 10
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
CLAUSE PAGE
<S> <C>
Evidence of Indebtedness ..................................... 10
Supplementary Nature of Rights; Waiver of Right .............. 11
Consequences of Invalidity of Any Provision of this
Contract ..................................................... 11
15. APPLICABLE LAW .................................................. 11
16. ARBITRATION AND JURISDICTION .................................... 11
Arbitration; Rules; Venue; Language .......................... 11
Arbitrators; Selection; Qualification ....................... 12
Law .......................................................... 12
Statements of Claim and Defence; Representation; Proceedings.. 12
Awards ....................................................... 13
Costs, Fees and Expenses ..................................... 13
No Waiver .................................................... 13
17. COUNTERPARTS .................................................... 13
ANNEX 1 ...................................................... 15
ANNEX 2 ...................................................... 16
ANNEX 3 ...................................................... 17
</TABLE>
<PAGE> 4
CONTRACT OF PLEDGE OF SHARES
Concluded on December 28, 1999 between:
PIONEER FOREST, L.L.C., a limited liability company organised and existing under
the laws of the State of Delaware, USA (hereinafter the PLEDGOR); and
OVERSEAS PRIVATE INVESTMENT CORPORATION (hereinafter called OPIC).
WHEREAS,
(A) a Contract of Pledge of Shares in the Company was concluded on 3
June 1999 between OPIC and the corporation "Pioneer Forest, Inc." (USA)
(hereinafter the CORPORATION); and
(B) the Corporation is the owner of all (100%) of the shares in the
Company and intends to transfer all of the shares in the Company to the Pledgor;
and
(C) the rights of pledge of OPIC set forth in the Contract of Pledge of Shares
in the Company of 3 June 1999 shall remain in effect after the Transfer of
Shares from the Corporation to the Pledgor in accordance with Article 353 of the
Civil Code of the Russian Federation.
The Pledgor and OPIC have come to the following agreement:
INTERPRETATION
DEFINITIONS
1.1 For the purposes of this Contract the terms defined in the Finance Agreement
shall have the same meaning as if they had been used in this Contract and the
following terms shall have the following meaning unless the context and content
of this Contract require otherwise:
ACCELERATION EVENT means any one of the events specified in Section 7.1 of the
Finance Agreement and any event which, with lapse of time or notice and lapse of
time, may become such an event;
COMPANY means Closed Joint-Stock Company "FOREST-STARMA", a closed joint-stock
company (registered by Decree No. 349 of the Head of Administration of
Khabarovsky Krai dated 21 July 1992), registered and operating in conformity
with the legislation of the Russian Federation, whose legal address is at ul.
Chekhova, d.l, apt.3, Vanino Settlement, Khabarovsk Territory, Russian
Federation 682860;
FINANCE AGREEMENT means the Finance Agreement of 21 December 1995 between the
Company and OPIC and any promissory note drawn up on the basis of the Finance
<PAGE> 5
Agreement, including in each instance any changes and additions thereto,
including any changes in accordance with which obligations of the Company grow
or increase or are affected in any other way;
MEANS OF SECURING OBLIGATIONS means any method of securing obligations by way of
mortgage, hypotheque, pledge, pawn, possessory lien, right of set-off of
obligations or any other way in accordance with the law of any State or the
agreement of the parties;
PLEDGE means the pledge created by this Contract;
PLEDGED SHARES means all of the shares, which the Corporation will transfer to
the Pledgor in the future, listed and described in Annex 1 to this Contract, all
and any of the rights under or in relation to the shares, listed and described
in Annex 1 to this Contract, and all other shares of the Company, issued or
which are to be issued by the Company and which the Pledgor will acquire or has
the right to acquire in its ownership;
TRANSFER OF SHARES means a transaction between the Corporation and the Pledgor
for the transfer to the Pledgor of all the Pledged Shares owned by the
Corporation.
RIGHTS means with respect to OPIC its powers, discretions, and rights in
accordance with this Contract, the Finance Agreement and Russian law;
SECURED AMOUNTS means:
(a) money and other obligations which the Company is obliged to pay or to
fulfil under the Finance Agreement and other documents related to the
Finance Agreement as acknowledged by the Pledgor under Section 2 below;
and
(b) the obligations of the Pledgor to OPIC under this Contract and/or any
other Financing Documents to which the Pledgor is party,
and where the context so requires references to Secured Amounts shall include
references to any such obligations.
INTERPRETATION
1.2 In this Contract and Annexes thereto in all instances except those when
the context requires otherwise:
(a) references and/or mentions of OPIC, the Pledgor and the Company include
respectively references and/or mentions of their legal successors and
persons to whom by legal means the rights and duties of OPIC, the
Pledgor and the Company have passed;
<PAGE> 6
(b) references to a document shall include any document possessing legal
force (including this Contract), any securities, statements,
certificates, notices, or any other documents; in so doing the
references to a document shall mean those references to a document or
any provision thereof in changed, supplemented, or otherwise renewed
form, or substituted by consent of the parties (in whole or in part);
(c) references to any law or normative act shall mean references to the law
or normative act in changed or supplemented form or to a newly adopted
law or normative act replacing a previous law or normative act; and
(d) references to any specific Section, paragraph, or Annex shall mean
references to the specific Section, paragraph of, or Annex to this
Contract.
HEADINGS
1.3 Headings in this Contract have been included exclusively for the convenience
of work with the text and shall not affect the interpretation of the provisions
of this Contract.
ACKNOWLEDGEMENT OF INDEBTEDNESS OF THE COMPANY
2. The Pledgor acknowledges (without thereby becoming a guarantor or surety in
respect thereof) that the Company has agreed to repay to OPIC the principal debt
comprising $9,300,000 (nine million three hundred thousand) US dollars (or such
lesser amount as may be outstanding from time to time) and interest thereon by
15 December 2003 in accordance with the Finance Agreement; to fulfil all
financial, as well as all other, obligations with respect to OPIC which
periodically are subject to performance or which arise (either before or after
the demand of OPIC for payment) on the basis of the Finance Agreement and/or on
the basis of other Financing Documents to which the Company and OPIC are
parties.
PLEDGE
PLEDGE
3.1 As a means of securing obligations of the Company to pay the Secured Amounts
and to secure the Pledgor's obligations in favour of OPIC on the basis of this
Contract and/or other agreements related to the Finance Agreement, the Pledgor
pledges the Pledged Shares and all the rights under or in relation to the
Pledged Shares to OPIC in accordance with the Law of Russian Federation "On
Pledge" No. 2872-1 of 29 May 1992 and the Civil Code of the Russian Federation
of 21 October 1994.
ASSURANCE
3.2 The Pledgor assures OPIC and confirms that the Pledged Shares are not the
<PAGE> 7
subject of pledge to the benefit of other persons and no demands whatever have
been made by anyone in the respect of the Pledged Shares other than OPIC and
that OPIC becomes the exclusive pledgeholder of first ranking with respect to
the Pledged Shares.
3.3 The Pledgor assures OPIC and confirms that it intends to acquire full
ownership rights to all of the Pledged Shares.
PLEDGE IN ACCORDANCE WITH THIS CONTRACT AND OTHER RIGHTS
4. This Pledge shall be without prejudice and in addition to any other Means of
Securing Obligations whatsoever which may be held by OPIC or granted to OPIC by
the Pledgor or the Company or any person for or in respect of the whole or part
of the Secured Amounts; and the charges, covenants and provisions contained
herein shall remain in force as continuing security to OPIC until the Secured
Amounts have been paid in full. When the Secured Amounts have been repaid in
full, and subject to OPIC being satisfied that no payment received by OPIC may
be avoided or adjusted in the circumstances described in Section 12 hereof, OPIC
shall upon the request of the Pledgor issue an absolute and unconditional
release of this Pledge.
DUTIES OF THE PLEDGOR
DUTIES
5.1 Until the Secured Amounts have been paid in full and the Company has been
released by OPIC from its related obligations, the Pledgor shall be obliged:
(a) not to use the Pledged Shares as the subject of securing other
obligations, nor to create, or permit to be created, a pledge
(irrespective of the ranking thereof), a trust, or any other right of
demand with respect to or in connection with the Pledged Shares,
whether by virtue of law or any other legally binding act or by virtue
of a contract to the benefit of anyone whatever except for OPIC;
(b) without receiving the prior written consent of OPIC, not to transfer,
sell, or transfer rights or otherwise alienate, or terminate its
possession or management, or perform actions leading to or which might
lead to the transfer, sale or transfer of rights or alienation or
termination of possession or management of the Pledged Shares by the
Pledgor or to the termination or change of any rights of the Pledgor to
the Pledged Shares in any form;
(c) to make payment without delay and to ensure the payment of all taxes,
duties, obligatory payments for authorisations, rights and licences
granted, registration payments and duties, insurance payments, and also
any other payments calculated in connection with or relating in any way
to the Pledged Shares and/or to this contract, and at first demand to
provide certificates and evidence to OPIC of all the said payments
being made;
<PAGE> 8
(d) immediately communicate to OPIC in writing any and all notices and
information received by the Pledgor or the Company and affecting:
(i) any proposals concerning the obligatory acquisition by anyone
of all or any of the Pledged Shares, or proposals concerning
the obligatory transfer to anyone of the right of ownership to
all or any of the Pledged Shares;
(ii) any proposals concerning the obligatory termination or
restrictions of any nature on payment of dividends on all or
any of the Pledged Shares;
(iii) any court proceeding (or any other proceeding or bringing of
suits or claims which might lead to a court proceeding) with
respect to all or any of the Pledged Shares;
and exclusively at the expense of the Pledgor to take measures and
undertake such actions with respect to the aforesaid proposals,
applications, court proceedings, other proceeding, suits, claims and
the like which OPIC may, at its discretion, reasonably demand of the
Pledgor;
(e) except for instances of receiving the prior consent of OPIC, which will
not be refused without reasonable grounds therefor, not to conduct
negotiations nor to settle any suits or claims to receive compensation
pertaining to the Pledged Shares (including in accordance with any
regulatory acts and in all other instances), or any suits or claims
with regard to any insurance agreements relative to all or any part or
parts of the Pledged Shares, or any other material compensation or
insurance payments pertaining thereto;
(f) to fulfil in a timely way all obligations which by virtue of law have
or might have preference to the obligations under this Contract;
(g) to maintain a record of this Pledge as required by Section 18 of the
Law of the Russian Federation "On Pledge" No. 2872-1 of 29 May 1992 and
allow third persons to be aware of the existence of this Pledge in
accordance with applicable law;
(h) pay to OPIC, upon demand, the amount of all expenses which it may incur
in, about or with a view to registering or enforcing this Pledge or
otherwise in connection with this Pledge;
(i) promptly pay all calls, instalments and other payments which may be
made or become due in respect of the Pledged Shares;
(j) forthwith sign, seal, deliver and complete all transfers, proxies,
mandates, assignments and documents and do all acts and things which
OPIC may, in its absolute discretion, at any time and from time to time
specify:
<PAGE> 9
(i) for enabling or assisting OPIC to improve its rights to and
security over the Pledged Shares;
(ii) to exercise (or enable its nominee or nominees to exercise)
any rights or powers attaching to the Pledged Shares;
(iii) (in accordance with Section 6 below) to sell or dispose of the
Pledged Shares; or
(iv) otherwise to enforce any of the rights of OPIC under or in
connection with this Pledge;
(k) forward to OPIC all material notices, reports, accounts, circulars and
other documents relating to the Pledged Shares or which are sent to the
holders of the Pledged Shares as soon as they are received;
(l) after an Acceleration Event has occurred and OPIC has sent to the
Company a demand for payment of the Secured Amounts (or part thereof)
take such action as OPIC may in its absolute discretion direct, in
respect of any proposed compromise, arrangement, capital
reorganisation, exchange, repayment or take-over offer affecting or in
respect of the Pledged Shares or any of them or any proposal made for
varying or abrogating any rights attaching to the Pledged Shares or any
of them;
(m) indemnify OPIC (and any of their nominees) on demand from and against
any claims by third parties which any of them may incur as holders of
the Pledged Shares or any interest in the Pledged Shares while the
Pledged Shares are held as security hereunder and resulting from any
claim which arose while held as security hereunder; and
(n) promptly on execution of this Contract to give notice to the Company in
the form set out in Annex 2 to this Contract, and procure that a
confirmation in the form set out in Annex 3 is delivered to OPIC.
WARRANTY
5.2 The Pledgor warrants that it has complied with and will comply with all the
necessary registration requirements in relation to the registration and issuance
of the Pledged Shares.
RIGHTS
5.3 Notwithstanding anything expressed or implied in Section 5.1 or elsewhere in
this Contract, until any of the events or circumstances specified in Section 6
of the Finance Agreement occur and OPIC has sent to the Company a demand for
payment of the Secured Amounts (or part thereof), the Pledgor shall be entitled
to exercise all
<PAGE> 10
voting and other rights and powers (by statute or otherwise) attached to or
conferred on the Pledged Shares and to receive and retain all dividends and
other distributions paid or distributed in respect of the Pledged Shares.
RIGHTS OF OPIC
FAILURE TO PERFORM CONDITIONS OF FINANCE AGREEMENT
6.1 If an Acceleration Event occurs, OPIC shall have the right (but in no event
is it obliged to take nor does it bear responsibility for taking the measures
enumerated below and without prejudice to any rights of OPIC whatever) in the
name of the Company or otherwise to ensure the fulfilment of the obligations of
the Company and to take such measures which OPIC in its discretion considers
appropriate to rectify the existing situation.
EXERCISE OF RIGHTS
6.2 If an Acceleration Event occurs, and OPIC has sent to the Company a demand
for payment of the Secured Amounts (or part thereof), then:
(a) all and any dividends and other distributions accruing on or deriving
from the Pledged Shares which are thereafter paid or distributed
(notwithstanding that they may have accrued in respect of an earlier
period) shall:
(i) if received by the Pledgor (or any nominee of the Pledgor) be
held on trust and forthwith paid and transferred to OPIC; and
(ii) when and if received by OPIC (or their nominee) shall form
part of the Pledged Shares and be held by OPIC on the terms of
this Pledge as additional security (and, if cash, be paid into
a cash collateral deposit account and may be applied by OPIC
at any time and from time to time thereafter in or towards the
discharge of the Secured Amounts as OPIC thinks fit);
(b) OPIC may from time to time exercise (and may from time to time direct
the exercise of) all voting and other rights and powers (by statute or
otherwise) attached to or conferred on the Pledged Shares in such
manner as OPIC (in their absolute discretion) thinks fit and the
Pledgor shall, and shall procure that any nominee of the Pledgor shall,
comply with any such directions of OPIC;
(c) the Pledgor shall (and shall procure that any nominee of the Pledgor
shall) forthwith agree to accept instruction or order for and to attend
all or any meetings of the holders of the Pledged Shares, to appoint
proxies and exercise all voting and other rights and powers which may
at any time be exercisable by the holders of the Pledged Shares as OPIC
may from time to time direct.
<PAGE> 11
LEVY OF EXECUTION
6.3 If an Acceleration Event occurs and OPIC has sent to the Company a demand
for payment of the Secured Amounts (or part thereof), then OPIC may levy
execution on the Pledged Shares in accordance with the procedure established by
Russian law. To the extent that the parties are free to choose the tribunal to
commence execution proceedings, the parties choose arbitration in accordance
with Section 16.
APPLICATION OF PROCEEDS
7.1 All cash assets received as a result of the exercise of the rights of OPIC
pursuant to this Contract and all other cash assets received by OPIC in
connection with this Pledge after handing over to the Company a demand for
payment of the Secured Amounts (taking into account the need to satisfy other
demands which might have priority ahead of the obligations under this Contract)
shall be applied to make payments in the following order:
(a) the amount of all expenses, costs, demands for payment, obligations,
and the like paid, incurred or presented for payment to OPIC and which
are Secured Amounts;
(b) all other amounts comprising Secured Amounts, in the order determined
by OPIC;
(c) payments to the benefit of the Company if OPIC is not required to make
any payments in favour of other persons in accordance with the laws of
any State.
ACCOUNTS
7.2 Notwithstanding Section 7.1, all and any cash assets coming to OPIC from the
Pledgor or the Company or from any other person making payments with regard to
obligations or in connection with obligations of the Company or the Pledgor or
otherwise relating to the realisation or the exercise of the rights with respect
to the Pledged Shares in accordance with this Contract may be credited by OPIC
as a whole or in any proportion at the discretion of OPIC to any account or item
of account or may be applied by OPIC to cover obligations of the Company and the
Pledgor with regard to any other transactions and, without limitation, OPIC may
at its discretion at any time insofar as all Secured Amounts have not been paid
to OPIC credit in a separate or a suspense account as collateral security any
cash assets received by OPIC from the Company or the Pledgor or other persons in
connection with this Contract for so long and in the manner as OPIC considers
acceptable, and such may be applied by OPIC at any time and from time to time
thereafter in or towards discharge of the Secured Amounts as OPIC thinks fit.
<PAGE> 12
PROTECTION OF RIGHTS OF OPIC
8. OPIC shall not bear responsibility for any loss, causing of damage or harm
which is the result of the exercise, or the intention to exercise, or the
failure to exercise, or the impossibility to exercise, any of the respective
Rights.
ADDITIONAL ASSURANCES AND POWER OF ATTORNEY
ADDITIONAL ASSURANCES
9.1 The Pledgor agrees that at any time (and for the purposes designated in
paragraph (a) below even if OPIC has not sent demands to make payment of the
Secured Amounts or the performance of other obligations) at the first demand of
OPIC, at the expense of the Company, to sign any legally binding document or to
undertake legally binding actions which:
(a) OPIC may direct for the purposes of ensuring the validity, legality,
and ranking of the Pledge or any other Means of Securing Obligations
received or which should have been received in accordance with this
Contract; or
(b) OPIC may direct and which are reasonably necessary in the opinion of
OPIC in order to exercise any of the Rights.
POWERS OF ATTORNEY
9.2 For the purposes of securing the Rights of OPIC to the Pledged Sharesand the
performance of obligations and duties of the Pledgor to OPIC both under this
Contract and others, the Pledgor shall be obliged upon the first demand of OPIC
to appoint (by a power of attorney, the form and content of which must be
approved by OPIC) OPIC to be the representative (possessing the full right to
appoint deputies and the right to further delegate any powers, including the
right to transfer powers to a person appointed by a deputy, to make further
appointments, in all instances with respect to all or part of the Pledged
Shares) of the Pledgor (the Pledgor shall be obliged also to renew such power of
attorney or powers of attorney when this is necessary in order to ensure their
validity) and in the name of the Pledgor or otherwise to sign legally binding
documents or to perform actions having legally binding consequences which OPIC
(or their deputies or other empowered persons) considers, in its opinion, to be
appropriate in connection with the exercise of any rights of OPIC or which the
Pledgor is obliged to create for the benefit of OPIC on the basis of this
Contract or other related agreements. No such power of attorney shall extend to
or include any of the rights pertaining to the Pledgor under Section 5.3.
OBLIGATIONS IN ACCORDANCE WITH THIS CONTRACT SHALL NOT LEAD TO MERGER OR
COMBINING OF RIGHTS OF PLEDGE
10. The rights contained in this Contract or created in accordance with this
Contract
<PAGE> 13
shall serve as an addition (and in no event either excluding or affecting) to
other rights of pledge, the right to levy execution, the right to set-off
counter-obligations, the right to combine obligations or any other rights of
OPIC which it may acquire in the future (or shall have in addition to the Pledge
arising under this Contract, or other rights in relation to this Contract) with
respect to the Company or the Pledgor or any other person in connection with the
Secured Amounts. OPIC shall have the right at any time to create, waive,
exercise, change, exchange or refrain from the registration or other analogous
procedures or the creation of any other Means of Securing Obligations without
affecting in so doing or limiting the rights under this Contract. OPIC does not
and shall not bear responsibility to the Pledgor for any damage which is the
result of the failure of OPIC to take measures with regard to the use of or
failure to use its rights or the procedure or means to exercise them or the
avoidance of or refraining from the exercise of any of its rights as
pledgeholder.
CHANGE OF NAME
11. This Contract shall remain in force and its performance may be secured
irrespective of whether the name, composition, form, or status (or legal status)
of OPIC, the Company or the Pledgor changes, whether there occurs the merger or
association in any form of OPIC, the Company or the Pledgor with another person
or enterprise irrespective of its form, whether any changes occur in the
organisation of the Pledgor, the Company or any of their participants
(stockholders).
AVOIDANCE OF PAYMENTS
12. If any payment is avoided or changed in accordance with norms of law,
including any act relating to the regulation of insolvency (bankruptcy), no
release from obligations or settlement of obligations or claims performed by
OPIC on the basis of such payment shall affect in any way the rights of OPIC to
receive the Secured Amounts from the Company or the Pledgor or to exercise its
rights under this Contract in order to receive all of the Secured Amounts.
NOTIFICATIONS AND DEMANDS
13. The provisions of Section 8.1 of the Finance Agreement shall be an integral
part of this Contract and shall be subject to application to this Contract
mutatis mutandis.
CONCLUDING PROVISIONS
EVIDENCE OF INDEBTEDNESS
14.1 In any petition to sue, examination, or claim relating to this Contract or
to the rights of pledge under this Contract, a statement concerning the need to
perform any payment to the benefit of OPIC, or a payment of all, part, or parts
of the Secured Amounts, which is confirmed by personnel of OPIC is, excluding
instances of obvious or incontestable mistakes, prima facie evidence of the
Company's indebtedness in the
<PAGE> 14
amount designated therein.
SUPPLEMENTARY NATURE OF RIGHTS; WAIVER OF RIGHT
14.2 The rights and powers which this Contract grants to OPIC shall supplement
one another, may be exercised as often as OPIC wishes, and supplement their
respective rights in accordance with general norms of law (irrespective of
whether they arise under this Contract or in accordance with law and subordinate
acts). OPIC may waive such rights; however such waiver must be expressed (and
not implied) and be in writing and, in particular, any failure to use or
impossibility of use of any rights, or delay in the use of rights, shall not
mean and may not be construed as a waiver of any of such rights; any improper or
partial exercise of such rights shall not terminate or preclude the possibility
of the exercise of such rights or any other rights in the future or in other
instances and circumstances; and no action or behaviour or agreement through
negotiations with the participation of OPIC or persons acting in its name shall
prevent OPIC from exercising any of their rights and shall not mean the
suspension or change of the character, form, and content of any of such rights
or of such rights as a whole.
CONSEQUENCES OF INVALIDITY OF ANY PROVISION OF THIS CONTRACT
14.3 If any of the provisions of this Contract becomes or are deemed to be void,
not conforming to law, or the enforcement of which is impossible in a judicial
proceeding in accordance with any norm of law, the validity, conformity to law
and legal effect of other provisions shall in no event be brought into doubt nor
affected, and all such provisions shall remain in force.
APPLICABLE LAW
15. This Contract shall be governed by and interpreted in accordance with the
laws of the Russian Federation.
ARBITRATION AND JURISDICTION
ARBITRATION; RULES; VENUE; LANGUAGE
16.1 Any dispute, controversy or claim arising out of, or relating to, or in
connection with, this Contract (including the breach, termination or validity
hereof or thereof), and any dispute concerning the scope of this arbitration
clause, may, at the option of OPIC and upon written notice to the Pledgor, be
referred to for final settlement by arbitration. Such arbitration proceedings
shall be conducted in accordance with the International Arbitration rules of the
International Chamber of Commerce (ICC) in effect on the date on which the
arbitration commences (the RULES). The seat of the arbitration shall be the City
of New York, New York, unless OPIC directs that the place of arbitration shall
instead by Washington, DC or London. The arbitration shall be conducted in the
English language. Upon the Pledgor's receipt of a notice from OPIC of its
election to settle by arbitration any dispute, controversy or claim pursuant
<PAGE> 15
to this Section 16, the Pledgor shall be obliged to settle such dispute,
controversy or claim as provided in this Section 16. If any dispute, controversy
or claim is referred to arbitration by OPIC, the Pledgor hereby agrees to the
jurisdiction of the arbitral panel with respect to such dispute, controversy or
claim to the exclusion of the courts of the Russian Federation or any other
jurisdiction.
ARBITRATORS; SELECTION; QUALIFICATION
16.2 The arbitration shall be conducted by three arbitrators. OPIC and the
Pledgor shall each appoint one arbitrator, and each shall notify the other of
the name of its appointee within 60 days of the date of OPIC's notice to the
Pledgor. The two arbitrators appointed by OPIC and the Pledgor shall together,
within 60 days after the date on which the first two arbitrators were required
to be appointed, appoint the third, presiding arbitrator. If OPIC and the
Pledgor fail to appoint any arbitrator within the time limits provided
hereunder, such arbitrators shall upon the written request of OPIC or the
Pledgor, be appointed by the President of the ICC. Each arbitrator shall be
fluent in the English language, shall be a disinterested person, and shall be an
attorney qualified to practice law in the State of New York or the District of
Columbia for a minimum of 5 years, with experience in representing lenders and
borrowers in international project finance lending to private sector borrowers.
OPIC or the Pledgor may, within 10 days of notice of an appointment, challenge
the appointment of an arbitrator as lacking the qualifications set forth in the
preceding sentence pursuant to the procedures prescribed by the rules. Any
determination by the ICC as to qualification shall be final and binding and not
subject to judicial review. If an arbitrator must be replaced for any reason,
the appointing party shall endeavour to appoint a substitute within a reasonable
time.
LAW
16.3 Each arbitral panel established hereunder shall make its decisions entirely
on the basis of this Contract or Finance Agreement, as applicable, the governing
law provisions provided herein or therein, and the Rules.
STATEMENTS OF CLAIM AND DEFENCE; REPRESENTATION; PROCEEDINGS
16.4 OPIC shall communicate its statement of claim in writing to the Pledgor and
the arbitral panel within a period of time to be determined by the panel. The
Pledgor shall file a statement of defence in writing following receipt of OPIC's
statement of claim within a period of time to be determined by the panel. The
parties may be represented or assisted by legal counsel of their choice. The
arbitral panel shall determine a date on which it shall commence taking
evidence, which date shall not be less than 60 days after the Pledgor's
submission of its statement of defence, unless OPIC directs otherwise. Where the
Rules do not provide for a particular situation, the arbitral panel shall by a
majority, in its absolute discretion, determine the course of action to be
followed and its decision shall be final.
<PAGE> 16
AWARDS
16.5 The arbitral panel shall issue a written decision and award within 60 days
after the conclusion of the relevant proceedings. Any award of the arbitral
panel shall be final and binding, and judgment upon any arbitral award may be
entered and enforced by any court or judicial authority of competent
jurisdiction. Any money award shall be made and shall be payable in US dollars.
The award shall be limited to the scope of the submission and in no
circumstances shall the arbitral panel render an award ex aequo et bono or as
amiable compositeur. If either party wishes to submit a request that the
arbitral panel interpret the award or correct any clerical, typographical or
computation errors, or make an additional award as to claims presented but
omitted from the award, such request shall be submitted to the arbitral panel
and the other party within 10 days after the award. If the panel considers such
request justified, after considering the contention of the parties, the panel
shall promptly comply with such request. The arbitral panel. OPIC or the Pledgor
shall not be entitled to seek from any judicial authority or take any interim
measures or provide any preaward relief against OPIC or the Pledgor,
notwithstanding any contrary provisions in the Rules.
EXPENSES
16.6 Each party shall pay its own costs, fees and expenses.
NO WAIVER
16.7 In invoking any arbitration pursuant to this Section 16, OPIC shall not be
deemed to have waived any rights, immunities or privileges to which it or any of
its directors, officers or employees are entitled. By submitting to arbitration,
OPIC shall not be deemed to have submitted to the jurisdiction of any court
other than the United States Court of Claims in Washington DC.
COUNTERPARTS
17. This Contract may be executed in two counterparts, each of which shall be
deemed an original, but both of which together shall constitute one and the same
Contract.
This Contract has been concluded by the Pledgor and by OPIC on , in two
copies in the English language and two copies in the Russian language, each of
which has identical legal force.
Legal addresses of the parties:
Pledgor: OPIC:
Pioneer Forest, L.L.C. Overseas Private Investment
Corporation
<PAGE> 17
Corporation Trust Center 1100 New York Avenue NW
1209 Orange Street Washington DC 20627-0001
USA
Wilmington, Delaware 19801
USA
SIGNED by )
/s/ Stephen G. Kasnet )
- ---------------------
for and on behalf of )
PIONEER FOREST, L.L.C. )
SIGNED by )
/s/ Stephen S. Smith )
- --------------------
for and on behalf of )
OVERSEAS PRIVATE )
INVESTMENT CORPORATION )
<PAGE> 18
ANNEX 1
(BEING AN INTEGRAL PART OF THE CONTRACT OF PLEDGE OF SHARES IN JOINT STOCK
COMPANY "FOREST-STARMA" BETWEEN PIONEER FOREST, L.L.C. AND OVERSEAS
PRIVATE INVESTMENT
CORPORATION OF DECEMBER 28, 1999)
PLEDGED SHARES
DESCRIPTION VALUE(1)
1455 ordinary registered shares (common stock) in Closed USD18,300,000
Joint-Stock Company "FOREST-STARMA" with a par value of 1
Rouble each
PLEDGOR OPIC
Pioneer Forest, L.L.C. Overseas Private
Investment Corporation
Corporation Trust Center 1100 New York Avenue NW
Washington DC 20627-0001
1209 Orange Street USA
Wilmington, Delaware 19801
USA
- --------
(1) The value of the Pledged Shares designed in this Annex is the value of
the Pledged Shares, the amount of which has been agreed by OPIC and the
Pledgor, based on the audited balance sheet of Closed Joint-Stock
Company "FOREST-STARMA" as of 31 December 1998. The value of the
Pledged Shares at the moment of the exercise of the rights of OPIC
shall be equal to the price of such shares received by OPIC after the
sale or realisation by other means of the Pledged Shares, taking into
account the location and condition of the assets of the Pledgor at the
moment of the exercise of the rights of OPIC.
<PAGE> 19
ANNEX 2
(BEING AN INTEGRAL PART OF THE CONTRACT OF PLEDGE OF SHARES IN JOINT STOCK
COMPANY "FOREST-STARMA" BETWEEN PIONEER FOREST, L.L.C. AND OVERSEAS
PRIVATE INVESTMENT
CORPORATION OF DECEMBER 28, 1999)
NOTICE OF PLEDGE
From: PIONEER FOREST, L.L.C.,
To: Closed Joint-Stock Company "FOREST-STARMA"
Copy to: Overseas Private Investment Corporation
Dear Sirs,
We hereby give you notice that by a Contract of Pledge of Shares dated [_____
_____] 1999 and made between this Company (hereinafter the PLEDGOR) and Overseas
Private Investment Corporation, (hereinafter OPIC) we have pledged absolutely to
OPIC all of the shares in Closed Joint-Stock Company "FOREST-STARMA" which the
Pledgor intends to acquire from the corporation "Pioneer Forest, Inc. (USA)
(hereinafter the CORPORATION).
After the aforesaid acquisition of the shares in Closed Joint-Stock Company
"FOREST-STARMA" by the Pledgor from the Corporation, and unless and until OPIC
has sent you a demand for payment following the occurrence of an event of
default in accordance with Section 7 of the Finance Agreement between OPIC and
you, we retain the right to all and any dividends and other distributions in
connection with the Pledged Shares and to all other rights.
This notice and the instructions herein contained are irrevocable. Please
acknowledge receipt of this notice to OPIC on the enclosed consent to pledge.
Yours faithfully,
.........................
For and on behalf of
Pioneer Forest, L.L.C.
<PAGE> 20
ANNEX 3
(BEING AN INTEGRAL PART OF THE CONTRACT OF PLEDGE OF SHARES IN JOINT STOCK
COMPANY "FOREST-STARMA" BETWEEN PIONEER FOREST, L.L.C. AND OVERSEAS
PRIVATE INVESTMENT
CORPORATION OF DECEMBER 28, 1999)
ACKNOWLEDGEMENT OF PLEDGE
From: Closed Joint-Stock Company "FOREST-STARMA"
To: Overseas Private Investment Corporation
Date:
Dear Sirs,
We acknowledge receipt of a notice of pledge dated December 28, 1999
(hereinafter - the NOTICE) from Pioneer Forest, L.L.C. (hereinafter the PLEDGOR)
and confirm that the Notice is adequate notice of a Contract of Pledge of Shares
dated December 28, 1999. We further acknowledge that the Notice confers on you
the rights of the Pledgee in respect of all the shares of the Pledgor in Closed
Joint-Stock Company "FOREST-STARMA" which the Pledgor will acquire from the
corporation "Pioneer Forest, Inc." (USA) (hereinafter the CORPORATION) and that
the issuance of the shares has been properly registered in accordance with the
laws of the Russian Federation.
Notice of Pledge will be entered on the register of shareholders of Closed
Joint-Stock Company "FOREST-STARMA" after the acquisition of the shares in
Closed Joint-Stock Company "FOREST-STARMA" by the Pledgee from the Corporation.
Yours faithfully,
........................................
For and on behalf of
Closed Joint-Stock Company "FOREST-STARMA"
<PAGE> 1
Exhibit 10.93
AGREEMENT WITH RESPECT TO SUBORDINATION AGREEMENT
AGREEMENT (the "Agreement"), dated as of December 28, 1999, among THE
PIONEER GROUP, INC., a corporation organized and existing under the laws of the
state of Delaware ("PGI"), PIONEER FOREST, INC., a corporation organized and
existing under the laws of the state of Delaware and a wholly owned subsidiary
of PGI ("PFI"), PIONEER FOREST, L.L.C., a limited liability company organized
and existing under the laws of the state of Delaware and a wholly owned
subsidiary of PFI ("PFLLC"), CLOSED JOINT-STOCK COMPANY "FOREST-STARMA", a
closed joint stock company organized and existing under the legislation of the
Russian Federation (the "Borrower"), and the OVERSEAS PRIVATE INVESTMENT
CORPORATION, an agency of the United States Government ("OPIC").
WITNESSETH:
WHERAS, State Street Bank and Trust Company (the "Subordinated
Lender"), PGI, International Joint Stock Company "Starma Holding"("Starma
Holding"), the Borrower and OPIC are parties to a Subordination Agreement, dated
as of December 21, 1995 (the "Subordination Agreement"), the Subordinated
Lender, PGI, PFI, the Borrower and OPIC are parties to a Limited Waiver
Agreement with Respect to Subordination Agreement, dated as of June 3, 1999 (the
"Waiver Agreement"), pursuant to which PFI agreed to be bound by the terms of
the Subordination Agreement, and to be jointly and severally responsible and
liable for the obligations of PGI thereunder, the Borrower and OPIC are parties
to a Finance Agreement, dated as of December 21,1995, as amended to and
including the date hereof (the "Finance Agreement"), the Borrower, PGI, Starma
Holding and OPIC are parties to a Project Completion Agreement, dated as of
December 21, 1995, and the Borrower, PGI, PFI and OPIC are parties to an
Agreement with Respect to Project Completion Agreement, dated as of June 3,
1999;
WHEREAS, all capitalized terms used herein and not otherwise defined
herein shall have their respective meanings set forth in the Finance Agreement,
the Project Completion Agreement and the Subordination Agreement; and
WHEREAS, as a result of the Share Transfer, PFLLC will own 100% of the
shares of capital stock of the Company and PFI will no longer hold any capital
stock of the Company.
NOW, THEREFORE, the parties agree as follows:
1. Undertaking of PFLLC. PFLLC hereby agrees to be bound by the terms of
the Subordination Agreement and the Waiver Agreement, and to be jointly and
severally responsible and liable for the obligations and liabilities of PFI and
PGI thereunder, and in
<PAGE> 2
connection with this undertaking to appoint an agent for service of process
satisfactory to OPIC in compliance with Section 19 of the Subordination
Agreement and give OPIC written notice thereof with 30 days after the date
hereof. Notices to PFLLC may be given to it at the following address:
60 State Street
Boston, MA 02109
Tel: 617-742-7825
Fax: 617-422-4286
Attention: President
2. Representations and Warranties. Each of the parties represents to the
other parties that this Agreement constitutes a legal, valid and binding
obligation of it, enforceable against it in accordance with its terms.
3. Ratification and Confirmation. All the terms and provisions of the
Subordination Agreement and the Waiver Agreement are hereby ratified and
confirmed by the parties hereto and shall apply in full force and effect.
4. No Waiver. The Borrower acknowledges and agrees that except as
expressly provided in Section 1 of this Agreement, OPIC, in executing and
delivering this Agreement, has not and shall not be deemed to have waived,
released or modified any right or power that it may have under the Finance
Agreement to claim that any Event of Default has occurred or is occurring, and
the execution and delivery of this Agreement shall not be deemed a waiver by
OPIC of any such Event of Default.
5. Effective Date. This Agreement shall be effective as of the date hereof.
6. Counterparts. This Agreement may be executed in counterparts, each of
which when so executed and delivered shall be deemed an original and all of
which shall constitute one and the same instrument.
IN WITNESS whereof, the parties hereto have caused this Agreement to be
executed by their authorized representatives as of the day and year first above
written.
THE PIONEER GROUP, INC.
By: /s/ Stephen G. Kasnet
------------------------------
Its: Executive Vice President
<PAGE> 3
PIONEER FOREST, INC.
By: /s/ Stephen G. Kasnet
------------------------------
Its: President
PIONEER FOREST, L.L.C.
By: /s/ Stephen G. Kasnet
------------------------------
Its: President
CLOSED JOINT-STOCK COMPANY
"FOREST-STARMA"
By: /s/ Donald H. Hunter
------------------------------
Donald H. Hunter
On the basis of power of attorney No. 73,
Dated December 3, 1999
By: /s/ Catherine V. Mannick
------------------------------
Catherine V. Mannick
On the basis of power of attorney No. 74,
Dated December 3, 1999
By: /s/ Inna Verdini
------------------------------
Inna Verdini
On the basis of power of attorney No. 72,
Dated December 3, 1999
OVERSEAS PRIVATE INVESTMENT CORPORATION
By: /s/ Steven S. Smith
------------------------------
Its: Investment Officer
<PAGE> 1
EXHIBIT 10.94
THE PIONEER GROUP, INC.
EXECUTIVE RETENTION AGREEMENT
THIS EXECUTIVE RETENTION AGREEMENT by and between The Pioneer Group,
Inc., a Delaware corporation (the "Company"), and _________________ (the
"Executive") is made as of __________, 2000 (the "Effective Date").
WHEREAS, the Company recognizes that, as is the case with many
publicly-held corporations, the possibility of a change in control of the
Company exists and that such possibility, and the uncertainty and questions
which it may raise among key personnel, may result in the departure or
distraction of key personnel to the detriment of the Company and its
stockholders, and
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that appropriate steps should be taken to reinforce and encourage the
continued employment and dedication of the Company's key personnel without
distraction from the possibility of a change in control of the Company and
related events and circumstances.
NOW, THEREFORE, as an inducement for and in consideration of the
Executive remaining in its employ, the Company agrees that the Executive shall
receive the severance benefits set forth in this Agreement in the event the
Executive's employment with the Company is terminated under the circumstances
described below subsequent to a Change in Control (as defined in Section 1.1).
1. Key Definitions.
As used herein, the following terms shall have the following respective
meanings:
1.1 "CHANGE IN CONTROL" means an event or occurrence set forth in any
one or more of subsections (a) through (d) below (including an event or
occurrence that constitutes a Change in Control under one of such subsections
but is specifically exempted from another such subsection):
(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 of any
capital stock of the Company if, after such acquisition, such Person
beneficially owns (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) 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 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
<PAGE> 2
Change in Control: (i) any acquisition directly from the Company (excluding an
acquisition pursuant to the exercise, conversion or exchange of any security
exercisable for, convertible into or exchangeable for common stock or voting
securities of the Company, unless the Person exercising, converting or
exchanging such security acquired such security directly from the Company or an
underwriter or agent of 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
(c) of this Section 1.1; or
(b) such time as the Continuing Directors (as defined below) do not
constitute a majority of the Board (or, if applicable, the Board of Directors of
a successor corporation to the Company), where the term "Continuing Director"
means at any date a member of the Board (i) who was a member of the Board on the
date of the execution of this Agreement or (ii) who was nominated or elected
subsequent to such date by at least a majority of the directors who were
Continuing Directors at the time of such nomination or election or whose
election to the Board was recommended or endorsed by at least a majority of the
directors who were Continuing Directors at the time of such nomination or
election; PROVIDED, HOWEVER, that there shall be excluded from this clause (ii)
any individual whose initial assumption of office occurred as a result of an
actual or threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or consents, by
or on behalf of a person other than the Board; or
(c) the consummation of a merger, consolidation, reorganization,
recapitalization or statutory share exchange involving the Company or a sale or
other disposition of all or substantially all of the assets of the Company,
including but not limited to a sale of the assets of the Company related to its
domestic investment management business (a "Business Combination"), unless,
immediately following such Business Combination, each of the following two
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 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; and (ii)
no Person (excluding the Acquiring Corporation or any employee benefit plan (or
related trust) maintained or sponsored by the Company or by the Acquiring
Corporation) beneficially owns, directly or indirectly, 25% or more of the then
outstanding shares of common stock of the Acquiring Corporation, or of the
combined voting power of the then-outstanding securities of such corporation
entitled to vote generally in the election of directors (except to the extent
that such ownership existed prior to the Business Combination); or
-2-
<PAGE> 3
(d) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
1.2 "CHANGE IN CONTROL DATE" means the first date during the Term (as
defined in Section 2) on which a Change in Control occurs. Anything in this
Agreement to the contrary notwithstanding, if (a) a Change in Control occurs,
(b) the Executive's employment with the Company is terminated prior to the date
on which the Change in Control occurs, and (c) it is reasonably demonstrated by
the Executive that such termination of employment (i) was at the request of a
third party who has taken steps reasonably calculated to effect a Change in
Control or (ii) otherwise arose in connection with or in anticipation of a
Change in Control, then for all purposes of this Agreement the "Change in
Control Date" shall mean the date immediately prior to the date of such
termination of employment.
1.3 "CAUSE" means:
(a) the Executive's willful and continued failure to substantially
perform [his/her] reasonable assigned duties as an officer of the Company (other
than any such failure resulting from incapacity due to physical or mental
illness or any failure after the Executive gives notice of termination for Good
Reason), which failure is not cured within 30 days after a written demand for
substantial performance is received by the Executive from the Board of Directors
of the Company which specifically identifies the manner in which the Board of
Directors believes the Executive has not substantially performed the Executive's
duties; or
(b) the Executive's willful engagement in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this Section 1.3, no act or failure to act by the
Executive shall be considered "willful" unless it is done, or omitted to be
done, in bad faith and without reasonable belief that the Executive's action or
omission was in the best interests of the Company.
1.4 "GOOD REASON" means the occurrence, without the Executive's written
consent, of any of the events or circumstances set forth in clauses (a) through
(f) below. Notwithstanding the occurrence of any such event or circumstance,
such occurrence shall not be deemed to constitute Good Reason if, prior to the
Date of Termination specified in the Notice of Termination (each as defined in
Section 3.2(a)) given by the Executive in respect thereof, such event or
circumstance has been fully corrected and the Executive has been reasonably
compensated for any losses or damages resulting therefrom (provided that such
right of correction by the Company shall only apply to the first Notice of
Termination for Good Reason given by the Executive).
(a) the assignment to the Executive of duties inconsistent in any
material respect with the Executive's position (including status, offices,
titles, and reporting requirements), authority or responsibilities in effect
immediately prior to the earliest to occur of (i) the Change in Control Date,
(ii) the date of the execution by the Company of the initial written agreement
or instrument providing for the Change in Control or (iii) the date of the
adoption by the Board of Directors of a resolution providing for the Change in
Control (with the earliest to occur of such dates referred to herein as the
"Measurement Date"), or any other action
-3-
<PAGE> 4
or omission by the Company which results in a diminution in such position,
authority or responsibilities;
(b) a reduction in the Executive's (i) annual base salary as in
effect on the Measurement Date or as the same was or may be increased from time
to time or (ii) potential annual bonus as in effect on the Measurement Date or
as the same was or may be increased from time to time;
(c) the failure by the Company to (i) continue in effect any
material compensation or benefit plan or program (including without limitation
any life insurance, medical, health and accident or disability plan and any
vacation program or policy) (a "Benefit Plan") in which the Executive
participates or which is applicable to the Executive immediately prior to the
Measurement Date, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to such plan or
program, (ii) continue the Executive's participation therein (or in such
substitute or alternative plan) on a basis not materially less favorable, both
in terms of the amount of benefits provided and the level of the Executive's
participation relative to other participants, than the basis existing
immediately prior to the Measurement Date or (iii) award cash bonuses to the
Executive in amounts and in a manner substantially consistent with past practice
in light of the Company's financial performance;
(d) a change by the Company in the location at which the Executive
performs [his/her] principal duties for the Company to a new location that is
both (i) outside a radius of 20 miles from the Executive's principal residence
immediately prior to the Measurement Date and (ii) more than 20 miles from the
location at which the Executive performed [his/her] principal duties for the
Company immediately prior to the Measurement Date; or a requirement by the
Company that the Executive travel on Company business to a substantially greater
extent than required immediately prior to the Measurement Date;
(e) the failure of the Company to obtain the agreement, in a form
reasonably satisfactory to the Executive, from any successor to the Company to
assume and agree to perform this Agreement, as required by Section 6.1; or
(f) any failure of the Company to pay or provide to the Executive
any portion of the Executive's compensation or benefits due under any Benefit
Plan within seven days of the date such compensation or benefits are due, or any
material breach by the Company of any employment agreement with the Executive.
The Executive's right to terminate [his/her] employment for Good Reason
shall not be affected by [HIS/HER] incapacity due to physical or mental illness.
1.5 "DISABILITY" means the Executive's absence from the full-time
performance of the Executive's duties with the Company for 180 consecutive
calendar days as a result of incapacity due to mental or physical illness which
is determined to be total and permanent by a physician selected by the Company
or its insurers and acceptable to the Executive or the Executive's legal
representative.
-4-
<PAGE> 5
2. TERM OF AGREEMENT. This Agreement, and all rights and obligations of
the parties hereunder, shall take effect upon the Effective Date and shall
expire upon the first to occur of (a) the expiration of the Term (as defined
below) if a Change in Control has not occurred during the Term, (b) the date 24
months after the Change in Control Date, if the Executive is still employed by
the Company as of such later date, or (c) the fulfillment by the Company of all
of its obligations under Sections 4 and 5.2 if the Executive's employment with
the Company terminates within 24 months following the Change in Control Date.
"Term" shall mean the period commencing as of the Effective Date and continuing
in effect through December 31, 2002; PROVIDED, however, that commencing on
January 1, 2003 and each January 1 thereafter, the Term shall be automatically
extended for one additional year unless, not later than 90 days prior to the
scheduled expiration of the Term (or any extension thereof), the Company shall
have given the Executive written notice that the Term will not be extended.
3. EMPLOYMENT STATUS; TERMINATION FOLLOWING CHANGE IN CONTROL.
3.1 NOT AN EMPLOYMENT CONTRACT. The Executive acknowledges that this
Agreement does not constitute a contract of employment or impose on the Company
any obligation to retain the Executive as an employee and that this Agreement
does not prevent the Executive from terminating employment at any time. If the
Executive's employment with the Company terminates for any reason and
subsequently a Change in Control shall occur, the Executive shall not be
entitled to any benefits hereunder except as otherwise provided pursuant to
Section 1.2.
3.2 TERMINATION OF EMPLOYMENT.
(a) If the Change in Control Date occurs during the Term, any
termination of the Executive's employment by the Company or by the Executive
within 24 months following the Change in Control Date (other than due to the
death of the Executive) shall be communicated by a written notice to the other
party hereto (the "Notice of Termination"), given in accordance with Section 7.
Any Notice of Termination shall: (i) indicate the specific termination provision
(if any) of this Agreement relied upon by the party giving such notice, (ii) to
the extent applicable, set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) specify the Date of
Termination (as defined below). The effective date of an employment termination
(the "Date of Termination") shall be the close of business on the date specified
in the Notice of Termination (which date may not be less than 15 days or more
than 120 days after the date of delivery of such Notice of Termination), in the
case of a termination other than one due to the Executive's death, or the date
of the Executive's death, as the case may be.
(b) The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively,
from asserting any such fact or circumstance in enforcing the Executive's or the
Company's right hereunder.
-5-
<PAGE> 6
(c) Any Notice of Termination for Cause given by the Company must
be given within 90 days of the occurrence of the event(s) or circumstance(s)
which constitute(s) Cause. Prior to any Notice of Termination for Cause being
given (and prior to any termination for Cause being effective), the Executive
shall be entitled to a hearing before the Board of Directors of the Company or a
designated committee thereof, at which [he/she] may, at [HIS/HER] election, be
represented by counsel and at which [he/she] shall have a reasonable opportunity
to be heard. Such hearing shall be held on not less than 15 days prior written
notice to the Executive stating the Company's intention to terminate the
Executive for Cause and stating in detail the particular event(s) or
circumstance(s) which the Company believes constitutes Cause for termination.
(d) Any Notice of Termination for Good Reason given by the
Executive must be given within 90 days of the occurrence of the event(s) or
circumstance(s) which constitute(s) Good Reason.
4. BENEFITS TO EXECUTIVE.
4.1 STOCK ACCELERATION. If the Change in Control Date occurs during the
Term, then, effective upon the Change in Control Date, (a) each outstanding
option to purchase shares of Common Stock of the Company held by the Executive
shall become immediately exercisable in full and (b) each outstanding restricted
stock award issued under the Company's 1995 Restricted Stock Plan shall be
deemed to be fully vested and no longer subject to a right of repurchase by the
Company. Notwithstanding the foregoing provisions of this Section 4.1, if the
Change in Control arises as a result of a Business Combination which is intended
to be accounted for as a "pooling of interests" for financial accounting
purposes, and if the acceleration, vesting or release of restrictions to be
effected by the foregoing provisions of this Section 4.1 would preclude
accounting for the Change in Control as a "pooling of interests" for financial
accounting purposes, then the terms of such options or restricted stock awards
shall remain unchanged.
4.2 COMPENSATION. If the Change in Control Date occurs during the Term
and the Executive's employment with the Company terminates within 24 months
following the Change in Control Date, the Executive shall be entitled to the
following benefits:
(a) TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. If the
Executive's employment with the Company is terminated by the Company (other than
for Cause, Disability or Death) or by the Executive for Good Reason within 24
months following the Change in Control Date, then the Executive shall be
entitled to the following benefits:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of the following
amounts:
(1) the sum of (A) the Executive's base salary through
the Date of Termination, (B) the product of (x) the Executive's Target Bonus, as
defined below, and (y) a fraction, the numerator of which is the number of days
in the current fiscal year through the Date of Termination, and the denominator
of which is 365 and (C) the amount of any compensation previously deferred by
the Executive (together with any accrued interest or
-6-
<PAGE> 7
earnings thereon) and any accrued vacation pay, in each case to the extent not
previously paid (the sum of the amounts described in clauses (A), (B), and (C)
shall be hereinafter referred to as the "Accrued Obligations"); and
(2) the amount equal to (A) three multiplied by (B) the
sum of (x) the Executive's current annual base salary, but not less than the
Executive's annual base salary on the date of this Agreement and (y) the
Executive's Target Bonus
(3) For purposes of calculating the amount to be paid
under this Section 4(a)(i), and not for any other purpose, the Executive's
Target Bonus shall be an amount equal to the Executive's annual base salary.
(ii) for 24 months after the Date of Termination, or such
longer period as may be provided by the terms of the appropriate plan, program,
practice or policy, the Company shall continue to provide benefits to the
Executive and the Executive's family at least equal to those which would have
been provided to them if the Executive's employment had not been terminated, in
accordance with the applicable Benefit Plans in effect on the Measurement Date
or, if more favorable to the Executive and [his/her] family, in effect generally
at any time thereafter with respect to other peer executives of the Company and
its affiliated companies;
(iii) to the extent not previously paid or provided, the
Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is eligible to
receive following the Executive's termination of employment under any plan,
program, policy, practice, contract or agreement of the Company and its
affiliated companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits");
(iv) The Company shall provide conventional outplacement
services having a value of not more than 20% of the Executive's annual base
salary; and
(v) for purposes of determining eligibility (but not the time
of commencement of benefits) of the Executive for retiree benefits to which the
Executive is entitled, the Executive shall be considered to have remained
employed by the Company until 24 months after the Date of Termination.
(b) RESIGNATION WITHOUT GOOD REASON; TERMINATION FOR DEATH OR
DISABILITY. If the Executive voluntarily terminates [his/her] employment with
the Company within 24 months following the Change in Control Date, excluding a
termination for Good Reason, or if the Executive's employment with the Company
is terminated by reason of the Executive's death or Disability within 24 months
following the Change in Control Date, then the Company shall (i) pay the
Executive (or [his/her] estate, if applicable), in a lump sum in cash within 30
days after the Date of Termination, the Accrued Obligations and (ii) timely pay
or provide to the Executive the Other Benefits.
(c) TERMINATION FOR CAUSE. If the Company terminates the
Executive's employment with the Company for Cause within 24 months following the
Change in Control Date, then the Company shall (i) pay the Executive, in a lump
sum in cash within 30 days after the Date of Termination, the sum of (A) the
Executive's annual base salary through the Date of
-7-
<PAGE> 8
Termination and (B) the amount of any compensation previously deferred by the
Executive, in each case to the extent not previously paid, and (ii) timely pay
or provide to the Executive the Other Benefits.
4.3 TAXES.
(a) Notwithstanding any other provision of this Agreement, except
as set forth in Section 4.3(b), in the event that the Company undergoes a
"Change in Ownership or Control" (as defined below), the Company shall not be
obligated to provide to the Executive a portion of any "Contingent Compensation
Payments" (as defined below) that the Executive would otherwise be entitled to
receive to the extent necessary to eliminate any "excess parachute payments" (as
defined in Section 280G(b)(1) of the Internal Revenue Code of 1986, as amended
(the "Code")) for the Executive. For purposes of this Section 4.3, the
Contingent Compensation Payments so eliminated shall be referred to as the
"Eliminated Payments" and the aggregate amount (determined in accordance with
Proposed Treasury Regulation Section 1.280G-1, Q/A-30 or any successor
provision) of the Contingent Compensation Payments so eliminated shall be
referred to as the "Eliminated Amount."
(b) Notwithstanding the provisions of Section 4.3(a), no such
reduction in Contingent Compensation Payments shall be made if (i) the
Eliminated Amount (computed without regard to this sentence) exceeds (ii) the
aggregate present value (determined in accordance with Proposed Treasury
Regulation Section 1.280G-1, Q/A-31 and Q/A-32 or any successor provisions) of
the amount of any additional taxes that would be incurred by the Executive if
the Eliminated Payments (determined without regard to this sentence) were paid
to [him/her] (including, state and federal income taxes on the Eliminated
Payments, the excise tax imposed by Section 4999 of the Code payable with
respect to all of the Contingent Compensation Payments in excess of the
Executive's "base amount" (as defined in Section 280G(b)(3) of the Code), and
any withholding taxes). The override of such reduction in Contingent
Compensation Payments pursuant to this Section 4.3(b) shall be referred to as a
"Section 4.3(b) Override." For purpose of the preceding sentence, if any federal
or state income taxes would be attributable to the receipt of any Eliminated
Payment, the amount of such taxes shall be computed by multiplying the amount of
the Eliminated Payment by the maximum combined federal and state income tax rate
provided by law.
(c) For purposes of this Section 4.3 the following terms shall have
the following respective meanings:
(i) "Change in Ownership or Control" shall mean a change in
the ownership or effective control of the Company or in the ownership of a
substantial portion of the assets of the Company determined in accordance with
Section 280G(b)(2) of the Code.
(ii) "Contingent Compensation Payment" shall mean any payment
(or benefit) in the nature of compensation that is made or made available (under
this Agreement or otherwise) to a "disqualified individual" (as defined in
Section 280G(c) of the Code) and that is contingent (within the meaning of
Section 280G(b)(2)(A)(i) of the Code) on a Change in Ownership or Control of the
Company.
-8-
<PAGE> 9
(d) Any payments or other benefits otherwise due to the Executive
following a Change in Ownership or Control that could reasonably be
characterized (as determined by the Company) as Contingent Compensation Payments
(the "Potential Payments") shall not be made until the dates provided for in
this Section 4.3(d). Within 30 days after each date on which the Executive first
becomes entitled to receive (whether or not then due) a Contingent Compensation
Payment relating to such Change in Ownership or Control, the Company shall
determine and notify the Executive (with reasonable detail regarding the basis
for its determinations) (i) which Potential Payments constitute Contingent
Compensation Payments, (ii) the Eliminated Amount and (iii) whether the Section
4.3(b) Override is applicable. Within 30 days after delivery of such notice to
the Executive, the Executive shall deliver a response to the Company (the
"Executive Response") stating either (A) that [he/she] agrees with the Company's
determination pursuant to the preceding sentence, in which case [he/she] shall
indicate, if applicable, which Contingent Compensation Payments, or portions
thereof (the aggregate amount of which, determined in accordance with Proposed
Treasury Regulation Section 1.280G-1, Q/A-30 or any successor provision, shall
be equal to the Eliminated Amount), shall be treated as Eliminated Payments or
(B) that [he/she] disagrees with such determination, in which case [he/she]
shall set forth (i) which Potential Payments should be characterized as
Contingent Compensation Payments, (ii) the Eliminated Amount, (iii) whether the
Section 4.3(b) Override is applicable, and (iv) which (if any) Contingent
Compensation Payments, or portions thereof (the aggregate amount of which,
determined in accordance with Proposed Treasury Regulation Section 1.280G-1,
Q/A-30 or any successor provision, shall be equal to the Eliminated Amount, if
any), shall be treated as Eliminated Payments. In the event that the Executive
fails to deliver an Executive Response on or before the required date, the
Company's initial determination shall be final and the Contingent Compensation
Payments that shall be treated as Eliminated Payments shall be determined by the
Company in its absolute discretion. If the Executive states in the Executive
Response that [he/she] agrees with the Company's determination, the Company
shall make the Potential Payments to the Executive within three business days
following delivery to the Company of the Executive Response (except for any
Potential Payments which are not due to be made until after such date, which
Potential Payments shall be made on the date on which they are due). If the
Executive states in the Executive Response that [he/she] disagrees with the
Company's determination, then, for a period of 60 days following delivery of the
Executive Response, the Executive and the Company shall use good faith efforts
to resolve such dispute. If such dispute is not resolved within such 60-day
period, such dispute shall be settled exclusively by arbitration in Boston,
Massachusetts, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award in
any court having jurisdiction. The Company shall, within three business days
following delivery to the Company of the Executive Response, make to the
Executive those Potential Payments as to which there is no dispute between the
Company and the Executive regarding whether they should be made (except for any
such Potential Payments which are not due to be made until after such date,
which Potential Payments shall be made on the date on which they are due). The
balance of the Potential Payments shall be made within three business days
following the resolution of such dispute. Subject to the limitations contained
in Sections 4.3(a) and (b) hereof, the amount of any payments to be made to the
Executive following the resolution of such dispute shall be increased by amount
of the accrued interest thereon computed at the prime rate published from time
to time in the Wall Street Journal, compounded monthly from the date that such
payments originally were due.
-9-
<PAGE> 10
(e) Upon the written request of the Executive (which request must
specify the Executive's actual tax circumstances) delivered to the Company
within 90 days following the timely filing of all relevant tax returns for the
Executive for the year or other taxable period in which the Eliminated Payments
would have been made, the Eliminated Payments shall be recomputed based upon the
Executive's actual tax circumstances. If, as a result of such recomputation,
there are no Eliminated Payments, the Executive shall become entitled to receive
Contingent Compensation Payments previously treated as Eliminated Payments
within 10 days of the delivery of the aforementioned request.
(f) The provisions of this Section 4.3 are intended to apply to any
and all payments or benefits available to the Executive under this Agreement or
any other agreement or plan of the Company under which the Executive receives
Contingent Compensation Payments.
4.4 MITIGATION. The Executive shall not be required to mitigate the
amount of any payment or benefits provided for in this Section 4 by seeking
other employment or otherwise. Further, the amount of any payment or benefits
provided for in this Section 4 shall not be reduced by any compensation earned
by the Executive as a result of employment by another employer, by retirement
benefits, by offset against any amount claimed to be owed by the Executive to
the Company or otherwise.
5. DISPUTES.
5.1 SETTLEMENT OF DISPUTES; ARBITRATION. All claims by the Executive
for benefits under this Agreement shall be directed to and determined by the
Board of Directors of the Company and shall be in writing. Any denial by the
Board of Directors of a claim for benefits under this Agreement shall be
delivered to the Executive in writing and shall set forth the specific reasons
for the denial and the specific provisions of this Agreement relied upon. The
Board of Directors shall afford a reasonable opportunity to the Executive for a
review of the decision denying a claim. Any further dispute or controversy
arising under or in connection with this Agreement shall be settled exclusively
by arbitration in Boston, Massachusetts, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction.
5.2 EXPENSES. The Company agrees to pay as incurred, to the full extent
permitted by law, all legal, accounting and other fees and expenses which the
Executive may reasonably incur as a result of any claim or contest (regardless
of the outcome thereof) by the Company, the Executive or others regarding the
validity or enforceability of, or liability under, any provision of this
Agreement or any guarantee of performance thereof (including as a result of any
contest by the Executive regarding the amount of any payment or benefits
pursuant to this Agreement), plus in each case interest on any delayed payment
at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the
Code.
6. SUCCESSORS.
6.1 SUCCESSOR TO COMPANY. The Company shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or
-10-
<PAGE> 11
substantially all of the business or assets of the Company expressly to assume
and agree to perform this Agreement to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain an assumption of this Agreement at or prior to the
effectiveness of any succession shall be a breach of this Agreement and shall
constitute Good Reason if the Executive elects to terminate employment, except
that for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination. As used in
this Agreement, "Company" shall mean the Company as defined above and any
successor to its business or assets as aforesaid which assumes and agrees to
perform this Agreement, by operation of law or otherwise.
6.2 SUCCESSOR TO EXECUTIVE. This Agreement shall inure to the benefit
of and be enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If the Executive should die while any amount would still be payable to
the Executive or [his/her] family hereunder if the Executive had continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the executors, personal
representatives or administrators of the Executive's estate.
7. NOTICE. All notices, instructions and other communications given
hereunder or in connection herewith shall be in writing. Any such notice,
instruction or communication shall be sent either (i) by registered or certified
mail, return receipt requested, postage prepaid, or (ii) prepaid via a reputable
nationwide overnight courier service, in each case addressed to the Company, at
60 State Street, Boston, MA 02109, and to the Executive at _____________ (or to
such other address as either the Company or the Executive may have furnished to
the other in writing in accordance herewith). Any such notice, instruction or
communication shall be deemed to have been delivered five business days after it
is sent by registered or certified mail, return receipt requested, postage
prepaid, or one business day after it is sent via a reputable nationwide
overnight courier service. Either party may give any notice, instruction or
other communication hereunder using any other means, but no such notice,
instruction or other communication shall be deemed to have been duly delivered
unless and until it actually is received by the party for whom it is intended.
8. MISCELLANEOUS.
8.1 EMPLOYMENT BY SUBSIDIARY. For purposes of this Agreement, the
Executive's employment with the Company shall not be deemed to have terminated
solely as a result of the Executive continuing to be employed by a wholly-owned
subsidiary of the Company.
8.2 SEVERABILITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
8.3 INJUNCTIVE RELIEF. The Company and the Executive agree that any
breach of this Agreement by the Company is likely to cause the Executive
substantial and irrevocable damage and therefore, in the event of any such
breach, in addition to such other remedies which may be available, the Executive
shall have the right to specific performance and injunctive relief.
-11-
<PAGE> 12
8.4 GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the internal laws of the
Commonwealth of Massachusetts, without regard to conflicts of law principles.
8.5 WAIVERS. No waiver by the Executive at any time of any breach of,
or compliance with, any provision of this Agreement to be performed by the
Company shall be deemed a waiver of that or any other provision at any
subsequent time.
8.6 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original but both of which together shall
constitute one and the same instrument.
8.7 TAX WITHHOLDING. Any payments provided for hereunder shall be paid
net of any applicable tax withholding required under federal, state or local
law.
8.8 CONFIDENTIALITY. The Executive understands and agrees that the
terms and contents of this Agreement shall be maintained as confidential by the
Employee, [his/her] agents and representatives, and shall not be disclosed
except to the extent required by federal or state law or as otherwise agreed to
in writing by each party.
8.9 ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter contained herein and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto; and any prior agreement
of the parties hereto in respect of the subject matter contained herein is
hereby terminated and cancelled.
8.10 AMENDMENTS. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Executive.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first set forth above.
THE PIONEER GROUP, INC.
By:
----------------------------------
Title:
-------------------------------
-------------------------------------
[NAME OF EXECUTIVE]
-12-
<PAGE> 1
Exhibit 21
The Pioneer Group, Inc. Subsidiaries
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
PIOGlobal Insurance Company Limited Bermuda
- -------------------------------------------------------------------------------------------------------------------------
Pioneer Global Funds Distributor, Ltd. Bermuda
- -------------------------------------------------------------------------------------------------------------------------
Pioneer Goldfields Limited Channel Islands
- -------------------------------------------------------------------------------------------------------------------------
Pioneer Goldfields II Limited Channel Islands and Delaware
- -------------------------------------------------------------------------------------------------------------------------
Pioneer Poland US (Jersey) Limited Channel Islands
- -------------------------------------------------------------------------------------------------------------------------
Pioneering Management (Jersey) Limited Channel Islands
- -------------------------------------------------------------------------------------------------------------------------
Beijing Pioneer Zhong Investment Consulting Co., Ltd. China
- -------------------------------------------------------------------------------------------------------------------------
Anabasis Enterprises Limited Cyprus
- -------------------------------------------------------------------------------------------------------------------------
Pioneer Czech Financial Company, s.r.o. Czech Republic
- -------------------------------------------------------------------------------------------------------------------------
Pioneer Czech Investment Company, a.s. Czech Republic
- -------------------------------------------------------------------------------------------------------------------------
Pioneer Trust, Pioneer Czech Investment Company, a.s. Czech Republic
- -------------------------------------------------------------------------------------------------------------------------
Luscinia, Inc. Delaware
- -------------------------------------------------------------------------------------------------------------------------
PBO Holdings, L.L.C. Delaware
- -------------------------------------------------------------------------------------------------------------------------
PBO Property Capital, L.L.C. Delaware
- -------------------------------------------------------------------------------------------------------------------------
PBO Property Fund, L.L.C. Delaware
- -------------------------------------------------------------------------------------------------------------------------
PGH Nebraska, Inc. Delaware
- -------------------------------------------------------------------------------------------------------------------------
PGIA Corporation Delaware
- -------------------------------------------------------------------------------------------------------------------------
PIOGlobal Corporation Delaware
- -------------------------------------------------------------------------------------------------------------------------
Pioneer Explorer, Inc. Delaware
- -------------------------------------------------------------------------------------------------------------------------
Pioneer First Russia, Inc. Delaware
- -------------------------------------------------------------------------------------------------------------------------
Pioneer Forest, Inc. Delaware
- -------------------------------------------------------------------------------------------------------------------------
Pioneer International Corporation Delaware
- -------------------------------------------------------------------------------------------------------------------------
Pioneer Investment Management, Inc. Delaware
- -------------------------------------------------------------------------------------------------------------------------
Pioneer Metals and Technology, Inc. Delaware
- -------------------------------------------------------------------------------------------------------------------------
Pioneer Omega, Inc. Delaware
- -------------------------------------------------------------------------------------------------------------------------
Pioneer Plans Corporation Delaware
- -------------------------------------------------------------------------------------------------------------------------
Pioneer Poland GP Limited Partnership Delaware
- -------------------------------------------------------------------------------------------------------------------------
Pioneer Poland U.S. L.P. Delaware
- -------------------------------------------------------------------------------------------------------------------------
Pioneer Real Estate Advisors, Inc. Delaware
- -------------------------------------------------------------------------------------------------------------------------
Theta Enterprises, Inc. Delaware
- -------------------------------------------------------------------------------------------------------------------------
Pioneer Poland UK L.P. England
- -------------------------------------------------------------------------------------------------------------------------
UKS Securities Limited England
- -------------------------------------------------------------------------------------------------------------------------
Pioneer Fonds Marketing GmbH Germany
- -------------------------------------------------------------------------------------------------------------------------
Teberebie Goldfields Limited Ghana
- -------------------------------------------------------------------------------------------------------------------------
Kothari Pioneer AMC Ltd. India
- -------------------------------------------------------------------------------------------------------------------------
Pioneer Management (Ireland) Limited Ireland and Germany
- -------------------------------------------------------------------------------------------------------------------------
Pioneer Funds Distributor, Inc. Massachusetts
- -------------------------------------------------------------------------------------------------------------------------
Pioneer Goldfields Trust Massachusetts
- -------------------------------------------------------------------------------------------------------------------------
Pioneer Investments Corporation Massachusetts
- -------------------------------------------------------------------------------------------------------------------------
Pioneering Services Corporation Massachusetts
- -------------------------------------------------------------------------------------------------------------------------
Pioneer Asset Management S.A. Poland
- -------------------------------------------------------------------------------------------------------------------------
Pioneer Financial Services Ltd. Poland
- -------------------------------------------------------------------------------------------------------------------------
Pioneer First Polish Investment Fund s.a. Poland
- -------------------------------------------------------------------------------------------------------------------------
Pioneer Investments Poland, Ltd. Poland
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
Exhibit 21
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------
Pioneer Mercury Sp z.o.o. Poland
- -------------------------------------------------------------------------------------------------------------------------
Pioneer Nationwide Sp. z o.o. Poland
- -------------------------------------------------------------------------------------------------------------------------
Pioneer Polish Real Estate Fund Poland
- -------------------------------------------------------------------------------------------------------------------------
Pioneer Real Estate Advisors Poland Sp.z o.o. Poland
- -------------------------------------------------------------------------------------------------------------------------
Pioneer Universal Pension Fund Company Poland
- -------------------------------------------------------------------------------------------------------------------------
Closed Joint-Stock Company Amgun-Forest Russian Federation
- -------------------------------------------------------------------------------------------------------------------------
Closed Joint-Stock Company Forest-Starma Russian Federation
- -------------------------------------------------------------------------------------------------------------------------
Closed Joint Stock Company Gradient Russian Federation
- -------------------------------------------------------------------------------------------------------------------------
Closed Joint Stock Company Pioneer First Russian Federation
- -------------------------------------------------------------------------------------------------------------------------
Closed Joint-Stock Company Pioneer Metals International Russian Federation
- -------------------------------------------------------------------------------------------------------------------------
Closed Joint Stock Company Pioneer Services Russian Federation
- -------------------------------------------------------------------------------------------------------------------------
Closed Joint Stock Company Pioneer Starma Equipment Russian Federation
- -------------------------------------------------------------------------------------------------------------------------
Closed Joint Stock Company Starma-Holding Russian Federation
- -------------------------------------------------------------------------------------------------------------------------
Closed Joint Stock Company Starma-Port Russian Federation
- -------------------------------------------------------------------------------------------------------------------------
Closed Joint-Stock Company Tas-Yurjah Mining Company Russian Federation
- -------------------------------------------------------------------------------------------------------------------------
Closed Joint Stock Company Udinskoye Russian Federation
- -------------------------------------------------------------------------------------------------------------------------
JSL Co. Dalplaz Russian Federation
- -------------------------------------------------------------------------------------------------------------------------
Pioneer First Investment Fund Russian Federation
- -------------------------------------------------------------------------------------------------------------------------
Pioneer Investments Russian Federation
- -------------------------------------------------------------------------------------------------------------------------
ZAO Pioneer Securities Russian Federation
- -------------------------------------------------------------------------------------------------------------------------
Core Pacific Securities Investment Trust Co., Ltd. Taiwan
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report, dated February 4, 2000, included in this Form 10-K, into the Company's
previously filed Registration Statement File Nos. 33-61932, 33-59185, 33-59183,
333-31847 and 333-78771.
Arthur Andersen LLP
Boston, Massachusetts
March 20, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EX-27.99
FINANCIAL DATA SCHEDULE
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1.00000
<CASH> 36,740
<SECURITIES> 3,850
<RECEIVABLES> 38,255
<ALLOWANCES> 0
<INVENTORY> 3,908
<CURRENT-ASSETS> 92,601
<PP&E> 87,189
<DEPRECIATION> (25,868)
<TOTAL-ASSETS> 299,832
<CURRENT-LIABILITIES> 86,640
<BONDS> 63,892
0
0
<COMMON> 2,653
<OTHER-SE> 84,445
<TOTAL-LIABILITY-AND-EQUITY> 299,832
<SALES> 0
<TOTAL-REVENUES> 249,904
<CGS> 0
<TOTAL-COSTS> 216,098
<OTHER-EXPENSES> 14,712
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,013
<INCOME-PRETAX> 12,081
<INCOME-TAX> 9,256
<INCOME-CONTINUING> 2,825
<DISCONTINUED> (73,682)
<EXTRAORDINARY> 0
<CHANGES> (12,112)
<NET-INCOME> (82,969)
<EPS-BASIC> (3.200)
<EPS-DILUTED> (3.170)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EX-27.98
RESTATED FINANCIAL DATA SCHEDULE
</LEGEND>
<RESTATED>
<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> 1.00000
<CASH> 44,212
<SECURITIES> 3,638
<RECEIVABLES> 47,742
<ALLOWANCES> 0
<INVENTORY> 3,585
<CURRENT-ASSETS> 123,232
<PP&E> 82,320
<DEPRECIATION> (18,215)
<TOTAL-ASSETS> 439,218
<CURRENT-LIABILITIES> 80,970
<BONDS> 99,035
0
0
<COMMON> 2,613
<OTHER-SE> 152,189
<TOTAL-LIABILITY-AND-EQUITY> 439,218
<SALES> 0
<TOTAL-REVENUES> 247,545
<CGS> 0
<TOTAL-COSTS> 241,432
<OTHER-EXPENSES> (8,767)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,897
<INCOME-PRETAX> 2,983
<INCOME-TAX> 9,384
<INCOME-CONTINUING> (6,401)
<DISCONTINUED> (27,067)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (33,468)
<EPS-BASIC> (1.330)
<EPS-DILUTED> (1.320)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EX-27.97
RESTATED FINANCIAL DATA SCHEDULE
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1.00000
<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> 241,029
<CGS> 0
<TOTAL-COSTS> 194,050
<OTHER-EXPENSES> (22,095)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,629
<INCOME-PRETAX> 60,445
<INCOME-TAX> 28,202
<INCOME-CONTINUING> 32,243
<DISCONTINUED> (3,077)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,166
<EPS-BASIC> 1.170
<EPS-DILUTED> 1.140
</TABLE>
<PAGE> 1
EXHIBIT 99
PIONEER PENSION FUND COMPANY
FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR THE PERIOD FROM
OCTOBER 29,1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
TOGETHER WITH AUDITORS' REPORT
<PAGE> 2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Pioneer Pension Fund Company:
We have audited the accompanying balance sheets of Pioneer Pension Fund Company,
as of December 31, 1999 and 1998 and the related statements of operations, cash
flows and stockholders' equity for the year ended December 31, 1999 and for the
period from October 29, 1998 (Date of Inception) to 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
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of 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 Pioneer Pension Fund Company as
of December 31, 1999 and 1998 and the results of its operations and its cash
flows for the year ended December 31, 1999 and for the period from October 29,
1998 (Date of Inception) to December 31, 1998 in conformity with accounting
principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 4, 2000
<PAGE> 3
PIONEER PENSION FUND COMPANY
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 11,507,135 $ 9,634,342
Restricted cash 90,423 --
Accounts receivable 148,136 --
Prepaid expenses 86,059 6,360
------------ -----------
Total current assets 11,831,753 9,640,702
------------ -----------
NONCURRENT ASSETS:
Deferred sales commissions, net 3,370,256 --
Fixed assets (net of accumulated depreciation and amortization of $361,073 in
1999 and $44,367 in 1998) 515,691 117,548
------------ -----------
Total noncurrent assets
3,885,947 117,548
------------ -----------
Total assets $ 15,717,700 $ 9,758,250
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
CURRENT LIABILITIES:
Accounts payable $ 142,774 $ 52,655
Commissions 398,303 --
Accrued expenses 485,782 64,194
Due to affiliates 467,878 103,129
------------ -----------
Total current liabilities 1,494,737 219,978
------------ -----------
COMMITMENTS AND CONTINGENCIES (NOTE 9)
STOCKHOLDERS' EQUITY:
Common stock - at par value, authorized; issued and outstanding 485,714 shares
in 1999 and 340,000 shares in 1998 13,598,327 9,880,849
Paid-in capital 16,282,522 --
Cumulative translation adjustment (1,936,483) (178,547)
Retained deficit (13,721,403) (164,030)
------------ -----------
Total stockholders' equity 14,222,963 9,538,272
------------ -----------
Total liabilities and stockholders' equity $ 15,717,700 $ 9,758,250
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
PIONEER PENSION FUND COMPANY
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR THE PERIOD FROM
OCTOBER 29, 1998 (DATE OF INCEPTION) TO DECEMBER 31,1998
1999 1998
REVENUES:
Underwriting and distribution fees $ 293,981 $ --
Management fees 5,717 --
Interest income 914,100 92,883
Other income 367,110 --
------------ -----------
Total revenues
1,580,908 92,883
------------ -----------
EXPENSES:
Distribution 1,455,514 31,165
Compensation and benefits 3,989,778 92,420
General and administrative 2,135,306 159,494
Amortization of deferred sales commissions 979,885 --
Shareholder services fees 358,438 --
Advertising and promotion 6,426,176 7,919
------------ -----------
Total expenses 15,345,097 290,998
------------ -----------
OTHER INCOME (EXPENSE):
Foreign exchange transaction gain 483,277 35,628
Other (276,461) (1,543)
------------ -----------
Total other income (expense) 206,816 34,085
NET LOSS BEFORE INCOME TAXES (13,557,373) (164,030)
PROVISION (BENEFIT) FOR INCOME TAXES -- --
------------ -----------
NET LOSS $(13,557,373) $ (164,030)
============ ===========
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
PIONEER PENSION FUND COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR THE PERIOD
FROM OCTOBER 29, 1998 TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(13,557,373) $ (164,030)
Depreciation and amortization 316,706 44,367
Loss on disposal of fixed assets 43,650 --
Changes in operating assets and liabilities-
Prepaid expenses (79,699) (6,360)
Accounts receivable (148,136) --
Deferred sales commissions, net (3,755,150) --
Accounts payable 90,119 52,655
Commissions 398,303 --
Accrued expenses 421,588 64,194
Due to affiliates 364,749 103,129
------------ -----------
Net cash (used in) provided by operating activities (15,905,243) 93,955
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to furniture, equipment and leasehold improvements (867,834) (161,915)
Proceeds from sale of fixed assets 50,442 --
------------ -----------
Net cash used in investing activities (817,392) (161,915)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock 20,000,000 9,880,849
Restricted cash (90,423) --
------------ -----------
Net cash provided by financing activities 19,909,577 9,880,849
------------ -----------
EFFECT OF FOREIGN CURRENCY EXCHANGE RATES ON CASH AND CASH EQUIVALENTS
(1,314,149) (178,547)
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,872,793 9,634,342
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 9,634,342 --
------------ -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 11,507,135 $ 9,634,342
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
PIONEER PENSION FUND COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR THE PERIOD FROM
OCTOBER 29, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
Common Stock
--------------------------
Cumulative
Paid-in- translation Retained Comprehensive
Shares Amount capital adjustment Deficit Total loss
------------ ----------- ----------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT OCTOBER 29,
1998 (DATE OF INCEPTION) $ $ $ $ $ $
Common stock issued 340,000 9,880,849 -- -- -- 9,880,849 --
Net loss for the year -- -- -- -- (164,030) (164,030) (164,030)
Cumulative translation adjustment -- -- -- (178,547) -- (178,547) (178,547)
Comprehensive loss -- -- -- -- -- -- $ (342,577)
------------ ----------- ----------- ----------- ------------ ------------ ============
BALANCE AT DECEMBER 31, 1998 340,000 9,880,849 -- (178,547) (164,030) 9,538,272
------------ ----------- ----------- ----------- ------------ ------------
Common stock issued 145,714 3,717,478 16,282,522 -- -- 20,000,000 --
Net loss for the year -- -- -- -- (13,557,373) (13,557,373) (13,557,373)
Cumulative translation adjustment -- -- -- (1,757,936) -- (1,757,936) (1,757,936)
Comprehensive loss -- -- -- -- -- -- $(15,315,309)
------------ ----------- ----------- ----------- ------------ ------------ ============
BALANCE AT DECEMBER 31, 1999 485,714 $13,598,327 $16,282,522 $(1,936,483) $(13,721,403) $ 14,222,963
============ =========== =========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 7
PIONEER PENSION FUND COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
(1) NATURE OF OPERATIONS AND ORGANIZATION
Pioneer Pension Fund Company (the Company) was established on October
29,1998 as a wholly-owned subsidiary of The Pioneer Group, Inc. (PGI). On
April 8, 1999, additional Common Stock was issued to a third party for
$20,000,000, diluting PGI's ownership of the Company to 70%.
The Company manages the Pioneer Pension Fund (the Fund). The Fund
receives pension contributions from Polish citizens as a result of the
Polish government's pension reform program. Eligible Polish citizens were
required to select a private pension fund before the end of 1999. Those
between 18 and 30 years old were required to select a pension fund or be
assigned one via a government allocation process. Polish citizens between
31 and 50 years old could also select a private pension fund or remain
under the current pension system. The government allocation for those
under 30 who did not select a particular pension fund will be based on
the total number of participants signed up by each of the funds. This
allocation is expected in the first half of 2000.
An estimated 9,500,000 participants were signed up by 21 pension
companies in 1999. The Polish government pension office responsible for
registering participants and transferring monthly contributions into the
respective pension funds is backlogged an estimated three to four months
as of December 31, 1999. The Fund has received at least one monthly
contribution on 34% of its 110,000 accounts. The Fund has an estimated
110,000 accounts at December 31, 1999, which include approximately 20,000
accounts that are in the process of being transferred in from other
pension funds and an estimated 6,200 resignations. Transfers between
funds are processed and verified through the Polish government pension
office.
Beginning in 2000, new accounts will be solicited from those who turn 18
years old and from those transferring from other pension funds.
As manager of the Fund, the Company incurs all distribution costs and
advertising expenses associated with the acquisition of customer
accounts.
(2) BASIS OF PRESENTATION
The financial statements have been prepared in accordance with United
States generally accepted accounting principles (GAAP) and are presented
in U.S. dollars (USD).
Polish accounting records are maintained according to the statutory
accounting rules of the Polish Federation. The accompanying financial
statements are based on the Company's accounting records, appropriately
adjusted and reclassified for fair presentation in accordance with GAAP.
The functional currency of the Company is the Polish zloty (PLN). For the
purposes of presentation in USD, assets and liabilities are translated at
current exchange rates as of the end of the accounting period, and
related revenues and expenses are translated at average exchange rates in
effect during
<PAGE> 8
PIONEER PENSION FUND COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
(Continued)
the period. Net exchange gains and losses resulting from translation are
excluded from income and are recorded as a cumulative translation
adjustment in the accompanying balance sheets.
(3) PRINCIPAL ACCOUNTING POLICIES
(a) Fixed Assets
Fixed assets are recorded at historical cost less accumulated
depreciation or amortization. Depreciation and amortization is
provided to write off the cost of the assets on a straight-line
basis over the estimated useful economic life of the asset. The
economic lives are as follows:
YEARS
Leasehold improvements 10
Fixtures and furniture 5
Computer equipment 3
Vehicles 5
(b) Deferred Sales Commissions
Distribution costs paid in connection with the acquisition of
customer accounts are capitalized and amortized over periods not
exceeding two years-the contractual period of benefit. The
capitalized amount includes all sales compensation, related
payroll taxes, incentives and account fees paid to sales agents
and external distributors based on the number of accounts signed
up. Amortization begins either when the first contribution is
received into the fund or two months after the account is signed
up, whichever occurs first. Underwriting and distribution fees are
received at the rate of 8.8% of each contribution.
A deferred sales charge is assessed to accounts that transfer from
the Company prior to the completion of the minimum investment
period of two years. The deferred sales charge is sufficient to
recover the unamortized deferred sales commissions during the
contractual period of benefit. A valuation allowance of $631,000
has been established related to estimated nonperforming accounts.
(c) Recognition of Revenues
Investment management fees, investment income and distribution
fees are all recognized as earned. Underwriting commissions are
recorded upon receipt of the contribution into the fund.
(d) Advertising and Promotion
Costs of advertising and promotion are expensed as the advertising
appears in the media.
<PAGE> 9
PIONEER PENSION FUND COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
(Continued)
(e) Cash Flows
Cash and cash equivalents consist primarily of cash on deposit in
banks and amounts invested in commercial paper and Polish treasury
bills with original maturities of three months or less. Amounts
invested in Polish treasury bills approximate $1,953,000 and
$1,900,000 at December 31, 1998 and 1999, respectively. At
December 31, 1999, approximately $5,400,000 was invested in a
repurchase agreement, which matured on January 13, 2000.
Restricted cash is comprised of a single office lease deposit.
(f) Use of Estimates
The preparation of financial statements in conformity with GAAP
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.
(4) COMPREHENSIVE LOSS
The Company adopted Statement of Financial Standards (SFAS) No. 130,
Reporting Comprehensive Income in the fourth quarter of 1998. SFAS No.
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 nonowner sources. The Company's foreign
currency translation adjustments, which are excluded from net loss, are
included in comprehensive loss.
(5) TAXATION
The Company provides for income taxes using the liability method. Under
the liability method, deferred tax assets and liabilities are computed
based on the difference between the financial statement and income tax
bases of assets and liabilities using the enacted tax rates. The Company
has not recorded an income tax benefit on the losses reported, as it is
not likely that these benefits will be realized.
<PAGE> 10
PIONEER PENSION FUND COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
(Continued)
A reconciliation of the income taxes at the U.S. federal statutory rate
to the provision for income taxes is as follows:
1999 1998
Benefit at U.S. federal statutory tax rate $ 4,745,081 $ 57,411
Effect of foreign tax rates that are
less than U.S. rates (135,574) (1,611)
Net operating losses for which no benefit
is recognized (4,266,000) (55,800)
Other (343,507) --
----------- ---------
Provision(benefit) for income taxes $ -- $ --
=========== =========
The Company's net operating loss carryforward for Polish tax purposes is
approximately 67,000,000 PLN, or approximately $16,176,000. The statutory
period for net operating loss carryforwards is five years. The maximum
amount of the loss carryforward that can be used each year is limited to
one half of the loss incurred in 1999.
The following is a summary of the Company's deferred tax assets and
liabilities at December 31:
1999 1998
Net operating loss carryforward $ 5,499,800 $ 55,800
Deferred sales commissions (1,178,000) --
----------- --------
4,321,800 55,800
Valuation allowance (4,321,800) (55,800)
----------- --------
$ -- $ --
=========== ========
<PAGE> 11
PIONEER PENSION FUND COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
(Continued)
(6) FIXED ASSETS
Fixed assets consist of the following at December 31:
1999 1998
Leasehold improvements $ 36,158 $ 4,650
Fixtures and furniture 316,692 86,979
Software 20,614 -
Computer equipment 237,897 31,437
Vehicles 265,403 38,849
--------- --------
876,764 161,915
Accumulated depreciation (361,073) (44,367)
--------- --------
Fixed assets $ 515,691 $117,548
========= ========
(7) STOCKHOLDERS' EQUITY
The authorized capital of the Company at December 31, 1999 consisted of
485,714 of common stock, 100 PLN par value ($28) per share. All
authorized shares of common stock were issued and outstanding at December
31, 1999.
(8) RELATED PARTIES
PGI and its affiliates provide certain services to the Company. Those
services include general advisory services, distribution, shareholder
account servicing and customer support. Additionally, certain
administrative services are provided to the Company by PGI including
assistance with development of certain computer applications and
information systems, certain tax filings, as well as the preparation of
certain financial information. All of these services have been priced and
conducted on an arms length basis. The cost of services provided by PGI
and affiliates in 1999 and 1998 is $1,515,910 and $ -, respectively.
(9) FINANCIAL COMMITMENTS AND CONTINGENCIES
(a) Guarantees and Letters of Credit
There are no guarantees or letters of credit outstanding at
December 31, 1999.
<PAGE> 12
PIONEER PENSION FUND COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
(Continued)
(b) Lease Obligations
The Company has an open-ended office lease with a three month
notice period. There are no other lease obligations at December
31, 1999.
