-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IT4n20yb0ICuu5jODFZTWaJ1xzIvgiEx8UcHKhbCO2JgUzGm98s1PHN/pwhDiov9 HRYIkfzDZ4XW49jUctA5zg== 0000950135-99-001704.txt : 19990402 0000950135-99-001704.hdr.sgml : 19990402 ACCESSION NUMBER: 0000950135-99-001704 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PIONEER GROUP INC CENTRAL INDEX KEY: 0000733060 STANDARD INDUSTRIAL CLASSIFICATION: INVESTMENT ADVICE [6282] IRS NUMBER: 135657669 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-08841 FILM NUMBER: 99580123 BUSINESS ADDRESS: STREET 1: 60 STATE ST STREET 2: 19TH FLOOR CITY: BOSTON STATE: MA ZIP: 02109-1820 BUSINESS PHONE: 8008211239 MAIL ADDRESS: STREET 1: 60 STATE STREET STREET 2: 19TH FLOOR CITY: BOSTON STATE: MA ZIP: 02109-1820 10-K405 1 THE PIONEER GROUP, INC. 1 ======================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------------- FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________ TO ___________ COMMISSION FILE NUMBER 0-8841 THE PIONEER GROUP, INC. (Exact name of Registrant as specified in its charter) DELAWARE 13-5657669 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
60 STATE STREET, BOSTON, MASSACHUSETTS 02109 (617) 742-7825 (Address, including zip code, and telephone number, including area code, of principal executive offices) Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR VALUE $0.10 PER SHARE (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]. Based on the last sale price of the Registrant's Common Stock on the Nasdaq National Market of $16.375 on March 24, 1999, the aggregate market value of the shares of voting stock held by non-affiliates of the Registrant on that date was $348,950,169. As of March 24, 1999, 26,315,377 shares of the Registrant's Common Stock, $0.10 par value, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE (1) Portions of the 1998 Annual Report to Stockholders are incorporated by reference into Parts I, II and IV (as indicated in such parts). (2) Certain information called for by Part III (as indicated therein) is incorporated from the Registrant's definitive proxy materials for use in connection with the 1999 Annual Meeting of Stockholders. ================================================================================ 2 PART I ITEM 1. BUSINESS. OVERVIEW The operations of The Pioneer Group, Inc., a corporation organized under the laws of the State of Delaware in 1956 (the "Company"), and its wholly owned subsidiaries, are divided among three strategic business units: (i) Pioneer Investment Management, (ii) Pioneer International Financial Services, and (iii) Pioneer Global Investments. PIONEER INVESTMENT MANAGEMENT. This strategic business unit includes the (i) investment management of the Company's 24 open-end registered investment companies (comprised of 36 investment portfolios) and one closed-end registered investment company (collectively, the "mutual funds") based in the U.S., which are available to domestic investors, as well as the seven offshore open-end investment funds based in Ireland, which are available to non-U.S. investors, (ii) distribution of shares of the open-end mutual funds and offshore funds, and (iii) shareholder servicing for the open-end mutual funds. Pioneer Investment Management also provides separate account management services for institutional investors. PIONEER INTERNATIONAL FINANCIAL SERVICES. The Company's international financial services businesses include investment management and financial services operations in: (i) Warsaw, Poland, where the Company manages and distributes units of four mutual funds available to Polish citizens, owns 80% of a brokerage company and 100% of a unitholder servicing agent and recently established a private pension fund management company, (ii) Prague, the Czech Republic, where the Company manages a Czech open-end mutual fund and distributes its participation certificates, (iii) Moscow, Russia, where the Company provides financial services, including transfer agency services, distributes shares of, manages and services two open-end mutual funds available to Russian citizens and manages and owns 51% of the Pioneer First Investment Fund, a closed-end fund, which was one of the largest Russian voucher investment funds, and (iv) Madras, India, where the Company owns 47.61% of an Indian company that serves as the investment adviser, distributor and shareholder servicing agent to 18 private sector mutual funds available to Indian citizens. In addition, the Company has a 10% interest in an investment management operation in Taiwan. PIONEER GLOBAL INVESTMENTS. This strategic business unit includes the Company's diversified businesses of gold mining, timber, international venture capital, real estate and mineral exploration. The Company's indirect wholly owned subsidiary, Pioneer Goldfields Limited ("Pioneer Goldfields"), conducts mining and exploration activities in the Republic of Ghana and exploration activities elsewhere in Africa. Pioneer Goldfields' principal asset is its ownership of 90% of the outstanding shares of Teberebie Goldfields Limited, which operates a gold mine in the western region of the Republic of Ghana. The Company also participates in several natural resource development ventures in Russia. The Company's subsidiary, Pioneer Forest, Inc. ("Pioneer Forest"), conducts (through three Russian subsidiaries) timber harvesting and timber development activities in the Russian Far East. Pioneer Forest's principal asset is its ownership of 97% of the outstanding shares of Closed Joint-Stock Company "Forest-Starma." The Company also is conducting a gold exploration project in the same region. In addition, the Company provides global real estate management and advisory services to institutions and corporations in the U.S., Russia and Poland and serves as a venture capital investor and manager in Poland. PIONEER INVESTMENT MANAGEMENT DOMESTIC INVESTMENT MANAGEMENT The Company's domestic investment management business includes the U.S. registered mutual funds, the offshore funds registered in Ireland and private institutional accounts, all of which are advised by the Company's wholly owned subsidiary, Pioneer Investment Management, Inc. ("Pioneer Management"). This business also includes distribution, shareholder servicing and transfer agency activities related to these investment products. 1 3 U.S. Mutual Funds. Pioneer Management serves as investment manager to 24 domestic open-end mutual funds (consisting of 36 investment portfolios, comprised of seven U.S. growth portfolios, nine international growth portfolios, 10 growth and income portfolios, six income portfolios, two tax-free income portfolios and two money market portfolios) and one U.S. closed-end mutual fund. These portfolios include Pioneer Independence Fund, which commenced operations in March 1998, and the Europe and Emerging Markets Portfolios of the Pioneer Variable Contracts Trust, which commenced operations in October 1998. All of these funds (hereinafter referred to collectively as the "U.S. Funds") are registered under the Investment Company Act of 1940, as amended (the "1940 Act"). At March 1, 1999, the U.S. Funds had aggregate net assets of approximately $21.5 billion. In managing such assets, Pioneer Management employed, at March 1, 1999, 153 persons on a full-time basis, including 22 fund managers and 54 investment analysts and support staff. Pioneer Management manages each U.S. Fund pursuant to a management contract, which is renewable annually by vote of either the U.S. Fund's Board of Trustees (including a majority of members who are not "interested persons" as defined under the 1940 Act) or the U.S. Fund's shareholders. All management contracts terminate if assigned and may be terminated by either party without penalty on 60 days' written notice. The management contracts for the U.S. Funds (other than three U.S. Funds that were established in 1998) were all renewed for an additional year in 1998. Under these contracts, Pioneer Management is authorized in its discretion to buy and sell securities for the accounts of the U.S. Funds, subject to certain limitations. In addition, the management contracts between the U.S. Funds and Pioneer Management define the ordinary operating expenses to be assumed by each. As compensation for its management services, Pioneer Management receives management fees from the U.S. Funds that range from 0.40% to 1.25% per year of average daily net assets depending on the U.S. Fund. Four of the U.S. Funds (including the two largest U.S. Funds) have a management fee that is adjusted based upon the U.S. Fund's performance relative to the performance of an established index. For 1998, 1997 and 1996, Pioneer Management received revenues from management fees from all the U.S. Funds and from Pioneer II and Pioneer Fund, the Company's largest U.S. Funds, approximately as shown in the chart below:
1998 1997 1996 (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) ------------- ------------- ------------- Management Fee Revenues from All U.S. Funds.. $125 $107 $76 Management Fee Revenues from Pioneer II...... $ 36 $ 40 $29 Management Fee Revenues from Pioneer Fund.... $ 32 $ 21 $14
On an interim basis, Pioneer Management has agreed not to impose a portion of its management fees and to make other arrangements, if necessary, to limit operating expenses of selected U.S. Funds. Pursuant to this policy, Pioneer Management limited management fees or otherwise incurred expenses pursuant to expense limitation agreements with selected U.S. Funds during 1998, 1997 and 1996 as shown in the chart below:
1998 1997 1996 (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) ------------- ------------- ------------- Management Fees Limited or Expenses Incurred.. $1.5 $1.8 $2.4
Irish Funds. Pioneer Management (Ireland) Limited ("Pioneer Ireland"), a wholly owned subsidiary of the Company, serves as investment manager, distributor and shareholder servicing agent of seven offshore funds incorporated under the laws of the Republic of Ireland, consisting of five growth portfolios, one income portfolio and one money market portfolio (collectively, the "Irish Funds"). Pioneer Management serves as investment adviser for the Irish Funds. As compensation for its advisory services, Pioneer Ireland receives annual management fees from the Irish Funds of 0.60% to 1.50% of average daily net assets. The Irish Funds are currently sold primarily in Germany and Austria, but the Company anticipates that they eventually will be sold in other foreign markets. At March 1, 1999, the Irish Funds had aggregate net assets of approximately $413 million. Pioneer Ireland's main office is located in Dublin, Ireland. It also maintains an office in Hamburg, Germany. At March 1, 1999, Pioneer Ireland had 163 employees, including management and support staff. 2 4 Institutional Accounts. Pioneer Management acts as an investment manager to one private institutional account and two collective investment vehicles for institutional investors and acts as a subadvisor to one of a series of portfolios utilized as funding vehicles for a variable life insurance fund (hereinafter referred to collectively as the "Institutional Accounts"). The Institutional Accounts had aggregate assets of approximately $118 million at March 1, 1999. DISTRIBUTION ACTIVITIES Pioneer Management's wholly owned subsidiary, Pioneer Funds Distributor, Inc. ("Pioneer Distributor"), acts as principal underwriter and distributor of the shares of the U.S. Funds (except Pioneer Interest Shares, a closed-end fund which does not continuously offer its shares). In 1998, Pioneer Distributor sold shares of the U.S. Funds with an aggregate offering price of approximately $4 billion, including Class A Shares (as defined below) with an aggregate offering price of $2.5 billion, Class B Shares (as defined below) with an aggregate offering price of $869 million, Class C Shares (as defined below) with an aggregate offering price of $297 million, Class Y Shares (as defined below) with an aggregate offering price of $9 million and shares of Pioneer Variable Contracts Trust with an aggregate offering price of $304 million. In connection therewith, Pioneer Distributor received aggregate commissions in each of 1998, 1997 and 1996 as shown in the chart below. In each such year, Pioneer Distributor reallowed the amount shown in the chart below to approximately 1,600 independent broker-dealers throughout the United States and in several foreign countries. One broker-dealer was responsible for approximately 11% of sales in 1998, 10% of sales in 1997 and 9% of sales in 1996.
1998 1997 1996 (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) ------------- ------------- ------------- Commissions Received..................... $75.9 $60.9 $66.2 Commissions Reallowed.................... $66.1 $53.8 $59.1
Underwriting Contracts. Pioneer Distributor provides its underwriting and distribution services pursuant to underwriting contracts, which are substantially identical, with each of the U.S. Funds. These one-year contracts are renewable annually by vote of the U.S. Fund's Board of Trustees (including a majority of those Trustees who are not "interested persons" as defined under the 1940 Act) or shareholders. Each contract terminates if assigned and may be terminated by either party on 60 days' written notice without penalty. The underwriting contracts for each of the U.S. Funds (other than U.S. Funds that were established in 1998) were all renewed for an additional year in 1998. Sales Charges. Generally, purchasers of shares of the U.S. Funds pay a sales charge at the time of purchase. The amount of the sales charge is calculated as the difference between the offering price of the shares and the net asset value of the shares and varies generally as a percentage of the offering price. Shares bearing this sales charge are referred to as front-end load shares ("Class A Shares"). Sales charges on Class A Shares range from zero to 5.75% depending on the U.S. Fund and the amount invested. Most of the sales charge on Class A Shares is reallowed by Pioneer Distributor to broker-dealers through whom the shares are sold. This reallowance varies generally as a percentage of the offering price on sales under $1 million. Reallowances range from 1.0% to 5.0% depending on the U.S. Fund and the amount of the sale. Broker-dealer reallowances on new funds and during certain short-term promotions may be increased to 100% or more of the sales charge. The Company also offers a multiclass share structure for the U.S. Funds, which, with the exception of Pioneer Interest Shares, Pioneer Variable Contracts Trust and Pioneer Independence Fund, are sometimes collectively referred to herein as the "multiclass funds". Pursuant to this structure, the multiclass funds offer Class A Shares, two classes of back-end load shares ("Class B Shares" and "Class C Shares") and a no-load class of shares ("Class Y Shares"). On Class B Shares, the investor does not pay any sales charge unless he or she redeems before the expiration of the minimum holding period, which ranges from three to six years. These early redemptions are subject to a contingent deferred sales charge (a "CDSC"), which ranges from 2.0% to 4.0%. On Class C Shares, the investor does not pay any sales charge unless he or she redeems within one year of purchase in which event a CDSC of 1.0% is imposed. Class Y Shares are not subject to a front-end load, 3 5 back-end load or Rule 12b-1 distribution fees (see "Distribution Plans" below). The Company began offering Class B Shares in April 1994, Class C Shares in January 1996 and Class Y Shares in April 1998. Class C Shares and Class Y Shares are not available on all multiclass funds. With respect to sales of Class A Shares, Pioneer Distributor may, in its discretion, pay a commission to broker-dealers that initiate and are responsible for sales of at least $1 million but less than $50 million, ranging from 0.10% to 1.0%, depending on the U.S. Fund and the amount of the sale. Certain purchases not subject to an initial sales charge may be subject to a CDSC of 1.0% in the event of certain redemption transactions within one year. With respect to sales of Class B Shares, Pioneer Distributor will generally pay commissions to broker-dealers related to sales and service of such shares ranging from 2% to 4% of the sales transaction amount (including a service fee of 0.25% for the first year). With respect to sales of Class C Shares, Pioneer Distributor will pay commissions to broker-dealers related to sales and service of such shares of 1% of the sales transaction amount (including a service fee of 0.25% for the first year). Pioneer Distributor incurs the expense of distributing Class Y Shares. During 1998, 1997 and 1996, in connection with sales of Class B Shares, Pioneer Distributor paid aggregate commissions to broker-dealers as shown in the chart below:
1998 1997 1996 (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) ------------- ------------- ------------- Broker-Dealer Commissions Paid........... $27.5 $16.3 $23.2
Previously, Pioneer Distributor's cash flow was subject to the adverse effects of vigorous sales of back-end load shares because its recovery of the cost of commissions paid up front to dealers was spread over a period of years. During this period, the Company would bear the costs of financing and the risk of market decline. Pioneer Distributor would be reimbursed for such commissions from payments by the U.S. Funds under distribution plans (see "Distribution Plans" below) and from CDSCs paid by redeeming investors before the expiration of the holding periods. Rather than continuing to bear the ongoing financing costs and market risks, in September 1998, Pioneer Distributor sold its rights to certain distribution fees and CDSCs (see "Distribution Plans" below) from the distribution of Class B Shares of the U.S. Funds in exchange for cash payments from a third party. This arrangement also provides for the sale at a premium of additional rights arising out of future sales of Class B Shares on a monthly basis for three years. The purpose of this transaction was to provide liquidity to the Company and reduce the continuous strain on its cash flow. Distribution Plans. Each of the U.S. Funds (except Pioneer Interest Shares and Pioneer Variable Contracts Trust) has one or more distribution plans pursuant to Rule 12b-1 under the 1940 Act which provides for certain payments to be made to Pioneer Distributor. With respect to Class A Shares and shares of Pioneer Independence Fund, the distribution plans (the "Class A Plans") provide for payments by such U.S. Funds of certain expenses up to 0.25% per annum of average daily net assets (0.15% for Pioneer Cash Reserves Fund, a money market fund). With respect to Class B and Class C Shares, the distribution plans (the "Class B Plans" and "Class C Plans," respectively) provide for payments by such U.S. Funds of fees relating to (a) distribution services in an amount not to exceed 0.75% per annum of the average daily net assets of the Class B or Class C Shares and (b) personal and account maintenance services in an amount not to exceed 0.25% of the average daily net assets of the Class B or Class C Shares. Each U.S. Fund's distribution plan is subject to annual renewal, which requires the approval of the U.S. Fund's Board of Trustees, including a majority of Trustees who are not "interested persons" of the U.S. Fund. In 1998, the Trustees of the U.S. Funds (other than U.S. Funds that were established in 1998) renewed the Class A, Class B and Class C Plans. In 1998, 1997 and 1996, Pioneer Distributor received aggregate distribution fees as shown in the chart below:
1998 1997 1996 (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) ------------- ------------- ------------- Distribution Fees Received................. $14.0 $13.1 $7.7
Domestic Sales of Shares of the U.S. Funds. Pioneer Distributor is a registered broker-dealer (see "Regulation" below), employing approximately 139 full-time personnel, including 26 regional sales representatives who are responsible for territories comprising most of the United States and Puerto Rico and who work with broker-dealers to promote sales of U.S. Fund shares in their respective territories. Substantially all of the U.S. Funds' shares are sold to the public by securities sales persons registered with the National Association of 4 6 Securities Dealers, Inc. (the "NASD") who act as representatives of broker-dealer firms, which are members of the NASD and which have signed sales agreements with Pioneer Distributor. Shares of the Funds may be sold in all states, by broker-dealers and registered representatives licensed in those states. International Sales of Shares of the Funds. Pioneer Distributor's wholly owned subsidiary, Pioneer Fonds Marketing GmbH ("Pioneer Fonds Marketing"), a company registered under the laws of the Republic of Germany, performs marketing and sales activities with respect to sales of shares of certain of the U.S. Funds in Europe, primarily Germany, Austria and Switzerland. Pioneer Fonds Marketing currently has 26 full-time employees. In 1998, approximately 13% of the total sales of the U.S. Funds' shares were sold outside of the United States. Pioneer Fonds Marketing also performs marketing and sales activities with respect to sales of the Irish Funds in Western Europe. In 1998, Pioneer Distributor established Pioneer Global Funds Distributor, Ltd. ("Global Funds Distributor") to serve as the exclusive worldwide distributor of the Irish Funds. Global Funds Distributor, a wholly owned subsidiary of Pioneer Distributor, is registered under the laws of Bermuda and maintains its registered office in that country. Global Funds Distributor has entered into an agreement with Pioneer Fonds Marketing with respect to sales of the Irish Funds in specified countries in Western Europe. SHAREHOLDER AND RELATED SERVICES Pioneering Services Corporation. At December 31, 1998, the U.S. Funds had approximately 1,363,000 active shareholder accounts, including approximately 473,000 Individual Retirement Accounts ("IRAs") and other tax-qualified retirement accounts. Shareholder accounts, in general, and qualified accounts, in particular, require an exceptional amount of shareholder communications and transfer agency services. The Company's wholly owned subsidiary, Pioneering Services Corporation ("Pioneering Services"), has been providing transfer agent and shareholder services to the U.S. Funds since 1985. At March 1, 1999, Pioneering Services employed 332 full-time personnel, including 64 employees who are located at its processing facility in Omaha, Nebraska. As shareholder servicing agent for the U.S. Funds, Pioneering Services has entered into agreements with each U.S. Fund (except Pioneer Interest Shares) pursuant to which it received in 1998 an annual active account fee of $22.75 for equity fund accounts, $30.00 for fixed-income fund accounts and $28.00 for money market fund accounts. Such agreements are subject to annual renewals which require the approval of the U.S. Funds' Boards, including a majority of members who are not "interested persons," and may be canceled by either party on 60 days' notice. Effective January 1, 1999, these annual fees were changed to $25.25 for equity fund accounts and $33.00 for fixed-income and money market fund accounts. For 1998, 1997 and 1996, Pioneering Services received revenues from service fees from the Funds and Pioneer Interest Shares (in 1996) as shown in the chart below:
1998 1997 1996 (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) ------------- ------------- ------------- Service Fee Revenues..................... $30.9 $27.0 $25.3
In February 1997, Pioneer Ireland assumed responsibilities as sub-shareholder servicing agent for certain of the U.S. Funds, representing approximately 133,000 active shareholder accounts. In that capacity, Pioneer Ireland provides, under the direction of Pioneering Services, shareholder and transfer agency services to U.S. Fund shareholders who are citizens of Germany, Austria and Switzerland. Pioneer Ireland also provides similar services to the shareholders of the Irish Funds, representing approximately 31,000 active shareholder accounts. 5 7 Trustee/Custodian. The Company acts as the trustee/custodian for accounts that are IRAs or other tax-qualified retirement accounts and receives an annual fee of $10 for each such account, payable by shareholders with such accounts, up to maximum annual fees of $20 for shareholders with multiple accounts of one plan type. Shareholders also have the option of paying a one-time fee of $100 in lieu of the annual account fee. During 1998, 1997 and 1996, the Company received fees in connection with its services as trustee/custodian as shown in the chart below:
1998 1997 1996 (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) ------------- ------------- ------------- Trustee/Custodian Fees Received.......... $5.5 $4.4 $3.9
------------------------------ For more information on assets under management and sales of mutual fund shares for the five years ended December 31, 1998, and other industry segment information for the three years ended December 31, 1998, see "Assets Under Management at December 31," "Sales of Mutual Fund Shares" and Note 17 - Financial Information by Business Segment included under Notes to Consolidated Financial Statements, all of which are included in the 1998 Annual Report to Stockholders and are incorporated herein by reference. COMPETITION Management and Distribution Services. The mutual fund industry is intensely competitive. Many organizations in this industry are attempting to sell and service the same clients and customers, not only with mutual fund investments but also with other financial products. Some of the Company's competitors have more products and product lines and substantially greater assets under management and financial resources. The Company believes it is competitive in terms of price and performance with other firms providing similar advisory services to investment companies and to pension plans and endowment funds and with firms engaged in distributing investment company shares. The distribution of mutual fund shares has been significantly affected by (i) the growth in the number of funds available for sale, in particular, no-load funds, the shares of which are sold primarily through direct sales approaches without any sales charge, (ii) the evolution of service fees payable to broker-dealers that provide continuous services to their clients in connection with their investments in a mutual fund, (iii) the aggressive entry of banks and investment banking firms into the industry, and (iv) the development and implementation of complex distribution systems employing multiple classes of shares and master-feeder fund structures. Typically, the underwriter or distributor that pays a service fee is reimbursed by the mutual fund under a plan of distribution pursuant to Rule 12b-1 under the 1940 Act. All of the U.S. Funds distributed by Pioneer Distributor now pay such service fees to broker-dealers. See "Domestic Investment Management -- Distribution Activities -- Distribution Plans" above. Success in the investment advisory and mutual fund share distribution businesses is substantially dependent on the U.S. Funds' investment performance. Good performance stimulates sales of the U.S. Funds' shares and tends to keep redemptions low. Sales of U.S. Funds' shares generate higher management fees and distribution revenues (which are based on assets of the U.S. Funds). Good performance also attracts private institutional accounts to Pioneer Management. Conversely, relatively poor performance results in decreased sales and increased redemptions of the U.S. Funds' shares and the loss of private accounts, with corresponding decreases in revenues to the Company. In 1998, the performance of the U.S. Funds managed by Pioneer Management was generally competitive with comparable mutual funds offered by others and with relevant indices and benchmarks approved by the U.S. Funds' Boards. Shareholder Services. The shareholder services industry is extremely competitive. Pioneering Services believes that it is providing high quality shareholder services for the U.S. Funds and their shareholders at competitive rates. The Company believes that superior shareholder services are vital to success in this industry. While these services have historically been provided by banks and other institutions with greater resources than those of Pioneering Services or Pioneer Ireland, the Company believes that Pioneering Services and Pioneer Ireland generally outperform such competitors because they are dedicated exclusively to the 6 8 provision of such services to the U.S. Funds and the Irish Funds and their respective shareholders, rather than to a number of different customers. REGULATION Each of the U.S. Funds is registered under the 1940 Act and the Securities Act of 1933, as amended. As registered investment companies, the U.S. Funds are subject to extensive regulation governing all aspects of their operations. In addition to being subject to the regulatory authority of the U.S. Securities and Exchange Commission (the "SEC"), the U.S. Funds are also subject to certain limited regulation by the securities regulators in all 50 states and in the foreign jurisdictions in which several of the U.S. Funds are registered. Pioneer Distributor, as a registered broker-dealer under the Securities Exchange Act of 1934, as amended (the "1934 Act"), is required, among other things, to maintain certain records, file reports with the SEC, supervise employees and deal fairly with customers, all in accordance with the 1934 Act and the rules and regulations promulgated thereunder. Pioneer Distributor is also registered as a broker-dealer in all 50 states and, as such, is subject to regulation by the state securities regulators in all such states. Pioneer Distributor is a member of the NASD, a securities industry self-regulatory body which is itself regulated by the SEC under the 1934 Act. As a member of the NASD, Pioneer Distributor is required to abide by the standards, including pricing practices, set forth in the Articles of Incorporation, the By-Laws and the Rules of Fair Practice of the NASD. Pioneer Management, as investment manager of the U.S. Funds, adviser to the Institutional Accounts and investment adviser to the Irish Funds, is registered pursuant to the Investment Advisers Act of 1940, as amended, and as such is subject to certain recordkeeping, SEC reporting, compensation and supervisory rules and regulations. Each of Pioneering Services and Pioneer Ireland, as transfer agent and sub-transfer agent, respectively, for the U.S. Funds, is registered as a transfer agent pursuant to the 1934 Act and as such is subject to SEC recordkeeping and reporting requirements and certain other rules and regulations. The SEC has jurisdiction over registered investment companies, registered investment advisers, broker-dealers and transfer agents and, in the event of a violation of applicable rules or regulations, may take action which could have a serious effect on Pioneer Management's, Pioneer Distributor's, Pioneering Services' or Pioneer Ireland's businesses. The Irish Funds are authorized by The Central Bank of Ireland under the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 1989 (S.I. No. 78 of 1989) of Ireland. PIONEER INTERNATIONAL FINANCIAL SERVICES FINANCIAL SERVICES -- POLAND Polish Mutual Funds. In 1992, subsidiaries of the Company organized and began distributing units of Pioneer First Polish Trust Fund, the first mutual fund in Poland. Since 1992, the Company has organized three additional funds, Pioneer Aggressive Investment Trust Fund, Pioneer Interest Bearing Securities Trust and Pioneer Privatization Trust Fund (collectively, the "Polish Funds"). Pioneer First Polish Investment Fund Joint Stock Company ("Pioneer First Polish") serves as an investment manager and distributor of units of the Polish Funds. As compensation for its management services, Pioneer First Polish receives management fees of 2.00% per annum of average daily net assets. The Polish Funds are open-end trust funds established under, and regulated by, the Public Trading in Securities and Trust Funds Act of March 22, 1991, as amended. At March 1, 1999, Pioneer First Polish employed 103 full-time persons, including management and support staff. Pioneer First Polish is a wholly owned subsidiary of Pioneer International Corporation ("Pioneer 7 9 International"). At March 1, 1999, the Polish Funds had aggregate net assets of approximately $322 million. Sales of units of the Polish Funds in 1998, 1997 and 1996 were in the amounts shown in the chart below:
1998 1997 1996 (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) ------------- ------------- ------------- Aggregate Sales of Polish Funds............ $39 $203 $169
Pioneer Financial Services Limited. In January 1992, the Company's subsidiary, Pioneer International, established Pioneer Financial Services Limited ("PFSL"), which was 50% owned by Pioneer International and 50% owned by Bank Polska Kasa Opieki, S.A. During the fourth quarter of 1998, Pioneer International acquired the remaining 50% of PFSL from Bank Polska Kasa Opieki, S.A. PFSL acts as the unitholder servicing agent for the Polish Funds. Pioneering Services provides ongoing support to PFSL. Under the terms of the agreements with the funds, PFSL receives annual fees equal to the Polish zloty ("PLN") equivalent of $21.00 per account. In 1998, such fees aggregated approximately PLN 16.4 million (approximately $4.7 million). At December 31, 1998, PFSL serviced approximately 275,000 unitholder accounts. At March 1, 1999, PFSL employed 117 full-time persons. Polish Brokerage Operations. In March 1996, Pioneer International acquired approximately 86% of Pioneer Polski Dom Maklerski, S.A., a Polish full-service brokerage operation ("PPDM"). Pioneer International now holds 80% of PPDM. PPDM provides brokerage services to Polish and U.S. institutions and Polish citizens. PPDM also provides investment advice, research and analysis and portfolio management and trading services. Polish Pension Fund Company. In October 1998, the Polish government granted to Pioneer Universal Pension Fund Company ("Pioneer Universal Pension"), a wholly owned subsidiary of the Company, a license to establish one of Poland's first universal pension fund societies. Initially capitalized with $10 million, Pioneer Universal Pension will manage pension assets accumulated in Pioneer Open Pension Funds, which operates in the second pillar of Poland's newly reformed pension system. Pioneer Universal Pension is licensed by the Pension Fund Supervisory Office in Poland under the Act on Organization and Operation of Pension Funds. FINANCIAL SERVICES -- RUSSIA The Company's Russian investment operations, which include Pioneer First (Company for the Management of Investment Funds) and Pioneer Services, are consolidated under Pioneer Omega's subsidiary, Pioneer First Russia, Inc. ("PFR"). In 1996, PFR executed agreements with the International Finance Corporation ("IFC"), a member of the World Bank Group, pursuant to which IFC agreed to invest $4 million in PFR to acquire an 18.35% equity interest. This transaction was completed in early 1997. At March 1, 1999, PFR and its subsidiaries employed 69 persons. During the second quarter of 1998, the Company reported a significant loss from its Russian bank, Pioneer Bank. In response, the Company elected to discontinue operations of Pioneer Bank in the third quarter of 1998 and subsequently sold its share ownership of Pioneer Bank. In August 1998, the Russian government effectively defaulted on its internal debt and suspended trading in its government securities. These actions led to a severe lack of liquidity in the Russian equity market which severely impacted the Company's Russian investment management, venture capital and brokerage businesses. The Company adjusted the cost basis of certain of the securities of Pioneer First Investment Fund (the "First Investment Fund") in the third and fourth quarters of 1998, to reflect the lack of liquidity in the Russian equity market. These adjustments resulted in a net loss of $4.5 million. The First Investment Fund had over 2 million shareholders and approximately 125 portfolio investment as of March 1, 1999. A significant portion of the revenues of the First Investment Fund is lease revenue from the Meridian Commercial Towers in Moscow, for which Pioneer Real Estate Advisors, Inc., the Company's real estate management subsidiary, provides management services. 8 10 Pioneer First serves as investment manager to the First Investment Fund and Pioneer First Unit Investment Fund, one of Russia's first open-end unit investment funds. Pioneer First Unit Investment Fund, which invests mainly in Russian government bonds, was launched in November 1996. Its operations were suspended in the third quarter of 1998. In November 1997, the Company launched its second open-end unit investment fund, Pioneer First Liquid Shares, which invests mainly in Russian equities. Pioneer Services, a domestic registrar and shareholder services company, serves as the registrar for the First Investment Fund and the unit investment funds. In the fourth quarter of 1998, as a result of the continuing Russian economic crisis, the Company determined that it would cease operating its Russian venture capital subsidiary, Pioneer Investments. In the first quarter of 1999, the Company decided to shut down its Russian brokerage subsidiary, Pioneer Securities. In 1998, 1997 and 1996, Russian financial services had revenues and net income (loss) from continuing operations as shown in the chart below:
1998 1997 1996 (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) ------------- ------------- ------------- Revenues................................. $ 10.3 $42.2 $ 6.1 Net Income (Loss)........................ $(13.0) $ 5.8 $(2.3)
FINANCIAL SERVICES -- CZECH REPUBLIC In 1995, subsidiaries of the Company organized and began distributing Pioneer Czech Investment Company Trust Fund (the "Pioneer Czech Fund") in the Czech Republic. Pioneer Czech Investment Company, a.s. ("Pioneer Czech"), a wholly owned subsidiary of Pioneer International, serves as investment adviser and distributor of participation certificates in the Pioneer Czech Fund. As compensation for its management services, Pioneer Czech receives management fees of 2% of average daily net assets. Pioneer Czech is regulated by the newly established Czech Securities and Exchange Commission in accordance with the new Securities Commission Act, Securities Act and Investment Company and Investment Funds Act. Pioneer Czech employs 26 full-time persons. As of March 1, 1999, the Pioneer Czech Fund had net assets with a market value of approximately $61 million. The Company has a second Czech subsidiary, Pioneer Czech Financial Company s.r.o., which provides distribution services generally and which also distributes the Irish Funds in the Czech Republic. OTHER INVESTMENT MANAGEMENT INITIATIVES India. Pioneer Management owns 47.61% of Kothari Pioneer AMC Ltd. ("Kothari Pioneer"), an Indian company, which serves as investment adviser, distributor and shareholder servicing agent to 18 private sector mutual funds for Indian citizens. These funds had aggregate net assets of approximately $109 million at March 1, 1999. Taiwan. The Company is a 10% investor in a joint venture in Taiwan, which was organized to manage and distribute investments in investment companies to Taiwanese investors. ------------------------------ 9 11 PIONEER GLOBAL INVESTMENTS GOLD MINING BUSINESS SUMMARY The results of the gold mining business are substantially attributable to the operations of Teberebie Goldfields Limited ("TGL"), the principal operating subsidiary of the Company's indirect wholly owned subsidiary, Pioneer Goldfields Limited, a corporation organized under the laws of Guernsey, Channel Islands, which conducts mining and exploration activities in the Republic of Ghana and exploration activities elsewhere in Africa. Pioneer Goldfields' principal asset is its ownership of 90% of the outstanding shares of TGL. TGL, a corporation organized under the laws of the Republic of Ghana, is engaged in the exploration, mining, and processing of gold ore on a mining concession located in the Western Region of the Republic of Ghana. The Republic of Ghana holds the remaining 10% ownership interest in TGL. Gold mining results are also affected by the exploration activities in the Russian Far East of Closed Joint Stock Company "Tas-Yurjah Mining Company," a Russian company in which the Company has a 95% beneficial interest. Exploration costs are charged to operations as incurred. TGL shipped approximately 253,000 ounces of gold in 1998, contributing $77.3 million to the Company's revenues. In 1997 and 1996, TGL shipped approximately 263,000 and 203,000 ounces of gold, respectively. A three-year financial summary for the gold mining business segment is shown below:
1998 1997 1996 (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) ------------- ------------- ------------- Revenues................................. $ 77.3 $ 89.5 $ 78.3 Net Income (Loss)........................ $(19.8) $ (2.8) $ 2.6 Total Assets............................. $131.4 $152.9 $149.6
TEBEREBIE GOLDFIELDS LIMITED Organization and Mining Lease. In 1986, the Company and a joint venture partner organized TGL for the purpose of evaluating the feasibility of mining gold on several tracts of land in the Teberebie concession area ("Teberebie") in the Republic of Ghana. In February 1988, TGL entered into a mining lease with the Republic of Ghana (the "Government") pursuant to which TGL received exclusive gold mining rights for a term of 30 years. Under this lease, the Government is entitled to annual royalties of between 3.0% and 12.0% of TGL revenue, which rate will vary based on TGL's operating profit margin and its level of capital expenditures, and is assured a continuing 10% equity interest in TGL. In April 1989, the Company purchased the joint venture partner's interest for $3.7 million, primarily in cash. In 1992, TGL was granted a second 26-year mining lease over two contiguous areas to the north and west of the original lease area, the terms of which are substantially similar to the original lease. Since the commencement of commercial production in 1991, TGL has paid royalties to the Government in the amount of 3.0% of TGL's annual revenue. Teberebie Mine Site. The Teberebie mine site consists of mining concessions covering an area of approximately 42 square kilometers. It is located in the Western Region of the Republic of Ghana and is approximately six kilometers south of the town of Tarkwa. The Teberebie mine is geographically approximately 200 kilometers west of, and 330 kilometers by road from, Accra, the capital of the Republic of Ghana. It is approximately 95 kilometers by road from Takoradi, which is one of Ghana's two major ports and the point of entry for most of the imported equipment used at the Teberebie mine. Gold Reserves. Reserves (proven and probable categories) represent that portion of TGL's resource which can be reasonably assumed to be economically and legally extracted based on demonstrated practice or detailed tests and studies. In the fourth quarter of 1998, TGL identified the source of lower than expected heap leach recoveries. Compared with the predominant material processed since project inception, the more recently processed ore is inherently less weathered and harder, adversely affecting crusher throughput and availability. The Company now believes that the hardness of the ore also contributed to lower than expected crusher production in the second and fourth quarters of 1998. Based on TGL's existing heap leach technology, this ore exhibits a significantly longer leach cycle and yields extraction values below historical rates. Testing 10 12 work conducted by TGL personnel to date has confirmed that acceptable extraction values are achievable at liberation sizes below those feasible by present crushing methods. TGL has determined that the high incidence of the less weathered and harder ore will necessitate a transition from heap leaching to conventional milling. A comprehensive testing program is nearing completion, which delineates the recovery characteristics of this ore and identifies both its location and frequency in the current pit design. As a result of this new finding, TGL is currently developing a new mine plan which will: (i) synthesize the results of the comprehensive testing program, (ii) incorporate a new, modified pit design, and (iii) specify the equipment necessary to efficiently process the less weathered ore. Until the new mine plan is complete, TGL cannot quantify its effect on previously reported proven and probable in situ mineable reserves of 5.9 million ounces or on annual production levels. TGL anticipates, however, that proven and probable in situ mineable reserves will be reduced. Mining and Processing. The Teberebie mine is a conventional open pit, heap leach operation. Mining at Teberebie is a technically simple drill and blast, load and haul operation, carried out on three contiguous ridges along a strike length of some 6.5 kilometers. The ridges, running from south to north, are named Teberebie, Awunaben and Mantraim. The mine is currently an open pit mine operating from two pits, the Teberebie/Awunaben pit and the Mantraim pit. TGL processes its ore using a conventional heap leach operation at three locations on the Teberebie concession: the East, West, and South Plants. Each plant was developed during successive phases of project development (see "Development and Expansion" below). Ore is crushed in the near-pit gyratory crusher, which serves as the primary crusher for the West Plant and the South Plant. A jaw crusher, with a capacity of 3.0 million tonnes per year, continues to be the primary crusher for the East Plant. Cement is added to the crushed ore to bind the ore and to raise its alkalinity to a level conducive to cyanide leaching. The agglomerate of ore and cement is then placed on a heap leach and is then treated with a diluted cyanide solution that percolates through the material dissolving the gold. The diluted cyanide solution containing the dissolved gold drains into collection ponds. From there, the solution is pumped to an adjacent adsorption desorption refinery plant (the "ADR Plant") where it passes through a series of activated carbon adsorption columns. The gold contained in the solution is adsorbed onto the carbon and the solution is then recirculated to the barren solution pond where it is refortified with sodium cyanide. Gold is then chemically stripped from the carbon adsorption columns and recovered from the stripper solution by electrowinning onto stainless steel cathodes. The cathodes are removed approximately every two weeks at each ADR Plant, at which time the gold sludge is washed off and dried. The sludge is then mixed with flux and smelted to produce dore. Gold Production and Sales. TGL began shipping gold in October 1990. In the second quarter of 1991, the mine reached then commercially feasible production levels (about 1,000 ounces per week), and reached full production levels (about 2,000 ounces per week) during the fourth quarter of 1991. Set forth below is a chart showing TGL's gold shipments for the years ended December 31, 1998, 1997 and 1996:
1998 1997 1996 (OUNCES) (OUNCES) (OUNCES) -------- -------- -------- TGL Gold Shipments............................... 253,000 263,000 203,000
The average realized price of gold sold by TGL during 1998, 1997 and 1996 was $305, $340 and $385 per ounce, respectively. With the exception of 1998 and 1997, the average realized price was based on the market spot price of gold at the time of sale. In 1998 and 1997, the average realized price of gold includes proceeds from the sale of floor program options of $12 per ounce and $15 per ounce, respectively. Spot prices of gold fluctuate widely and are affected by a number of factors including supply and demand, inflation expectations, the strength of the U.S. dollar and interest rates. At present, TGL does not enter into forward gold sales or otherwise engage in gold price hedging. In the fourth quarter of 1996, TGL entered into a series of put options which secured a minimum selling price of $340 per ounce to cover 1997 estimated production. In May 1997 and April 1998, TGL purchased additional put options at exercise prices of $320 and $305 per ounce, respectively, to cover estimated production for the respective four months ended April 28, 1998 and the five months ended September 28, 1998. During 1997 and 11 13 1998, when the market spot price of gold declined below the exercise price of the options, the Company continued to ship gold to refineries and sold the put options, receiving payment for the difference between the market spot price of gold and the exercise price. As a result of low prevailing market prices, the Company was unable to secure an acceptable floor program exercise price beyond September 1998. The Company may consider additional hedging strategies if and when it deems circumstances appropriate. TGL's cash costs per ounce and total costs per ounce for 1998, 1997 and 1996 are summarized on the following table:
1998 1997 1996 ---- ---- ---- Cash Costs Per Ounce.................................... $284 $230 $266 Total Costs Per Ounce................................... $409 $337 $361
More information on TGL's 1998 production and operations is set forth in the 1998 Annual Report to Stockholders under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Results of Operations -- Pioneer Global Investments -- Gold Mining Business -- Gold Production and Costs," which information is incorporated herein by reference. Development and Expansion. TGL has completed three major capital expenditure programs at the Teberebie mine to date, designated Phase I, Phase II and Phase III. Phase I included the development of the mine site and the construction of the crushing and processing facility known as the East plant. Phase II, which was completed in 1994, included the construction of a crushing and processing facility that replicated the East plant and is known as the West plant. Phase III, which was completed in 1997, included a further heap leach operation and a near-pit gyratory crushing facility which acts as a primary crushing facility for both the existing West Plant and the new South Plant. The Phase III expansion plan did not require the construction of a third ADR Plant to support the South Plant. Instead, the existing ADR Plant at the West Plant was upgraded with a second carbon adsorption train and a modified stripping circuit. The first gold pour associated with the South Plant occurred in April 1997, but the plant was not fully operational until the fourth quarter of 1997. Customers. During the year ended December 31, 1998, gold sales aggregated $77.3 million. During 1998, gold shipments from TGL in Ghana to two unaffiliated European refiners (Johnson Matthey Plc and Metaux Precieux SA Metalor) accounted for $38.5 million and $35.7 million, respectively, of total sales, or 96% of such sales. Because of the worldwide demand for gold, the Company does not believe that the loss of such customers would have a material adverse effect on the Company or its subsidiaries. The remaining 4% of sales related to the sales of put options associated with TGL's gold price floor program and the sale of carbon residue with gold value to a Ghanaian firm. Employees. At March 1, 1999, TGL had 1,389 employees, 1,354 of whom are Ghanaians. The terms of employment and compensation for junior TGL staff, known as monthly rated employees, are determined pursuant to a collective bargaining agreement between TGL and the Ghana Mineworkers' Union. The terms of the collective agreement (other than pay levels) are negotiated every three years. Pay levels are negotiated annually. Because of general depression in the gold industry, negotiations of the three-year collective bargaining agreement were deferred six months to January 1, 1999. Although a new agreement had not been executed by March 1999, the existing agreement remains in effect until TGL and the Ghana Mineworkers' Union conclude negotiations. TGL experienced a two-day work stoppage in 1996. The work stoppage was related to two employee dismissals resulting from a determination by TGL and local union officials that the employees had violated the disciplinary code. The union did not organize the work stoppage, and the work stoppage did not have a material effect on TGL's operations. TGL continues to believe that its relations with its employees are good. Regulation and Taxation. Mining activities in the Republic of Ghana are governed by PNDCL 153, the Minerals and Mining Law of 1986 (the "MML"). The Republic of Ghana is currently developing a system of environmental regulation that applies to TGL's operations. However, it has always been a strategic objective of the Company to minimize the effects of its subsidiaries' mining operations on the environment. TGL has developed an overall environmental action 12 14 plan, a reagent spill management plan, a decommissioning plan and has initiated site rehabilitation and revegetation studies. The Company cannot determine at this time the effect, if any, the new regulations may have on TGL's operations. In the first quarter of 1994, the Republic of Ghana enacted the Minerals and Mining (Amendment) Act of 1994, which reduced the income tax rate for mining companies from 45% to 35%. Pursuant to the terms of the MML, income taxes may be deferred until recovery of capital investment. Accordingly, deferred taxes at December 31, 1998, 1997 and 1996, were $-0-, $7.6 million and $9.6 million, respectively. Income taxes were deferred during all of 1996, 1997 and 1998. Deferred taxes decreased during the last two years principally as a result of operating losses. Income tax payments to the Republic of Ghana since the inception of the project aggregate approximately $20.2 million. Insurance. The Company maintains $76.5 million of "political risk" insurance principally from the Overseas Private Investment Corporation ("OPIC"), covering 90% of its equity and loan guarantees. This insurance also covers 90% of the Company's proportionate share of TGL's cumulative retained earnings and parent debt. The OPIC debt and equity coverage is presently limited to a ceiling of $74.1 million. In 1998, the Company increased the ceiling by about $11 million to cover parent debt. The Company also secured $9 million foreign exchange exposure insurance from another source to hedge 90% of its exposure to a limited recourse provision contained in the OPIC Phase III expansion financing. In addition to other commercial insurance coverage, TGL has secured business interruption coverage of up to $40.6 million for losses associated with machinery breakdown and property damage and to defray continuing infrastructure and interest costs. Recent Developments. In October 1998, the Company engaged the services of an investment banking firm to sell Pioneer Goldfields, including its African exploration rights and its 90% equity interest in TGL, Pioneer Goldfields' operating subsidiary. Upon completion of the new mine plan, an offering document will be finalized for circulation to a select group of potential buyers. For more information on recent developments affecting production and reserves, see "Gold Reserves" above. EXPLORATION ACTIVITIES OF PIONEER GOLDFIELDS Since the end of 1993, in addition to continuing to develop the Teberebie mine, Pioneer Goldfields has increased its exploration activities in the Republic of Ghana and in other African countries. These activities are currently conducted by TGL in Ghana and by Pioneer Goldfields in Niger. In 1997, Pioneer Goldfields discontinued exploration activities in Zimbabwe and is in the process of dissolving its Zimbabwe-registered company, Lobengula Exploration and Mining Company, Ltd. In 1998, Pioneer Goldfields incurred exploration costs of approximately $1.8 million, approximately $1.4 million of which related to exploration activities outside of Ghana. In 1997, Pioneer Goldfields incurred exploration costs of approximately $1.9 million, approximately $1.7 million of which related to exploration activities outside of Ghana. EXPLORATION ACTIVITIES OF TAS-YURJAH MINING COMPANY In 1994, the Company entered into a joint venture, Closed Joint Stock Company "Tas-Yurjah Mining Company" ("Tas-Yurjah"), with a Russian company to explore potential gold mining properties in the Khabarovsk Territory of the Russian Far East. The Company currently owns a 94.5% direct interest and a 0.59% indirect interest in Tas-Yurjah. In 1995, Tas-Yurjah secured a license to conduct exploration activities over a 240 square kilometer area (the "licensed area"). Tas-Yurjah plans to conduct drilling and geochemical and geological surveys to further examine anomalies located in the licensed area during 1999. At December 31, 1998, the Company had expended approximately $5.4 million for exploration work related to Tas-Yurjah, of which $1.5 million had been expended in 1998. 13 15 TIMBER BUSINESS The Company holds a majority controlling interest in three companies located in the Khabarovsk Territory of the Russian Far East, Closed Joint-Stock Company "Forest-Starma" ("Forest-Starma"), Closed Joint-Stock Company "Amgun-Forest" ("Amgun-Forest") and Closed Joint-Stock Company "Udinskoye" (Udinskoye"). The Company has consolidated its ownership of these three companies under its wholly owned subsidiary, Pioneer Forest, Inc. ("Pioneer Forest"). Of the three companies, Forest-Starma is the only company currently engaged in timber operations. Forest-Starma, which is located on Siziman Bay in the Vanino district of the Khabarovsk Territory, has developed a modern logging camp, including a harbor facility, from which it exports timber to markets in the Pacific Rim, primarily Japan and South Korea. Leasehold and Cutting Rights. Forest-Starma, Amgun-Forest and Udinskoye have each entered into long-term lease arrangements that provide significant leasehold acreage and annual cutting rights. In the aggregate, the three subsidiaries have leasehold rights comprising 1,076,500 hectares (approximately 2.7 million acres), with annual cutting rights of approximately 1.2 million cubic meters. Forest-Starma is actively engaged in negotiations to expand its existing leasehold. The current leasehold rights of each of the projects are set forth below:
FOREST-STARMA AMGUN-FOREST UDINSKOYE ------------- ------------ --------- 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
Ownership Structure. Pioneer Forest currently has a 97% direct interest in Forest-Starma. The Company has signed agreements to acquire an additional 3% direct interest in Forest-Starma. The transfer is currently awaiting regulatory approvals. Pioneer Forest has an 80.6% direct interest and the Company has a 7.9% indirect interest in Amgun-Forest. Pioneer Forest has a 72% direct interest and the Company has a 11.76% indirect interest in Udinskoye. Timber Operations. Timber is harvested at Forest-Starma according to international sustainable development standards using advanced planning and implementation of the best available management practices as defined in the U.S. Forest Service stewardship guidelines and the United Nations Conference on Environment and Development principles. Five production crews consisting, in aggregate, of four harvesters, eight skidders, and five processors form the nucleus of the logging operation. The harvesters cut the trees which are then skidded to five processors which delimb and buck the timber into logs. The logs are hauled on company constructed roads by log trucks approximately 50 kilometers to a lower landing log yard for sorting and scaling prior to shipment. The lower landing is equipped with log loaders and other equipment necessary for maintaining the log yard and delivering sorted logs to the harbor for shipment. Sorted logs are delivered to the harbor based upon a manifest received from Forest-Starma's marketing agent, Rayonier, Inc. The logs are then delivered to the dock and placed on ships by crane. Forest-Starma has constructed and maintains a self-contained camp with living quarters for between 250 and 300 workers, a modern maintenance and parts facility, on site offices and sophisticated communications equipment. 14 16 Timber Production. Timber harvesting commenced in the first quarter of 1995 and the first shipments of timber totaling approximately 30,000 cubic meters occurred in the third and fourth quarters of 1995. In 1996, Forest-Starma shipped approximately 133,000 cubic meters of timber. Since the project was still in the development phase, the related revenues of $10.1 million were used partially to offset capitalized interest and development costs. In January 1997, Forest-Starma commenced commercial production of timber and amortization of deferred development costs. During 1997, Forest-Starma produced and shipped 257,000 cubic meters and 194,000 cubic meters of timber, respectively. During 1998, Forest-Starma produced and shipped 248,000 cubic meters and 280,000 cubic meters of timber, respectively. A three-year financial summary for the timber business segment is shown below:
1998 1997 1996 (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) ------------- ------------- ------------- Revenues................................. $ 10.5 $11.9 $ -- Net Income (Loss)........................ $(18.7) $(6.7) $(0.5) Total Assets............................. $ 52.9 $51.0 $43.4
Customers. In 1998, Forest-Starma shipped 45% of its timber to seven unaffiliated customers in Japan and 55% of its timber to seven unaffiliated customers in South Korea. Employees. At March 1, 1999, Forest-Starma had 604 Russian employees. In addition, expatriate employees and consultants of the Company's employment company subsidiary are seconded to Forest-Starma. Such employees are not unionized nor are they a party to a collective bargaining agreement. Salaries are determined annually based on the prevailing market prices for timber industry employees within the region. Insurance. In connection with its investment in Forest-Starma, the Company has secured OPIC political risk insurance in an amount of up to $47 million which would protect 90% of the Company's equity investment and loans and a proportionate share of cumulative retained earnings. In addition, the Company has secured OPIC business income loss insurance of up to $5 million for Forest-Starma. Amgun-Forest and Udinskoye. The Amgun-Forest timber project is located in the Polina Osipenko District of the Khabarovsk Territory, approximately 150 kilometers northwest of the city of Komsomolsk-on-Amur and further inland than Forest-Starma. Duharian Larch, Yeddo Spruce and Amur Fir are the principal commercial tree species in the project area, with larch constituting approximately 67% of the exportable product and whitewood (Yeddo Spruce and Amur Fir together) constituting the balance. The Udinskoye timber project is also located in the Polina Osipenko District of the Khabarovsk Territory, west of the Amgun-Forest timber project. U.S. AND CENTRAL EUROPE VENTURE CAPITAL U.S. VENTURE CAPITAL OPERATIONS The Company was engaged in venture capital investment and management in the U.S. for a number of years through its wholly owned subsidiary, Pioneer Capital Corporation ("Pioneer Capital"), a majority-owned limited partnership, Pioneer Ventures Limited Partnership ("PVLP"), and Pioneer Ventures Limited Partnership II ("PVLP II"), an institutional investor fund in which the Company had a 14% interest. In March 1999, the Company sold the investment assets held by Pioneer Capital and PVLP and its interest in PVLP II. More information on the Company's sale of its direct investments and indirect interests of its U.S. venture capital business is set forth in the 1998 Annual Report to Stockholders under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Results of Operations -- Pioneer Global Investments -- 1998 Compared to 1997 and 1996," which information is incorporated herein by reference. POLISH VENTURE CAPITAL OPERATIONS In 1995, the Company's wholly owned subsidiary, Pioneer International Corporation ("Pioneer International"), organized two limited partnerships, Pioneer Poland U.S. L.P. ("PPUSLP") and Pioneer Poland U.K. L.P. ("PPUKLP"), for the purpose of raising funds for venture capital investment in Poland. Pioneer International's wholly owned subsidiaries, Pioneer Poland U.S. (Jersey) Ltd. and Pioneer Poland U.K. Ltd., are the general partners of PPUSLP and PPUKLP, respectively. During 1995, PPUSLP and PPUKLP (collectively, the "Pioneer Poland Fund") raised $60 million in commitments from U.S. and 15 17 European investors. The Company has invested approximately $2.5 million in each limited partnership. This investment provides the Company with a 7% indirect interest in PPUSLP and a 9% indirect interest in PPUKLP. At December 31, 1998, Pioneer Poland Fund held investments valued at approximately $27.5 million in 9 privately held Polish companies, had committed contractually to invest an additional $3 million in these companies and had reserved an additional $3.1 million for future financing rounds of the existing portfolio. The responsibilities for managing the Pioneer Polish Fund are shared by Pioneer Management (Jersey) Ltd. and Pioneer Investment Poland Ltd., each of which is a wholly owned subsidiary of Pioneer International. The limited partners of PPUSLP and PPUKLP have approved a reorganization of the partnerships, which would substitute a single general partner for the two current ones. This reorganization would have no effect on the Company's legal rights or economic interests in the partnerships. REAL ESTATE MANAGEMENT AND ADVISORY SERVICES In 1996, the Company established Pioneer Real Estate Advisors, Inc. ("Pioneer Real Estate") to provide real estate advisory and management services to institutional investors and corporations in the U.S. and in Central and Eastern Europe, primarily Russia and Poland. Pioneer Real Estate is based in Boston and conducts its operations in Russia through a representative office in Moscow and in Poland through a wholly owned subsidiary. Pioneer Real Estate is currently pursuing two primary objectives. First, it seeks to invest and manage capital in the commercial real estate markets of Central and Eastern Europe on behalf of pooled investment vehicles, individual institutional investors and the Company. Second, it seeks to provide advisory services, including property management, facilities management, development management and feasibility and valuation analysis, to the pooled investment vehicles it manages and to third parties. In Poland, Pioneer Real Estate is developing a $60 million Polish real property fund (the "Polish Real Estate Fund") to invest in a diversified portfolio of commercial real estate in Poland, including office space, warehouse/distribution centers and retail centers. Pioneer Real Estate Advisors Poland Sp. z o.o., a limited liability company that Pioneer Real Estate established in 1996, will provide professional real estate investment advice to the Polish Real Estate Fund. Pioneer Real Estate has committed to invest $2 million in the Polish Real Estate Fund and has been conducting extensive negotiations for the balance of the equity commitments. In May 1998, Pioneer Real Estate, together with its partner, Banc One Capital Corporation, established an OPIC-sponsored pooled investment vehicle (the "PBO Property Fund") that will invest in commercial property projects in Central and Eastern Europe and the newly independent states of the former Soviet Union. The PBO Property Fund will be funded with up to $80 million of equity investments from institutional investors and up to $160 million of debt financing guaranteed by OPIC. Pioneer Real Estate has committed to invest $4 million in the PBO Property Fund. During the second half of 1998, the PBO Property Fund began seeking capital commitments from investors, and Pioneer Real Estate expects to close this fund by the end of 1999. Pioneer Real Estate, through its representative office in Moscow, manages the Meridian Commercial Towers, an 18 story office tower located in Northern Moscow, which is owned by the First Investment Fund. As of March 1, 1999, Pioneer Real Estate had 25 employees. METALS VENTURES Since 1991, a subsidiary of the Company, Pioneer Metals and Technology, Inc., has been involved in a development-stage business in Russia, through its subsidiary, for the manufacture, production and sale of powdered metals, permanent magnets and various trading endeavors. To date, the metals ventures have not had a material impact on the Company's financial results. COMPETITION Venture Capital. The venture capital industry both in the United States and abroad is extremely competitive. In the process of investing and attempting to raise funds from entities other than the Company, the Company's venture capital subsidiaries must compete with a large number of venture capital firms, many of which have substantially larger staffs, more experience in raising funds, and more capital to invest. 16 18 Real Estate Management and Advisory Business. The real estate management and advisory business both in the United States and abroad is extremely competitive. Pioneer Real Estate must compete with a large number of real estate firms, many of which have been in existence for many years and have substantially more resources than those available to Pioneer Real Estate. EMPLOYEES Throughout its three strategic business units the Company has a total of 3,300 employees worldwide, including 665 at its headquarters in Boston and 1,389 at the TGL mine in Ghana. The Company believes that it has good relations with its employees in all worldwide locations. FUTURE OPERATING RESULTS Certain of the information contained in this Annual Report on Form 10-K, including information with respect to the Company's plans and strategies for its three strategic business units, consists of forward-looking statements. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," "projects," "estimates" and similar expressions are intended to identify forward-looking statements. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are set forth in the 1998 Annual Report to Stockholders under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Future Operating Results" which is hereby incorporated by reference. YEAR 2000 A description of the Company's plans with respect to the Year 2000 transition is set forth in the 1998 Annual Report to Stockholders under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Year 2000," which is hereby incorporated by reference. ITEM 2. DESCRIPTION OF PROPERTY. The Company's principal properties are its headquarters in Boston, its gold mine concession in Ghana, and its timber production facilities in the Russian Far East, each as more fully described below. Additionally, the Company leases properties in several locations for its financial services operations, including Poland, Ireland, the Czech Republic, Russia, Germany and Switzerland. The Company and its subsidiaries conduct their principal operations from leased premises with approximately 163,241 square feet at 60 State Street, Boston, Massachusetts, under two leases. The first to expire of these leases (which covers substantially all of the space) expires in 2002, with two five-year renewal options. The rent expense for these premises was approximately $4.6 million in 1998. After a recently completed expansion, the Company believes that its facilities are adequate for its current needs and that additional space will be available as needed. TGL conducts mining operations in Tarkwa, Ghana. The Republic of Ghana has granted TGL land concessions of approximately 42 square kilometers. The operating facilities included on the mine site include approximately 48 housing and office buildings, one gyratory crusher, two three-stage crushing plants, one four-stage crushing plant, heap leaching facilities and ponds, two processing plants and refineries, a clinic, a laboratory, a warehouse and an eight-bay maintenance shop for heavy equipment. TGL believes that its facilities are generally in a state of good repair and adequate for its current needs and that additional facilities will be constructed as needed. 17 19 The Company's 97%-owned subsidiary, Forest-Starma, is pursuing the development of timber production in the Khabarovsk Territory of Russia under three long-term (49 years) leases comprising 390,100 hectares (approximately 964,000 acres) in the aggregate with annual cutting rights of 555,000 cubic meters. Amgun-Forest and Udinskoye, the Company's other majority-owned Russian timber ventures, each have a long-term lease (49 years) relating to timber harvesting. The Amgun-Forest lease covers 485,400 hectares (approximately 1,200,000 acres) with annual cutting rights of 350,000 cubic meters. The Udinskoye lease covers 201,000 hectares (approximately 497,000 acres) with annual cutting rights of 300,000 cubic meters. ITEM 3. LEGAL PROCEEDINGS. There are no material legal proceedings to which the Company or its subsidiaries is a party or of which any of their property is subject, other than ordinary routine litigation incidental to the Company's businesses. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 18 20 EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below are the names and ages of the executive officers of the Company, and a description of the positions and offices each holds with the Company and its significant subsidiaries.
NAME AGE POSITIONS WITH THE COMPANY AND ITS SIGNIFICANT SUBSIDIARIES ---- --- ----------------------------------------------------------- John F. Cogan, Jr...................... 72 President, Chief Executive Officer and Chairman of the Board of the Company since 1962. Chairman of Pioneer Management since 1993 and President of Pioneer Management from 1962 to 1993. Director of Pioneer Management since 1962. Chairman and Director of Pioneer Distributor. Chairman, President and Trustee of each of the registered investment companies in the Pioneer Family of Mutual Funds. President and Director of Pioneer International, Pioneer Omega and Pioneer First Russia. Director of Pioneering Services, Pioneer Real Estate, First Investment Fund and Pioneer Forest. Chairman and Director of Pioneer Goldfields, TGL, and Forest-Starma. Chairman of Supervisory Board of Pioneer First Polish, Pioneer Czech and Pioneer Fonds Marketing. Director of Pioneer Ireland and each of the Irish Funds. Chairman of Global Funds Distributor. Member of Supervisory Board of Pioneer Universal Pension. Senior Partner of the Boston law firm, Hale and Dorr LLP, counsel to the Company. John A. Boynton........................ 45 Executive Vice President and Chief Financial Officer of the Company since 1998. Treasurer of the Company, Pioneer Distributor, Pioneer Management, Pioneering Services, Pioneer International, Pioneer Real Estate, Pioneer Omega and Pioneer First Russia. Treasurer of each of the registered investment companies in the Pioneer Family of Mutual Funds. Previously, Senior Vice President of The Quaker Oats Company. Stephen G. Kasnet...................... 53 Executive Vice President of the Company since 1998. President of the Company's business unit, Pioneer Global Investments, since 1998. Vice President of the Company since 1995. President of Pioneer Real Estate since January 1996. Director of Pioneer Real Estate, Pioneer Goldfields, TGL and Pioneer Forest. Trustee and Vice President of Pioneer Real Estate Shares and Vice President of Pioneer Variable Contracts Trust. Previously, Managing Director, First Winthrop Corporation and Winthrop Financial Associates. Chairman of the Board of Warren Bancorp and Warren Five Cents Savings Bank and Director of Bradley Real Estate, Inc. Alicja K. Malecka...................... 52 Executive Vice President of the Company since 1998. President of the Company's business unit, Pioneer International Financial Services, since 1998. Vice President of the Company since 1992. Senior Vice President of Pioneer International and Vice President of Pioneer Real Estate. Director and Vice President of Pioneer First Russia and Director of First Investment Fund. President of Pioneer First Polish and the Polish Funds. Member of the Supervisory Board of PFSL, Pioneer Czech and Pioneer Universal Pension.
19 21
NAME AGE POSITIONS WITH THE COMPANY AND ITS SIGNIFICANT SUBSIDIARIES ---- --- ----------------------------------------------------------- William H. Smith, Jr................... 63 Executive Vice President -- Global Operations and Technology of the Company since 1998. Vice President of the Company and Director of Pioneering Services since 1985. Vice President and Director of Pioneer International. Director of Pioneer Ireland and each of the Irish Funds. Member of the Supervisory Board of PFSL. David D. Tripple....................... 55 Executive Vice President of the Company since 1986. President of the Company's business unit, Pioneer Investment Management, since 1998. Director of the Company since 1986. President of Pioneer Management since 1993 and Director of Pioneer Management since 1986. Executive Vice President and Chief Investment Officer of Pioneer Management from 1986 to 1993. Executive Vice President and Trustee of each of the registered investment companies in the Pioneer Family of Mutual Funds. Director of Pioneer Distributor, Pioneer International, Pioneer Real Estate, Pioneer First Russia, Pioneer Omega, Pioneer Ireland and each of the Irish Funds. Member of Supervisory Board of Pioneer First Polish and Pioneer Czech. Timothy T. Frost....................... 43 Senior Vice President -- Corporate Planning and Communications of the Company since 1998. Vice President of the Company since 1995. Director and Vice President of Pioneer Omega and Director of Pioneer First Russia and First Investment Fund. Senior Vice President of Pioneer International. Vice President of Pioneer Real Estate. Previously, Managing Director of Financial Services Volunteer Corps. Robert P. Nault........................ 35 Senior Vice President of the Company since 1998. General Counsel and Assistant Secretary of the Company since 1995. Assistant Secretary of each of the registered investment companies in the Pioneer Family of Mutual Funds, Pioneer Management, Pioneer Distributor, Pioneering Services, Pioneer International, Pioneer Omega, Pioneer First Russia and Pioneer Goldfields. Secretary of Pioneer Real Estate and Pioneer Forest. Previously, Junior Partner of the Boston law firm, Hale and Dorr LLP, counsel to the Company. Joseph P. Barri........................ 52 Secretary of the Company since 1978. Secretary of each of the registered investment companies in the Pioneer Family of Mutual Funds, Pioneer Management, Pioneer Distributor, Pioneering Services, Pioneer Omega, Pioneer First Russia and Pioneer International. Senior Partner of the Boston law firm, Hale and Dorr LLP, counsel to the Company.
20 22 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Incorporated by reference from the 1998 Annual Report to Stockholders under the caption "Quarterly Financial Data." ITEM 6. SELECTED FINANCIAL DATA. Incorporated by reference from the 1998 Annual Report to Stockholders under the caption "Five Year Summary of Selected Financial Data." ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Incorporated by reference from the 1998 Annual Report to Stockholders under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations." ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Incorporated by reference from the 1998 Annual Report to Stockholders under the caption "Market Risk Disclosure." ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Incorporated by reference from the 1998 Annual Report to Stockholders under the caption "Consolidated Financial Statements and Notes to Consolidated Financial Statements" and "Report of Independent Public Accountants." ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEMS 10-13. The information required for Part III in this Annual Report on Form 10-K is incorporated by reference from the Company's definitive proxy statement for the Company's 1999 Annual Meeting of Stockholders. Such information will be contained in the sections of such proxy statement captioned "Security Ownership of Certain Beneficial Owners, Directors and Executive Officers," "Election of Directors," "Directors' Meetings and Fees," "Committee Meetings," "Executive Compensation," "Stock Option Grants and Exercises," "Certain Transactions" and "Compliance with Section 16 of the Securities Exchange Act of 1934." Information regarding executive officers of the Company is also furnished in Part I of this Annual Report on Form 10-K under the heading "Executive Officers of the Registrant." 21 23 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) The following documents are included as part of this Annual Report on Form 10-K. 1. FINANCIAL STATEMENTS: Report of Independent Public Accountants.................... 31* Consolidated Statements of Operations for the Three years Ended December 31, 1998................................... 32* Consolidated Balance Sheets as of December 31, 1998 and 1997...................................................... 33* Consolidated Statements of Changes in Stockholders' Equity for the Three Years Ended December 31, 1998............... 34* Consolidated Statements of Cash Flows for the Three Years Ended December 31, 1998................................... 35* Notes to Consolidated Financial Statements.................. 36*
- --------------- * Refers to page number in 1998 Annual Report to Stockholders. Each such financial statement or report is hereby incorporated herein by reference to the 1998 Annual Report to Stockholders which is filed as an exhibit to this Annual Report on Form 10-K. 2. FINANCIAL STATEMENT SCHEDULES: All financial statement schedules are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or the Notes thereto. 3. EXHIBITS: The exhibits filed with or incorporated into this Annual Report on Form 10-K are listed on the "Index to Exhibits" below. (b) Reports on Form 8-K: None. 22 24 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 30, 1999. THE PIONEER GROUP, INC. BY: /s/ JOHN F. COGAN, JR. --------------------------------- JOHN F. COGAN, JR., President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ JOHN F. COGAN, JR. Principal Executive Officer and March 30, 1999 - ---------------------------- Director JOHN F. COGAN, JR. /s/ JOHN A. BOYNTON Principal Financial Officer and March 30, 1999 - ---------------------------- Principal Accounting JOHN A. BOYNTON /s/ ROBERT L. BUTLER Director March 30, 1999 - ---------------------------- ROBERT L. BUTLER /s/ MAURICE ENGLEMAN Director March 30, 1999 - ---------------------------- MAURICE ENGLEMAN /s/ ALAN J. STRASSMAN Director March 30, 1999 - ---------------------------- ALAN J. STRASSMAN /s/ JASKARAN S. TEJA Director March 30, 1999 - ---------------------------- JASKARAN S. TEJA /s/ DAVID D. TRIPPLE Director March 30, 1999 - ---------------------------- DAVID D. TRIPPLE /s/ JOHN H. VALENTINE Director March 30, 1999 - ---------------------------- JOHN H. VALENTINE
23 25 INDEX TO EXHIBITS
EXHIBIT NO. EXHIBIT - ----------- ------- 3.1(17) -- Certificate of Incorporation, as amended 3.2(1) -- By-Laws, as amended 10.1(15) -- Form of Management Contract with Pioneer Mutual Funds 10.2(15) -- Form of Investment Company Service Agreement with Pioneer Mutual Funds 10.3(1)(7) -- Retirement Benefit Plan and Trust 10.4(5)(7) -- 1988 Stock Option Plan, as amended 10.5(5) -- Lease, dated as of July 3, 1991, between the Trustees of 60 State Street and the Company 10.6(2)(7) -- Form of Employment Agreements with Regional Vice Presidents 10.7(22) -- Revised Form of Underwriting Contract with Pioneer Funds 10.8(3)(7) -- 1990 Restricted Stock Plan 10.9(4) -- Deed of Warranty, dated December 3, 1987, between the Government of Republic of Ghana, Teberebie Goldfields Limited and The Pioneer Group, Inc. 10.10(4) -- Lease, dated February 2, 1988, between the Government of the Republic of Ghana and Teberebie Goldfields Limited 10.11(4) -- Map of Mining Operations in Tarkwa, Ghana 10.12(6) -- Refining Agreement, dated as of August 23, 1993, between Teberebie Goldfields Limited and Metalor 10.13(6) -- OPIC Contract of Insurance Against Inconvertibility, Expropriation and Political Violence between OPIC and Pioneer Goldfields Limited, dated August 12, 1993 10.14(6) -- Credit Agreement, dated as of June 1, 1993, between Teberebie Goldfields Limited and Skandinaviska Enskilda Banken 10.15(8) -- Agreement, dated May 10, 1994, between Teberebie Goldfields Limited and Johnson Matthey PLC 10.16(8) -- Contract, dated May 30, 1994, among Timber Harvesting Equipment Sales, Inc., Joint-Stock Company "Forest-Starma" and the Company 10.17(8) -- Contract, dated August 4, 1994, among Morbark Northwest, Inc., Joint-Stock Company "Forest-Starma" and the Company 10.18(8) -- Contract, dated May 25, 1994, among Caterpillar Overseas S.A., Joint-Stock Company "Forest Starma" and the Company 10.19(8) -- OPIC Contract of Insurance Against Business Income Loss between OPIC and the Company, effective September 30, 1992, as amended (No. D581) 10.20(8) -- OPIC Contract of Insurance Against Business Income Loss between OPIC and the Company, effective September 30, 1992, as amended (No. D582) 10.21(8) -- OPIC Contract of Insurance Against Inconvertibility, Expropriation and Political Violence between OPIC and the Company, effective September 30, 1992 as amended (No. D547) 10.22(8) -- OPIC Contract of Insurance Against Inconvertibility, Expropriation and Political Violence between OPIC and the Company, effective September 30, 1992 (No. D545) 10.23(8) -- Consulting Agreement, dated as of January 2, 1995, between the Company and Pioneer First Polish Trust Fund Joint Stock Company ("Pioneer Poland") 10.24(8) -- Services Contract, dated January 1, 1994, between Pioneering Services Corporation and Financial Services Limited 10.25(8) -- Agreement, dated June 25, 1992, between Pioneer Poland and Bank Polska Kasa Opieka S.A. ("Bank Pekao") 10.26(8) -- Agreement, dated as of June 25, 1992, between Bank Pekao and Pioneer International Corporation
24 26
EXHIBIT NO. EXHIBIT - ----------- ------- 10.27(8) -- Agreement, dated June 25, 1992, between Bank Pekao and Pioneer Poland 10.28(8) -- Agreement, dated September 24, 1992, between Pioneer Poland and Financial Services Limited 10.29(9) -- Master Share Purchase Agreement dated as of April 7, 1995 by and among Pioneer Omega, Inc. and First Voucher Fund 10.30(9) -- Agreement dated as of April 7, 1995 by and among Pioneer Omega, Inc. and DOM Investment Company 10.31(9) -- Agreement dated as of April 7, 1995 by and among Pioneer Omega, Inc. and Moscow International Business Centre Limited 10.32(9) -- Stockholders Agreement dated as of April 11, 1995 by and among the Company and Moscow International Business Centre Limited 10.33(10) -- Collective Agreement dated as of July 3, 1995 between Teberebie Goldfields Limited and the Ghana Mineworkers Union of T.U.C. 10.34(11) -- Contract of Insurance Against Incontrovertibility, Expropriation and Political Violence dated September 29, 1995 between the Overseas Private Investment Corporation and the Company 10.35(7)(12) -- 1995 Restricted Stock Plan 10.36(12) -- Credit Agreement between Teberebie Goldfields Limited and Skandinaviska Enskilda Banken AB dated as of March 11, 1996 10.37(7)(13) -- 1995 Employee Stock Purchase Plan 10.38(13) -- Loan Agreement dated as of April 23, 1996, by and between Teberebie Goldfields Limited and Caterpillar Financial Services Corporation 10.39(13) -- Chattel Mortgage dated as of April 23, 1996, by and between Teberebie Goldfields Limited and Caterpillar Financial Services Corporation 10.40(13) -- Credit Agreement dated as of June 6, 1996, by and among the Company, Certain of its subsidiaries, the Lenders and The First National Bank of Boston, as agent for itself and the other Lenders 10.41(13) -- Loan Agreement dated as of May 16, 1996, by and between Teberebie Goldfields Limited and Caterpillar Financial Corporation 10.42(14) -- Sublease dated as of August 15, 1996, between the Company and Citizens Financial Group, Inc. 10.43(16) -- Subscription Agreement dated as of October 16, 1996, between Pioneer First Russia, Inc. and International Finance Corporation 10.44(16) -- Shareholders Agreement dated as of October 16, 1996, among Pioneer Omega, Inc. and Pioneer First Russia, Inc. and International Finance Corporation 10.45(16) -- Put and Call Agreement dated as of October 16, 1996, among Pioneer First Russia, Inc. and Pioneer Omega, Inc. and International Finance Corporation 10.46(16) -- Credit Facility Agreement dated 19th December, 1996, for Pioneer Real Estate Advisors, Inc. provided by Banque Societe Generale Vostok 10.47(16) -- First Amendment to Lease dated as of the 31st day of January 1994, by and between the Trustees of 60 State Street Trust and the Company 10.48(16) -- Second Amendment to Lease dated as of September 30, 1996, by and between The Trustees of 60 State Street Trust and the Company 10.49(16) -- Third Amendment to Lease dated as of November 15, 1996, by and between The Trustees of 60 State Street Trust and the Company 10.50(16) -- Finance Agreement dated as of October 25, 1996, between Teberebie Goldfields Limited and the Overseas Private Investment Corporation 10.51(16) -- Project Completion Agreement dated as of October 28, 1996, among Teberebie Goldfields Limited, the Company and Overseas Private Investment Corporation
25 27
EXHIBIT NO. EXHIBIT - ----------- ------- 10.52(16) -- Overseas Private Investment Corporation Contract of Insurance Against Inconvertibility, Expropriation and Political Violence between the Overseas Private Investment Corporation and Pioneer Omega, Inc. 10.53(17) -- Finance Agreement between Closed Joint-Stock Company "Forest-Starma" and Overseas Private Investment Corporation dated as of December 21, 1995 10.54(17) -- Project Completion Agreement among Closed Joint-Stock Company "Forest-Starma", the Company, International Joint-Stock Company "Starma Holding" and Overseas Private Investment Corporation dated as of December 21, 1995 10.55(17) -- Closed Joint-Stock Company "Forest-Starma" Promissory Note in the principal amount of $9.3 million dated as of July 1, 1996 10.56(17) -- Amendment to Finance Agreement dated as of June 24, 1996 between Closed Joint-Stock Company "Forest-Starma" and Overseas Private Investment Corporation 10.57(17) -- Amendment No. 1 to Credit Agreement dated as of April 23, 1997, among the Company, certain of its subsidiaries, the Lenders and The First National Bank of Boston 10.58(18) -- Amendment No. 2 to Credit Agreement dated as of June 30, 1997, by and among the Company, certain of its subsidiaries, the Lenders and BankBoston, N.A. f/k/a/ The First National Bank of Boston 10.59(18)(7) -- 1997 Stock Incentive Plan 10.60(19) -- Note Agreement dated as August 14, 1997 by and between the Company and The Travelers Insurance Company 10.61(20) -- Amendment No. 3 to Credit Agreement dated as of June 30, 1997, by and among the Company, certain of its subsidiaries, the Lenders and BankBoston, N.A. f/k/a/ The First National Bank of Boston 10.62(20) -- Investment Agreement dated as of February 11, 1998 by and between AS Eesti Forekspank and ZAO Pioneer Bank 10.63(20) -- Fourth Amendment to Lease dated as of September 11, 1997, by and between The Trustees of 60 State Street Trust and the Company 10.64(21) -- Amendment No. 4 to Credit Agreement dated as of April 21, 1998, by and among the Company, certain of its subsidiaries, the Lenders and BankBoston, N.A. f/k/a The First National Bank of Boston 10.65(21) -- Amendment No. 5 to Credit Agreement dated as of July 21, 1998, by and among the Company, certain of its subsidiaries, the Lenders and BankBoston, N.A. f/k/a The First National Bank of Boston 10.66(21) -- Amendment No. 6 to Credit Agreement dated as of September 30, 1998, by and among the Company, certain of its subsidiaries, the Lenders and BankBoston, N.A. f/k/a The First National Bank of Boston 10.67(21) -- Supplemental Agreement No. 1 to Note Agreement dated as of September 30, 1998, by and between the Company and Travelers Insurance Company 10.68(21) -- Supplemental Agreement No. 2 to Note Agreement dated as of September 30, 1998, by and between the Company and Travelers Insurance Company 10.69(21) -- Pioneer Program Master Agreement dated as of September 30, 1998, among the Company, certain of its subsidiaries, PLT Finance, L.P., Putnam, Lovell, DeGuardiola & Thornton, Inc., and Bankers Trust Company (Confidential Treatment Granted) 10.70* -- Amendment No. 7 to Credit Agreement dated as of December 30, 1998, by and among the Company, certain of its subsidiaries, the Lenders and BankBoston, N.A. f/k/a The First National Bank of Boston 10.71* -- Supplemental Agreement No. 3 to Note Agreement dated as of December 30, 1998, by and between the Company and Travelers Insurance Company 10.72*(7) -- 1998 Deferred Compensation Plan
26 28
EXHIBIT NO. EXHIBIT - ----------- ------- 10.73* -- Agreement dated as of December 7, 1998 between Closed Joint Stock Company "Forest Starma" and Rayonier Inc., and Amendment No. 1 thereto. 10.74* -- Fifth Amendment to Lease dated as of December 31, 1997, by and between The Trustees of 60 State Street Trust and the Company 10.75* -- Sixth Amendment to Lease dated as of October 5, 1998, by and between the Trustees of 60 State Street Trust and the Company 10.76* -- Sublease Agreement dated as of March 5, 1999, by and between Leerink, Swann & Company and the Company 10.77* -- Asset Purchase Agreement dated as of March 18, 1999, by and between PCC Transfer Limited Partnership, Pioneer Capital Corporation, Pioneer Ventures Limited Partnership and The Pioneer Group, Inc. 13* -- 1998 Annual Report to Stockholders (which is not deemed "filed" except with respect to the portions specifically incorporated herein by reference) 21* -- Subsidiaries 23* -- Consent of Arthur Andersen LLP 27.98* -- Financial Data Schedule (1998) 27.97* -- Financial Data Schedule (1997) 27.96* -- Financial Data Schedule (1996)
- --------------- * Filed herewith (1) Incorporated herein by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1986. (2) Incorporated herein by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1988. (3) Incorporated herein by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1989. (4) Incorporated herein by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1990. (5) Incorporated herein by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1991. (6) Incorporated herein by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. (7) Management contract or compensatory plan or arrangement filed as an exhibit to this Form pursuant to Items 14(a) and 14(c) of Form 10-K. (8) Incorporated herein by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1994. (9) Incorporated herein by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995. (10) Incorporated herein by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995. (11) Incorporated herein by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995. (12) Incorporated herein by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1995. (13) Incorporated herein by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996. 27 29 (14) Incorporated herein by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996. (15) Incorporated herein by reference to the exhibits to the Registration Statement on Form N-1A for the Pioneer Micro Cap Fund (File Nos. 333-18639, 811-07985) filed December 23, 1996. (16) Incorporated herein by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1996. (17) Incorporated herein by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997. (18) Incorporated herein by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. (19) Incorporated herein by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997. (20) Incorporated herein by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1997. (21) Incorporated herein by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998. (22) Incorporated herein by reference to the exhibits to the Registration Statement on Form N-1A for the Pioneer Fund (File Nos. 2-25980, 811-07613) filed October 30, 1998. 28 EX-10.70 2 AMENDMENT #7 TO CREDIT AGREEMENT 1 EXHIBIT 10.70 EXECUTION COUNTERPART THE PIONEER GROUP, INC. CREDIT AGREEMENT AMENDMENT NO. 7 This Agreement, dated as of December 30, 1998, is among The Pioneer Group, Inc., a Delaware corporation (the "Company"), certain of its subsidiaries listed on the signature pages hereto, the Lenders (as defined in the Credit Agreement referenced below) and BankBoston, N.A., f/k/a The First National Bank of Boston, as agent (the "Agent") for itself and the other Lenders. The parties agree as follows: 1. REFERENCE TO CREDIT AGREEMENT; DEFINITIONS. Reference is made to the Credit Agreement dated as of June 6, 1996, among the Company, certain of its subsidiaries, the Lenders and the Agent (as amended, modified and in effect prior to giving effect to this Agreement, the "Credit Agreement"). Terms defined in the Credit Agreement as amended hereby (the "Amended Credit Agreement") and not otherwise defined herein are used herein with the meanings so defined. Except as the context otherwise explicitly requires, the capitalized terms "Section" and "Exhibit" refer to sections hereof and exhibits hereto. 2. AMENDMENTS TO CREDIT AGREEMENT. Subject to all of the terms and conditions hereof and in reliance upon the representations and warranties set forth in Section 3, the Credit Agreement is amended as follows, effective upon the date (the "Amendment Date") that the conditions specified in Section 4 are satisfied, which conditions must be satisfied no later than December 30, 1998, or this Agreement shall be of no force or effect: 2.1. AMENDMENT OF SECTION 1.4. Section 1.4 of the Credit Agreement is amended to read in its entirety as follows: "1.4. "APPLICABLE MARGIN" means, (1) with respect to any portion of the Revolving Loan subject to a Pricing Option, 2.25%, and (2) with respect to each other portion of the Revolving Loan, 0.25%." 2.2. AMENDMENT TO SECTION 1.49. Section 1.49 of the Credit Agreement is amended to read in its entirety as follows: "1.49. "CONSOLIDATED TANGIBLE NET WORTH" means, at any date, the total of: (a) stockholders' equity of the Company and its Subsidiaries (excluding the effect of any foreign currency translation adjustments) determine in accordance with GAAP on a Consolidated basis, MINUS 2 (b) the amount by which such stockholders' equity has been increased by the write-up of any asset of the Company and its Subsidiaries (excluding any write-ups net of write-downs associated with any venture capital investments of the Company and its Subsidiaries), MINUS (c) assets of the Company and its Subsidiaries that are considered intangible assets under GAAP (including but not limited to customer lists, goodwill, computer software and capitalized research and development costs other than the capitalized development costs relating to the natural resource business operations of the Company or any of its Subsidiaries), PLUS (d) the amount by which such stockholders' equity has been decreased by the after-tax noncash write-down of assets employed in the Company's and it Subsidiaries' international operations, up to an aggregate of all such write-downs of $25,000,000." 2.3. AMENDMENT TO SECTION 4.2.3. Section 4.2.3 of the Credit Agreement is amended to read in its entirety as follows: "4.2.3. PREPAYMENT OF REVOLVING LOAN. Within five Banking Days after the consummation of any underwritten public offering or other sale of any equity interest in Pioneer Goldfields Entities pursuant to Section .11.5, the Company shall apply 100% of the Net Cash Proceeds to the prepayment of the Revolving Loan, and the Maximum Amount of Revolving Credit shall be permanently reduced by 50% of such amount, PROVIDED that the Maximum Amount of Revolving Credit shall never be reduced below $40,000,000 by operation of this Section 4.2.3. For purposed of this Section 4.23, "Net Cash Proceeds" shall mean the total cash proceeds received from such public offering or equity sale of Pioneer Goldfields Entities, reduced by (i) the amount required to be paid by the Company or any Subsidiary to repay financing obligations on any equipment being transferred in such sale, (ii) the amount required to be paid by the Company or any Subsidiary to repay the OPIC financing, (iii) any federal, state, local or other tax obligations incurred by the Company or any Subsidiary as a result of such public offering or sale or the prior sale of the B Share revenues used the prepay the B Share Loan, and (iv) an federal, state or local tax obligations due and payable by the Company within 45 days of such prepayment." 2.4. AMENDMENT TO SECTION 7.4.3. Two new paragraphs (h) and (i) are added to Section 7.4.3 (Other Reports) of the Credit Agreement as follows: "(h) As soon as prepared and in any event within five days of the end of each week or five Banking Days of the end of each month, as applicable, updated actual and forecasted weekly cash flows for the period commencing November 30, 1998 through December 31, 1998, and monthly cash flows for the period commencing January 1, 1999, in report form similar to that in the attached Exhibit 2.4. (i) As soon as prepared and in any event within five days of the end of each month beginning with July 1999 and ending with December 1999, a report of the aggregate amount of all Investments in the Company's and any Subsidiary's international operations as of the end of such month and for the period beginning July 1, 1999 and ending at the end of such month." 2 3 2.5. AMENDMENT TO SECTION 7.5.3. Section 7.5.3 of the Credit Agreement is amended to read in its entirety as follows: "7.5.3. CONSOLIDATED TANGIBLE NET WORTH. Consolidated Tangible Net Worth shall: (a) on and after December 4, 1998, and through June 30, 1999, at all times equal or exceed $120,000,000; PROVIDED, HOWEVER, that on the first day of each fiscal quarter of the Company beginning with the fiscal quarter ending December 31, 1998, such dollar amount shall be increased by an amount equal to 50% of the sum of (i) Consolidated Net Income (only if in excess of zero) and (ii) the after-tax gain on the sale or disposition of assets or capital stock of Pioneer Goldfields Entities for the fiscal quarter then most recently ended, and (b) on and after July 1, 1999, at all times equal or exceed $137,500,000, provided, however, that on the first day of each fiscal quarter of the Company beginning with the fiscal quarter ending September 30, 1999, such dollar amount shall be increased by an a mount equal to 50% of the sum of (i) Consolidated Net Income (only if in excess of zero) and (ii) the after-tax gain on the sale or disposition of assets or capital stock of Pioneer Goldfields Entities for the fiscal quarter then most recently ended." 2.6. AMENDMENT TO SECTION 7.9.1. Amendment to Section 7.9.1 of the Credit Agreement is amended to read in its entirety as follows: "7.9.1. Investments of the Company and each Subsidiary of the Company which is not a Core Mutual Fund Subsidiary; provided that immediately before and after giving effect to such Investment, no Default exists; provided further that on and after July 1, 1999 and through December 31, 1999, the Company and any Subsidiary will only have outstanding, acquire, commit itself to acquire or hold any new Investments, including Guarantees permitted by Section 7.7, in the Company's or any Subsidiary's international operation that in the aggregate will not exceed $20,000,000." 2.7. AMENDMENT TO SECTION 7.9.7. Amendment to Section 7.9.7 of the Credit Agreement is amended to read in its entirety as follows: "7.9.7. Guarantees permitted by Section 7.7; provided, however, that on and after July 1, 1999 and though December 31, 1999, the Company and any Subsidiary will only have outstanding, acquire, commit itself to acquire or hold any new Guarantees in the Company's or any Subsidiary's international operations that in the aggregate, together with other new Investments, will not exceed $20,000,000." 2.8. AMENDMENT TO EXHIBIT 8.1. Exhibit 8.1 of the Credit Agreement (the Company's Organization) is amended to read in its entirety as set forth on Exhibit 8.1 hereto. 2.9. AMENDMENT TO SECTION 9.1.9. Section 9.1.9 of the Credit Agreement is amended to add a new paragraph (c) as follows: 3 4 "(c) The aggregate investment assets under management by the Company and its Subsidiaries shall at any time be less that $15,000,000,000." 2.10. AMENDMENT TO EXHIBIT 9.1.12. Exhibit 9.1.12 of the Credit Agreement (the Officers of the Company) is amended to read in its entirety as set forth on Exhibit 9.1.12 hereto. 3. REPRESENTATIONS AND WARRANTIES. In order to induce the Lenders to enter into this Agreement, each of the Company and the Guarantors represents and warrants to each of the Lenders that: 3.1. LEGAL EXISTENCE; ORGANIZATION. Each of the Company and its Subsidiaries is duly organized and validly existing and in good standing under the laws of the jurisdiction of its incorporation, with all power and authority, corporate or otherwise, necessary to (i) enter into and perform this Agreement, the Amended Credit Agreement and each other Credit Document to which it is party and (ii) own its properties and carry on the business now conducted or proposed to be conducted by it. Each of the Company and its Subsidiaries has taken, or shall have taken on or prior to the Amendment Date, all corporate or other action required to make the provisions of this Agreement, the Amended Credit Agreement and each other Credit Document to which it is party the valid and enforceable obligations they purport to be. 3.2. ENFORCEABILITY. The Company and each of its Subsidiaries that are signatories hereto have duly executed and delivered this Agreement. Each of this Agreement and the Amended Credit Agreement is the legal, valid and binding obligation of the Company and such Subsidiaries and is enforceable against the Company and such Subsidiaries in accordance with its terms. 3.3. NO LEGAL OBSTACLE TO AGREEMENTS. Neither the execution, delivery or performance of this Agreement, nor the performance of the Amended Credit Agreement, nor the consummation of any other transaction referred to in or contemplated by this Agreement, nor the fulfillment of the terms hereof or thereof, has constituted or resulted in or will constitute or result in: (1) any breach or termination of the provisions of any agreement, instrument, deed or lease to which the Company or any Subsidiary is a party or by which it is bound, or the Charter or By-laws of the Company or any Subsidiary; (2) the violation of any law, judgment, decree or governmental order, rule or regulation applicable to the Company or any Subsidiary; (3) the creation under any agreement, instrument, deed or lease of any Lien upon any of the assets of the Company or any Subsidiary; or (4) any redemption, retirement or other repurchase obligation of the Company or any Subsidiary under any Charter, By-law, agreement, instrument, deed or lease. No approval, authorization or other action by, or declaration to or filing with, any governmental or administrative authority or any other Person is required to be obtained or made by the 4 5 Company or any Subsidiary in connection with the execution, delivery and performance of this Agreement or the performance of the Amended Credit Agreement, or the consummation of the transactions contemplated hereby or thereby. 3.4. NO DEFAULT. Immediately before and after giving effect to the amendments set forth in Section 2, no Default will exist. 3.5. INCORPORATION OF REPRESENTATIONS AND WARRANTIES. The representations and warranties set forth in Section 8 of the Credit Agreement are true and correct on the date hereof as if originally made on and as of the date hereof (except to the extent any representation or warranty refers to a specific earlier date). 4. CONDITIONS. The effectiveness of this Agreement shall be subject to the satisfaction of the following conditions: 4.1. AMENDMENT TO NOTE AGREEMENT. The Note Agreement dated August 14, 1997 among the Company and its Subsidiaries listed as Guarantors (including other Subsidiaries of the Company that from time to time become party thereto) and the Travelers Insurance Company shall have been amended to impose no more stringent Consolidated Tangible Net Worth covenant levels and other terms and conditions on the Company than those contained in the Amended Credit Agreement, which terms and conditions shall be satisfactory to the Lenders. 4.2. INVESTMENT ASSET UNDER MANAGEMENT. On the Amendment Date, the aggregate investment assets under management by the Company and its Subsidiaries shall equal or exceed $20,000,000,000, and the Company shall have furnished to the Agent on such date a certificate to such effect signed by an Executive Officer or a Financial Officer. 4.3. DELIVERY OF FINANCIAL INFORMATION. (a) The Company shall have delivered to the Lenders the quarterly reports for the fiscal quarter ended September 301, 998, including all information specified in Section 7.4.2 of the Credit Agreement. (b) The Company shall have provided for the period commencing November 30, 1998 through December 31, 1998, weekly cash flow forecasts, and for the period commencing January 1, 1999 through June 30, 1999, monthly cash flow forecasts. 4.4. FEES. (a) In accordance with their Percentage Interests, in consideration for entering into this Agreement, the Borrower shall have paid to the Agent for the account of the Lenders, and amount equal to 0.25% of the Maximum Amount of the Revolving Credit. (b) The Company shall have paid all fees due to the Agent or other lenders and all reasonable fees and disbursements of Ropes & Gray, special counsel to the Lenders. 5 6 4.5. OFFICER'S CERTIFICATE. The representations and warranties contained in Section 3 shall be true and correct as of the Amendment Date with the same force and effect as though originally made on and as of such date; no Default shall exist on the Amendment Date prior to or immediately after giving effect to this Agreement; as of the Amendment Date, no Material Adverse Change shall have occurred; and the Company shall have furnished to the Agent on the Amendment Date a certificate to these effects, in substantially the form of Exhibit 4.5, signed by an Executive Officer or a Financial Officer. 4.6. PROPER PROCEEDINGS. All proper corporate proceedings shall have been taken by each of the Company and the Subsidiaries to authorize this Agreement, the Amended Credit Agreement and the transactions contemplated hereby and thereby. The Agent shall have received copies of all documents, including legal opinions of counsel and records of corporate proceedings that the Agent may have requested in connection therewith, such documents, where appropriate, to be certified by proper corporate or governmental authorities. 4.7. EXECUTION BY LENDERS. Each of the Lenders shall have executed and delivered this Agreement to the Company. 5. FURTHER ASSURANCES. Each of the Company and the Subsidiaries will, promptly upon request of the Agent from time to time, execute, acknowledge and deliver, and file and record, all such instruments and notices, and take all such action, as the Agent deems necessary or advisable to carry out the intent and purposes of this Agreement. 6. GENERAL. The Amended Credit Agreement and all of the other Credit Documents are each confirmed as being in full force and effect. This Agreement, the Amended Credit Agreement and the other Credit Documents referred to herein or therein constitute the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior and current understandings and agreements, whether written or oral, with respect to such subject matter. The invalidity or unenforceability of any provision hereof shall not affect the validity or enforceability of any other term or provision hereof. The headings in this Agreement are for convenience of reference only and shall not alter, limit or otherwise affect the meaning hereof. Each of this Agreement and the Amended Credit Agreement is a Credit Document and may be executed in any number of counterparts, which together shall constitute one instrument, and shall bind and inure to the benefit of the parties and their respective successors and assigns, including as such successor and assigns all holders of any Note. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS (OTHER THAN THE CONFLICT OF LAWS RULES) OF THE COMMONWEALTH OF MASSACHUSETTS. 6 7 Each of the undersigned has caused this Agreement to be executed and delivered by its duly authorized officer as an agreement under seal as of the date first above written. THE PIONEER GROUP, INC. By: /s/ John A. Boynton ---------------------------------- Title: Chief Financial Officer, Treasurer, Exec. VP 60 State Street Boston, Massachusetts 02109-1820 PIONEER MANAGEMENT (IRELAND) LIMITED By: /s/ Robert Richardson ---------------------------------- Title: Managing Director 60 State Street Boston, Massachusetts 02109-1820 PIONEER FUNDS DISTRIBUTOR, INC. By: /s/ John A. Boynton ---------------------------------- Title: Treasurer 60 State Street Boston, Massachusetts 02109-1820 PIONEERING SERVICES CORPORATION By: /s/ John A. Boynton ---------------------------------- Title: Treasurer 60 State Street Boston, Massachusetts 02109-1820 7 8 BANKBOSTON, N.A. By: /s/ Stewart P. Neff ---------------------------------- Title: Managing Director Financial Institutions Division 100 Federal Street - 15th Floor Boston, Massachusetts 02110 Telecopy: (617) 434-1537 Telex: 940581 THE BANK OF NEW YORK By: /s/ Scott H. Buitekant ---------------------------------- Title: AVP One Wall Street, OWS-1 Securities Industry Division New York, New York 10286 Telecopy: (212) 809-9566 SOCIETE GENERALE By: /s/ Woody Littlefield ---------------------------------- Title: Vice President 1221 Avenue of the Americas New York, New York 10020 Telecopy: (212) 278-7153 STATE STREET BANK & TRUST COMPANY By: /s/ Michael St. Jean ---------------------------------- Title: Vice President 225 Franklin Street, 8th Floor Asset-Based Finance Boston, Massachusetts 02110 Telecopy: (617) 338-4041 8 9 BANQUE NATIONALE DE PARIS By: /s/ Marguerite L. Lebon /s/ Laurent Vanderzyppe ---------------------------------- ---------------------------------- Title: Asst VP Vice President 499 Park Avenue, 7th Floor New York, New York 10022 Telecopy: (212)) 415-9707 MELLON BANK, N.A. By: /s/ John R. Cooper ---------------------------------- Title: Vice President One Mellon Bank Center Mail Code: 1510370 Pittsburgh, Pennsylvania 15258 Telecopy: (412) 234-8087 [EXHIBITS INTENTIONALLY OMITTED] 9 EX-10.71 3 SUPPLEMENTAL AGREEMENT NO. 3 1 EXHIBIT 10.71 THE PIONEER GROUP, INC. SUPPLEMENTAL AGREEMENT NO. 3 as of December 30, 1998 Re: Senior Notes due 2004 To: The Travelers Insurance Company One Tower Square Hartford, CT 06183-2030 Ladies and Gentlemen: THE PIONEER GROUP, INC., a Delaware corporation (the "COMPANY"), hereby agrees with you as follows: Section 1. AMENDMENTS. Pursuant to the Note Agreement dated as of August 14, 1997 (as amended by Supplemental Agreement No. 1 and Supplement Note Agreement No. 2, each dated as of September 30, 1998 (as so amended, the "NOTE AGREEMENT") entered into by the Company with The Travelers Insurance Company, the Company issued and sold $20,000,000 aggregate principal amount of its Senior Notes due 2004 (the "NOTES"). Unless the context otherwise requires, capitalized terms used herein without definition have the respective meanings ascribed thereto in the Note Agreement. The Notes originally bore an interest rate of 7.95% per annum and, pursuant to Supplemental Amendment No. 1, such interest rate was changed to a floating rate of interest as therein described. The Company has requested you, as the holder of all the outstanding Notes, further to amend the Note Agreement and the Notes. Subject to this Supplemental Agreement No. 3 becoming effective as hereinafter provided, the Company and the holder of the Notes do hereby agree that the Note Agreement and the outstanding Notes are amended pursuant to Section 11.1 of the Note Agreement as follows: A. Section 1 of the Note Agreement is amended by: 1. deleting the definitions of "Adjusted Company Total Debt", "Applicable Margin", "Applicable Rate", "Base Rate", and "Combined Adjusted Mutual Fund Cash Flow" found therein. 2. deleting the definitions of "Consolidated Tangible Net Worth" and "Default Rate" in their entirety and replacing them with the following new definitions: "'CONSOLIDATED TANGIBLE NET WORTH'" means, at any date, the total of: (a) stockholders' equity of the Company and its Subsidiaries (excluding the effect of any foreign currency translation adjustments) determine in accordance with GAAP on a Consolidated basis, MINUS 2 (b) the amount by which such stockholders' equity has been increased by the write-up of any asset of the Company and its Subsidiaries (excluding any write-ups net of write-downs associated with any venture capital investments of the Company and its Subsidiaries), MINUS (c) assets of the Company and its Subsidiaries that are considered intangible assets under GAAP (including but not limited to customer lists, goodwill, computer software and capitalized research and development costs other than the capitalized development costs relating to the natural resource business operations of the Company or any of its Subsidiaries), PLUS (d) the amount by which such stockholders' equity has been decreased by the after-tax noncash write-down of assets employed in the Company's and it Subsidiaries' international operations, up to an aggregate of all such write-downs of $25,000,000." * * * * "'DEFAULT RATE' means that rate of interest that is the greater of (i) 10.95% and (ii) 2% above the rate of interest publicly announced by Citibank, N.A. from time to time at its principal office in New York City as its prime rate." 3. adding the following definitions: "'ADDITIONAL INDEBTEDNESS' means Indebtedness for borrowed money incurred by the Company or any Core Mutual Fund Subsidiary on or after the Supplemental Agreement No. 3 Effective Date in excess of the amounts of Indebtedness outstanding under the Note Agreement and the Bank Credit Facility, respectively, as of such date." "'NET CASH PROCEEDS' is defined in Section 7.11.5." "'SUPPLEMENTAL AGREEMENT NO. 3 EFFECTIVE DATE' means the Effective Date as defined in Supplemental Agreement No. 3 to this Agreement." B. Section 2.1 of the Note Agreement is amended by changing "7.95%" on the second line thereof to "8.95%". C. Section 4.6 of the Note Agreement is amended by: 1. by changing the definition of "Reinvestment Yield" by adding the following parenthetical immediately after the term "0.50%": "(or 1.0% in the case of a prepayment effected pursuant to the terms of Section 7.11.5)" 2. by changing the definition of "Remaining Scheduled Payments" by deleting the parenthetical "(determined for such purpose at the Base Rate only)" found on the sixth line thereof and replacing it with the phrase "(determined for such purpose at the rate of 7.95%)". 2 3 D. Section 7.4.3 of the Note Agreement is amended by adding the following new clauses (i) and (j) at the end thereof: "(i) As soon as prepared and in any event within five days of the end of each week or five Banking Days of the end of each month, as applicable, updated actual and forecasted weekly cash flows for the period commencing November 30, 1998 through December 31, 1998, and monthly cash flows for the period commencing January 1, 1999, in report form similar to that in the attached Exhibit B. (j) As soon as prepared and in any event within five days of the end of each month beginning with July 1999 and ending with December 1999, a report of the aggregate amount of all Investments in the Company's and any Subsidiary's international operations as of the end of such month and for the period beginning July 1, 1999 and ending at the end of such month." E. Section 7.5.3 of the Note Agreement is amended by deleting it in its entirety and replacing it with the following new Section 7.5.3: "7.5.3. CONSOLIDATED TANGIBLE NET WORTH. Consolidated Tangible Net Worth shall: (a) on and after December 30, 1998, and through June 30, 1999, at all times equal or exceed $120,000,000; PROVIDED, HOWEVER, that on the first day of each fiscal quarter of the Company beginning with the fiscal quarter ending December 31, 1998, such dollar amount shall be increased by an amount equal to 50% of the sum of (i) Consolidated Net Income (only if in excess of zero) AND (ii) the after-tax gain on any sale or disposition of assets or capital stock of Pioneer Goldfields Entities for the fiscal quarter then most recently ended, and (b) on and after July 1, 1999, at all times equal or exceed $137,500,000, provided, however, that on the first day of each fiscal quarter of the Company beginning with the fiscal quarter ending September 30, 1999, such dollar amount shall be increased by an a mount equal to 50% of the sum of (i) Consolidated Net Income (only if in excess of zero) and (ii) the after-tax gain on the sale or disposition of assets or capital stock of Pioneer Goldfields Entities for the fiscal quarter then most recently ended." F. Section 7.6.1 of the Note Agreement is hereby amended by adding the following proviso at the end thereof: "PROVIDED, HOWEVER, that Additional Indebtedness incurred under the Bank Credit Facility, when aggregated with all other Additional Indebtedness, shall not exceed $45,000,000 at any one time outstanding." G. A new Section 7.6.12 is hereby added to the Note Agreement to read as follows: "7.6.12 Additional Indebtedness of the Company and the Core Mutual Fund Subsidiaries, PROVIDED, HOWEVER, that Additional Indebtedness incurred under this Section 7.6.11., when aggregated with all Additional Indebtedness incurred under the Bank 3 4 Credit Facility pursuant to Section 7.6.1, shall not exceed $45,000,000 at any one time outstanding; and PROVIDED, FURTHER that immediately before and after giving effect to the incurrence of such Additional Indebtedness, no Default exits." H. Section 7.9.1 of the Note Agreement is amended by deleting it in its entirety and replacing it with the following new Section 7.9.1: "7.9.1. Investments of the Company and each Subsidiary of the Company which is not a Core Mutual Fund Subsidiary; PROVIDED that immediately before and after giving effect to such Investment, no Default exists; PROVIDED FURTHER that on and after July 1, 1999 and through December 31, 1999, the Company and any Subsidiary will only have outstanding, acquire, commit itself to acquire or hold any new Investments, including Guarantees permitted by Section 7.7, in the Company's or any Subsidiary's international operations that in the aggregate, together with Guarantees permitted by Section 7.9.7, will not exceed $20,000,000." I. Section 7.9.7 of the Note Agreement is amended by deleting it in its entirety and replacing it with the following new Section 7.9.7: "7.9.7. Guarantees permitted by Section 7.7; PROVIDED, HOWEVER, that on and after July 1, 1999 and though December 31, 1999, the Company and any Subsidiary will only have outstanding, acquire, commit itself to acquire or hold any new Guarantees in the Company's or any Subsidiary's international operations that in the aggregate, together with other new Investments permitted by Section 7.9.1, will not exceed $20,000,000." J. Section 7.11.5 of the Note Agreement is amended by (a) by deleting the words "a non-controlling equity interest" and replacing them with "assets or an equity interest (whether controlling or non-controlling)", (b) deleting the words "net cash proceeds" found in the fourth line thereof and replacing them with the words "Net Cash Proceeds", (c) deleting the words "to purchase" found on the eleventh line thereof and the remainder of said Section and replacing it with the following: "to purchase or prepay (for a price at least equal to the price that would be paid if the Company then prepaid a like principal amount of the Notes pursuant to Section 4.1) pro rata among all Notes tendered, an aggregate principal amount of Notes at least equal to the amount that bears the same relation to the outstanding principal amount of the Notes as the amount of the permanent reduction of the Maximum Amount of Revolving Credit (as such term is defined in the Bank Credit Facility) resulting from such transaction under Section 4.2.3 of the Bank Credit Facility bears to such Maximum Amount of Revolving Credit before giving effect to such reduction, and PROVIDED, FURTHER, that any such purchase or prepayment of Notes shall be made prior to or concurrently with such prepayment of such Revolving Loan." and (d) adding the following sentence at the end thereof: "For purposes of this Section 7.11.5, `Net Cash Proceeds' shall mean the total cash proceeds received from such public offering or equity sale of Pioneer Goldfields Entities, 4 5 reduced by (i) the amount required to be paid by the Company or any Subsidiary to repay financing obligations on any equipment being transferred in such sale, (ii) the amount required to be paid by the Company or any Subsidiary to repay the OPIC Financing, (iii) any federal, state, local or other tax obligations incurred by the Company or any Subsidiary as a result of such public offering or sale or the prior sale of the B Share revenues used to prepay the B Share Loan, and (iv) any federal, state or local tax obligations due and payable by the Company within 45 days of such prepayment." K. Section 9.1.9 of the Note Agreement is amended by adding the following new paragraph (c) at the end thereof: "(c) The aggregate investment assets under management by the Company and its Subsidiaries shall at any time be less than $15,000,000,000." L. Exhibit 2.1 to the Note Agreement is deleted in its entirety and replaced with Exhibit A hereto. M. A new Exhibit 7.4.3(i) to the Note Agreement is added in the form of Exhibit B hereto. N. Exhibit 8.1 to the Note Agreement, entitled "The Company and its Subsidiaries", is deleted in its entirety and replaced with Exhibit C hereto. O. Exhibit 9.1.12 to the Note Agreement, entitled "Officers of the Company", is deleted in its entirety and replaced with Exhibit D hereto. Section 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to you as follows: A. ORGANIZATION, AUTHORIZATION, ETC. The Company and each of its Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the State of its organization, and has all requisite power and authority to execute, deliver and perform its obligations under the Note Agreement as amended by this Supplemental Agreement No. 3. The execution, delivery and performance of this Supplemental Agreement No. 3 has been duly authorized by all necessary corporate and, if required, stockholder action on the part of the Company and each Subsidiary Guarantor, as applicable. This Supplemental Agreement No. 3 is a legal, valid and binding obligation of the Company and the Subsidiary Guarantors, as applicable, enforceable against the Company or such Subsidiary Guarantors in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or other similar laws relating to or affecting creditors' rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). B. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC. The execution, delivery and performance by the Company or the Subsidiary Guarantors of this Supplemental Agreement No. 3 does not and will not (A) contravene, result in any breach of, or constitute a default under, or 5 6 result in the creation of any Lien in respect of any property of the Company under any indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate charter or by-laws, or any other agreement or instrument to which the Company or any Subsidiary is bound or by which the Company or any Subsidiary or any of their respective properties may be bound or affected, (B) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to the Company or any Subsidiary or (C) violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to the Company or any Subsidiary. C. GOVERNMENTAL AUTHORIZATIONS, ETC. No consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in connection with the execution, delivery or performance by the Company or any Subsidiary Guarantor of this Supplemental Agreement No. 3. D. NO DEFAULT, ETC. No Event of Default or Default has occurred and is continuing and neither the Company nor any Core Mutual Fund Subsidiary is in default (whether or not waived) in the performance or observance of any of the terms, covenants or conditions contained in any instrument evidencing any Indebtedness and there is no pending request by the Company (except pursuant to this Supplemental Agreement No. 3) or any Subsidiary for any amendment or waiver in respect of any contemplated or possible default with respect to such Indebtedness and no event has occurred and is continuing which, with notice or lapse of time or both, would become such a default. E. NO UNDISCLOSED FEES. The Company has not, directly or indirectly, other than with respect to the payment of consideration disclosed to the Noteholders, paid or caused to be paid any consideration (as supplemental or additional interest, a fee or otherwise) to any party to the Bank Credit Facility in order to induce such party to enter into an agreement substantially similar to this Supplemental Agreement No. 3, nor has the Company agreed to made any such payment. Section 3. REPRESENTATION OF THE NOTEHOLDER. You represent to the Company that you are the beneficial owner of the Notes in an aggregate principal amount of $20,000,000. Section 4. EFFECTIVENESS OF THIS SUPPLEMENTAL AGREEMENT NO. 3. The amendments to Exhibit A to the Note Agreement and the change in the interest rate to be borne by the Notes pursuant to this Supplemental Agreement No 3 shall become effective on December 30, 1998. All other terms and conditions of this Supplemental Agreement No. 3 will become effective on the date (the "EFFECTIVE DATE") on which all of the following conditions precedent shall have been satisfied: A. PROCEEDINGS. All proceedings taken by the Company and the Subsidiary Guarantors in connection with the transactions contemplated hereby and all documents and papers incident thereto shall be satisfactory to you, and you and your special counsel shall have received all such counterpart originals or certified or other copies of such documents and papers, all in form and substance satisfactory to you, as you or they may reasonably request in connection therewith. B. OPINION OF COUNSEL FOR THE COMPANY. On the Effective Date, you shall have received from Hale and Dorr, special counsel to the Company, hereby authorized and directed by the 6 7 Company, its opinion with respect to this Supplemental Agreement No. 3, the Note Agreement, as amended hereby, and the transactions contemplated hereby and thereby, which opinion shall be in form and substance satisfactory to you. C. REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company contained in Section 2 of this Supplemental Agreement No. 3 shall be true on and as of the Effective Date as though such representations and warranties had been made on and as of the Effective Date, and you shall have received a certificate of a senior financial officer of the Company, dated the Effective Date, to such effect. D. PAYMENT OF FEES. The Company shall have paid the fees and disbursements of your special counsel as contemplated by Section 6 of this Supplemental Agreement No. 3. The Company shall have paid for the account of The Travelers insurance Company a fee of $70,000. E. PRIVATE PLACEMENT NUMBER. A new private Placement Number issued by Standard & Poor's CUSIP Service Bureau (in cooperation with the Securities Valuation Office of the National Association of Insurance Commissioners) shall have been obtained for the Notes. Section 5. EXCHANGE OR NOTATION OF THE NOTES. Prior to the transfer effected on or after December 30, 1998 of any Note outstanding on such date, the holder thereof shall endorse such Note appropriately in order to indicate that all amounts owing under such Note shall, from and after December 30, 1998, bear interest at the rate of 8.95% per annum. Each new Note issued thereafter in substitution or exchange for an outstanding Note shall be in the form or Exhibit A hereto, which form of Note shall replace Exhibit 2.1 to the Note Agreement. Section 6. EXPENSES. Without limiting the generality of Section 5.8 of the Note Agreement, the Company agrees, whether or not the transactions contemplated hereby are consummated, to pay the reasonable fees and disbursements of Willkie Farr & Gallagher, your special counsel, for their services rendered in connection with such transactions and with respect to this Supplemental Agreement No. 3 and any other document delivered pursuant to this Supplemental Agreement No. 3 and to reimburse you for your out-of-pocket expenses in connection with the foregoing. Section 7. RATIFICATION. Except as amended hereby, the Note Agreement is in all respects ratified and confirmed and the provisions thereof shall remain in full force and effect, and the Subsidiary Guarantors hereby ratify their obligations thereunder and under the Subsidiary Guarantees to which they are party. Section 8. COUNTERPARTS. This Supplemental Agreement No. 3 may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Section 9. GOVERNING LAW. This Supplemental Agreement No. 3 shall be governed by and construed in accordance with the laws of the State of New York. 7 8 If you are in agreement with the foregoing, please sign the form of acceptance in the space provided below, whereupon this Supplemental Agreement No. 3 shall become a binding agreement between you and the Company, with the approval of the Subsidiary Guarantors, subject to becoming effective as hereinabove provided. THE PIONEER GROUP, INC. By: /s/ John A. Boynton ---------------------------------- Title: CFO, Treasurer, Exec. VP 60 State Street Boston, Massachusetts 02109-1820 SUBSIDIARY GUARANTORS PIONEER INVESTMENT MANAGEMENT, INC. (formerly known as Pioneering Management Corporation) By: /s/ John A. Boynton ---------------------------------- Title: Treasurer 60 State Street Boston, Massachusetts 02109-1820 PIONEERING MANAGEMENT (IRELAND) LIMITED By: /s/ Robert F. Richardson ---------------------------------- Title: Managing Director 60 State Street Boston, Massachusetts 02109-1820 PIONEERING SERVICES CORPORATION By: /s/ John A. Boynton ---------------------------------- Title: Treasurer 60 State Street Boston, Massachusetts 02109-1820 ACCEPTED THE TRAVELERS INSURANCE COMPANY By: /s/ Pamela Westmoreland ---------------------------------- Title: Investment Officer 8 9 EXHIBIT A EXHIBIT 2.1 [FORM OF NOTE] THE PIONEER GROUP, INC. 8.95% Senior Note due 2004 No. R- New York, New York $________________ [Date] PPN: 723684 a@ 5 THE PIONEER GROUP, INC., a Delaware corporation (the "Company"), for value received, hereby promises to pay to ____________, or registered assigns, the principal sum of __________________ Dollars (or so much thereof as shall not have been prepaid) on August 15, 2004, and to pay interest (computed on the basis of a 360-day year of twelve 30-day months) on the unpaid principal balance thereof from the date of this Note at the rate of 8.95% per annum, quarterly on February 15, May 15, August 15 and November 15 in each year until such principal sum shall have become due and payable (whether at maturity, at a date fixed for prepayment or by declaration, acceleration or otherwise), and to pay on demand interest (so computed) on any overdue principal and premium, if any, and (to the extent permitted by applicable law) on any overdue interest, at a rate per annum equal to the greater (determined on a daily basis) of (i) 10.95% and (ii) 2% above the rate of interest publicly announced by Citibank, N.A. from to time to time at its principal office in The City of New York as its prime or base rate. Payments of principal, premium, if any, and interest shall be made in such coin or currency of the United States of America as at the time of payment is legal tender for the payment of public and private debts in the manner and to the address designated by the holder hereof and, in the absence of such designation, at said principal office of Citibank, N.A. This Note is one of an issue of Senior Notes of the Company issued pursuant to the Note Agreement dated as of August 14, 1997, as amended by Supplemental Agreement No. 1 dated as of September 30, 1998, Supplemental Agreement No. 2 dated as of September 30, 1998 and Supplemental Agreement No. 3 dated as of December 30, 1998 (as so amended, the "Note Agreement"), entered into by the Company and certain of its Subsidiaries, as guarantors, with an institutional investor. The holder of this Note is entitled to the benefits of the Note Agreement and is also entitled to the benefits of a certain Intercreditor Agreement referred to therein. The Company may at its election prepay this Note, in whole or in part, and the maturity hereof may be accelerated following an Event of Default, all as provided in the Note Agreement, to which reference is made for the terms and conditions of such provisions as to prepayment and acceleration, including without limitation the payment of a make-whole premium in connection therewith. Upon surrender of this Note for registration of transfer or exchange, duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder hereof or 9 10 such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and, at the option of the holder, registered in the name of, the transferee. The Company and any agent of the Company may deem and treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payments of the principal of, premium, if any, and interest hereon and for all other purposes whatsoever, whether or not this Note is overdue, and the Company shall not be affected by any notice to the contrary. As provided in the Note Agreement, this Note shall be governed by and construed in accordance with the law of State of New York. THE PIONEER GROUP, INC. By: ---------------------------------- Title: [REMAINING EXHIBITS OMITTED] 10 EX-10.72 4 1998 DEFERRED COMPENSATION PLAN 1 EXHIBIT 10.72 THE PIONEER GROUP, INC. 1998 DEFERRED COMPENSATION PLAN Effective January 1, 1998 2 TABLE OF CONTENTS Page Purpose..................................................................... 1 ARTICLE 1- DEFINITIONS...................................................... 1 ARTICLE 2 - SELECTION, ENROLLMENT, ELIGIBILITY.............................. 7 2.1 SELECTION BY COMMITTEE.......................................... 7 2.2 ENROLLMENT REQUIREMENTS......................................... 7 2.3 ELIGIBILITY; COMMENCEMENT OF PARTICIPATION...................... 7 2.4 TERMINATION OF PARTICIPATION AND/OR DEFERRALS................... 7 ARTICLE 3 - DEFERRAL COMMITMENTS/CREDITING/TAXES............................ 8 3.1 MINIMUM DEFERRALS............................................... 8 3.2 MAXIMUM DEFERRAL................................................ 8 3.3 ELECTION TO DEFER; EFFECT OF ELECTION FORM...................... 9 3.4 WITHHOLDING OF ANNUAL DEFERRAL AMOUNTS.......................... 9 3.5 INVESTMENT OF TRUST ASSETS...................................... 9 3.6 VESTING......................................................... 10 3.7 CREDITING/DEBITING OF ACCOUNT BALANCES.......................... 10 3.8 FICA AND OTHER TAXES............................................ 12 3.9 DISTRIBUTIONS................................................... 12 3.10 EMPLOYER DEFERRAL............................................... 12 3.11 DEFERRALS FROM OTHER PLANS...................................... 13 ARTICLE 4 - SHORT-TERM PAYOUT; UNFORESEEABLE FINANCIAL EMERGENCIES; WITHDRAWAL ELECTION............................................. 13 4.1 SHORT-TERM PAYOUT............................................... 13 4.2 OTHER BENEFITS TAKE PRECEDENCE OVER SHORT-TERM PAYOUT........... 14 4.3 WITHDRAWAL PAYOUT/SUSPENSIONS FOR UNFORESEEABLE FINANCIAL EMERGENCIES........................................... 14 4.4 WITHDRAWAL ELECTION............................................. 14 ARTICLE 5 - RETIREMENT BENEFIT.............................................. 15 5.1 RETIREMENT BENEFIT.............................................. 15 5.2 PAYMENT OF RETIREMENT BENEFIT................................... 15 5.3 DEATH PRIOR TO COMPLETION OF RETIREMENT BENEFIT................. 15 ARTICLE 6 - PRE-RETIREMENT SURVIVOR BENEFIT................................. 16 6.1 PRE-RETIREMENT SURVIVOR BENEFIT................................. 16 6.2 PAYMENT OF PRE-RETIREMENT SURVIVOR BENEFIT...................... 16 -ii- 3 ARTICLE 7 - TERMINATION BENEFIT............................................ 16 7.1 TERMINATION BENEFIT............................................ 16 7.2 PAYMENT OF TERMINATION BENEFIT................................. 16 ARTICLE 8 - DISABILITY WAIVER AND BENEFIT.................................. 16 8.1 DISABILITY WAIVER.............................................. 16 8.2 CONTINUED ELIGIBILITY; DISABILITY BENEFIT...................... 17 ARTICLE 9 - BENEFICIARY DESIGNATION........................................ 17 9.1 BENEFICIARY.................................................... 17 9.2 BENEFICIARY DESIGNATION; CHANGE................................ 18 9.3 ACKNOWLEDGMENT................................................. 18 9.4 NO BENEFICIARY DESIGNATION..................................... 18 9.5 DOUBT AS TO BENEFICIARY........................................ 18 9.6 DISCHARGE OF OBLIGATIONS....................................... 18 ARTICLE 10 - LEAVE OF ABSENCE............................................... 18 10.1 PAID LEAVE OF ABSENCE.......................................... 18 10.2 UNPAID LEAVE OF ABSENCE........................................ 19 ARTICLE 11 - TERMINATION, AMENDMENT OR MODIFICATION......................... 19 11.1 TERMINATION.................................................... 19 11.2 AMENDMENT...................................................... 20 11.3 PLAN AGREEMENT................................................. 20 11.4 EFFECT OF PAYMENT.............................................. 20 ARTICLE 12 - ADMINISTRATION................................................. 20 12.1 COMMITTEE DUTIES............................................... 20 12.2 AGENTS......................................................... 21 12.3 BINDING EFFECT OF DECISIONS.................................... 21 12.4 INDEMNITY OF COMMITTEE......................................... 21 12.5 EMPLOYER INFORMATION........................................... 21 12.6 MULTIPLE COMMITTEES............................................ 21 ARTICLE 13 - OTHER BENEFITS AND AGREEMENTS.................................. 22 13.1 COORDINATION WITH OTHER BENEFITS............................... 22 ARTICLE 14 - CLAIMS PROCEDURES.............................................. 22 14.1 PRESENTATION OF CLAIM.......................................... 22 14.2 NOTIFICATION OF DECISION....................................... 22 14.3 REVIEW OF A DENIED CLAIM....................................... 23 -iii- 4 14.4 DECISION ON REVIEW............................................. 23 14.5 LEGAL ACTION................................................... 23 ARTICLE 15 - TRUST.......................................................... 24 15.1 ESTABLISHMENT OF THE TRUST..................................... 24 15.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST.................... 24 15.3 DISTRIBUTIONS FROM THE TRUST................................... 24 ARTICLE 16 - MISCELLANEOUS.................................................. 24 16.1 STATUS OF PLAN................................................. 24 16.2 UNSECURED GENERAL CREDITOR..................................... 24 16.3 EMPLOYER'S LIABILITY........................................... 25 16.4 NONASSIGNABILITY............................................... 25 16.5 NOT A CONTRACT OF EMPLOYMENT................................... 25 16.6 FURNISHING INFORMATION......................................... 25 16.7 TERMS.......................................................... 25 16.8 CAPTIONS....................................................... 26 16.9 GOVERNING LAW.................................................. 26 16.10 NOTICE......................................................... 26 16.11 SUCCESSORS..................................................... 26 16.12 VALIDITY....................................................... 26 16.13 INCOMPETENT.................................................... 26 16.14 DISTRIBUTION IN THE EVENT OF TAXATION.......................... 27 16.15 INSURANCE...................................................... 27 16.16 LEGAL FEES TO ENFORCE RIGHTS AFTER CHANGE IN CONTROL........... 27 -iv- 5 The Pioneer Group, Inc. 1998 DEFERRED COMPENSATION PLAN Effective January 1, 1998 PURPOSE ------- The purpose of this Plan is to provide specified benefits to a select group of management and highly compensated Employees who contribute materially to the continued growth, development and future business success of The Pioneer Group, Inc., a Delaware corporation, and its subsidiaries, if any, that sponsor this Plan. This Plan shall be unfunded for tax purposes and for purposes of Title I of ERISA. ARTICLE 1 DEFINITIONS ----------- For purposes of this Plan, unless otherwise clearly apparent from the context, the following phrases or terms shall have the following indicated meanings: 1.1 "Account Balance" shall mean, with respect to a Participant, a credit on the records of the Employer equal to the Deferral Account balance. The Account Balance, and each other specified account balance, shall be a bookkeeping entry only and shall be utilized solely as a device for the measurement and determination of the amounts to be paid to a Participant, or his or her designated Beneficiary, pursuant to this Plan. 1.2 "Annual Bonus" shall mean any compensation, in addition to Base Annual Salary relating to services performed during any calendar year, whether or not paid in such calendar year or included on the Federal Income Tax Form W-2 for such calendar year, payable to a Participant as an Employee under any Employer's annual bonus and cash incentive plans, excluding holiday bonuses, retention bonuses, or any other discretionary or special bonus or awards. 1.3 "Annual Deferral Amount" shall mean that portion of a Participant's Base Annual Salary and Annual Bonus that a Participant elects to have deferred, and is deferred, in accordance with Article 3, for any one Plan Year. In the event of a Participant's Retirement, Disability (if deferrals cease in accordance with Section 8.1), death or a Termination of Employment prior to the end of a Plan Year, such year's Annual Deferral Amount shall be the actual amount withheld prior to such event. 6 1.4 "Annual Installment Method" shall be an annual installment payment over the number of years selected by the Participant in accordance with this Plan, calculated as follows: The Account Balance of the Participant shall be calculated as of the close of business three business days prior to the last business day of the year. The annual installment shall be calculated by multiplying this balance by a fraction, the numerator of which is one, and the denominator of which is the remaining number of annual payments due the Participant. By way of example, if the Participant elects a 10 year Annual Installment Method, the first payment shall be 1/10 of the Account Balance, calculated as described in this definition. The following year, the payment shall be 1/9 of the Account Balance, calculated as described in this definition. Each annual installment shall be paid on or as soon as practicable after the last business day of the applicable year. 1.5 "Base Annual Salary" shall mean the annual cash compensation relating to services performed during any calendar year, whether or not paid in such calendar year or included on the Federal Income Tax Form W-2 for such calendar year, excluding bonuses of every type, commissions, overtime, fringe benefits, stock options, relocation expenses, incentive payments, non-monetary awards, directors fees and other fees, automobile and other allowances paid to a Participant for employment services rendered (whether or not such allowances are included in the Employee's gross income). Base Annual Salary shall be calculated before reduction for compensation voluntarily deferred or contributed by the Participant pursuant to all qualified or non-qualified plans of any Employer and shall be calculated to include amounts not otherwise included in the Participant's gross income under Code Sections 125, 402(e)(3), 402(h), or 403(b) pursuant to plans established by any Employer; provided, however, that all such amounts will be included in compensation only to the extent that, had there been no such plan, the amount would have been payable in cash to the Employee. 1.6 "Beneficiary" shall mean one or more persons, trusts, estates or other entities, designated in accordance with Article 9, that are entitled to receive benefits under this Plan upon the death of a Participant. 1.7 "Beneficiary Designation Form" shall mean the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to designate one or more Beneficiaries. 1.8 "Board" shall mean the Board of Directors of the Company. 1.9 "Change in Control" shall mean the first to occur of any of the following events: (a) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (as amended, the "Exchange Act")) (a "Person") of beneficial ownership -2- 7 (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of either (i) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); PROVIDED, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, (iv) any acquisition by John F. Cogan, Jr., or (v) any acquisition by any corporation pursuant to a transaction which complies with clauses (i) and (ii) of subsection (b) of this Section 1.9; or (b) the consummation of a reorganization, merger or consolidation involving the Company or a sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), unless, immediately following such Business Combination, each of the following three conditions is satisfied: (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company's assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the "Acquiring Corporation") in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively, (ii) no Person (excluding the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by the Company or the Acquiring Corporation) beneficially owns, directly or indirectly, 30% or more of the then outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding voting securities of such corporation (except to the extent that such ownership existed prior to the Business Combination) and (iii) a majority of the members of the board of directors of the Acquiring Corporation were Incumbent Directors at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or -3- 8 (c) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 1.10 "Claimant" shall have the meaning set forth in Section 14.1. 1.11 "Code" shall mean the Internal Revenue Code of 1986, as it may be amended from time to time. 1.12 "Committee" shall mean the committee described in Article 12. 1.13 "Company" shall mean The Pioneer Group, Inc., a Delaware corporation, and any successor to all or substantially all of the Company's assets or business. 1.14 "Deduction Limitation" shall mean the following described limitation on a benefit that may otherwise be distributable pursuant to the provisions of this Plan. Except as otherwise provided, this limitation shall be applied to all distributions that are "subject to the Deduction Limitation" under this Plan. If an Employer determines in good faith prior to a Change in Control that there is a reasonable likelihood that any compensation paid to a Participant for a taxable year of the Employer would not be deductible by the Employer solely by reason of the limitation under Code Section 162(m), then to the extent deemed necessary by the Employer to ensure that the entire amount of any distribution to the Participant pursuant to this Plan prior to the Change in Control is deductible, the Employer may defer all or any portion of a distribution under this Plan. Any amounts deferred pursuant to this limitation shall continue to be credited/debited with additional amounts in accordance with Section 3.7 below. The amounts so deferred and amounts credited thereon shall be distributed to the Participant or his or her Beneficiary (in the event of the Participant's death) at the earliest possible date, as determined by the Employer in good faith, on which the deductibility of compensation paid or payable to the Participant for the taxable year of the Employer during which the distribution is made will not be limited by Section 162(m), or if earlier, the effective date of a Change in Control. Notwithstanding anything to the contrary in this Plan, the Deduction Limitation shall not apply to any distributions made after a Change in Control. 1.15 "Deferral Account" shall mean (i) the sum of all of a Participant's Annual Deferral Amounts, plus (ii) amounts credited in accordance with all the applicable crediting provisions of this Plan that relate to the Participant's Deferral Account, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to his or her Deferral Account. 1.16 "Disability" shall mean a period of disability during which a Participant qualifies for disability benefits under the Participant's Employer's long-term disability plan, -4- 9 or, if a Participant does not participate in such a plan, a period of disability during which the Participant would have qualified for permanent disability benefits under such a plan had the Participant been a participant in such a plan, as determined in the sole discretion of the Committee. If the Participant's Employer does not sponsor such a plan, or discontinues to sponsor such a plan, Disability shall be determined by the Committee in its sole discretion. 1.17 "Disability Benefit" shall mean the benefit set forth in Article 8. 1.18 "Election Form" shall mean the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to make an election under the Plan. 1.19 "Employee" shall mean a person who is an employee of any Employer. 1.20 "Employer(s)" shall mean the Company and/or any of its subsidiaries (now in existence or hereafter formed or acquired) that have been selected by the Board or any authorized committee thereof to participate in the Plan and have adopted the Plan as a sponsor. 1.21 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as it may be amended from time to time. 1.22 "Participant" shall mean any Employee (i) who is selected to participate in the Plan, (ii) who elects to participate in the Plan, (iii) who signs a Plan Agreement, an Election Form and a Beneficiary Designation Form, (iv) whose signed Plan Agreement, Election Form and Beneficiary Designation Form are accepted by the Committee, (v) who commences participation in the Plan, and (vi) whose Plan Agreement has not terminated. A spouse or former spouse of a Participant shall not be treated as a Participant in the Plan or have an account balance under the Plan, even if he or she has an interest in the Participant's benefits under the Plan as a result of applicable law or property settlements resulting from legal separation or divorce. 1.23 "Plan" shall mean the Company's Deferred Compensation Plan, which shall be evidenced by this instrument and by each Plan Agreement, as they may be amended from time to time. 1.24 "Plan Agreement" shall mean a written agreement, as amended from time to time, which is entered into by and between an Employer and a Participant. Each Plan Agreement executed by a Participant and the Participant's Employer shall provide for the entire benefit to which such Participant is entitled under the Plan; should there be more than one Plan Agreement, the Plan Agreement bearing the latest date -5- 10 of acceptance by the Employer shall supersede all previous Plan Agreements in their entirety and shall govern such entitlement. The terms of any Plan Agreement may be different for any Participant, and any Plan Agreement may provide additional benefits not set forth in the Plan or limit the benefits otherwise provided under the Plan; provided, however, that any such additional benefits or benefit limitations must be agreed to by both the Employer and the Participant. 1.25 "Plan Year" shall mean a period beginning on January 1 of each calendar year and continuing through December 31 of such calendar year. 1.26 "Pre-Retirement Survivor Benefit" shall mean the benefit set forth in Article 6 for purposes of this Plan only. 1.27 "Retirement", "Retire(s)" or "Retired" shall mean, with respect to an Employee, severance from employment from all Employers for any reason other than a leave of absence, death or Disability on or after the earlier of the attainment of (a) age sixty-five (65) or (b) age fifty-five (55) with ten (10) Years of Service. The definition in this Section 1.27 shall not have any effect on any other plan maintained by the Employer. 1.28 "Retirement Benefit" shall mean the benefit set forth in Article 5. 1.29 "Short-Term Payout" shall mean the payout set forth in Section 4.1. 1.30 "Termination Benefit" shall mean the benefit set forth in Article 7. 1.31 "Termination of Employment" shall mean the severing of employment with all Employers, voluntarily or involuntarily, for any reason other than Retirement, Disability, death or an authorized leave of absence. 1.32 "Trust" shall mean one or more trusts established pursuant to one or more trust agreements between the Company and the trustee named therein, as amended from time to time. 1.33 "Unforeseeable Financial Emergency" shall mean an unanticipated emergency that is caused by an event beyond the control of the Participant that would result in severe financial hardship to the Participant resulting from (i) a sudden and unexpected illness or accident of the Participant or a dependent of the Participant, (ii) a loss of the Participant's property due to casualty, or (iii) such other extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, all as determined in the sole discretion of the Committee. -6- 11 ARTICLE 2 SELECTION, ENROLLMENT, ELIGIBILITY ---------------------------------- 2.1 SELECTION BY COMMITTEE. Participation in the Plan shall be limited to a select group of management and highly compensated Employees of the Employers, as determined by the Committee in its sole discretion. From that group, the Committee shall select, in its sole discretion, Employees to participate in the Plan. 2.2 ENROLLMENT REQUIREMENTS. As a condition to participation, each selected Employee shall complete, execute and return to the Committee a Plan Agreement, an Election Form and a Beneficiary Designation Form, all within 30 days after he or she is selected to participate in the Plan. In addition, the Committee shall establish from time to time such other enrollment requirements as it determines in its sole discretion are necessary. 2.3 ELIGIBILITY; COMMENCEMENT OF PARTICIPATION. Provided an Employee selected to participate in the Plan has met all enrollment requirements set forth in this Plan and required by the Committee, including returning all required documents to the Committee within the specified time period, that Employee shall commence participation in the Plan on the first day of the month following the month in which the Employee completes all enrollment requirements. If an Employee fails to meet all such requirements within the period required, in accordance with Section 2.2, that Employee shall not be eligible to participate in the Plan until the first day of the Plan Year following the delivery to and acceptance by the Committee of the required documents. 2.4 TERMINATION OF PARTICIPATION AND/OR DEFERRALS. If the Committee determines in good faith that a Participant no longer qualifies as a member of a select group of management or highly compensated employees, as membership in such group is determined in accordance with Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA, the Committee shall have the right, in its sole discretion, to (i) terminate any deferral election the Participant has made for the remainder of the Plan Year in which the Participant's membership status changes, (ii) prevent the Participant from making future deferral elections and/or (iii) immediately distribute the Participant's then Account Balance as a Termination Benefit and terminate the Participant's participation in the Plan. ARTICLE 3 DEFERRAL COMMITMENTS/CREDITING/TAXES ------------------------------------ 3.1 MINIMUM DEFERRALS. -7- 12 (a) BASE ANNUAL SALARY AND ANNUAL BONUS. For each Plan Year, a Participant may elect to defer, as his or her Annual Deferral Amount, part or all of the Participant's Base Annual Salary and/or Annual Bonus, provided that the total amount deferred for a Plan Year must be at least $10,000. The Committee may in its sole discretion increase or decrease the minimum deferral amount at any time or from time to time. If an election is made for less than the applicable minimum amount, or if no election is made, the amount deferred shall be zero. 3.2 MAXIMUM DEFERRAL (a) BASE ANNUAL SALARY AND ANNUAL BONUS. For each Plan Year, a Participant may elect to defer, as his or her Annual Deferral Amount, part or all of the Participant's Base Annual Salary and/or Annual Bonus up to the following maximum percentages for each deferral elected: Maximum Deferral Amount -------- ------ Base Annual Salary 50% Annual Bonus 100% Notwithstanding the foregoing, if a Participant first becomes a Participant after the first day of a Plan Year, or in the case of the first Plan Year of the Plan itself, the amount of the Base Annual Salary and/or Annual Bonus which may be deferred shall be limited to the amount of compensation not yet earned by the Participant as of the date the Participant submits a Plan Agreement and Election Form to the Committee for acceptance. The preceding sentence is not intended to limit any deferral accepted under other arrangements sponsored by the Company pursuant to Section 3.11. An election to defer Base Annual Salary and/or Annual Bonus may be expressed as an election to defer (i) a specific percentage, (ii) a specific dollar amount or (iii) the excess over a specified dollar amount. -8- 13 3.3 ELECTION TO DEFER; EFFECT OF ELECTION FORM. For each Plan Year other than the Plan Year beginning in 1998, an irrevocable deferral election for that Plan Year, and such other elections as the Committee deems necessary or desirable under the Plan, shall be made by timely delivering to the Committee, in accordance with its rules and procedures, before the end of the Plan Year preceding the Plan Year for which the election is made, a new Election Form; provided, however, that election to defer an Annual Bonus to be paid for a Plan Year may be made up to June 30 of such Plan Year. Deferral elections for the 1998 Plan Year must be made no later than 30 days after a participant is notified that he or she is eligible to Participate in the Plan. Deferral elections for the Plan Year in which a Participant first becomes a participant shall be made within 30 days after becoming a participant. If no such Election Form is timely delivered for a Plan Year, the Annual Deferral Amount shall be zero for that Plan Year. 3.4 WITHHOLDING OF ANNUAL DEFERRAL AMOUNTS. For each Plan Year, the Base Annual Salary portion of the Annual Deferral Amount shall be withheld from each regularly scheduled Base Annual Salary payroll in equal amounts, as adjusted from time to time for increases and decreases in Base Annual Salary. The Annual Bonus portion of the Annual Deferral Amount shall be withheld at the time the Annual Bonus is or otherwise would be paid to the Participant, whether or not this occurs during the Plan Year itself. No withholding shall be permitted within twelve months after the Participant has received a hardship distribution from The Pioneer Group, Inc. 401(k) Plan. 3.5 INVESTMENT OF TRUST ASSETS. The Trustee of the Trust shall be authorized, upon written instructions received from the Committee or investment manager appointed by the Committee, to invest and reinvest the assets of the Trust in accordance with the applicable Trust Agreement, including the disposition of stock and reinvestment of the proceeds in one or more investment vehicles designated by the Committee. 3.6 VESTING. A Participant shall at all times be 100% vested in his or her Deferral Account. 3.7 CREDITING/DEBITING OF ACCOUNT BALANCES. In accordance with, and subject to, the rules and procedures that are established from time to time by the Committee, in its sole discretion, amounts shall be credited or debited to a Participant's Account Balance in accordance with the following rules: (a) ELECTION OF MEASUREMENT FUNDS. A Participant, in connection with his or her initial deferral election in accordance with Section 3.2(a) above, shall elect, on the Election Form, one or more Measurement Fund(s) (as described in Section 3.7(c) below) to be used to determine the additional -9- 14 amounts to be credited to his or her Account Balance for the first calendar quarter or portion thereof in which the Participant commences participation in the Plan and continuing thereafter for each subsequent calendar quarter in which the Participant participates in the Plan, unless changed in accordance with the next sentence. Commencing with the first calendar quarter that follows the Participant's commencement of participation in the Plan and continuing thereafter for each subsequent calendar quarter in which the Participant participates in the Plan, no later than the next to last business day of the calendar quarter, the Participant may (but is not required to) elect, by submitting an Election Form to the Committee that is accepted by the Committee, to add or delete one or more Measurement Fund(s) to be used to determine the additional amounts to be credited to his or her Account Balance, or to change the portion of his or her Account Balance allocated to each previously or newly elected Measurement Fund. If an election is made in accordance with the previous sentence, it shall apply to the next calendar quarter and continue thereafter for each subsequent calendar quarter in which the Participant participates in the Plan, unless changed in accordance with the previous sentence. The Committee may permit changes to be made more frequently than quarterly and may permit changes to be made telephonically, in either case, pursuant to such procedures as the Committee may adopt from time to time. (b) PROPORTIONATE ALLOCATION. In making any election described in Section 3.7(a) above, the Participant shall specify on the Election Form, in increments of one percentage point (1%), the percentage of his or her Account Balance to be allocated to a Measurement Fund (as if the Participant was making an investment in that Measurement Fund with that portion of his or her Account Balance). (c) MEASUREMENT FUNDS. The Participant may elect one or more of the following measurement funds set forth on Schedule A. As necessary, the Committee may, in its sole discretion, discontinue, substitute or add a Measurement Fund. Each such action will take effect as of the first day of the calendar quarter that follows by thirty (30) days the day on which the Committee gives Participants advance written notice of such change. (d) CREDITING OR DEBITING METHOD. Subject to charges for administrative expenses as provided in Section 3.7(f), the performance of each elected Measurement Fund (either positive or negative) will be determined by the Committee, in its sole discretion, based on the performance of the Measurement Funds themselves. A Participant's Account Balance shall be credited or debited on a daily basis based on the performance of each -10- 15 Measurement Fund selected by the Participant, AS DETERMINED BY THE COMMITTEE IN ITS SOLE DISCRETION, as though (i) a Participant's Account Balance were invested in the Measurement Fund(s) selected by the Participant, in the percentages applicable to such calendar quarter, as of the close of business on the first business day of such calendar quarter, at the closing price on such date; (ii) the portion of the Annual Deferral Amount that was actually deferred during any calendar quarter were invested in the Measurement Fund(s) selected by the Participant, in the percentages applicable to such calendar quarter, no later than the close of business on the third business day after the day on which such amounts are actually deferred from the Participant's Base Annual Salary through reductions in his or her payroll, at the closing price on such date; and (iii) any distribution made to a Participant that decreases such Participant's Account Balance ceased being invested in the Measurement Fund(s), in the percentages applicable to such calendar quarter, no earlier than three business days prior to the distribution, at the closing price on such date. (e) NO ACTUAL INVESTMENT. Notwithstanding any other provision of this Plan that may be interpreted to the contrary, the Measurement Funds are to be used for measurement purposes only, and a Participant's election of any such Measurement Fund, the allocation to his or her Account Balance thereto, the calculation of additional amounts and the crediting or debiting of such amounts to a Participant's Account Balance SHALL NOT be considered or construed in any manner as an actual investment of his or her Account Balance in any such Measurement Fund. In the event that the Company or the Trustee (as that term is defined in the Trust), in its own discretion, decides to invest funds in any or all of the Measurement Funds, no Participant shall have any rights in or to such investments themselves. Without limiting the foregoing, a Participant's Account Balance shall at all times be a bookkeeping entry only and shall not represent any investment made on his or her behalf by the Company or the Trust. (f) EXPENSES. The Account Balance of each Participant shall be debited by the amount of the reasonable administrative expenses of the Plan in the same proportion that the Participant's Account Balance bears to the total Account Balances of all Participants. 3.8 FICA AND OTHER TAXES. For each Plan Year in which an Annual Deferral Amount is being withheld from a Participant, the Participant's Employer(s) shall withhold from that portion of the Participant's Base Annual Salary and Bonus that is not being deferred, in a manner determined by the Employer(s), the -11- 16 Participant's share of FICA and other employment taxes on such Annual Deferral Amount. If necessary, the Committee may reduce the Annual Deferral Amount in order to comply with this Section 3.8. 3.9 DISTRIBUTIONS. The Participant's Employer(s), or the trustee of the Trust, shall withhold from any payments made to a Participant under this Plan all federal, state and local income, employment and other taxes required to be withheld by the Employer(s), or the trustee of the Trust, in connection with such payments, in amounts and in a manner to be determined in the sole discretion of the Employer(s) and the trustee of the Trust. 3.10 EMPLOYER DEFERRAL. If an Employer determines in good faith prior to a Change in Control that there is a reasonable likelihood that any compensation paid to a Participant for a taxable year would not be deductible by the Employer solely by reason of the limitation under Code Section 162(m), then to the extent deemed necessary by the Employer to ensure that all of the compensation payable to the Participant prior to the Change in Control is deductible, the Employer may reduce the Participant's Base Annual Salary and/or Annual Bonus and treat the amount of such reduction as an amount deferred by the Participant. The amount so deferred and amounts credited thereon shall be distributed to the Participant (or his or her Beneficiary in the event of the Participant's death) at the earliest possible date, as determined by the Employer in good faith, on which the deductibility of compensation paid or payable to the Participant for the taxable year of the Employer during which the distribution is made will not be limited by Section 162(m), or if earlier, the effective date of a Change in Control. No deferrals may be made under this Section 3.10 after the effective date of a Change in Control. For purposes of this Section 3.10 only, the term "Participant" shall mean any Employee who has been selected to participate in the Plan. 3.11 DEFERRALS FROM OTHER PLANS. The Plan may accept the transfer of amounts or assets deferred by a Participant under any other deferral arrangement provided by the Company, including without limitation any shares of common stock of the Employer which but for such deferral would (i) be issued to the Participant upon the exercise of a stock option granted by the Company or (ii) be vested and nonforfeitable in the case of restricted stock issued to the Participant. Any amounts deferred representing shares of Company common stock shall be accounted for on a share by share basis, with appropriate adjustments to reflect changes in the capital structure of the Company, and shall, when distributed, be distributed in the form of common stock of the Company. Notwithstanding any of the provisions of the Plan to the contrary, the Participant shall not have any right to elect to have any amounts deferred in the form of Company common stock measured by reference to any Measurement Fund. -12- 17 ARTICLE 4 SHORT-TERM PAYOUT; UNFORESEEABLE FINANCIAL EMERGENCIES; WITHDRAWAL ELECTION ------------------- 4.1 SHORT-TERM PAYOUT. In connection with each election to defer an Annual Deferral Amount, a Participant may irrevocably elect to receive a future "Short-Term Payout" from the Plan with respect to such Annual Deferral Amount. Subject to the Deduction Limitation, the Short-Term Payout shall be a lump sum payment in an amount that is equal to the Annual Deferral Amount plus amounts credited or debited in the manner provided in Section 3.7 above on that amount, determined at the time that the Short-Term Payout becomes payable (rather than the date of a Termination of Employment). Subject to the Deduction Limitation and the other terms and conditions of this Plan, each Short-Term Payout elected shall be paid out during a period beginning 1 day and ending 60 days after the last day of any Plan Year designated by the Participant that is at least three Plan Years after the Plan Year in which the Annual Deferral Amount is actually deferred. By way of example, if a three year Short-Term Payout is elected for Annual Deferral Amounts that are deferred in the Plan Year commencing January 1, 1998, the three year Short-Term Payout would become payable during a 60 day period commencing January 1, 2002. 4.2 OTHER BENEFITS TAKE PRECEDENCE OVER SHORT-TERM PAYOUT. Should an event occur that triggers a benefit under Article 5, 6, 7 or 8, any Annual Deferral Amount, plus amounts credited or debited thereon, that is subject to a Short-Term Payout election under Section 4.1 shall not be paid in accordance with Section 4.1 but shall instead be paid in accordance with the other applicable Article. 4.3 WITHDRAWAL PAYOUT/SUSPENSIONS FOR UNFORESEEABLE FINANCIAL EMERGENCIES. If the Participant experiences an Unforeseeable Financial Emergency, the Participant may petition the Committee to (i) suspend any deferrals required to be made by a Participant and/or (ii) receive a partial or full payout from the Plan. The payout shall not exceed the lesser of the Participant's Account Balance, calculated as if such Participant were receiving a Termination Benefit, or the amount reasonably needed to satisfy the Unforeseeable Financial Emergency as determined by the Committee. If, subject to the sole discretion of the Committee, the petition for a suspension and/or payout is approved, suspension shall take effect upon the date of approval and any payout shall be made within 60 days of the date of approval. The payment of any amount under this Section 4.3 shall not be subject to the Deduction Limitation or any withdrawal penalty. -13- 18 4.4 WITHDRAWAL ELECTION. A Participant (or, after a Participant's death, his or her Beneficiary) may elect, at any time, to withdraw all of his or her Account Balance, calculated as if there had occurred a Termination of Employment as of the day of the election, less a withdrawal penalty equal to 10% of such amount (the net amount shall be referred to as the "Withdrawal Amount"). This election can be made at any time, before or after Retirement, Disability, death or Termination of Employment, and whether or not the Participant (or Beneficiary) is in the process of being paid pursuant to an installment payment schedule. If made before Retirement, Disability or death, a Participant's Withdrawal Amount shall be his or her Account Balance calculated as if there had occurred a Termination of Employment as of the day of the election. No partial withdrawals of the Withdrawal Amount shall be allowed. The Participant (or his or her Beneficiary) shall make this election by giving the Committee advance written notice of the election in a form determined from time to time by the Committee. The Participant (or his or her Beneficiary) shall be paid the Withdrawal Amount within 60 days of his or her election. Once the Withdrawal Amount is paid, the Participant's participation in the Plan shall terminate and the Participant shall not be eligible to participate in the Plan until the next enrollment period which is at least 12 months after the date of withdrawal. The payment of this Withdrawal Amount shall not be subject to the Deduction Limitation. ARTICLE 5 RETIREMENT BENEFIT ------------------ 5.1 RETIREMENT BENEFIT. Subject to the Deduction Limitation, a Participant who Retires shall receive, as a Retirement Benefit, his or her Account Balance. 5.2 PAYMENT OF RETIREMENT BENEFIT. A Participant, in connection with his or her commencement of participation in the Plan, shall elect on an Election Form to receive the Retirement Benefit in a lump sum or pursuant to an Annual Installment Method of from 2 to 10 years. The Participant may annually change his or her election to an allowable alternative payout period by submitting a new Election Form to the Committee, provided that any such Election Form is submitted at least one year prior to the Participant's Retirement and is accepted by the Committee in its sole discretion. The Election Form most recently accepted by the Committee shall govern the payout of the Retirement Benefit. If a Participant does not make any election with respect to the payment of the Retirement Benefit, then such benefit shall be payable in a lump sum. The lump sum payment shall be made, or installment payments shall commence, no later than 60 days after the date the Participant Retires or at such later date as the Participant may designate on a timely filed Election form. Any payment made shall be subject to the Deduction Limitation. -14- 19 5.3 DEATH PRIOR TO COMPLETION OF RETIREMENT BENEFIT. If a Participant dies after Retirement but before the Retirement Benefit is paid in full, the Participant's unpaid Retirement Benefit payments shall continue and shall be paid to the Participant's Beneficiary (a) over the remaining number of months and in the same amounts as that benefit would have been paid to the Participant had the Participant survived, or (b) in a lump sum, if requested by the Beneficiary and allowed in the sole discretion of the Committee, that is equal to the Participant's unpaid remaining Account Balance. ARTICLE 6 PRE-RETIREMENT SURVIVOR BENEFIT ------------------------------- 6.1 PRE-RETIREMENT SURVIVOR BENEFIT. Subject to the Deduction Limitation, the Participant's Beneficiary shall receive a Pre-Retirement Survivor Benefit equal to the Participant's Account Balance if the Participant dies before he or she Retires, experiences a Termination of Employment or suffers a Disability. 6.2 PAYMENT OF PRE-RETIREMENT SURVIVOR BENEFIT. Payment of the Pre-Retirement Survivor Benefit shall be made in a lump sum. The lump sum payment shall be made no later than 60 days after the date the Committee is provided with proof that is satisfactory to the Committee of the Participant's death. Any payment made shall be subject to the Deduction Limitation. ARTICLE 7 TERMINATION BENEFIT ------------------- 7.1 TERMINATION BENEFIT. Subject to the Deduction Limitation, the Participant shall receive a Termination Benefit, which shall be equal to the Participant's Account Balance, if a Participant experiences a Termination of Employment prior to his or her Retirement, death or Disability. 7.2 PAYMENT OF TERMINATION BENEFIT. Payment of the Participant's Termination Benefit shall be made in a lump sum. The lump sum payment shall be made no later than 60 days after the date of the Participant's Termination of Employment. Any payment made shall be subject to the Deduction Limitation. ARTICLE 8 DISABILITY WAIVER AND BENEFIT ----------------------------- -15- 20 8.1 DISABILITY WAIVER. (a) WAIVER OF DEFERRAL. A Participant who is determined by the Committee to be suffering from a Disability shall be excused from fulfilling that portion of the Annual Deferral Amount commitment that would otherwise have been withheld from a Participant's Base Annual Salary and Annual Bonus for the Plan Year during which the Participant first suffers a Disability. During the period of Disability, the Participant shall not be allowed to make any additional deferral elections, but will continue to be considered a Participant for all other purposes of this Plan. (b) RETURN TO WORK. If a Participant returns to employment with an Employer after a Disability ceases, the Participant may elect to defer an Annual Deferral Amount for the Plan Year following his or her return to employment or service and for every Plan Year thereafter while a Participant in the Plan; provided such deferral elections are otherwise allowed and an Election Form is delivered to and accepted by the Committee for each such election in accordance with Section 3.3 above. 8.2 CONTINUED ELIGIBILITY; DISABILITY BENEFIT. A Participant suffering a Disability shall, for benefit purposes under this Plan, continue to be considered to be employed and shall be eligible for the benefits provided for in Articles 4, 5, 6 or 7 in accordance with the provisions of those Articles. Notwithstanding the foregoing, the Committee shall have the right to, in its sole and absolute discretion and for purposes of this Plan only, and must in the case of a Participant who is otherwise eligible to Retire, deem the Participant to have experienced a Termination of Employment, or in the case of a Participant who is eligible to Retire, to have Retired, at any time (or in the case of a Participant who is eligible to Retire, as soon as practicable) after such Participant is determined to be suffering a Disability, in which case the Participant shall receive a Disability Benefit equal to his or her Account Balance at the time of the Committee's determination; provided, however, that should the Participant otherwise have been eligible to Retire, he or she shall be paid in accordance with Article 5. The Disability Benefit shall be paid in a lump sum within 60 days of the Committee's exercise of such right. Any payment made shall be subject to the Deduction Limitation. ARTICLE 9 BENEFICIARY DESIGNATION ----------------------- 9.1 BENEFICIARY. Each Participant shall have the right, at any time, to designate his or her Beneficiary(ies) (both primary as well as contingent) to receive any benefits payable under the Plan to a beneficiary upon the death of a Participant. The -16- 21 Beneficiary designated under this Plan may be the same as or different from the Beneficiary designation under any other plan of an Employer in which the Participant participates. 9.2 BENEFICIARY DESIGNATION; CHANGE. A Participant shall designate his or her Beneficiary by completing and signing the Beneficiary Designation Form, and returning it to the Committee or its designated agent. A Participant shall have the right to change a Beneficiary by completing, signing and otherwise complying with the terms of the Beneficiary Designation Form and the Committee's rules and procedures, as in effect from time to time. Upon the acceptance by the Committee of a new Beneficiary Designation Form, all Beneficiary designations previously filed shall be canceled. The Committee shall be entitled to rely on the last Beneficiary Designation Form filed by the Participant and accepted by the Committee prior to his or her death. 9.3 ACKNOWLEDGMENT. No designation or change in designation of a Beneficiary shall be effective until received in writing and acknowledged in writing by the Committee or its designated agent. 9.4 NO BENEFICIARY DESIGNATION. If a Participant fails to designate a Beneficiary as provided in Sections 9.1, 9.2 and 9.3 above, or if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant's benefits, then the Participant's designated Beneficiary shall be deemed to be his or her surviving spouse. If the Participant has no surviving spouse, the benefits remaining under the Plan to be paid to a Beneficiary shall be payable to the then living issue of the Participant per stirpes and, if there is no such issue, to the executor or personal representative of the Participant's estate. 9.5 DOUBT AS TO BENEFICIARY. If the Committee has any doubt as to the proper Beneficiary to receive payments pursuant to this Plan, the Committee shall have the right, exercisable in its discretion, to cause the Participant's Employer to withhold such payments until this matter is resolved to the Committee's satisfaction. 9.6 DISCHARGE OF OBLIGATIONS. The payment of benefits under the Plan to a Beneficiary shall fully and completely discharge all Employers and the Committee from all further obligations under this Plan with respect to the Participant, and that Participant's Plan Agreement shall terminate upon such full payment of benefits. ARTICLE 10 LEAVE OF ABSENCE ---------------- -17- 22 10.1 PAID LEAVE OF ABSENCE. If a Participant is authorized by the Participant's Employer for any reason to take a paid leave of absence from the employment of the Employer, the Participant shall continue to be considered employed by the Employer and the Annual Deferral Amount shall continue to be withheld during such paid leave of absence in accordance with Section 3.4. 10.2 UNPAID LEAVE OF ABSENCE. If a Participant is authorized by the Participant's Employer for any reason to take an unpaid leave of absence from the employment of the Employer, the Participant shall continue to be considered employed by the Employer and the Participant shall be excused from making deferrals until the earlier of the date the leave of absence expires or the Participant returns to a paid employment status. Upon such expiration or return, deferrals shall resume for the remaining portion of the Plan Year in which the expiration or return occurs, based on the deferral election, if any, made for that Plan Year. If no election was made for that Plan Year, no deferral shall be withheld. ARTICLE 11 TERMINATION, AMENDMENT OR MODIFICATION -------------------------------------- 11.1 TERMINATION. Although each Employer anticipates that it will continue the Plan for an indefinite period of time, there is no guarantee that any Employer will continue the Plan or will not terminate the Plan at any time in the future. Accordingly, each Employer reserves the right to discontinue its sponsorship of the Plan and/or to terminate the Plan at any time with respect to any or all of its participating Employees, by action of its board of directors or any duly authorized committee thereof. Notwithstanding any provision of this Plan to the contrary, the Plan shall terminate automatically upon the occurrence of a Change in Control without the necessity of any action by any Employer. Upon the termination of the Plan with respect to any Employer, the Plan Agreements of the affected Participants who are employed by that Employer shall terminate and their Account Balances, determined as if they had experienced a Termination of Employment on the date of Plan termination, or if Plan termination occurs after the date upon which a Participant was eligible to Retire, then with respect to that Participant as if he or she had Retired on the date of Plan termination, shall be paid to the Participants as follows: Prior to a Change in Control, if the Plan is terminated with respect to all of its Participants, an Employer shall have the right, in its sole discretion, and notwithstanding any elections made by the Participant, to pay such benefits in a lump sum or pursuant to an Annual Installment Method of up to 10 years, with amounts credited and debited during the installment period as provided herein. If the Plan is terminated with respect to less than all of its Participants, an Employer shall be required to pay such benefits in a lump sum. After a Change in Control, the Employer shall be required to pay such benefits in a lump sum. The -18- 23 termination of the Plan shall not adversely affect any Participant or Beneficiary who has become entitled to the payment of any benefits under the Plan as of the date of termination; provided, however, that the Employer shall have the right to accelerate installment payments without a premium or prepayment penalty by paying the Account Balance in a lump sum or pursuant to an Annual Installment Method using fewer years. 11.2 AMENDMENT. Any Employer may, at any time, amend or modify the Plan in whole or in part with respect to that Employer by the action of its board of directors or any duly authorized committee thereof; provided, however, that no amendment or modification shall be effective to decrease or restrict the value of a Participant's Account Balance in existence at the time the amendment or modification is made, calculated as if the Participant had experienced a Termination of Employment as of the effective date of the amendment or modification or, if the amendment or modification occurs after the date upon which the Participant was eligible to Retire, the Participant had Retired as of the effective date of the amendment or modification. The amendment or modification of the Plan shall not affect any Participant or Beneficiary who has become entitled to the payment of benefits under the Plan as of the date of the amendment or modification; provided, however, that the Employer shall have the right to accelerate installment payments by paying the Account Balance in a lump sum or pursuant to an Annual Installment Method using fewer years. 11.3 PLAN AGREEMENT. Despite the provisions of Sections 11.1 and 11.2 above, if a Participant's Plan Agreement contains benefits or limitations that are not in this Plan document, the Employer may only amend or terminate such provisions with the consent of the Participant. 11.4 EFFECT OF PAYMENT. The full payment of the applicable benefit under Articles 4, 5, 6, 7 or 8 of the Plan shall completely discharge all obligations to a Participant and his or her designated Beneficiaries under this Plan and the Participant's Plan Agreement shall terminate. ARTICLE 12 ADMINISTRATION -------------- 12.1 COMMITTEE DUTIES. This Plan shall be administered by a Committee which shall consist of the Compensation Committee of the Board, or such other committee as the Board shall appoint. Members of the Committee may be Participants under this Plan. The Committee shall also have the complete discretion and authority to (i) make, amend, interpret, and enforce all appropriate rules and regulations for the administration of this Plan and (ii) decide or resolve any and all questions including -19- 24 interpretations of this Plan, as may arise in connection with the Plan. Any individual serving on the Committee who is a Participant shall not vote or act on any matter relating solely to himself or herself. When making a determination or calculation, the Committee shall be entitled to rely on information furnished by a Participant or the Company. 12.2 AGENTS. In the administration of this Plan, the Committee may, from time to time, employ agents and delegate to them such administrative duties as it sees fit (including acting through a duly appointed representative) and may from time to time consult with counsel who may be counsel to any Employer. 12.3 BINDING EFFECT OF DECISIONS. The decision or action of the Committee with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in the Plan. 12.4 INDEMNITY OF COMMITTEE. All Employers shall indemnify and hold harmless the members of the Committee, and any Employee to whom the duties of the Committee may be delegated, against any and all claims, losses, damages, expenses or liabilities arising from any action or failure to act with respect to this Plan, except in the case of willful misconduct by the Committee or any of its members or any such Employee. 12.5 EMPLOYER INFORMATION. To enable the Committee to perform its functions, each Employer shall supply full and timely information to the Committee on all matters relating to the compensation of its Participants, the date and circumstances of the Retirement, Disability, death or Termination of Employment of its Participants, and such other pertinent information as the Committee may reasonably require. 12.6 MULTIPLE COMMITTEES. The Board may divide the duties of the Committee among more than one Committee. If more than one Committee is established, the Board shall designate the scope of authority of each such Committee. Each such Committee shall have all the powers and privileges set forth above subject only to any limitations on the scope of its authority imposed by the Board. -20- 25 ARTICLE 13 OTHER BENEFITS AND AGREEMENTS ----------------------------- 13.1 COORDINATION WITH OTHER BENEFITS. The benefits provided for a Participant and such Participant's Beneficiary under the Plan are in addition to any other benefits available to such Participant under any other plan or program for employees of the Participant's Employer. The Plan shall supplement and shall not supersede, modify or amend any other such plan or program except as may otherwise be expressly provided. ARTICLE 14 CLAIMS PROCEDURES ----------------- 14.1 PRESENTATION OF CLAIM. Any Participant or Beneficiary of a deceased Participant (such Participant or Beneficiary being referred to below as a "Claimant") may deliver to the Committee a written claim for a determination with respect to the amounts distributable to such Claimant from the Plan. If such a claim relates to the contents of a notice received by the Claimant, the claim must be made within 60 days after such notice was received by the Claimant. All other claims must be made within 180 days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the Claimant. 14.2 NOTIFICATION OF DECISION. The Committee shall consider a Claimant's claim within a reasonable time, and shall notify the Claimant in writing: (a) that the Claimant's requested determination has been made, and that the claim has been allowed in full; or (b) that the Committee has reached a conclusion contrary, in whole or in part, to the Claimant's requested determination, in which case such notice must also be set forth in a manner calculated to be understood by the Claimant: 1. the specific reason(s) for the denial of the claim, or any part thereof; 2. specific reference(s) to pertinent provisions of the Plan upon which such denial was based; 3. a description of any additional material or information necessary for the Claimant to perfect the claim, and an explanation of why such material or information is necessary; and -21- 26 4. an explanation of the claim review procedure set forth in Section 14.3 below. 14.3 REVIEW OF A DENIED CLAIM. Within 60 days after receiving a notice from the Committee that a claim has been denied, in whole or in part, a Claimant (or the Claimant's duly authorized representative) may file with the Committee a written request for a review of the denial of the claim. Thereafter, but not later than 30 days after the review procedure began, the Claimant (or the Claimant's duly authorized representative): (a) may review pertinent documents; (b) may submit written comments or other documents; and/or (c) may request a hearing, which the Committee, in its sole discretion, may grant. 14.4 DECISION ON REVIEW. The Committee shall render its decision on review promptly, and not later than 60 days after the filing of a written request for review of the denial, unless a hearing is held or other special circumstances require additional time, in which case the Committee's decision must be rendered within 120 days after such date. Such decision must be written in a manner calculated to be understood by the Claimant, and it must contain: A. specific reasons for the decision; B. specific reference(s) to the pertinent Plan provisions upon which the decision was based; and C. such other matters as the Committee deems relevant. 14.5 LEGAL ACTION. A Claimant's compliance with the foregoing provisions of this Article 14 is a mandatory prerequisite to a Claimant's right to commence any legal action with respect to any claim for benefits under this Plan. -22- 27 ARTICLE 15 TRUST ----- 15.1 ESTABLISHMENT OF THE TRUST. The Company shall establish the Trust, and each Employer shall at least annually transfer over to the Trust such assets as the Employer determines, in its sole discretion, are necessary to provide, on a present value basis, for its respective future liabilities created with respect to the Annual Deferral Amounts for such Employer's Participants for all periods prior to the transfer, as well as any debits and credits to the Participants' Account Balances for all periods prior to the transfer, taking into consideration the value of the assets in the trust at the time of the transfer. 15.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST. The provisions of the Plan and the Plan Agreement shall govern the rights of a Participant to receive distributions pursuant to the Plan. The provisions of the Trust shall govern the rights of the Employers, Participants and the creditors of the Employers to the assets transferred to the Trust. Each Employer shall at all times remain liable to carry out its obligations under the Plan. 15.3 DISTRIBUTIONS FROM THE TRUST. Each Employer's obligations under the Plan may be satisfied with Trust assets distributed pursuant to the terms of the Trust, and any such distribution shall reduce the Employer's obligations under this Plan. ARTICLE 16 MISCELLANEOUS ------------- 16.1 STATUS OF PLAN. The Plan is intended to be a plan that is not qualified within the meaning of Code Section 401(a) and that "is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees" within the meaning of ERISA Sections 201(2), 301(a)(3) and 401(a)(1). The Plan shall be administered and interpreted to the extent possible in a manner consistent with that intent. 16.2 UNSECURED GENERAL CREDITOR. Participants and their Beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, interests or claims in any property or assets of an Employer. For purposes of the payment of benefits under this Plan, any and all of an Employer's assets shall be, and remain, the general, unpledged unrestricted assets of the Employer. An Employer's obligation under the Plan shall be merely that of an unfunded and unsecured promise to pay money in the future. -23- 28 16.3 EMPLOYER'S LIABILITY. An Employer's liability for the payment of benefits shall be defined only by the Plan and the Plan Agreement, as entered into between the Employer and a Participant. An Employer shall have no obligation to a Participant under the Plan except as expressly provided in the Plan and his or her Plan Agreement. 16.4 NONASSIGNABILITY. Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate, alienate or convey in advance of actual receipt, the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are expressly declared to be, unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure, attachment, garnishment or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency or be transferable to a spouse as a result of a property settlement or otherwise. 16.5 NOT A CONTRACT OF EMPLOYMENT. The terms and conditions of this Plan shall not be deemed to constitute a contract of employment between any Employer and the Participant. Such employment is hereby acknowledged to be an "at will" employment relationship that can be terminated at any time for any reason, or no reason, with or without cause, and with or without notice, unless otherwise expressly provided in a written employment agreement. Nothing in this Plan shall be deemed to give a Participant the right to be retained in the service of any Employer or to interfere with the right of any Employer to discipline or discharge the Participant at any time. 16.6 FURNISHING INFORMATION. A Participant or his or her Beneficiary will cooperate with the Committee by furnishing any and all information requested by the Committee and take such other actions as may be requested in order to facilitate the administration of the Plan and the payments of benefits hereunder, including but not limited to taking such physical examinations as the Committee may deem necessary. 16.7 TERMS. Whenever any words are used herein in the masculine, they shall be construed as though they were in the feminine in all cases where they would so apply; and whenever any words are used herein in the singular or in the plural, they shall be construed as though they were used in the plural or the singular, as the case may be, in all cases where they would so apply. -24- 29 16.8 CAPTIONS. The captions of the articles, sections and paragraphs of this Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions. 16.9 GOVERNING LAW. Subject to ERISA, the provisions of this Plan shall be construed and interpreted according to the internal laws of the Commonwealth of Massachusetts without regard to its conflicts of laws principles. 16.10 NOTICE. Any notice or filing required or permitted to be given to the Committee under this Plan shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail, to the address below: Deferred Compensation Committee The Pioneer Group, Inc. 60 State Street Boston, MA 02109 Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Any notice or filing required or permitted to be given to a Participant under this Plan shall be sufficient if in writing and hand-delivered, or sent by mail, to the last known address of the Participant. 16.11 SUCCESSORS. The provisions of this Plan shall bind and inure to the benefit of the Participant's Employer and its successors and assigns and the Participant and the Participant's designated Beneficiaries. 16.12 VALIDITY. In case any provision of this Plan shall be illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal or invalid provision had never been inserted herein. 16.13 INCOMPETENT. If the Committee determines in its discretion that a benefit under this Plan is to be paid to a minor, a person declared incompetent or to a person incapable of handling the disposition of that person's property, the Committee may direct payment of such benefit to the guardian, legal representative or person having the care and custody of such minor, incompetent or incapable person. The Committee may require proof of minority, incompetence, incapacity or guardianship, as it may deem appropriate prior to distribution of the benefit. Any payment of a benefit shall be a payment for the account of the Participant and the -25- 30 Participant's Beneficiary, as the case may be, and shall be a complete discharge of any liability under the Plan for such payment amount. 16.14 DISTRIBUTION IN THE EVENT OF TAXATION. (a) IN GENERAL. If, for any reason, all or any portion of a Participant's benefits under this Plan becomes taxable to the Participant prior to receipt, a Participant may petition the Committee before a Change in Control, or the trustee of the Trust after a Change in Control, for a distribution of that portion of his or her benefit that has become taxable. Upon the grant of such a petition, which grant shall not be unreasonably withheld (and, after a Change in Control, shall be granted), a Participant's Employer shall distribute to the Participant immediately available funds in an amount equal to the taxable portion of his or her benefit (which amount shall not exceed a Participant's unpaid Account Balance under the Plan). If the petition is granted, the tax liability distribution shall be made within 90 days of the date when the Participant's petition is granted. Such a distribution shall affect and reduce the benefits to be paid under this Plan. (b) TRUST. If the Trust terminates in accordance with Section 3.6(e) of the Trust and benefits are distributed from the Trust to a Participant in accordance with that Section, the Participant's benefits under this Plan shall be reduced to the extent of such distributions. 16.15 INSURANCE. The Employers, on their own behalf or on behalf of the trustee of the Trust, in their sole discretion, may apply for and procure insurance on the life of the Participant, in such amounts and in such forms as the Trust may choose. The Employers or the trustee of the Trust, as the case may be, shall be the sole owner and beneficiary of any such insurance. The Participant shall have no interest whatsoever in any such policy or policies, and at the request of the Employers shall submit to medical examinations and supply such information and execute such documents as may be required by the insurance company or companies to whom the Employers have applied for insurance. 16.16 LEGAL FEES TO ENFORCE RIGHTS AFTER CHANGE IN CONTROL. The Company and each Employer is aware that upon the occurrence of a Change in Control, the Board or the board of directors of a Participant's Employer (which might then be composed of new members) or a shareholder of the Company or the Participant's Employer, or of any successor corporation, might then cause or attempt to cause the Company, the Participant's Employer or such successor to refuse to comply with its obligations under the Plan and might cause or attempt to cause the Company or the Participant's Employer to institute, or may institute, litigation seeking to deny Participants the benefits intended under the Plan. In these circumstances, the -26- 31 purpose of the Plan could be frustrated. Accordingly, if, following a Change in Control, it should appear to any Participant that the Company, the Participant's Employer or any successor corporation has failed to comply with any of its obligations under the Plan or any agreement thereunder, or if the Company, such Employer or any other person takes any action to declare the Plan void or unenforceable or institutes any litigation or other legal action designed to deny, diminish or to recover from any Participant the benefits intended to be provided, then the Company and the Participant's Employer irrevocably authorize such Participant to retain counsel of his or her choice at the expense of the Company and the Participant's Employer (who shall be jointly and severally liable) to represent such Participant in connection with the initiation or defense of any litigation or other legal action, whether by or against the Company, the Participant's Employer or any director, officer, shareholder or other person affiliated with the Company, the Participant's Employer or any successor thereto in any jurisdiction. The Company may recover any legal fees paid if a court of competent jurisdiction finds that the retention of counsel by the Participant was frivolous. If the Participant prevails to any extent, the retention of counsel shall be conclusively determined not to be frivolous. IN WITNESS WHEREOF, the Company has signed this Plan document as of this 15th day of October, 1998. "Company" The Pioneer Group, Inc. By: /s/ ROBERT P. NAULT --------------------------------- Title: Senior Vice President and General Counsel -27- 32 Schedule A -- Measurement Funds -28- EX-10.73 5 AGREEMENT WITH FOREST STARMA AND RAYONIER, INC. 1 EXHIBIT 10.73 [Russian translation of the English text intentionally omitted] LOG SALES CONTRACT NO. 99-01-01 DECEMBER 7, 1998 CLOSED JOINT-STOCK COMPANY "FOREST-STARMA" hereinafter referred to as the SELLER, and RAYONIER INC., hereinafter referred to as the BUYER, have entered into the present Contract with respect to the following: 1. SUBJECT OF THE CONTRACT Seller agrees to sell and the Buyer agrees to buy, on terms contained in this Contract and individual addenda to this Contract, all of the spruce and white fir logs produced by Seller as provided in this Contract, up to a maximum quantity of 150,000 m3. The approximate value of this Contract is $7,200,000. The specific quantity, composition, and value of all log shipments shall be set forth in separate addenda to the Contract to be executed by the parties in connection with each shipment. 2. TIME OF PRODUCTION AND DELIVERY 2.1 PRODUCTION: This Contract shall apply to logs produced by Seller and made available for shipment from Siziman Bay between January 1, 1999 and June 30, 1999. In the event that the volume of logs produced by June 30, 1999 is less than 150,000 m3, the Buyer shall have an option to extend the term of this Contract for additional periods of three (3) months each or until 150,000 m3 are delivered, whichever comes first, by giving written notice of the exercise of such option not later than June 30, 1999 or, if this option has been previously exercised, the last day of the current extension. 2 2.2 DELIVERY: Logs produced under this Contract shall be delivered F.O.B. vessel between March 1, 1999 and August 31, 1999. In the event Buyer exercises its option to extend the time for production of logs under Section 2.1, the time period for delivery shall also be extended for an equal period of time. 3. PRICES The Buyer shall pay the Seller the following prices for logs purchased under this Contract. All prices under this Contract are F.O.B. vessel, Siziman Bay, Russia. Spruce US $/m3 - ------ ------- #1 & #2 sawlogs (standard) $74.25 #1 & #2 sawlogs (small) $42.25 #3 sawlogs $42.50 pulp logs $22.50 White Fir - --------- #1, #2 and #3 sawlogs $42.50 pulp logs $22.50 The above prices are based on freight to Japan West Coast for #1 and #2 sawlogs of $18.75/m3 and #3 sawlogs and pulp to Korea of $22.50/m3. Both rates are for CQD terms and one port discharge. If Buyer negotiates a contract of affreightment which is higher than these freight rates, the price of logs sold under this Contract will be reduced by 50% of the increase in the freight rate, but not more than $1.00/m3. Any such price changes will be reconciled and set forth in separate addenda to this Contract. In the event the minimum percentages of long logs as set forth in Section 4.1 below are not met and as a result there is an excess volume of short logs, the price of the excess volume of short logs will be subject to a discount of $5.00/m3. The calculation will be as follows: the total volume delivered less the quotient of the long log volume delivered divided by the minimum 2 3 percentage equals the Excess Short Log Volume. Expressed as a formula, the calculation is: (Total volume) - (Long log volume) = (Excess Short Log Volume) ----------------- (Minimum %) The calculation will be made separately for each of the following categories of logs: - - #1 & #2 sawlogs (standard) - - #1 & #2 sawlogs (small) - - #3 sawlogs The calculation will be made on the following dates: - - March 31, 1999 for logs produced prior to that date; - - April 30, 1999 for logs produced in April; - - May 31, 1999 for logs produced in May; and - - June 30, 1999 for logs produced in June. If there is an Excess Short Log Volume, then the price of a volume of logs equal to the Excess Short Log Volume taken from the first volume of short logs delivered during the next subsequent month will be discounted by $5.00/m3 and the reduced price will be shown on the addenda to this Contract covering such logs executed by the parties at the time of shipment. 4. QUALITY OF GOODS 4.1. SPECIFICATIONS The logs delivered hereunder shall be exportable spruce and white fir sawlogs and pulp logs conforming to GOST standards # 22298-76. All sawlogs must be fresh cut and free of insect damage, ring shake, checking and charring. 3 4 Minimum diameter requirements are as follows:
Length Min. Diameter Grade (meters) (centimeters) - ----- -------- ------------- #1 & #2 sawlogs (standard) 7.6; 8.1 20 #1 & #2 sawlogs (standard) 3.8 22 #1 & #2 sawlogs (small) 3.8; 7.6; 8.1 14 #3 sawlogs (standard or small) all lengths 18 pulp logs all lengths 14
All White Fir will be valued and sorted as #3 sawlogs or pulp logs only. The log volumes produced must include the following minimum percentages of long logs:
Spruce & White Fir Minimum % Long Logs - ------------------ ------------------- #1 & #2 sawlogs (standard) 60% #1 & #2 sawlogs (small) 50% #3 sawlogs 60% Pulp logs None
Long logs are logs which are 7.6 meters or greater in length. 4 5 In addition to meeting GOST standards logs produced and delivered under this Contract shall be of consistent quality and of reasonably comparable mix and diameter distribution to those logs produced by Seller at Siziman Bay during the 1998 season. Logs must be manufactured and graded to avoid excessive off-center hearts and compression in #1 and #2 sawlog sorts. 4.2. SCALING: Scaling of the logs delivered hereunder shall be performed to GOST specifications by qualified scalers. The Seller shall be responsible for the cost of scaling of the logs. Log scale certificates, summary reports and any other production reports will be provided to the Buyer on a biweekly basis, together with invoices for payment, in accordance with Section 6 below. Measurement must be made in accordance with GOST #2708-81. Diameter of logs is to be measured at the top (small) end, inside the bark, by adding the maximum and minimum diameters and dividing the total by two. Diameter of logs shall be measured as follows: - - Diameter of 13 cm and down is to be measured with intervals of 1 cm. Margin of 0.5 cm and up is to be counted as 1 cm (logs of 12.5 - 13.4 cm in diameter to be counted as 13 cm). - - Diameter of 14 cm & up is to be measured with intervals of 2 cm. Margin less than 1 cm is not to be counted. Margin of 1 cm and up is to be counted to the nearest even diameter (logs 13.5 - 14.9 cm in diameter to be counted as 14 cm). - - Logs are to be measured by each piece. Volume of logs is to be calculated according to the tables of GOST #2708-81. - - The marking should be put on each sawlog clearly in accordance with GOST #2292-74. 5 6 5. DELIVERY 5.1. POINT OF DELIVERY: The logs shall be delivered to the Buyer FOB vessel, Siziman Bay, Russia. Title and risk of loss to all logs purchased hereunder shall pass to the Buyer when the logs pass the ship's rail at Siziman Bay. The Seller shall notify the Buyer that logs have been delivered in case an agent or employee of the Buyer is not present at the delivery site. Seller will maintain casualty loss insurance on the logs up to the point of delivery. The terms describing obligations of the Seller and the Buyer with respect to delivery of goods and establishing transfer of risk of loss or damage from the Seller to the Buyer are specified in "INCOTERMS, 1990" and shall be binding on the parties hereto. 5.2. EXPORT DUTIES: All Russian taxes, export fees or duties which may be assessed on this transaction shall be paid by the Seller. Seller certifies that it has the right to export the logs and shall obtain all necessary customs approvals, export licenses and permits. 5.3. SHIP LOADING: The Seller shall be responsible for all sorting, storing, handling and ship loading activities necessary to deliver the logs on board ship at Siziman Bay, the cost of which are included in the price stated in Section 3 above. The Seller shall load a minimum of 1,800 m3 per day for each day that ships are available for loading. If the Seller is unable to load the minimum volume, except as a result of a force majeure event, according to Section 10 hereof, or the Buyer's negligence or failure to perform its obligations hereunder, the Buyer shall have the option to reduce the total contract volume by up to the amount of the short fall. 5.4. SHIPPING: The Buyer shall be responsible for arranging for vessels to transport all logs sold under this Contract. The Buyer agrees to make ships available for loading at Siziman Bay a minimum of 19.5 days per month, when Siziman Bay becomes ice-free and available for shipping. Partial months will be 6 7 prorated and shipments in excess of the minimum may be carried forward to meet minimum volumes in future months. The Buyer will provide the Seller with a monthly shipping schedule ten (10) days before the start of the month. The Buyer will update the shipping schedule in a reasonable manner to advise Seller of changes in the previously provided shipping schedule. The Buyer shall provide all shipping schedules and updates to Seller's Quality Control Manager at Siziman Bay, Russia. 5.5. LIENS AND WARRANTIES: The Seller warrants that, upon delivery of the logs to the Buyer FOB, Buyer's vessel, Siziman Bay, Russia, under this Contract, the logs shall be free and clear of any liens or encumbrances, prior sales agreements, contracts or other claims which might become a lien upon the logs. The Seller further warrants that the logs sold under this Contract may be legally exported from the Russian Federation in the form and condition in which they are delivered to the Buyer at the point of delivery. 6. PAYMENT 6.1. Buyer shall make payment to Seller for each shipment of logs delivered under this Contract within 180 days after the date each shipment of logs clears Russian customs for export. 6.2. Every two weeks after the effective date of this Contract, commencing on January 15, 1999, the Seller shall fax to the Buyer an invoice and tally sheets for scaled volume of logs produced during the preceding two-week period. Within 10 days after the Buyer's receipt of each faxed invoice and tally sheet, the Buyer shall pay the Seller 50% of the price for the volume of logs indicated in these documents, calculated according to the price list set forth in Section 2 above. 6.3 In the event the ships are available for loading for less than the minimum number of days provided for in a month, except as the result of a force majeure event, and if the lack of ships 7 8 available for loading causes the volume loaded to be less than 35,000 m3 (or pro-rated portion thereof), then Buyer shall make an additional payment of $18.00/m3 on a volume of logs calculated by multiplying the difference between the minimum number of days ships should have been available for loading and the actual number of days ships were available for loading by 1,800 m3/day (but in any event such volume shall not be greater than 35,000 m3 (or pro-rated portion thereof) less the actual volume of logs shipped during that month. This payment shall be calculated and paid within ten (10) days of the end of the month and shall be applied as payment of a portion of the purchase price of the first volume shipped during the subsequent month. This adjustment will be reflected in the applicable addendum. 6.4. The Buyer shall pay the remaining balance of the price for such logs upon shipment of the logs within twenty (20) days after receipt from the Seller of a faxed copy of an invoice for the balance of the purchase price, bills of lading, log specifications and cargo plan; provided that the Seller shall have delivered original copies of the invoice (1 set), bill of lading (3 sets), log specification (1 set) and cargo plan (1 set) by mail or via courier to the Buyer's representative in Vladivostok, Russia or Japan, as indicated by the Buyer; within ten (10) days after the date stated in the bill of lading, after completion of loading of each vessel. 6.5. Notwithstanding the force majeure provisions of Section 10 hereof, if for any reason, any logs for which Buyer has made payments under Sections 6.2 or 6.3 of this Contract are not delivered F.O.B. vessel for export due to any cause whatsoever, other than the Buyer's negligence or the failure to perform its obligations under this Contract, the Seller agrees to repay any amounts received with respect to said logs within ten (10) days of receipt of notice from the Buyer of the failure of said logs to be exported or loaded on board ship and an invoice for the repayment amount. 7. CLAIMS Buyer has the right to make claims after the logs arrive at their 8 9 export destination for failure to meet quality or quantity requirements. The Buyer shall make every reasonable commercial effort to resolve all claims with the Buyer's customer. In the event no resolution is reached, the Buyer will notify Seller by fax of any claims within thirty (30) days after the vessel has completed discharge in the discharge port. Seller will have fourteen (14) days to respond to the claim presented. If Seller does not agree with the claim, it may request to schedule an inspection of the cargo by a representative of Seller. Buyer and Seller will use their best efforts to have their representatives meet at the port of discharge as quickly as possible to conduct this inspection. Each party will bear its own costs of such inspection. If Seller does not respond and schedule an inspection, if desired, within fourteen (14) days of receipt of the claim, the claim will be considered accepted. Buyer will use reasonable commercial efforts to make substantially all of the logs involved in the claim available for inspection. The inspection will be conducted as follows: - - If the logs are on land, a sample of 10% of the logs will be rolled out for inspection. - - If the logs are located in the water the representatives will conduct a visual inspection of all sides of every log in the sample. - - Grading will be based on GOST standard 22298-76. - - Scaling will be based on GOST standard 2140-81. The result of this inspection will be expanded onto the entire cargo volume to calculate the claim settlement. Buyer will notify Seller of any necessary deviation from the above procedure. The amount of any claim settlement will be paid by Seller to Buyer by wire transfer within fourteen (14) days of completion of the inspection. 9 10 8. NOTICES All notices given hereunder shall be in writing, sent to the representatives of each party and may be sent by telex or by telecopier with confirmation of receipt at the addresses and fax numbers shown in Section 13. Notices shall be effective upon receipt. 9. DISPUTES In the event of any dispute arising out of or relating to this Contract, the parties shall use their best efforts to settle the dispute. Within thirty (30) days of written request of any party, the individuals responsible for administering this Contract shall meet to consult and negotiate with each other, in good faith, in an attempt to reach an just and equitable solution satisfactory to the parties. If the parties are unable to reach a satisfactory solution within 60 days of the written request for negotiation, then any party may require that the matter be finally settled by arbitration under the Commercial Arbitration Rules of the American Arbitration Association and the Supplemental Procedures for Large Complex Disputes. The Arbitration shall be conducted at Seattle, Washington U.S.A. The arbitration shall be conducted by a single arbitrator appointed in accordance with the said Rules from the Large Complex Dispute Panel of the American Arbitration Association. The arbitration shall be conducted in the English language. Any award shall be denominated and paid in United States dollars and may, at the discretion of the arbitrator, include interest, attorney fees and costs. 9.2. LIMITATION ON DAMAGES: In the event of default or failure to perform any obligation under this Contract, the Liability of either party shall be limited to the value of the logs to be produced, delivered, sold and purchased hereunder. In no event shall either party be liable for incidental, consequential or punitive damages. 10 11 10. FORCE-MAJEURE Neither party to this Contract shall be liable for any delay or default in performance hereunder which is the result of any cause beyond its control, including, but not limited to wars, civil strife, embargoes, acts of governments or any government official or agency purporting to act under duly constituted authority, earthquakes, floods or fires. Weather conditions which are within the range of possible weather conditions to be anticipated shall not constitute force majeure conditions. A party whose performance is affected by force majeure conditions shall give notice to the other party of such condition and the expected duration of the delay or prevention of performance within ten (10) days of the occurrence of such condition. 11. COMPLETE AGREEMENT This Contract replaces and supercedes in its entirety, Log Sales Contract No. 98-05-05-2, dated May 12, 1998 with respect to all logs produced by Seller after December 31, 1998. 12. OTHER TERMS AND CONDITIONS All amendments and additions hereto shall be integral parts of this Contract and shall be valid only if made in writing and signed by duly authorized representatives of both parties. The language of this Contract is Russian and English but in the event of ambiguity or inconsistency between the versions, the English version shall be controlling. Any correspondence pertaining to the execution of this Contract shall be carried out in the English language. The law of the State of Washington, without giving effect to the conflict of law provisions thereof, shall govern this Contract. In the event the law of the Russian Federation, or any other jurisdiction where portions of this Contract are to be performed 11 12 invalidate any of the provisions of this Contract, the parties will negotiate amendments to this Contract to comply with such law. Neither this Contract nor any rights or obligations hereunder may be assigned by either party without the prior written consent of the other party. 13. LEGAL ADDRESSES OF THE PARTIES THE BUYER: THE SELLER: Rayonier Inc. JSC "Forest-Starma" 18000 International Blvd. 1 Chekhov St. Apt 3 Suite 900 Vanino Sea Tac, Washington, 98188 Khabarovsk Territory Fax # 1 206 248 4117 Russia, 682860 Fax # 7 42172 44172 with a copy to: W. William Pope Fax # 1-617-422-4286 14. PAYMENT REQUISITES THE BUYER: Bank Name: Seattle First National Bank Bank Address: Seattle, WA, USA Currency A/C No. (Currency to be Specified: 1360-403 ($, Dollars) Correspondent Accounts with Third Banks for Monetary Movement: THE SELLER: Bank Name: Moscow Narodny Bank Bank Address: 12 13 81 King William Street London, EC4P 4JS Currency A/C No. (Currency to be Specified: 49506022__( $, Dollars) Correspondent Accounts with Third Banks for Monetary Movement: RAYONIER INC. JSC "FOREST STARMA" THE BUYER THE SELLER /S/ ROBERT J. CARTANO /S/ ALBERT C. HECKER - ----------------------------- --------------------------------- Robert Cartano Albert C. Hecker J. General Director /S/ V. A. LIMARENKO --------------------------------- V. A. Limarenko First Deputy General Director 13 14 AMENDMENT NO. 1 TO LOG SALES CONTRACT NO. 99-01-01, DATED DECEMBER 7, 1998 THIS AMENDMENT No.1 to LOG SALES CONTRACT No. 99-01-01, dated December 7, 1998 (hereinafter referred to as "Amendment No.1") is entered into and becomes effective as of March 2, 1999, by and between Closed Joint-Stock Company "Forest-Starma" (hereinafter referred to as the "SELLER") and Rayonier, Inc. (hereinafter referred to as the "BUYER") as follows: 1. The SELLER and the BUYER hereby acknowledge that they are parties to Log Sales Contract No. 99-01-01, dated December 7, 1998 (hereinafter referred to as "Contract No. 99-01-01"). 2. This Amendment No. 1 amends and supplements Contract No. 99-01-01. Unless expressly amended by this Amendment No. 1, all provisions of Contract No. 99-01-01 remain in full force and effect. Unless otherwise provided in this Amendment No. 1, all terms and definitions used in this Amendment No. 1 shall have the same meanings as they do in Contract No. 99-01-01. 3. Section 6.1 of Article 6 of Contract No. 99-01-01 is hereby amended and replaced with the following: "6.1 Buyer shall make payment to Seller for each shipment of logs delivered under this Contract within 90 days after the date each shipment of logs clears Russian customs for export." 4. Both original and faxed signatures of the parties on this Amendment No. 1 shall have equal legal force with regard to execution of this Amendment No. 1. IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to Log Sales Contract No. 99-01-01, dated December 7, 1998, which shall become effective as of March 2, 1999. Rayonier, Inc. JSC "Forest-Starma" BUYER SELLER /s/ Robert J. Cartano /s/ Albert C. Hecker - -------------------------- ---------------------------------- Robert J. Cartano Albert C. Hecker Director, Operations General Director /s/ V. A. Limarenko ---------------------------------- V. A. Limarenko First Deputy General Director EX-10.74 6 5TH AMENDMENT TO LEASE 1 EXHIBIT 10.74 FIFTH AMENDMENT TO LEASE This FIFTH AMENDMENT TO LEASE ("FIFTH AMENDMENT") is made as of December 31, 1997 by and between the TRUSTEES OF 60 STATE STREET TRUST under Declaration of Trust dated September 10, 1970, recorded with Suffolk Deeds, Book 8389, Page 286, as amended, with an address of c/o Koll Management Services, 60 State Street, Boston, Massachusetts 02109 ("LANDLORD"), and THE PIONEER GROUP, INC., having a mailing address of 60 State Street, Boston, Massachusetts 02109 ("TENANT"). RECITALS WHEREAS, Landlord and Tenant entered into a lease dated as of July 3, 1991, as amended by a certain First Amendment to Lease dated as of January 31, 1994, as further amended by a certain Second Amendment to Lease dated September 30, 1996, as further amended by a certain Third Amendment to Lease dated November 15, 1996, and as further amended by a certain Fourth Amendment to Lease dated September __, 1997 (collectively, the "LEASE"), for certain space ("PREMISES") on the 3rd, 4th, 5th, 6th, 14th, 17th, 18th and 19th floors of the building commonly known as 60 State Street, Boston, Massachusetts (the "BUILDING"); WHEREAS, under the Lease, Tenant has the right to occupy approximately 7,120 rentable square feet of space on the sixth floor of the Building, as more shown as the "Current Pioneer Space" on FIFTH AMENDMENT EXHIBIT A attached hereto and made a part hereof ("FLOOR 6 PREMISES") until December 31, 1997; WHEREAS, pursuant to a lease by and between Landlord and Thornton Early and Naumes ("THORNTON") dated as of April __, 1994 ("THORNTON LEASE"), Thornton has the right to occupy the balance of the space on the sixth floor consisting of approximately 15,287 rentable square feet of space, as more particularly shown as the "Former Thornton Early and Naumes Space" on FIFTH AMENDMENT EXHIBIT A attached hereto and made a part hereof ("REMAINING FLOOR 6 PREMISES") until October 31, 1998; WHEREAS, Landlord and Tenant desire to amend the Lease (i) to extend the term of the Lease with respect to the Floor 6 Premises until March 31, 2002, (ii) to include the Remaining 6th Floor Premises within the Premises effective as of the day after the effective date of the termination of the Thornton Lease and continuing until March 31, 2002, and (iii) to amend certain terms and conditions of the Lease as described below. AGREEMENT NOW, THEREFORE, in consideration of Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged and agreed, Landlord and Tenant hereby agree as follows: 1. SUBSTITUTE OPTION SPACE. Notwithstanding anything to the contrary set forth in the Lease, Landlord and Tenant agree that Tenant shall be deemed to have (A) exercised the expansion option entitled "remaining two-thirds of 5" set forth in Section 2.1.3(a) of the Lease as of January 1, 1999, (B) exercised the expansion option entitled "remaining one-half of 16" set forth in Section 2.1.3(a) of the Lease as of January 1, 2000, (C) designated a total of 11,204 square feet on the sixth floor (consisting of the entire Floor 6 Premises and 4,084 square feet of the Remaining 2 Floor 6 Premises, said 4,084 square foot portion of the Remaining Floor 6 Premises is hereinafter referred to as "SPACE A") as "Substitute Option Space" as of January 1, 1999 pursuant to Section 2.1.3(b) of the Lease, and (D) designated a total of 11,203 square feet of the sixth floor (consisting of the balance of the Remaining Floor 6 Premises and hereinafter referred to as "SPACE B") as "Substitute Option Space" as of January 1, 2000 pursuant to Section 2.1.3(b) of the Lease. Tenant hereby acknowledges that as of January 1, 2000 Tenant will have taken possession of, designated and commenced receiving the benefit of two full floors of "Substitute Option Space" in accordance with the provisions of Sections 2.1.3(a) and Section 2.1.3(b) of the Lease (44,814 rentable square feet of space on floors five and six). Accordingly, as of the date hereof, Tenant shall have no further right to designate "Substitute Option Space" pursuant to Section 2.1.3(b) of the Lease, or relocate any such space to another floor of the Building (provided that Tenant shall be entitled to exercise relocation rights applicable to "Substitute Option Space" for the 6th Floor Premises in the event all or portions of the 16th floor become available for leasing), it being understood and agreed that any future space offered to Tenant by Landlord pursuant to Section 2.1.4. of the Lease shall be offered at an Annual Fixed Rent of 90% of Fair Rental Value. 2. FLOOR 6 PREMISES. The term for the Floor 6 Premises shall be extended until March 31, 2002, unless earlier terminated as set forth in the Lease. Annual Fixed Rent for the Floor 6 Premises shall be as follows: (i) For the period from January 1, 1998 through December 31, 1998, the Annual Fixed Rent for the Floor 6 Premises shall be $19.90 per rentable square foot; (ii) For the period from January 1, 1999 through March 31, 1999, the Annual Fixed Rent for the Floor 6 Premises shall be $15.50 per rentable square foot; (iii) For the period from April 1, 1999 through March 31, 2000, the Annual Fixed Rent for the Floor 6 Premises shall be $16.25 per rentable square foot; (iv) For the period from April 1, 2000 through March 31, 2001, the Annual Fixed Rent for the Floor 6 Premises shall be $17.00 per rentable square foot; and (v) For the period from April 1, 2001 through March 31, 2002, the Annual Fixed Rent for the Floor 6 Premises shall be $17.75 per rentable square foot. Tenant shall continue to pay additional rent for the Floor 6 Premises on the same terms and conditions as provided in the Lease for the initial Premises. All of the Floor 6 Premises shall constitute Additional Space under the Lease. 3. LEASE OF REMAINING FLOOR 6 PREMISES. Landlord shall lease to Tenant, and Tenant shall lease from Landlord, the Remaining Floor 6 Premises (which consists of Space A and Space B) for a term commencing on November 1, 1998 or the Delivery Date (defined below), if applicable, and ending on March 31, 2002. Annual Fixed Rent for the Remaining Floor 6 Premises shall be as follows: 2 3 (i) For the period from November 1, 1998 or the Delivery Date (defined below), if applicable, through December 31, 1998, the Annual Fixed Rent for the entire Remaining Floor 6 Premises shall be $19.90 per rentable square foot; (ii) For the period from January 1, 1999 through March 31, 1999, the Annual Fixed Rent for the Remaining Floor 6 Premises shall be $15.50 per rentable square foot with respect to Space A and $19.90 per rentable square foot with respect to Space B; (iii) For the period from April 1, 1999 through December 31, 1999, the Annual Fixed Rent for the Remaining Floor 6 Premises shall be $16.25 per rentable square foot with respect to Space A and $19.90 per rentable square foot with respect to Space B; (iv) For the period from January 1, 2000 through March 31, 2000, the Annual Fixed Rent for the entire Remaining Floor 6 Premises shall be $16.25 per rentable square foot; (v) For the period from April 1, 2000 through March 31, 2001, the Annual Fixed Rent for the entire Remaining Floor 6 Premises shall be $17.00 per rentable square foot; and (vi) For the period from April 1, 2001 through March 31, 2002, the Annual Fixed Rent for the entire Remaining Floor 6 Premises shall be $17.75 per rentable square foot. Tenant shall pay additional rent for the entire Remaining Floor 6 Premises on the same terms and conditions as provided in the Lease for the initial Premises. 4. EARLY TERMINATION OF THORNTON LEASE. If Thornton contacts Landlord to request an early termination of the Thornton Lease, Landlord shall notify Tenant in writing of such request and the proposed termination date of the Thornton Lease ("PROPOSED TERMINATION DATE"). Landlord's notice shall specify any negative financial impact to Landlord in connection with the proposed termination of the Thornton Lease. Tenant shall have ten (10) days from the date of Landlord's notice to notify Landlord in writing as to whether Tenant wishes to accept possession of the Remaining Floor 6 Premises on the day after the Proposed Termination Date ("DELIVERY DATE"). If Tenant timely notifies Landlord of its intent to accept the Remaining Floor 6 Premises on the Delivery Date and compensates Landlord for the specified negative financial impact, if any, stated in Landlord's notice, Landlord shall enter into a lease termination agreement with Thornton to terminate the Thornton Lease on the Proposed Termination Date. 5. LANDLORD'S WORK ON THE REMAINING FLOOR 6 PREMISES. Notwithstanding any provisions of the Lease to the contrary including, without limitation, Sections 3.1 and 3.6, the Remaining Floor 6 Premises shall be delivered to Tenant broom-clean and in their then "AS IS" condition. 6. TENANT'S WORK ON THE REMAINING FLOOR 6 PREMISES. Commencing on November 1, 1998, or the Delivery Date, if applicable, Tenant shall have the right to construct improvements to the Remaining Floor 6 Premises, subject to Landlord's approval of Tenant's plans and specifications, which approval shall not be unreasonably with- 3 4 held or delayed, and subject to the other terms and conditions of the Lease including Section 3.5. All Tenant improvements to the Remaining Floor 6 Premises shall be performed at Tenant's sole cost and expense, and Landlord shall not be obligated to reimburse or otherwise compensate Tenant for such improvements. 7. ADDITIONAL PARKING SPACES. Pursuant to the Second Amendment to Lease, Tenant currently occupies one (1) non-reserved parking space in the Building garage. Commencing on November 1, 1998, or the Delivery Date, if applicable, Tenant shall be entitled to occupy six (6) additional non-reserved parking spaces in the Building garage at the then current market rates charged by the garage operator, bringing the total to seven (7) parking spaces for Floor 6, of which four (4) shall be reserved spaces. Tenant shall enter into a separate parking agreement with the garage operator with respect to the foregoing six additional parking spaces for the periods prior to January 1, 1999 (for four (4) of the Parking Spaces) and January 1, 2000 (for the remaining three (3) parking spaces); after such dates parking rent shall be governed by Section 2.5 of the Lease. 8. CAPITALIZED TERMS. Capitalized terms used herein but not defined shall have the meanings ascribed to them in the Lease. 9. RATIFICATION. Except as amended hereby, the terms and conditions of the Lease shall remain unaffected and the Lease shall remain in full force and effect. 10. CONTINGENCIES. This Fifth Amendment to Lease is specifically contingent upon (i) the receipt by Landlord of a written waiver by Hale and Dorr of its superior rights to the Floor 6 Premises and the Remaining Floor 6 Premises, and (ii) the delivery of the Remaining Floor 6 Premises from Thornton to Landlord on or before November 1, 1998 or the Delivery Date. EXECUTED under seal as of the date first set forth above. LANDLORD: TRUSTEES OF 60 STATE STREET TRUST By: /s/ John A. Pirovano John A. Pirovano, as Trustee of 60 State Street Trust, for self and co-Trustees but not individually TENANT: THE PIONEER GROUP, INC. By: /s/ Diane Benson Its Vice President hereunto duly authorized 4 5 FIFTH AMENDMENT EXHIBIT A PLAN OF SIXTH FLOOR IDENTIFYING THE REMAINING FLOOR 6 PREMISES ("FORMER THORNTON EARLY AND NAUMES SPACE"), INCLUDING SPACE A AND SPACE B THEREOF AND THE FLOOR 6 PREMISES ("CURRENT PIONEER SPACE") [Floor Plan Intentionally Omitted] 5 6 CONSENT OF LENDERS The undersigned hereby acknowledge notice of the Fifth Amendment to Lease between the Trustees of 60 State Street Trust and The Pioneer Group, Inc. dated as of December 31, 1997 and consent thereto. CORNERSTONE PROPERTIES, INC. By: /s/ Scott M. Dalrimple its Vice President Hereunto duly authorized 6 7 CONSENT OF LENDERS The undersigned hereby acknowledges notice of the Fifth Amendment to Lease between the Trustees of 60 State Street Trust and The Pioneer Group, Inc. dated as of December 31, 1997 and consent thereto. TEACHERS INSURANCE ANNUITY ASSOCIATION OF AMERICA By: /s/ Joan Herman its hereunto duly authorized 7 EX-10.75 7 6TH AMENDMENT TO LEASE 1 EXHIBIT 10.75 SIXTH AMENDMENT TO LEASE This SIXTH AMENDMENT TO LEASE ("SIXTH AMENDMENT") is made as of October 5, 1998 by and between the TRUSTEES OF 60 STATE STREET TRUST under Declaration of Trust dated September 10, 1970, recorded with Suffolk Deeds, Book 8389, Page 286, as amended, with an address of c/o Hines, 60 State Street, Boston, Massachusetts 02109 ("LANDLORD"), and THE PIONEER GROUP, INC., having a mailing address of 60 State Street, Boston, Massachusetts 02109 ("TENANT"). RECITALS WHEREAS, Landlord and Tenant entered into a lease dated as of July 3, 1991, as amended by a certain First Amendment to Lease dated as of January 31, 1994, as further amended by a certain Second Amendment to Lease dated September 30, 1996, as further amended by a certain Third Amendment to Lease dated November 15, 1996, as further amended by a certain Fourth Amendment to Lease dated September __, 1997, and as further amended by a certain Fifth Amendment to Lease dated as of December 31, 1997 (collectively, the "LEASE"), for certain space ("Premises") on the 3rd, 4th, 5th, 6th, 14th, 17th, 18th and 19th floors of the building commonly known as 60 State Street, Boston, Massachusetts (the "BUILDING") (all capitalized terms not otherwise defined in this Sixth Amendment shall have the meaning set forth in the Lease); WHEREAS, Landlord and Tenant desire to amend the Lease (i) to remove approximately 15,287 rentable square feet of space on Floor 6 of the Building known as the "REMAINING FLOOR 6 PREMISES" from the Premises effective as of November 1, 1998, (ii) to remove approximately 7,120 square feet of space on Floor 6 of the Building known as the "FLOOR 6 PREMISES" from the Premises effective as of August 1, 1999, (iii) to include the entire 16th Floor of the Building ("FLOOR 16 PREMISES") within the Premises effective as of September 1, 1998, (iv) to include the entire 15th Floor of the Building ("FLOOR 15 PREMISES") within the Premises effective as of April 1, 1999, and (v) to amend certain terms and conditions of the Lease as described below; WHEREAS, Hale and Dorr LLP ("H&D") has by Seventh Amendment to Lease executed currently herewith ("H&D SEVENTH AMENDMENT") (i) declined to exercise its superior rights of first offer and refusal with respect to the Floor 15 Premises in connection with a certain offer letter from Landlord to H&D dated August 18, 1998, as same has been extended, and (ii) agreed to lease a portion of the Floor 6 Premises following Tenant's vacancy thereof and a portion of the Remaining Floor 6 Premises effective as of August 1, 1999; WHEREAS, Adams, Harkness and Hill, Inc. ("AH&H") has by that certain Second Amendment to Lease by and between AH&H and Landlord to be executed concurrently herewith ("AH&H SECOND AMENDMENT") agreed to lease the Remaining Floor 6 Premises effective as of November 1, 1998; 2 WHEREAS, Citizens Financial Group, Inc. (successor-in-interest to Bank of Ireland First Holdings, Inc. ("BANK OF IRELAND")) has by Lease Termination Agreement executed currently herewith ("LEASE TERMINATION Agreement") agreed to terminate that certain Lease dated June 15, 1994, as amended, by and between Bank of Ireland and Landlord with respect to approximately 4,045 square feet of space on the 20th Floor of the Building ("20TH FLOOR SPACE"), as amended ("CITIZENS LEASE"), effective as of March 31, 1999; and WHEREAS, Tenant and AH&H have acknowledged that the termination of the Citizens Lease shall automatically terminate that certain Sublease dated as of August 15, 1996 by and between Citizens and Tenant ("PIONEER Sublease") and that certain temporary license agreement between Tenant and AH&H ("AH&H LICENSE") with respect to the 20th Floor Space. AGREEMENT NOW, THEREFORE, in consideration of Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged and agreed, Landlord and Tenant hereby agree as follows: 1. RECITALS. The foregoing recitals are hereby incorporated by reference. 2. LEASE OF FLOOR 6 PREMISES. Notwithstanding anything to the contrary set forth in the Lease, including without limitation the provisions of the Fifth Amendment to Lease, the term with respect to the Floor 6 Premises shall expire on July 31, 1999. Tenant hereby acknowledges and agrees that the Remaining Floor 6 Premises shall not become part of the Premises and shall, instead, be leased, in part, to AH&H pursuant to the AH&H Second Amendment, and, in part, to H&D pursuant to the H&D Seventh Amendment. On or before July 31, 1999, Tenant shall surrender the Floor 6 Premises to Landlord in accordance with the requirements of Section 5.2 of the Lease. Pursuant to Section 2.1.3(b) of the Lease, because Tenant has (i) accepted Landlord's right of first offer to lease the Floor 16 Premises at the Annual Fixed Rent set forth in Section 2.5 of the Lease, and (ii) has not elected to terminate the Lease with respect to the Floor 6 Premises and the Remaining Floor 6 Premises (which were previously designated as "Substitute Option Space") effective as of September 1, 1998, the Annual Fixed Rent for the Floor 6 Premises shall be increased to 90% of Fair Rental Value, or $29.70 per rentable square foot, for the period from October 5, 1998 through July 31, 1999 ($211,464.00 per year; $17,622.00 per month), partial months to be prorated. Any underpayments made by Tenant with respect to the Annual Fixed Rent due to Landlord for the Floor 6 Premises shall be rectified with the next installment of Annual Fixed Rent due hereunder. 3. SUBSTITUTE OPTION SPACE. Landlord and Tenant acknowledge and agree that (i) Tenant shall have no further right to designate or relocate "Substitute Option Space" pursuant to Section 2.1.3(b) of the Lease, and (ii) any future space offered to Ten- 2 3 ant anywhere in the Building pursuant to Section 2.1.4 of the Lease shall be offered at an Annual Fixed Rent of 90% of Fair Rental Value. 4. LEASE OF FLOOR 16 PREMISES. Landlord shall lease to Tenant, and Tenant shall lease from Landlord, the Floor 16 Premises for a term commencing on October 5, 1998 and ending on March 31, 2002. Annual Fixed Rent for the Floor 16 Premises shall be as follows: (i) For the period from October 5, 1998 through March 31, 1999, the Annual Fixed Rent for the Floor 16 Premises shall be $17.85 per rentable square foot; (ii) For the period from April 1, 1999 through March 31, 2000, the Annual Fixed Rent for the Floor 16 Premises shall be $18.85 per rentable square foot; (iii) For the period from April 1, 2000 through March 31, 2001, the Annual Fixed Rent for the Floor 16 Premises shall be $19.85 per rentable square foot; and (iv) For the period from April 1, 2001 through March 31, 2002, the Annual Fixed Rent for the Floor 16 Premises shall be $20.85 per rentable square foot. Tenant shall pay additional rent for the Floor 16 Premises on the same terms and conditions as provided in the Lease for the initial Premises. The Floor 16 Premises shall constitute Additional Space under the Lease. 5. LANDLORD'S WORK ON THE FLOOR 16 PREMISES. Notwithstanding any provisions of the Lease to the contrary including, without limitation, Sections 3.1 and 3.6, the Floor 16 Premises shall be delivered to Tenant broom-clean and in their then "AS IS" condition, and except for "Landlord's Work" identified on SIXTH AMENDMENT EXHIBIT B attached hereto and made a part hereof, Landlord shall have no obligation to make any improvements or repairs to the Floor 16 Premises. Tenant acknowledges that Landlord shall be performing Landlord's Work within the Floor 16 Premises concurrently with Tenant's Work on the Floor 16 Premises. Landlord and Tenant each agrees that it shall coordinate with the other in connection with the performance of such party's work in order to minimize any interference with the performance of the other party's work in the Floor 16 Premises. 6. TENANT'S WORK ON THE FLOOR 16 PREMISES. Commencing on October 5, 1998, Tenant shall have the right to construct improvements to the Floor 16 Premises, subject to Landlord's approval of Tenant's plans and specifications, which approval shall not be unreasonably withheld or delayed, and subject to the other terms and conditions of the Lease including Section 3.5. All Tenant improvements to the Floor 16 Premises shall be performed at Tenant's sole cost and expense, and Landlord shall 3 4 not be obligated to reimburse or otherwise compensate Tenant for such improvements. 7. LEASE OF FLOOR 15 PREMISES. (a) Landlord shall lease to Tenant, and Tenant shall lease from Landlord, the Floor 15 Premises for a term commencing on April 1, 1999 or the Delivery Date (defined below), if applicable, and ending on March 31, 2002 ("15TH FLOOR TERM"). Annual Fixed Rent for the Floor 15 Premises for the entire 15th Floor Term shall be $29.70 per rentable square foot ($665,487.90 per year; $55,457.33 per month). Tenant shall pay additional rent for the Floor 15 Premises on the same terms and conditions as provided in the Lease for the initial Premises. The Floor 15 Premises shall constitute Additional Space under the Lease. (b) In the event ITT Sheraton Corporation ("SHERATON") contacts Landlord to request an early termination of the Lease dated as of September 1, 1998 by between Landlord and Sheraton ("SHERATON LEASE") with respect to its occupancy of the Floor 15 Premises, Landlord shall notify Tenant in writing of such request and the proposed surrender date of the Floor 15 Premises by Sheraton ("PROPOSED FLOOR 15 SURRENDER DATE"). Tenant shall have ten (10) days from the date of Landlord's notice to notify Landlord in writing as to whether Tenant wishes to accept possession of the Floor 15 Premises on the day after the Proposed Floor 15 Surrender Date ("DELIVERY Date"). If Tenant timely notifies Landlord of its intent to accept the Floor 15 Premises on the Delivery Date, Landlord shall enter into an amendment to the Sheraton Lease terminating the Lease with respect to the Floor 15 Premises effective as of the Proposed Surrender Date. (c) In the event Sheraton shall fail to surrender the Floor 15 Premises to Landlord as required under the Sheraton Lease, and Landlord shall thereafter fail to deliver the Floor 15 Premises on or before July 31, 1999, Tenant's obligation to surrender the Floor 6 Premises to Landlord by such date shall be extended one day for each day beyond such date Landlord fails to deliver the Floor 15 Premises 8. LANDLORD'S WORK ON THE FLOOR 15 PREMISES. Notwithstanding any provisions of the Lease to the contrary including, without limitation, Sections 3.1 and 3.6, the Floor 15 Premises shall be delivered to Tenant broom-clean and in their then "AS IS" condition, and except for "Landlord's Work" identified on SIXTH AMENDMENT EXHIBIT B attached hereto and made a part hereof, Landlord shall have no obligation to make any improvements or repairs to the Floor 15 Premises. Tenant acknowledges that Landlord shall be performing Landlord's Work within the Floor 15 Premises concurrently with Tenant's Work on the Floor 15 Premises. Landlord and Tenant each agrees that it shall coordinate with the other in connection with the performance of such party's work in order to minimize any interference with the performance of the other party's work in the Floor 15 Premises. 9. TENANT'S WORK ON THE FLOOR 15 PREMISES. Upon delivery of possession of the Floor 15 Premises, Tenant shall have the right to construct improvements to the Floor 15 4 5 Premises, subject to Landlord's approval of Tenant's plans and specifications, which approval shall not be unreasonably withheld or delayed, and subject to the other terms and conditions of the Lease including Section 3.5. All Tenant improvements to the Floor 15 Premises shall be performed at Tenant's sole cost and expense, and Landlord shall not be obligated to reimburse or otherwise compensate Tenant for such improvements. 10. FLOOR 3 PREMISES. Notwithstanding anything to the contrary set forth in the Lease, Tenant shall not have the right to extend the Term with respect to the Floor 3 Premises beyond March 31, 2002. On or before such date, Tenant shall surrender the Floor 3 Premises to Landlord in the condition required under Section 5.2 of the Lease. 11. RELEASE OF FLOOR 14 PREMISES. The Fourth Amendment to Lease is hereby deemed to be null and void. 12. PARKING SPACES. (a) FLOOR 6 PREMISES. Notwithstanding anything to the contrary set forth in the Lease, including without limitation the provisions of the Fifth Amendment to Lease, Tenant shall not be entitled to occupy any additional parking spaces in the Building garage in connection with the leasing of the Floor 6 Premises through July 31, 1999. Tenant shall retain its right set forth in the Second Amendment to Lease to occupy one (1) non-reserved parking space until July 31, 1999, at which time Tenant shall surrender said parking space. (b) FLOOR 16 PREMISES. Commencing on October 5, 1998, in connection with the leasing of the Floor 16 Premises, Tenant shall be entitled to occupy three (3) additional non-reserved parking spaces and four (4) additional reserved parking spaces in the Building garage at the rates set forth in Section 2.5 of the Lease. Tenant shall enter into separate parking agreements with the garage operator with respect to the foregoing additional parking spaces concurrently herewith. (c) FLOOR 15 PREMISES. Commencing on the earlier of the Delivery Date or April 1, 1999, in connection with the leasing of the Floor 15 Premises, Tenant shall be entitled to occupy three (3) additional unreserved parking spaces and four (4) additional reserved parking spaces in the Building garage at the current market rates charged by the parking garage operator. Tenant shall enter into separate parking agreements with the garage operator with respect to the foregoing additional parking spaces concurrently herewith. (d) FLOOR 3 PREMISES. In connection with the surrender of the Floor 3 Premises, Tenant shall surrender seven (7) unreserved parking spaces in the Building garage attributable to the leasing of the Floor 3 Premises to Landlord as of March 31, 2002. 5 6 13. TERMINATION OF PIONEER SUBLEASE. Tenant acknowledges the termination of the Pioneer Sublease and the AH&H License effective as of March 31, 1999 as a result of the termination of the Citizens Lease pursuant to the Lease Termination Agreement. 14. CAPITALIZED TERMS. Capitalized terms used herein but not defined shall have the meanings ascribed to them in the Lease. 15. RATIFICATION. Except as amended hereby, the terms and conditions of the Lease shall remain unaffected and the Lease shall remain in full force and effect. 16. BINDING EFFECT. This Sixth Amendment shall have the effect of an agreement under seal and shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors and assigns. 17. CONTINGENCIES. Landlord's obligation to deliver possession of the Floor 15 Premises to Tenant on or before April 1, 1999 is specifically contingent upon the delivery of the Floor 15 Premises from ITT Sheraton Corporation to Landlord on or before the earlier of the Delivery Date or March 31, 1999. 18. NO LIABILITY OF LANDLORD. Tenant expressly acknowledges and agrees that (i) this Sixth Amendment, the H&D Seventh Amendment, the AH&H Second Amendment, the Lease Termination Agreement, and the Sheraton Lease (collectively, the "TRANSACTIOn DOCUMENTS") have been executed as part of a larger transaction to redistribute space within the Building amongst Tenant, H&D, and AH&H in accordance with the terms of the Transaction Documents (collectively, the "Transaction"); (ii) the Transaction requires some of the tenants in the Building who are parties to the Transaction Documents (each an "OBLIGATED PARTY" and collectively, the "OBLIGATED PARTIES") to deliver certain premises or parking spaces to Landlord on or before dates certain identified in the Transaction Documents (collectively, the "DELIVERY OBLIGATIONS"), the performance of which is a precondition for some of the obligations of the parties under this Sixth Amendment; and (iii) Landlord has agreed to enter into the Transaction and execute the Transaction Documents in order to assist Tenant and the other Obligated Parties obtain desired space within the Building; provided Landlord will not incur any liability to Tenant for any failure by one or more of the Obligated Parties to perform its or their Delivery Obligations. Tenant hereby irrevocably and unconditionally releases Landlord and waives any and all claims which it may have against Landlord, however and whenever arising, whether in law or in equity, in connection with any failure by any of the Obligated Parties to perform its or their Delivery Obligations. Following full and complete performance by all Obligated Parties of their respective Delivery Obligations, this release and waiver shall be of no further force and effect. 6 7 19. NO THIRD PARTY BENEFICIARIES. This Sixth Amendment shall not confer any rights to any parties other than Landlord and Tenant, and no third parties shall have the right to enforce the terms hereof. EXECUTED under seal as of the date first set forth above. LANDLORD: TRUSTEES OF 60 STATE STREET TRUST By: /s/ John A. Pirovano John A. Pirovano, as Trustee of 60 State Street Trust, for self and co-Trustees but not individually TENANT: THE PIONEER GROUP, INC. By: /s/ Stephen G. Kasnet its hereunto duly authorized 7 8 SIXTH AMENDMENT EXHIBIT A PLANS OF FLOOR 16 PREMISES AND FLOOR 15 PREMISES AND FLOOR 6 PREMISES [Floor Plan Intentionally Omitted] 8 9 SIXTH AMENDMENT EXHIBIT B LANDLORD'S WORK WITH RESPECT TO THE FLOOR 16 PREMISES AND THE FLOOR 15 PREMISES 1. Install an ADA-compliant unisex rest room in a location to be selected by Tenant and approved by Landlord, such approval not to be unreasonably withheld; using finishes comparable to the finishes in the unisex rest room in Tenant's existing Premises. 2. The rest rooms shall comply with operational standards reasonably satisfactory to Tenant and with all code requirements as of the date possession is delivered to Tenant, including toilet exhaust. All plumbing fixtures and water, waster, and vent systems shall be in good repair. 3. Provide sufficient cooling capacity to the Floor 16 Premises and the Floor 15 Premises, as applicable, to comply with the provisions of Exhibit J, Section II. Notwithstanding the foregoing or any other provision of the Lease or this Sixth Amendment, Landlord shall not be required to provide additional cooling capacity to the Floor 16 Premises and the Floor 15 Premises, as applicable, should Tenant substantially change the configuration and/or use of the Floor 16 Premises and the Floor 15 Premises, as applicable, after Tenant's initial occupancy; any modification to the existing floor fan units or the addition of supplemental fan coil units resulting from such a change of configuration and/or use shall be at the Tenant's sole expense. 4. Provide electrical power to the Floor 16 Premises and the Floor 15 Premises, as applicable, sufficient to comply with the provisions of Exhibit J, Section VI and install electrical panels if necessary in the Floor 16 Premises and the Floor 15 Premises, as applicable, to permit Tenant to connect its lifesafety devices as required by applicable Building codes and the ADA. 5. Adjust the height of the elevator wall buttons adjacent to the elevator doors within the Floor 15 Premises and the Floor 16 Premises, as applicable, in order to make the same comply with ADA requirements. 6. Adjust the height and modify the water access mechanisms of the existing water bubbler(s) within the Floor 15 Premises and the Floor 16 Premises, as applicable, in order to make the same comply with ADA requirements, or provide a new ADA-compliant water bubbler for the Floor 15 Premises and the Floor 16 Premises, as applicable, if no water bubbler currently exists on such floor(s). 9 10 CONSENT OF LENDERS The undersigned hereby acknowledges notice of the Sixth Amendment to Lease between the Trustees of 60 State Street Trust and The Pioneer Group, Inc. dated as of October 5, 1998 and consents thereto. CORNERSTONE PROPERTIES, INC. By: /s/ Scott M. Dalrimple Its Vice President hereunto duly authorized 10 11 CONSENT OF LENDERS The undersigned hereby acknowledges notice of the Sixth Amendment to Lease between the Trustees of 60 State Street Trust and The Pioneer Group, Inc. dated as of October 5, 1998 and consents thereto. TEACHERS INSURANCE ANNUITY ASSOCIATION OF AMERICA By: /s/ Joan Herman its hereunto duly authorized 11 EX-10.76 8 SUBLEASE AGREEMENT DATED 3/5/99 1 EXHIBIT 10.76 March 5, 1999 SUBLEASE ARTICLE I REFERENCE DATA 1.1 SUBJECTS REFERRED TO. Each reference in this Sublease to any of the following subjects shall be construed to incorporate the data stated for that subject in this Section 1.1: Date of Sublease: March 5, 1999. Sublandlord: The Pioneer Group, Inc. Sublandlord's Address: 60 State Street Boston, Massachusetts 02109 Sublandlord Representative: Ms. Diane Benson Subtenant: Leerink Swann & Company Subtenant's Address: 60 State Street Boston, Massachusetts 02109 Subtenant Representative: Mr. Jeffrey A. Leerink Overlandlord: Trustees of 60 State Street Trust under Declaration of Trust dated September 10, 1970 and recorded with Suffolk Deeds in Book 8389, Page 286, as amended by First Amendment dated as of December 23, 1988, recorded with said Deeds in Book 15258, Page 66. Overlandlord's Address: c/o CC&F Asset Management Company, Inc. 60 State Street Boston, Massachusetts 02109 Overlease: Lease dated July 3, 1991 between Overlandlord as Landlord and Sublandlord as Tenant, a (redacted) copy of which is attached hereto as Exhibit A, consisting of the 2 original lease between Overlandlord and Sublandlord dated July 3, 1991, as heretofore amended (as redacted) and (ii) the Sixth Amendment to Lease dated October 5, 1998. Sublandlord represents that (a) the redacted portions of Exhibit A and (b) the First, Second, Third, Fourth and Fifth Amendments to the Overlease do not affect the terms of the Overlease applicable to Subtenant. Subleased Premises: That entirety of Sublandlord's Floor 15 Premises under the Overlease as described in the Sixth Amendment to the Overlease and shown on Exhibit B attached hereto, containing approximately 22,407 rentable square feet of space and up to fifteen (15) non-reserved parking spaces in the Building garage, according to the current market rates and terms provided for parking, as referenced in the Sixth Amendment to the Overlease. Commencement Date: April 1, 1999. Term Expiration Date: March 31, 2002, or as specified in accordance with Section 2.3 hereinbelow. Annual Fixed Rent: The Annual Fixed Rent shall be $27.00 per rentable square foot. Subtenant shall pay additional rent for the Subleased Premises on the same terms and conditions as provided in the Overlease for the initial Premises, which additional rent is currently estimated at $13.47 per rentable square foot. Permitted Uses: All uses permitted in the Overlease. 1.2 EXHIBITS. The exhibits listed below in this section are incorporated in this Sublease by reference and are to be construed as part of this Sublease: EXHIBIT A Overlease EXHIBIT B Floor Plan of Subleased Premises -2- 3 ARTICLE II SUBLEASED PREMISES AND TERM 2.1 SUBLEASED PREMISES. Subject to and with the benefit of the provisions of this Sublease, Sublandlord hereby subleases the Subleased Premises to Subtenant, and Subtenant subleases the Subleased Premises from Sublandlord. The Subleased Premises are subleased in their condition "as is" on the Commencement Date. Subtenant accepts the Subleased Premises in such condition. Sublandlord further grants Subtenant the right to use, as appurtenant to the Subleased Premises and in accord with the provisions of Article II, Section 2.2 of the Overlease, attached hereto as Exhibit A, the Common Facilities described therein. Sublandlord also grants Subtenant the right to occupy up to fifteen (15) parking spaces at the current market rates charged from time to time by Overlandlord for market rate parking in the Building garage. 2.2 TERM. To have and to hold beginning on the Commencement Date and continuing until the Term Expiration Date (the "Term"). 2.3 EARLY ACCESS. Sublandlord shall use commercially reasonable efforts to assist Subtenant to gain access to the Subleased Premises prior to the Commencement Date in order to enable Subtenant to install its wiring and cabling to the mechanical closet in the Premises; notwithstanding the foregoing, the inability of Subtenant to gain early access shall not modify the terms and provisions of this Sublease. -3- 4 ARTICLE III RENT 3.1 ANNUAL FIXED RENT. Commencing on the Commencement Date, Subtenant shall pay the Annual Fixed Rent on a monthly basis at the times specified in the Overlease, except that Subtenant shall pay the Annual Fixed Rent to Sublandlord. Notwithstanding the foregoing provisions of this Section 3.1, Sublandlord and Subtenant agree that Subtenant shall be entitled to an abatement of the monthly installment for Annual Fixed Rent for the following monthly periods: (a) April 1999, (b) December 2001 and (c) January, February and March 2002 (each individually an "Abatement Period" and collectively the "Abatement Periods"), subject to the following provisos: (1) Subtenant shall continue to be liable during all time periods during the Term (including all Abatement Periods) for Operating Expenses and Real Estate Taxes as set forth in Sections 3.2 and 3.3 hereof, and (2) In the event that Subtenant shall, at any time during the Term hereof, default after the expiration of applicable notice and grace periods (as set forth in the Overlease) on any terms and conditions of this Sublease, the abatement of Annual Fixed Rent set forth in this sentence shall become null and void and Subtenant shall thereupon owe to Sublandlord the full amount of all installments of Annual Fixed Rent for all Abatement Periods. 3.2 ADJUSTMENTS FOR OPERATING EXPENSES. Under Article II, Section 2.6 of the Overlease, Sublandlord is required to pay "Operating Expenses Allocable to the Premises," as defined therein. Subtenant shall pay Sublandlord as Additional Rent that portion of the Operating Expenses Allocable to the Premises that is attributable to the Subleased Premises (the "Operating Expenses Allocable to the Subleased Premises") during periods of time included in the Term. Commencing on the Commencement Date, Subtenant shall pay such amount in advance on the first calendar day of each month included in the Term. Any surplus shall be promptly refunded to Subtenant and any deficit in such payment shall be promptly paid by Subtenant after the Overlandlord finally determines the amounts payable by the Sublandlord under the Overlease. 3.3 ADJUSTMENTS FOR REAL ESTATE TAXES. Under Article II, Section 2.7 of the Overlease, Sublandlord is required to pay "Landlord's Tax Expenses Allocable to the Premises," as defined therein. Subtenant shall pay Sublandlord as Additional Rent the Subtenant's Percentage Share of Landlord's Tax Expenses Allocable to the Premises (the "Landlord's Tax Expenses Allocable to the Subleased Premises") during periods of time included in the Term. Commencing on the Commencement Date, Subtenant shall pay such amount in advance on the first calendar day of each month included in the Term. Any surplus shall be promptly refunded to Subtenant and any deficit in such payment shall be promptly paid -4- 5 by Subtenant after the Overlandlord finally determines the amounts payable by the Sublandlord under the Overlease. 3.4 PAYMENT. All payments of Annual Fixed Rent, Operating Expenses Allocable to the Subleased Premises and Landlord's Tax Expenses Allocable to the Subleased Premises shall be made to Sublandlord by wire transfer or to such other address as Sublandlord may designate by notice to Subtenant from time to time. ARTICLE IV SUBLANDLORD'S COVENANTS AND WARRANTIES 4.1 SUBLANDLORD'S OBLIGATIONS. Sublandlord shall make reasonable efforts to cause Overlandlord to fulfill its obligations set forth in the Overlease with respect to the Subleased Premises. 4.2. OVERLEASE. The copy of the Overlease attached hereto as Exhibit A is complete, true and accurate. Except as shown on Exhibit A, the Overlease has not been modified, amended or terminated and is in full force and effect. Sublandlord is not in default under the Overlease, nor has Sublandlord done or failed to do anything which with notice, the passage of time or both could ripen into a default. To Sublandlord's knowledge, Overlandlord is not in default under any of its obligations under the Overlease. 4.3 QUIET ENJOYMENT. Upon payment of the rent and performance of and compliance with the covenants, terms and conditions upon Subtenant's part to be performed and complied with hereunder, Subtenant shall lawfully, peacefully and quietly have, hold, occupy and enjoy the Subleased Premises during the Term without hindrance or molestation by Sublandlord or any persons lawfully claiming by, through or under Sublandlord, subject to the terms and conditions of this Sublease and the Overlease. ARTICLE V SUBTENANT'S COVENANTS Subtenant covenants during the Term and such further time as Subtenant occupies any part of the Subleased Premises: 5.1 SUBTENANT'S PAYMENTS. Subtenant shall pay all Annual Fixed Rent, Operating Expenses Allocable to the Subleased Premises and Landlord's Tax Expenses Allocable to the Subleased Premises when due. Subtenant shall also pay all costs of utilities furnished to the Subleased Premises. -5- 6 5.2 MAINTENANCE AND REPAIR. Subtenant shall maintain the Subleased Premises in the condition required by the Overlease. 5.3 OCCUPANCY AND USE. (a) Subtenant shall not use the Subleased Premises for any uses other than the Permitted Uses, and shall not make any use of the Subleased Premises which is prohibited by any applicable law, ordinance, code, regulation, license, permit, variances or governmental order. (b) It is acknowledged and agreed that Overlandlord is responsible for causing the Building Common Areas (i.e. not including Premises) to comply with Boston Fire and Building Codes and ADA Guidelines. Subtenant shall not make alterations, additions or renovations to the Subleased Premises ("Subtenant Work") except in accordance with plans and specifications therefor ("Subtenant's Plans") first approved by Sublandlord and Overlandlord with respect to any of the work on such plans which (i) might adversely affect any structural or exterior element of the Building, any area outside of the Subleased Premises or any Building systems, or (ii) will require unusual expense to readapt the Subleased Premises to normal office use on Sublease expiration or termination or increase the cost of insurance or taxes on the Building or of any services provided to the Building. Within twenty (20) business days after delivery to Sublandlord and Overlandlord of Subtenant's Plans, or within ten (10) business days after delivery to Sublandlord and Overlandlord of any revisions to Subtenant's Plans, Sublandlord and Overlandlord shall provide Subtenant with notice of their approval or disapproval of Subtenant's Plans or such revisions, as appropriate. If Sublandlord and Overlandlord fail to so notify Subtenant within said twenty (20) business day period or ten (10) business day period, as appropriate, and if such failure shall continue for seven (7) additional business days after notice from Subtenant, Sublandlord and Overlandlord shall be deemed to have approved Subtenant's Plans. In the case of disapproval, Sublandlord or Overlandlord's notice shall specify in detail the part of Subtenant's Plans which are being disapproved and the reasons therefor. No review or approval by Sublandlord or Overlandlord of Subtenant's Plans shall be deemed an acknowledgment, representation or warranty by Sublandlord or Overlandlord that Subtenant's Plans comply with the requirements of applicable law or sound design, architectural and engineering standards, nor shall such review or approval relieve Subtenant of any obligation or liability with respect to Subtenant's Plans or the Subtenant Work. Before starting the Subtenant Work, Subtenant shall: secure all licenses and permits necessary therefor; cause each contractor to carry worker's compensation insurance in statutory amounts covering all of the contractor's and subcontractor's employees; cause its general contractor to carry commercial general liability insurance and property damage insurance with a combined single limit of not less than -6- 7 $3,000,000.00 and cause each subcontractor to carry commercial general liability insurance and property damage insurance with a combined single limit of not less than $2,000,000.00 (all such insurance to be subject to the additional requirements as described in Article III, Section 3.5 of the Overlease, and to include as additional insureds the Sublandlord and Subtenant), and to deliver to Sublandlord and Overlandlord certificates of all such insurance and renewals thereof. Subtenant agrees to pay promptly when due the entire cost of any Subtenant Work and not to cause or permit any liens for labor or materials performed or furnished in connection therewith to attached to the Subleased Premises or the Property and immediately to discharge or cause to be bonded off any such liens which may so attach and, at the request of Sublandlord or Overlandlord, to deliver to Sublandlord or Overlandlord security satisfactory to Sublandlord or Overlandlord protecting Sublandlord or Overlandlord against liens arising out of the furnishing of such labor and material. In the event Subtenant fails to discharge or cause to be bonded off any such liens, the Sublandlord or Overlandlord shall have the right, but not the obligation, to pay and discharge any such lien after ten (10) days prior notice to Subtenant of its intent to pay and discharge any such lien, and Subtenant shall promptly reimburse Sublandlord or Overlandlord for all reasonable costs incurred by Sublandlord or Overlandlord in connection therewith. (c) Subject to Sublandlord's approval (not to be unreasonably withheld or delayed) and to Overlandlord's approval, Subtenant shall have the right to place its corporate sign or logo in the lobby of the Premises and Subtenant's name on the Building directory in the main Building lobby, all such signage and installations to be at Subtenant's sole cost and expense. Sublandlord agrees to exercise Sublandlord's rights under Section 2.2.2 of the Overlease to the extent that such exercise may facilitate Subtenant's carrying out of the matters covered by this Section 5.3(c). 5.4 ASSIGNMENT AND SUBLETTING. Subject to the provisions of this Section 5.4, Subtenant shall have the right to sub-sublease all or part of the Subleased Premises to a third party subject to the prior reasonable consent of Sublandlord and subject to the prior consent of Overlandlord: With respect to any sub-sublease agreement entered into by and between Subtenant and a third party: (a) If the aggregate rent received by Subtenant from such third party exceeds the aggregate rent paid by Subtenant hereunder respecting the same premises, Subtenant shall (a) first deduct its reasonable costs and expenses, including, without limitation, marketing expenses (including brokerage commissions and advertising expenses), legal -7- 8 fees, expenses of preparing such space for sub-subletting and costs for tenant improvements as reasonably amortized by Subtenant over a period no less than the initial term of the applicable sub-sublease and (b) pay to Sublandlord, as additional rent, 100% of the remaining excess rent received, if any; and (b) Notwithstanding any sub-sublease agreement, Subtenant shall continue to remain liable as a primary obligor under this Sublease. 5.5 INDEMNIFICATION. Subtenant shall indemnify Sublandlord and hold Sublandlord harmless from and against any and all claims, demands, suits, judgments, liabilities, costs and expenses, including reasonable attorneys fees, arising out of or in connection with Subtenant's use and possession of the Subleased Premises (including, without limitation, any damages to or around the Subleased Premises or the Building caused by Subtenant's Work), or arising out of the failure of Subtenant, its agents, contractors or employees to perform any covenant, term or condition of this Sublease or of the Overlease to be performed by Subtenant hereunder. ARTICLE VI CASUALTY AND TAKING 6.1 TERMINATION OF OVERLEASE. In the event that during the Term, all or any part of the Subleased Premises are destroyed or damaged by fire or other casualty or taken by eminent domain, and either Sublandlord or Overlandlord terminates the Overlease pursuant to its terms because of such damage, destruction or taking, then this Sublease shall likewise terminate on the same date that the Overlease terminates. Sublandlord shall give Subtenant prompt notice of such termination and the date on which it shall occur. In the event that during the Term, all or any part of the Subleased Premises are destroyed or damaged by fire or other casualty to such an extent that such damage or destruction could not be restored (in a manner which would not have any material adverse effect on Subtenant's business operations) within ninety (90) days of the date of such casualty, then Subtenant shall have the right, exercisable by notice given within fifteen (15) days of the date of such casualty, to terminate this Sublease. 6.2 REPAIR AND RESTORATION. In the event any such damage, destruction or taking of the Subleased Premises occurs and this Sublease is not terminated pursuant to Section 6.1 above, then Sublandlord shall cause Overlandlord to repair and restore the Subleased Premises as required by the terms of the Overlease. A just proportion of the Annual Fixed Rent, Operating Expenses Allocable to the Subleased Premises, Landlord's Tax Expenses Allocable to the Subleased Premises and any other additional rent hereunder shall be abated until Overlandlord shall have put the Subleased Premises or what may remain thereof into proper condition for use and occupancy, and in the case of a taking which permanently reduces the area of the Subleased Premises, a just proportion of such rent shall be abated for the remainder of the Term. -8- 9 6.3 RESERVATION OF AWARD. Any and all rights to receive awards made for damages to the Subleased Premises and the leasehold hereby created accruing by reason of exercise of eminent domain or by reason of anything lawfully done in pursuance of public or other authority, are reserved to Sublandlord and Overlandlord. Subtenant hereby releases and assigns to Sublandlord and Overlandlord all Subtenant's rights to such award and covenants to deliver such further assignments and assurances thereof as Sublandlord or Overlandlord may from time to time request. ARTICLE VII OVERLEASE 7.1 SUBLEASE SUBJECT TO OVERLEASE. This Sublease is subject to the Overlease. Subject to this Section 7.1, all terms and conditions of the Overlease, attached as Exhibit A, are incorporated into and made a part of this Sublease as if Sublandlord were the landlord thereunder and Subtenant were the tenant. Sublandlord represents that (a) the redacted portions of Exhibit A and (b) the First, Second, Third, Fourth and Fifth Amendments to the Overlease do not affect the terms of the Overlease applicable to Subtenant. In case of conflict between the incorporated provisions of the Overlease and the remaining provisions of this Sublease, the latter shall control. Subtenant assumes and agrees to perform the tenant's obligations under the Overlease during the Term, except that the obligation to pay rent or other amounts to Overlandlord under the Overlease shall not be an obligation of Subtenant, and Subtenant shall instead pay the rent under this Sublease. Subtenant shall not commit or suffer any act or omission that will violate any of the provisions of the Overlease. Overlandlord has covenanted under the Overlease to perform repairs and maintenance and provide services pursuant to the Overlease. Sublandlord shall exercise due diligence in attempting to cause Overlandlord to perform its obligations under the Overlease for the benefit of Subtenant. In addition, if Overlandlord defaults in its obligations under the Overlease to maintain the Subleased Premises or to furnish services to the Subleased Premises and such default materially interferes with Subtenant's use and enjoyment of the Subleased Premises, Sublandlord authorizes Subtenant to deal directly with Overlandlord regarding such default. Sublandlord agrees to perform all of the obligations of Sublandlord (as Tenant) under the Overlease, except those agreed to be performed by Subtenant hereunder; Subtenant shall have the right but not the obligation to cure any Sublandlord default (as Tenant) under the Overlease. During the Term of the Sublease, Sublandlord will, upon Subtenant's request, exercise due diligence in attempting to obtain rent abatement from Overlandlord when such abatement is available under the terms of the Overlease. Subtenant shall be entitled to rent abatement under this Sublease to the extent the amount of any rent abatement received by Sublandlord under the Overlease relates to the Subleased Premises. -9- 10 If the Overlease terminates as a result of a default or breach of Sublandlord or Subtenant under this Sublease and/or the Overlease, then the defaulting party shall be liable to the non-defaulting party for the direct damage suffered as a result of such termination. Sublandlord covenants not to commit or suffer any act or omission that will violate the Overlease. Neither Sublandlord nor Subtenant shall be liable to the other under this Section 7.1 of any indirect, special or consequential damages, including business interruption or lost profits. 7.2 EXCLUDED OBLIGATIONS. Notwithstanding anything to the contrary herein, the incorporated provisions of the Overlease are amended or qualified as follows: (a) Sublandlord shall not be liable under any circumstances for a loss of or injury to property, or interference with Subtenant's business, however occurring, incidental to any failure to furnish any utilities or services. (b) Sublandlord shall have no responsibility to perform or construct (or to pay the cost of performing or constructing) any repair, maintenance or improvement in or to the Subleased Premises. (c) Except as expressly set forth in Section 3.1 hereof, Rent shall be abated under this Sublease only to the extent that Sublandlord receives a corresponding rent abatement under the Overlease. (d) Wherever the Overlease grants to Sublandlord a grace or cure period, the corresponding grace or cure period under this Sublease shall be two (2) business days shorter in duration. The parties acknowledge that Sublandlord's ability to satisfy certain of its obligations to Subtenant under this Sublease is contingent upon the full and timely performance of Overlandlord's obligations under the Overlease. The parties further acknowledge that, while Sublandlord will use reasonable efforts to cause Overlandlord to perform its obligations under the Overlease, Sublandlord will not be liable to Subtenant for any breach of Sublandlord's obligations under this Sublease, nor shall such breach diminish Sublandlord's rights hereunder, where the same is caused by or attributable to the failure of Overlandlord to perform its obligations under the Overlease. 7.3 OVERLANDLORD'S RIGHTS. Overlandlord shall have all rights with respect to the Subleased Premises which it has reserved to itself as landlord under the Overlease. 7.4 TERMINATION OF OVERLEASE. In the event that Overlandlord terminates the Overlease pursuant to its terms or the Overlease otherwise terminates or expires, this Sublease shall likewise and simultaneously terminate. -10- 11 ARTICLE VIII MISCELLANEOUS 8.1 NOTICES FROM ONE PARTY TO THE OTHER. All notices required or permitted hereunder shall be in writing and addressed, if to the Subtenant, at Subtenant's Address or such other address as Subtenant shall have last designated by notice in writing to Sublandlord and, if to Sublandlord, at Sublandlord's Address or such other address as Sublandlord shall have last designated by notice in writing to Subtenant. Any notice shall be deemed duly given when mailed to such address postage prepaid, registered or certified mail, return receipt requested, or when delivered to such address by hand. Copies of any notices (default or otherwise) received from, or given to, the Overlandlord and pertaining to the Subleased Premises will be provided to the Subtenant by Sublandlord. 8.2 ESTOPPEL CERTIFICATE. Upon not less than 15 days prior notice by the requesting party, either party shall execute, acknowledge and deliver to the other a statement in writing, addressed to such person as the requesting party shall designate, certifying (a) that this Sublease is unmodified and in full force and effect, (b) the dates to which Annual Fixed Rent, Operating Expenses Allocable to the Subleased Premises, Landlord's Tax Expenses Allocable to the Subleased Premises and additional rent have been paid, and (c) that the requesting party is not in default hereunder (or, if in default, specifying the nature of such default in reasonable detail). Any such certificate may be relied upon by the person to which it is addressed as to the facts stated therein. 8.3 BROKERAGE. Subtenant and Sublandlord mutually represent and warrant that they have dealt with no broker in connection with this transaction, other than Fallon Hines & O'Connor (the "Broker"); Sublandlord shall be responsible for paying the fee to Broker pursuant to a separate agreement. Subtenant and Sublandlord each agrees to defend, indemnify and save the other harmless from and against any and all cost, expense or liability for any compensation, commissions or charges claimed by any broker or agent other than Broker with respect to the indemnifying party's dealings in connection with this Sublease. 8.4. APPLICABLE LAW AND CONSTRUCTION. This Sublease shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. If any term, covenant, condition or provision of this Sublease or the application thereof to any person or circumstances shall be declared invalid or unenforceable by the final ruling of a court of competent jurisdiction having final review, the remaining terms, covenants, conditions and provisions of this Sublease and their application to persons or circumstances shall not be affected thereby and shall continue to be enforced and recognized as valid agreements of the parties. -11- 12 There are no oral or written agreements between Sublandlord and Subtenant affecting this Sublease. This Sublease may be amended, and the provisions hereof may be waived or modified, only by instruments in writing executed by Sublandlord and Subtenant. The titles of the several Articles and Sections contained herein are for convenience only and shall not be considered in construing this Sublease. Unless repugnant to the context, the words "Sublandlord" and "Subtenant" appearing in this Sublease shall be construed to mean those named above and their respective heirs, executors, administrators, successors and assigns, and those claiming through or under them respectively. If there be more than one tenant, the obligations imposed by this Sublease upon Subtenant shall be joint and several. Any capitalized terms used herein and not otherwise defined have the meaning ascribed to them in the Overlease. 8.5 CONSENT BY OVERLANDLORD. This Sublease is conditioned upon procuring the consent of Overlandlord to this Sublease in accordance with the Overlease (the "Consent"), and the Sublandlord and Subtenant shall cooperate with each other in seeking Overlandlord's Consent. If Consent is withheld, this Sublease shall terminate upon the delivery of written notice to Sublandlord and Subtenant that Overlandlord's Consent will not be given. If this Sublease is so terminated: (i) all consideration previously paid by Subtenant to Sublandlord on account of this Sublease shall be returned to Subtenant; and (ii) the parties thereupon shall be relieved of any further liability or obligation under this Sublease, except for those liabilities or obligations which have accrued and remain unperformed as of the date this Sublease is so terminated. Sublandlord agrees that the request for Overlandlord's consent shall include the following matters (provided Sublandlord does not guarantee that Overlandlord's consent shall cover all such matters): a. Sublandlord is in possession of the Subleased Premises. b. The Overlease is in full force and effect and has not been modified, except for the six specified amendments. c. Neither Overlandlord nor Sublandlord is in default under the Overlease. d. There are no offsets or defenses existing which Overlandlord has against the enforcement of the Overlease by Sublandlord. e. Overlandlord's interest in the Overlease and in any trade fixtures, inventory, furniture, machinery, equipment or other personal property located on the Subleased Premises has not been assigned, pledged or transferred. Overlandlord has not received any notice that Sublandlord's interest in the Subleased Premises has been assigned, pledged or transferred. -12- 13 f. Overlandlord has not received any notice from any governmental agency or authority or any violation of applicable law relating to the Subleased Premises. g. There are no legal proceedings pending or threatened relating to the Subleased Premises. 8.6 STORAGE SPACE. Sublandlord and Subtenant acknowledge that storage space may be available in the parking garage of the Building provided however (a) that Sublandlord makes no representations and warranties regarding the availability of such storage space and is not leasing any such storage space to Subtenant pursuant to this Sublease and (b) Subtenant shall deal directly with Overlandlord as to the potential availability (and rental) of such storage space. 8.7 ELECTRICITY. Sublandlord and Subtenant acknowledge and agree that Subtenant shall be solely responsible for the cost of all electricity utilized in the Premises. If and to the extent the Premises are not currently separately metered for electrical usage, Subtenant shall cause an electrical meter to be installed prior to the Commencement Date at Subtenant's sole cost and expense. All of such installation by Subtenant shall be subject to the terms and conditions of Section 5.3 hereof and the applicable provisions of the Overlease. 8.8 CERTAIN LIMITATIONS. In no event shall Subtenant be liable for any indirect or consequential damages; provided that this clause is not intended to deprive Sublandlord of any of the rights and remedies available to it under Article VII of the Overlease (as incorporated into this Sublease). EXECUTED as a sealed instrument in two or more counterparts on the day and year first above written. SUBLANDLORD: The Pioneer Group, Inc. By: /s/ Stephen G. Kasnet Name: Stephen G. Kasnet Title: Executive Vice President hereunto duly authorized -13- 14 SUBTENANT: Leerink Swann & Company By: /s/ Peter Flynn Name: Peter Flynn Title: Chief Legal Officer hereunto duly authorized -14- 15 EXHIBIT A The following is the Overlease, as defined in Article I, Section 1.1. The following provisions of the Overlease are to be treated as redacted, and are not incorporated into this Sublease: 2.1.2 - [Intentionally omitted] 2.1.3 - Options to Expand - Premises 2.1.4 - Rights of First Offer 2.1.5 - Rights of First Refusal 2.1.6 - Landlord's Recapture of Floor 18 2.2(a) - Rights to Use Common Facilities 2.2.1 - Parking 2.4 - Term and Commencement Date 2.5 - Monthly Fixed Rent Payments (redacted portions only) Article III - Construction 4.1.2 - Additional Building Operation Services 4.1.8 - The Bay Club 4.1.11 - Restrictions on Landlord 4.1.12 - Building Management 4.4 - Redecoration 8.16 - Brokerage 8.17 - Arbitration Article IX - Priority of Lease; Rights of Institutional Mortgagee Exhibit D - Exceptions to Priority of Tenant's Rights Exhibit E - Base Building Improvements Exhibit F - Construction Schedule Exhibit G - List of Engineers, Consultants, Contractors, and Subcontractors Exhibit H - Landlord's Work Exhibit I - Plans and Schedule for Landlord's Work Exhibit K - Arbitration Methodology Exhibit M - Existing Leases Exhibit N - Consultant's Budget First Amendment to the Overlease Second Amendment to the Overlease Third Amendment to the Overlease Fourth Amendment to the Overlease Fifth Amendment to the Overlease -15- 16 EXHIBIT B Floor Plan of Subleased Premises [Floor Plan Intentionally Omitted] -16- EX-10.77 9 ASSET PURCHASE AGREEMENT 1 EXHIBIT 10.77 ASSET PURCHASE AGREEMENT THIS AGREEMENT made and entered into as of the 18th day of March, 1999 by and among PCC Transfer Limited Partnership, a Delaware limited partnership (the "Purchaser"), Pioneer Capital Corp., a Massachusetts corporation ("PCC"), Pioneer Ventures Limited Partnership, a Massachusetts limited partnership ("PVLP" and, together with PCC, the "Sellers"), and The Pioneer Group, Inc., a Delaware corporation ("PGI"). W I T N E S S E T H WHEREAS, PCC wishes to sell to the Purchaser, and the Purchaser wishes to purchase from PCC, those assets listed on SCHEDULE A hereto, and all other securities acquired by PCC from and after the date hereof and prior to the Closing, as that term is defined below (collectively, the "PCC Assets") on the terms and conditions set forth below; WHEREAS, PVLP wishes to sell to the Purchaser, and the Purchaser wishes to purchase from PVLP, those assets listed on SCHEDULE B hereto and all other securities acquired by PVLP from and after the date hereof and prior to the Closing, as that term is defined below (the "PVLP Assets" and, together with the PCC Assets, the "Assets"). NOW, THEREFORE, in consideration of their mutual covenants herein contained, the parties hereto hereby agree as follows: 1. SALE AND PURCHASE OF ASSETS. Subject to the terms and conditions hereof, at the Closing (as defined below): (x) PCC will sell, assign and transfer the PCC Assets to the Purchaser, and the Purchaser shall purchase the PCC Assets from PCC, for the aggregate amount of (i) $18,218,349, which price shall be allocated among the PCC Assets in the manner specified on SCHEDULE A plus (ii) the cost of all PCC Assets acquired by PCC between December 31, 1998 and the Closing, minus (iii) the amount of all cash distributions in respect of the PCC Assets received by PCC between December 31, 1998 and the Closing (the total amount payable pursuant to this clause (x) being referred to as the "PCC Purchase Price"); and (y) PVLP will sell, assign and transfer the PVLP Assets to the Purchaser, and the Purchaser shall purchase the PVLP Assets from PVLP, for the aggregate amount of (i) $13,011,179, which price shall be allocated among the PVLP Assets in the manner specified on SCHEDULE B plus (ii) the cost of all PVLP Assets acquired by PVLP between December 31, 1998 and the Closing, minus (iii) the amount of all cash distributions in respect of the PVLP Assets received by PVLP between December 31, 2 1998 and the Closing, exclusive of $888,242 of distributions received by PCC in respect of the sale of securities of PSI Holding Group, Inc. (the total amount payable pursuant to this clause (y) being referred to as the "PVLP Purchase Price", and the PVLP Purchase Price and the PCC Purchase Price being hereinafter referred to collectively as the "Purchase Price"). 2. CLOSING, ETC. The transfer of the Assets by the Sellers, and the purchase thereof by the Purchaser, shall take place at a closing (the "Closing") to be held at the offices of The Pioneer Group, Inc., 60 State Street, Boston, MA 02109, at 10:00 a.m. local time promptly after all conditions set forth in Sections 5 and 6 hereof have been fulfilled (the "Closing Date"). If any condition in Section 5 or 6 is not satisfied in any respect (or is not duly waived) at the Closing, the party whose obligations are subject to such condition may extend the date of the Closing to a date not later than March 30, 1999 (during which extension period the other party shall use all reasonable efforts to cause all such conditions to be satisfied in all respects). If all conditions are determined to be satisfied (or are duly waived) at the Closing (whether or not delayed), the Closing shall be consummated. 3. REPRESENTATIONS AND WARRANTIES. Each Seller, severally and not jointly, and PGI, as to itself and as to both Sellers, hereby represents and warrants to the Purchaser as follows: (a) Such Seller is duly organized and validly existing, the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary action on the part of such Seller, and this Agreement has been duly executed and delivered by such Seller and constitutes a legal, valid and binding obligation of such Seller. PGI is duly organized and validly existing, the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary action on the part of PGI, and this Agreement has been duly executed and delivered by PGI and constitutes a legal, valid and binding obligation of PGI. (b) Such Seller has full power and authority to enter into this Agreement and to assign the Assets it is assigning pursuant to this Agreement, the execution and delivery of this Agreement by such Seller and, except as set forth on SCHEDULE C, the consummation of the transactions contemplated by this Agreement by such Seller do not violate any of the terms and provisions of the organizational documents of such Seller or any law, statute, regulation, decree, license, order, agreement or other restriction applicable to such Seller or any of the Assets it is assigning pursuant to this Agreement; provided, however, that neither of the Sellers is making any representation or warranty in this Agreement or any instrument delivered by it pursuant hereto as to the application to the transactions contemplated hereby of The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), or as to compliance by any person with the HSR Act in connection with such transactions. No approval, consent, waiver, authorization or other order of, and no declaration, filing (excluding filings required -2- 3 under the HSR Act, as to which no representation or warranty is made herein), registration, qualification or recording with, any governmental authority is required to be obtained or made by or on behalf of such Seller in connection with the execution, delivery or performance of this Agreement and the transactions contemplated hereby, except as will have been obtained or made and be in full force and effect at the Closing. PGI has full power and authority to enter into this Agreement, the execution and delivery of this Agreement by PGI and, except as set forth on SCHEDULE C, the consummation of the transactions contemplated by this Agreement by PGI do not violate any of the terms and provisions of the organizational documents of PGI or any law, statute, regulation, decree, license, order, agreement or other restriction applicable to PGI; provided, however, that PGI is not making any representation or warranty in this Agreement or any instrument delivered by it pursuant hereto as to the application to the transactions contemplated hereby of the HSR Act, or as to compliance by any person with the HSR Act in connection with such transactions. No approval, consent, waiver, authorization or other order of, and no declaration, filing (excluding filings required under the HSR Act, as to which no representation or warranty is made herein), registration, qualification or recording with, any governmental authority is required to be obtained or made by or on behalf of PGI in connection with the execution, delivery or performance of this Agreement and the transactions contemplated hereby, except as will have been obtained or made and be in full force and effect at the Closing. (c) Except as set forth on SCHEDULE C, such Seller owns all right, title and interest in and to the Assets it is assigning pursuant to this Agreement, free and clear of all claims, liens, encumbrances, voting agreements or rights of any nature of any third party (each, an "Encumbrance") and upon payment of the Purchase Price by the Purchaser as provided in this Agreement, the Purchaser will acquire good and valid title to the Assets such Seller is assigning pursuant hereto, free and clear of any Encumbrances. SCHEDULE C sets forth a list of the material documents and agreements (including amendments and schedules thereto) that, to such Seller's knowledge, constitute all documents and agreements to which such Seller is a party or by which it is bound relating to its ownership of the Assets. To Sellers' knowledge, all agreements and documents referred to in SCHEDULE C are, after giving effect to any amendments thereto, valid and are in full force and effect, and Seller has no reason to believe that any of such agreements will not be in full force and effect at the Closing. Except as set forth in SCHEDULE C, such Seller (i) has no obligation to make any capital contributions to any Portfolio Entity (as that term is defined below) or to return any distributions or portions of distributions previously received; (ii) is not a party to any contract, agreement or commitment (other than those relating to the transactions contemplated by this Agreement) with respect to the Assets or the Portfolio Entities; and (iii) is not in default, nor to Seller's knowledge, is there any basis for any valid claim of default, under any agreement made or obligation owed by it with respect to the Portfolio Entities. Such Seller has furnished the Purchaser with copies of all material correspondence and other material written communications sent by or on behalf of such Seller to, or received by or on behalf of such Seller from, any of the Portfolio Entities or any holder of their respective securities. -3- 4 (d) SCHEDULES A and B list (x) the financial statements of each of the companies (a "Portfolio Entity") the securities of which are included in the Assets which were provided by the Sellers to the Purchaser (collectively, the "Financial Statements"), (y) the jurisdiction of the incorporation of each of the Portfolio Entities and (z) to the knowledge of such Seller, the capitalization of each Portfolio Entity, it being understood that the foregoing representation is applicable to each Seller only with respect to the Assets. Such Seller has no knowledge of any facts which cause it to believe that any of the Financial Statements with respect to the Assets do not describe in all material respects the financial position and operations of the respective Portfolio Entities as of the dates of the Financial Statements. SCHEDULES A and B contain true and accurate lists of: (A) all distributions received by Sellers or for which a Seller has received notice of distribution from the Portfolio Entities since December 31, 1998 (the "Cut Off Date"), showing the date and amount of each distribution; (B) all capital contributions and other payments made by a Seller to a Portfolio Entity since the Cut Off Date, showing the date and amount of each payment; and (C) all obligations of a Seller to make future capital contributions to the Portfolio Entities, showing the scheduled date and amount of each. To such Seller's knowledge, the percentage of each Portfolio Entity represented by the Assets on a fully diluted basis set forth on SCHEDULES A and B is true and correct. (e) Except as set forth on SCHEDULE C, such Seller has no knowledge of any material adverse change in the condition (financial or otherwise) of any Portfolio Entity whose securities are included in the Assets since the date of the latest Financial Statement listed on Schedules A and B with respect to such Portfolio Entity. (f) Such Seller has employed no finder, broker, agent or other intermediary in connection with the negotiation or consummation of this Agreement or any of the transactions contemplated hereby. (g) Except as set forth on SCHEDULE C or as disclosed in the Financial Statements of the Portfolio Entities, there is no (i) action, suit, claim, proceeding or investigation pending or, to such Seller's knowledge, threatened against or affecting such Seller, at law or in equity, or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) arbitration proceeding relating to such Seller, (iii) to Seller's knowledge, governmental inquiry pending or threatened against it or affecting it, which, if adversely determined, would invalidate or prevent the consummation of, the transactions contemplated by this Agreement or materially and adversely affect any of the Assets, or (iv) to such Seller's knowledge, any action, suit, claim, proceeding or investigation pending or threatened against or affecting any Portfolio Entity which, if determined adversely to the interests of the Portfolio Entity, would have a material adverse effect on the Portfolio Entity. Any reference in this Agreement to any Seller's "knowledge" or to any matter "known" to any Seller, or words or similar import, means the actual knowledge of any of John F. Cogan, Stephen Kasnet, John A. Boynton, Donald Hunter or Robert Nault, each of whom is -4- 5 an officer of The Pioneer Group, Inc., without any investigation other than inquiry of Christopher W. Dick, Christopher W. Lynch, Frank M. Polestra and Leigh E. Michl. 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser hereby represents and warrants to the Sellers as follows: (a) The Purchaser is duly organized and validly existing, and the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary action on the part of the Purchaser, and this Agreement has been executed and delivered by the Purchaser and constitutes a legal, valid and binding obligation of the Purchaser. (b) The Purchaser has full power and authority to enter into this Agreement and to purchase the Assets, and the execution and delivery of this Agreement by the Purchaser and the consummation of the transactions contemplated by this Agreement by the Purchaser do not violate any of the terms and provisions of the organizational documents of the Purchaser or any law, statute, regulation, decree, license, order, agreement or other restriction applicable to the Purchaser. No approval, consent, waiver, authorization or other order of, and no declaration, filing, registration, qualification or recording with, any governmental authority is required to be obtained or made by or on behalf of the Purchaser in connection with the execution, delivery or performance of this Agreement and the transactions contemplated hereby, except as will have been obtained or made and be in full force and effect at the Closing. (c) The Purchaser is acquiring the Assets solely for its own account for investment and not with a view to or for sale in connection with any distribution thereof. (d) The Purchaser is experienced in financial and business matters and is capable of evaluating the risks of its purchase of the Assets under this Agreement. The Purchaser understands that purchase of the Assets involves a high degree of risk. (e) The Purchaser has employed no finder, broker, agent or other intermediary in connection with the negotiation or consummation of this Agreement or any of the transactions contemplated hereby. 5. CONDITIONS OF CLOSING OF THE PURCHASER. The obligations of the Purchaser to purchase the Assets and to transfer funds at the Closing are subject to the fulfillment at or before the Closing of the following conditions precedent (any one or more of which may be waived at the sole discretion of the Purchaser, except that the conditions described in Sections 5(c) and (f) may not be waived without the consent of the Sellers and PGI): (a) The representations and warranties made by each of the Sellers and PGI in this Agreement shall have been true and correct when made, and shall be true and correct as of such Closing as if made on the date of such Closing and each Seller and PGI shall have delivered to the Purchaser a certificate, dated the Closing Date and signed by such Seller and PGI, to such effect. -5- 6 (b) Sellers shall have delivered to the Purchaser, free and clear of any Encumbrances, certificates representing all of the securities constituting the Assets, duly endorsed in blank or accompanied by stock powers or other instruments of transfer duly executed in blank, and bearing or accompanied by all requisite stock transfer stamps. (c) All consents or waivers with respect to the transfer of the Assets shall have been obtained. (d) The Purchaser shall have received opinions, addressed to it and dated the Closing Date, from Testa, Hurwitz & Thibeault, LLP and Hale and Dorr LLP, counsel to the Sellers, in form and substance reasonably satisfactory to the Purchasers. (e) Sellers and PGI shall have performed all agreements and obligations and complied with all conditions required by this Agreement to be performed or complied with by Sellers and PGI at or prior to the Closing and each Seller and PGI shall have delivered to the Purchaser a certificate, dated the Closing Date and signed by such Seller and PGI, to such effect. (f) No order of any nature issued by a court of competent jurisdiction restraining, prohibiting or affecting the consummation of the transactions contemplated by this Agreement shall be in effect, and no claim, suit, action, investigation, inquiry or other proceeding by any governmental body or other person or legal or administrative proceeding shall be pending or threatened which questions the validity or legality of the transactions contemplated by this Agreement. 6. CONDITIONS OF CLOSING OF THE SELLERS. The obligations of the Sellers to transfer the Assets at the Closing are subject to the fulfillment at or before the Closing of the following conditions precedent (any one or more of which may be waived at the sole discretion of the Sellers and PGI, except that the condition described in Section 6(d) may not be waived without the consent of the Purchaser): (a) The representations and warranties made by the Purchaser in this Agreement shall have been true and correct when made, and shall be true and correct as of the Closing as if made on the date of the Closing and the Purchaser shall have delivered to such Seller and PGI a certificate, dated the Closing Date and signed by the Purchaser, to such effect. (b) The Purchase Price to be delivered by the Purchaser hereunder shall have been delivered to the Sellers. Such Purchase Price shall be payable by wire transfer of same-day funds, to one or more accounts designated by the Sellers. (c) Purchaser shall have performed all agreements and obligations and complied with all conditions required by this Agreement to be performed or complied with by Purchaser -6- 7 at or prior to the Closing and Purchaser shall have delivered to the Sellers and PGI a certificate, dated the Closing Date and signed by the Purchaser, to such effect. (d) No order of any nature issued by a court of competent jurisdiction restraining, prohibiting or affecting the consummation of the transactions contemplated by this Agreement shall be in effect, and no claim, suit, action, investigation, inquiry or other proceeding by any governmental body or other person or legal or administrative proceeding shall be pending or threatened which questions the validity or legality of the transactions contemplated by this Agreement. 7. COVENANTS. PGI and the Sellers agree that from the date of this Agreement until the Closing Date: (a) PGI and each Seller shall afford to Purchaser reasonable access to any and all properties, books, records and other information of Seller relating to the Assets in order that Purchaser may have full opportunity to make such investigations of the Assets as shall be reasonably necessary. PGI and each Seller shall furnish any and all financial and operating data and other information relating to or in connection with the Assets in its possession or which it may obtain without undue cost or hardship as the Purchaser from time to time may reasonably request prior to the Closing. The Purchaser shall conduct its due diligence in a cooperative manner with minimal disruption to the business of PGI or the Sellers, and all such due diligence shall be conducted at the offices of PCC in Boston, Massachusetts, during normal business hours. Any investigation by the Purchaser shall not affect the representations, covenants and warranties of PGI or the Sellers under this Agreement. (b) PGI and the Sellers will conduct their business as it relates to the Assets only in the ordinary and usual course and shall comply in all respects with all laws, ordinances and regulations of governmental authorities applicable to them and to the conduct of such business. Except as consented to by the Purchaser in writing, neither Seller will: (i) dispose, liquidate, mortgage or sell any of the Assets or acquire any additional assets, except for acquisitions contemplated by or described in SCHEDULE C; (ii) consent to amend or modify any of the documents or agreements referred to on SCHEDULE C; (iii) forgive, release, compromise or demand payment of any indebtedness owed to it by any Portfolio Entity other than upon full payment thereof; (iv) make any voluntary capital contributions or fail to make any required capital contributions to any Portfolio Entity; (v) take any action which would result in a reduction in a Seller's percentage of ownership in any of the Portfolio Entities; or (vi) agree to do any of the foregoing. (c) After the date of this Agreement and prior to any termination of this Agreement in accordance with Section 8 below, neither PGI nor any Seller will initiate contact with, solicit any inquiry or proposal by or enter into discussions with, or disclose any information regarding the Assets or afford access to the properties, books or records of a Seller relating to the Assets to, any other corporation, general or limited partnership, limited liability company, -7- 8 person or other entity or group in connection with (i) any proposed sale or transfer of any of the Assets, or (ii) any similar transaction other than pursuant to this Agreement. (d) Seller shall give prompt notice to the Purchaser of (i) any notice or other communication received by such Seller relating to a default or event which, with notice or lapse of time or both, would become a default, under any of the documents or agreements referred to on SCHEDULE C, (ii) any material notice or other communication from or on behalf of any Portfolio Entity or any security holder of any Portfolio Entity, (iii) any material notice or other material communication received by such Seller relating to any contemplated or pending claim, action, suit, proceeding or investigation by any governmental department, commission, board, agency, instrumentality or authority involving or relating to any Portfolio Entity or any of the Assets, and (iv) any matter which would cause any material change with respect to any representations made in this Agreement. With respect to any such notice or other communication, such Seller shall inform the Purchaser of the receipt and substance thereof and, if in writing, shall furnish the Purchaser with a copy thereof. (e) PGI and each Seller shall promptly supplement or amend the Schedules to this Agreement with respect to any matter arising after the date of this Agreement which, if existing or occurring at the date of this Agreement, would have been required to be set forth or described in the Schedules. (f) Prior to Closing, PGI and the Sellers shall use commercially reasonable efforts to obtain all necessary consents and waivers to permit the transfer of the Assets to the Purchaser free and clear of all Encumbrances. PGI and the Sellers shall bear the full cost of obtaining all such consents and waivers. Each of the Sellers and PGI agrees that, from and after the Closing, they will promptly forward to the Purchaser any notices, communications, correspondence or distributions received by them in respect of the Assets, to the extent that such notices, communications, correspondence and distributions relate to periods from and after the Closing date. The Sellers and PGI agree to promptly endorse checks and execute stock powers and similar instruments relating to such distributions and otherwise to provide reasonable assistance and cooperation in connection with putting the Purchaser in possession of all such distributions, notices, communications and correspondence. Each of the Sellers, by execution of this Agreement, hereby constitutes and appoints the Purchaser such Seller's agent and attorney-in-fact for the purposes of: (i) endorsing in favor of the Purchaser any checks or signing any stock powers or similar instruments conveying title to the Purchaser in connection with any distributions received by the Sellers; (ii) signing proxies or similar instruments or agreements in connection with the voting or granting of approvals with respect to any of the securities included within the Assets of such Seller; and (iii) taking such other actions as may be necessary to convey title to the Assets to the Purchaser on the terms contemplated by this Agreement; and the power of attorney contained in this Section 7 is -8- 9 coupled with an interest and, therefore, is irrevocable and shall survive the dissolution, bankruptcy or incapacity of such Seller. Nothing in the foregoing power of attorney is intended to, nor shall it be construed to, authorize the Purchaser to (w) take any other action in the name and on behalf of the Sellers, including without limitation, any action relating or with respect to any asset of any Seller which is not included within the Assets, (y) create any obligation in the name or on behalf of any Seller, or (z) waive any right or grant any consent in the name and on behalf of any Seller pursuant to this Agreement. Without limiting the foregoing, the Purchaser is not hereby authorized to take any action on behalf of the Sellers in respect of the Sellers' share of any escrow amounts established in respect of certain securities of the Sellers which were sold prior to the date hereof and which are not included within the Assets. The Purchaser shall notify the Sellers within two business days following the Purchaser's execution of any document, agreement or instrument pursuant to the power of attorney granted hereby, which notice shall identify in reasonable detail the item executed and the purpose for which it was executed. 8. TERMINATION. (a) This Agreement may be terminated at any time by the mutual consent of the parties hereto. (b) This Agreement may be terminated by any of the parties on or after March 30, 1999 by written notice to the other parties if the transactions contemplated hereby shall not have been consummated; provided, however, that the right to terminate this Agreement under this Section 8(b) shall not be available to a party if such party's breach of this Agreement has been the cause of or resulted in the failure of the Closing to occur on or before that date. (c) The representations and warranties made in this Agreement shall expire fifteen (15) months from the Closing Date, except that the representations and warranties made by the Sellers and PGI in the first sentence of Section 3(c) shall expire twenty-four (24) months from the Closing Date. 9. INDEMNIFICATION. (a) INDEMNIFICATION BY SELLER. PGI and each Seller, jointly and severally (but severally as between the Sellers), agree to defend, indemnify and hold harmless the Purchaser, and its partners, employees, agents and any of its successors and assigns, from and against any and all losses, damages, claims, suites, proceedings, liabilities, costs and expenses (including settlement costs, interest, penalties, reasonable attorney's fees and any reasonable legal or other expenses for investigation or defense of any actions or threatened actions) (collectively, "Losses" or "Claims," as the context requires) which may be imposed, sustained, incurred or suffered or asserted as a result of, relating to or arising out of (i) the breach of any representation or warranty of PGI or a Seller contained in this Agreement (unless specifically waived in writing by the Purchaser at or prior to the Closing), (ii) any failure by PGI or a -9- 10 Seller to perform any covenant, agreement or obligation contained in this Agreement (unless specifically waived in writing by the Purchaser at or prior to the Closing),(iii) any and all obligations (other than obligations arising from actions on the part of the Purchaser or obligations relating to periods after the Closing Date), if any, of the Purchaser to return distributions or portions of distributions received by Seller prior to the Closing from any of the Portfolio Entities, or to make capital contributions to any of the Portfolio Entities in respect to periods occurring prior to the Closing in excess of those set forth on SCHEDULE A or B, as applicable, whether required by the laws of the jurisdiction in which the Portfolio Entities were organized or otherwise, (iv) the Sellers' ownership of the Assets arising in respect of periods prior to the Closing (provided that, except to the extent of any liability under clause (i) above, neither the Sellers nor PGI shall have any liability under this clause (iv) based on the value of the Assets or the Portfolio Entities); and (v) the litigation matter described on SCHEDULE C (Shushama Gokhale Complaint). (b) INDEMNIFICATION BY THE PURCHASER. The Purchaser agrees to defend, indemnify and hold harmless PGI, the Sellers and their officers, directors, employees, agents and any of their successors and assigns from and against any and all Losses and Claims which may be imposed, sustained, incurred or suffered or asserted as a result of, relating to or arising out of (i) the breach of any representation or warranty of the Purchaser contained in this Agreement (unless specifically waived in writing by PGI or the Sellers at or prior to the Closing), (ii) any failure by the Purchaser to perform any covenant, agreement or obligation of the Purchaser contained in this Agreement (unless specifically waived in writing by PGI or the Sellers at or prior to the Closing), (iii) any and all obligations, if any, of the Purchaser to return distributions or portions of distributions received by the Purchaser after the Closing from any of the Portfolio Entities, or to make capital contributions to any of the Portfolio Entities in respect to periods occurring after the Closing, whether required by the laws of the jurisdiction in which the Portfolio Entities were organized or otherwise, and (iv) the Purchaser's ownership of the Assets, or any rights of the Purchaser pursuant to Section 10(b) to an Excluded Interest after the Closing, including liabilities for taxes, charges, fees and periodic deposits (including interest and penalties) determined to be due to any governmental entity. (c) PROCEDURE FOR THIRD PARTY CLAIMS. (i) If a person entitled to assert a claim for indemnification under this Agreement shall receive notice of the assertion by any person not a party to this Agreement of any claim or of the commencement of any action or proceeding (a "Third Party Claim") with respect to which PGI, a Seller or the Purchaser is obligated to provide indemnification, the indemnified party (the "Indemnitee") shall give the indemnifying party (the "Indemnitor") prompt written notice after becoming aware of such Third Party Claim. The failure of the Indemnitee to give notice as provided in this Section shall not relieve the Indemnitor of its obligations for indemnification under this Agreement, except to the extent that the failure has materially and adversely affected the rights of the Indemnitor. The notice from the Indemnitee shall describe the Third Party Claim in reasonable detail. -10- 11 (ii) An Indemnitor may elect to compromise or defend, at the Indemnitor's own expense and by such Indemnitor's own counsel, any Third Party Claim provided that the Indemnitor acknowledges its obligation to indemnify in respect of the Third Party Claim. If an Indemnitor does so acknowledge its obligation, it shall have the right to compromise or defend the Third party Claim, and shall, within thirty (30) days (or sooner, if the nature of the Third Party Claim so requires), notify the Indemnitee of its intent to do so. The Indemnitee shall cooperate in the compromise of, or defense against, the Third Party Claim and the Indemnitor shall pay the Indemnitee's actual out-of-pocket expenses reasonably incurred in connection with its cooperation. After notice from an Indemnitor to an Indemnitee of its election to assume the defense of a Third Party Claim, the Indemnitor shall not be liable to the Indemnitee under this Agreement for any legal expenses subsequently incurred by the Indemnitee in connection with the defense of the Third Party Claim, PROVIDED that Indemnitee shall have the right to employ one counsel in each applicable jurisdiction (if more than one jurisdiction is involved) to represent Indemnitee if, in the Indemnitee's reasonable judgement, a conflict of interest between the Indemnitee and the Indemnitor exists in respect of such Third Party Claim, and in that event the fees and expenses of such separate counsel shall be paid by the Indemnitor. Except with the written consent of each related Indemnitee (which consent shall not be unreasonably withheld), no Indemnitor shall consent to entry of any judgment or enter into any settlement which provides for anything other than money damages or other money payments for which the Indemnitee is entitled to indemnification under this Agreement or which does not contain as an unconditional term thereof the giving by the claimant or plaintiff to the Indemnitee of a release from all liability in respect of the Third Party Claim. If an Indemnitor does not so acknowledge its obligation to indemnify, elects not to defend against a Third Party Claim, or fails to notify an Indemnitee of its election as provided in this Section, the Indemnitee may pay, compromise or defend such Third Party Claim on behalf of and for the account and risk of the Indemnitor; provided that the Indemnitor may participate in the defense of such Third Party Claim at its own expense. (iii) If there is a reasonable likelihood that a Third Party Claim may materially and adversely affect an Indemnitee, other than as a result of money damages or other money payments for which the Indemnitee is entitled to indemnification hereunder, the Indemnitee will have the right, after consultation with the Indemnitor and at the cost and expense of the Indemnitor, to defend the Third Party Claim, with counsel reasonably acceptable to Indemnitor. (d) PROCEDURE FOR NON-THIRD PARTY CLAIMS. With respect to any claim for indemnification hereunder which does not result from a Third Party Claim, the Indemnitor shall have a period of thirty (30) days after receipt of notice from the Indemnitee within which to respond to the Indemnitee. If the Indemnitor does not respond within the thirty (30) day period, the Indemnitor shall be deemed to have accepted responsibility to make payment, and shall have no further right to contest the validity of such claim. If the Indemnitor does respond -11- 12 within the thirty (30) day period and rejects the claim in whole or in part, the Indemnitee shall be free to pursue such remedies as may be available to the Indemnitee under applicable law. (e) REDUCTION OF CLAIM OR LOSS. If the amount of any Claim or Loss shall, at any time subsequent to payment pursuant to this Agreement, be reduced by recovery, settlement or otherwise, the amount of such reduction, less any expenses incurred in connection therewith, shall promptly be repaid by the Indemnitee to the related Indemnitor. (f) LIMITATIONS ON INDEMNIFICATION OBLIGATIONS. Notwithstanding anything to the contrary set forth above, (i) an Indemnitor shall have no liability to an Indemnitee under this Agreement unless and until the aggregate Losses and Claims of the Indemnitee (determined as provided below) pursuant to this Agreement and pursuant to that certain Asset Purchase Agreement dated of even date herewith between the Purchaser and PGI (the "PGI Agreement") reach an aggregate amount of at least $100,000, in which case the Indemnitor shall be liable for all Claims and Losses, not just those in excess of $100,000, and (ii) the maximum aggregate liability of an Indemnitor under this Agreement shall in no event exceed the purchase price of the Assets; provided that, the provisions of clause (i) of this Section 9(f) shall not be applicable to any indemnification obligation of PCC, PVLP or PGI arising under Section 10(a)(v). The Losses and Claims of PGI, PCC and PVLP hereunder shall be aggregated with those of PGI under the PGI Agreement for purposes of calculating the $100,000 amount referenced above in this Section 9(f). (g) REMEDIES CUMULATIVE AND NON-EXCLUSIVE. In the case of a claim for fraud only, the remedies provided in this Section 9 shall be cumulative and shall not preclude the assertion by any party to this Agreement of any other rights or the seeking of any other remedies against any other party to this Agreement. In the case of any other claim arising out of this Agreement or the transactions contemplated hereby, the remedies provided in this Section 9 shall be exclusive. 10. NONASSIGNABLE INVESTMENT INTERESTS. (a) To the extent that the assignment of any of the Assets shall require the consent of any other party, or shall be subject to any option in any other person by virtue of a request for permission to sell, assign or transfer or by reason of or pursuant to any sale, assignment or transfer to the Purchaser, this Agreement shall not constitute a contract to assign the same to the extent that an attempted assignment would constitute a breach of any document or agreement referred to on SCHEDULE C, or create rights in others not desired by the parties. (b) If after pursuing its obligations set forth in Section 7(f), PGI and the Sellers are unable to obtain any consent or waiver with respect to one or more Assets (in each case, an "Excluded Interest") and all other conditions to the closing have been satisfied, then the Purchaser shall have the option to require the appropriate Seller to assign to the Purchaser all of such Seller's economic interests in the Excluded Interest and hold and exercise any -12- 13 residual rights with respect to the Excluded Interest for the benefit of the Purchaser, to the extent such assignment does not constitute a breach or default (or an event which, with notice or the passage of time, or both, would constitute a breach or default) under any agreement to which Seller is a party. (c) If a Seller makes an assignment to Purchaser as described in Section 10(b) above: (i) such Seller shall, with respect to the Excluded Interests: (A) promptly provide the Purchaser with copies of all written reports and other communications received by such Seller; (B) at the option of the Purchaser, either promptly deliver to the Purchaser or to the Purchaser's designee all distributions of any nature received by such Seller or sell securities received as distributions according to instructions received from the Purchaser and following the sale, promptly remit the proceeds of the sale to the Purchaser or the Purchaser's designee; (C) exercise its rights under all documents and agreements pertaining to the Excluded Interests in accordance with the directions and for the benefit of the Purchaser; (D) take no action not otherwise described in (A) through (C) above without the prior approval of the Purchaser, which approval shall not be unreasonably withheld or delayed; (E) grant to the Purchaser's successors and assigns the rights and privileges of the Purchaser under this Section 10, PROVIDED that such successors and assigns assume the Purchaser's obligations to such Seller set forth in Section 10(c)(ii) below; and (F) execute and deliver to the Purchaser at the Closing an assignment of such Seller's economic interest containing the terms outlined in this Section 10(c)(i); and (ii) the Purchaser shall meet all capital contributions as described on SCHEDULE A or B, as applicable, required after the Closing with respect to the Excluded Interests, and, without limiting the obligations of PGI and the Sellers under Section 9, shall pay all taxes and other payments associated with the Excluded Interests as if the Purchaser was the owner of the Excluded Interests. (d) It is the intent of the Purchaser, the Sellers and PGI that in the event the parties proceed pursuant to Section 10(b) above: (i) the applicable Seller will transfer all dominion and control over the Excluded Interests to the Purchaser to the extent not in breach of the relevant documents and agreements even though the Seller may continue as a security holder for state law purposes; (ii) such Seller shall exercise its rights with respect to the Excluded Interests solely in favor of and in the interest of the Purchaser consistent with Section 10(c) above; (iii) for federal and state income tax purposes, the parties will treat the Purchaser as the security holder of the Excluded Interest; and (iv) if PGI, such Seller or the Purchaser obtains the missing consent or waiver, the Seller shall promptly convey to the Purchaser, without payment of any additional consideration, all of Seller's interest in the Excluded Interest. -13- 14 11. MISCELLANEOUS. (a) Each of the parties hereto shall perform such further acts and execute such further documents as may reasonably be necessary to carry out and give full effect to the provisions of this Agreement and the intentions of the parties as reflected thereby. (b) This Agreement shall be governed by and construed according to the laws of Massachusetts, without regard to the conflict of laws provisions thereof. (c) Except as otherwise expressly limited herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the parties hereto. None of the rights, privileges, or obligations set forth in, arising under, or created by this Agreement may be assigned or transferred without the prior consent in writing of each party to this Agreement. (d) This Agreement and the Schedules hereto constitute the full and entire understanding and agreement between the parties with regard to the subject matters hereof and thereof. Any term of this Agreement may be amended and the observance of any term hereof may be waived (either prospectively or retroactively and either generally or in a particular instance) only with the written consent of all of the parties to this Agreement. (e) All notices and other communications required or permitted hereunder to be given to a party to this Agreement shall be in writing and shall be telecopied or mailed by registered or certified mail, postage prepaid, or otherwise delivered by reputable overnight courier, by hand or by messenger, addressed to such party's address as set forth below or at such other address as the party shall have furnished to each other party in writing in accordance with this provision: If to the Purchaser: c/o Ascent Venture Management, Inc. 60 State Street Boston, Massachusetts 02109 with a copy to: Landmark Partners Inc. 760 Hopmeadow Street P.O. Box 188 Simsbury, CT 06070-9760 Attention: Mr. James P. McConnell If to the Sellers or to PGI: -14- 15 c/o The Pioneer Group, Inc. 60 State Street Boston, Massachusetts 02109 Attention: Stephen Kasnet and Office of the General Counsel or such other address with respect to a party as such party shall notify each other party in writing as above provided. Any notice sent in accordance with this clause (e) shall be effective (i) if mailed, by registered mail seven (7) business days after mailing, (ii) if sent by messenger, upon delivery, and (iii) if sent via telecopier or by reputable overnight courier, on the first business day following transmission and electronic confirmation of receipt or delivery to the courier. (f) Each party hereto shall bear its own expenses in connection with the transactions contemplated hereby. (g) No delay or omission to exercise any right, power, or remedy accruing to any party upon any breach or default under this Agreement, shall be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent, or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any of the parties, shall be cumulative and not alternative. (h) If any provision of this Agreement is held by an arbitrator or court of competent jurisdiction to be unenforceable under applicable law, then such provision shall be excluded from this Agreement and the remainder of this Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms; PROVIDED, HOWEVER, that in such event this Agreement shall be interpreted so as to give effect, to the greatest extent consistent with and permitted by applicable law, to the meaning and intention of the excluded provision as determined by such court of competent jurisdiction. (i) This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and enforceable against the parties actually executing such counterpart, and all of which together shall constitute one and the same instrument. (j) The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. The preamble and Schedules are an integral and inseparable part of this Agreement. -15- 16 IN WITNESS WHEREOF the parties have signed this Agreement as of the date first hereinabove set forth. PCC TRANSFER LIMITED PARTNERSHIP By PCC Transfer GP, LLC, its General Partner By: /s/ C.W. Dick ----------------------------------------- Name: Christopher W. Dick PIONEER CAPITAL CORP. By: /s/ Frank M. Polestra ----------------------------------------- Name: Frank M. Polestra Title: President PIONEER VENTURES LIMITED PARTNERSHIP By: Pioneer SBIC Corp., Its General Partner By: /s/ Frank M. Polestra ----------------------------------------- Name: Frank M. Polestra Title: President THE PIONEER GROUP, INC. By: /s/ Robert P. Nault ----------------------------------------- Name: Robert P. Nault Title: Senior Vice President [SCHEDULES INTENTIONALLY OMITTED} -16- EX-13 10 1998 ANNUAL REPORT 1 Exhibit 13 The Pioneer Group, Inc. 1998 Annual Report to Stockholders. [FRONT COVER] [Pioneer Logo] The Pioneer Group, Inc. [Graphic of ship sailing] 1998 2 The Pioneer Group, Inc. Pioneer Investment Management Pioneer Investment Management distributes mutual funds in the U.S. and manages assets on behalf of individual and institutional clients. This business unit also distributes abroad our core U.S. mutual funds and our offshore, Dublin-based mutual funds. Pioneer International Financial Services Pioneer International Financial Services applies Pioneer's expertise in asset gathering and management to selected countries and markets. This business unit builds domestic financial service franchises that invest in their home markets and serve local investors. Pioneer Global Investments Pioneer Global Investments comprises our asset development capabilities. These currently include gold mining, timber, venture capital and real estate. Through sale or partnership arrangements, several of our investments are now in the value realization stage. "Last year represented a turning point for Pioneer - one in which we sharpened our focus on our core investment management strengths and honed our organizational structure. We are committed to our 70-year tradition of service and building value for our stockholders and clients. We will continue building a company with impressive capabilities and a discerning eye for new opportunities." John F. Cogan, Jr., President The Pioneer Group, Inc. 1998 3 [Photo of Philip L. Carret] Philip L. Carret 1896 - 1998 Philip L. Carret was founder of Pioneer Fund and Director Emeritus of The Pioneer Group, Inc. In 1924, while working for C.W. Barron as a financial reporter in Boston, Mr. Carret gathered $25,000 in a trust owned by himself, family and friends. With the reorganization of the trust in 1928 into the nation's fourth mutual fund - subsequently named Pioneer Fund - Mr. Carret helped usher in the modern financial services industry. Over the course of a rich and varied career, Mr. Carret was also a partner in a mining venture, book publisher, and author of several classic books on investing. He was a passionate global traveler and a connoisseur of solar eclipses. In all his endeavors, Mr. Carret displayed a broad intellectual curiosity, openness to new ideas, continuing optimism, patience, wit, and exceptional common sense. He passed away in May 1998 at the age of 101. We at Pioneer shall miss him greatly.
Table of Contents Chairman's Letter 2 Pioneer Investment Management 6 Pioneer International Financial Services 10 Pioneer Global Investments 12 Financial Review 15
1 4 [Photo of John F. Cogan, Jr.] John F. Cogan, Jr. President Fellow Stockholders: In 1998, Pioneer experienced a confluence of challenging events that was unique in our company's history. At home, despite great volatility in the stock market, we enjoyed a year of record revenues and assets under management, and strong profits from our core investment management business. Our domestic strength, however, was not enough to offset the difficult environment abroad. Turmoil in Russia led to devaluation of the ruble and all of that country's assets, including our banking operations, securities brokerage and investment management businesses. The low prices of gold weighed heavily on our Ghanaian gold mine. And Asia's slumping economies depressed the market for our Russian timber operations. These economic hurdles were major factors contributing to the company's overall loss for the year of $33.5 million, or $1.32 per share, on revenues of $324.9 million, as compared to net income of $29.2 million, or $1.14 per share, on revenues of $330.5 million in 1997. A Strategic Review and Restructuring Before elaborating on operating results for 1998, I would like to discuss the strategic review and restructuring program that Pioneer undertook in 1998. We believe that the new structure will be the foundation for future profitable growth well into the next century. Pioneer is entrepreneurial in spirit, and we have always been aware that new opportunities carry a degree of risk. For this reason, on an ongoing and periodic basis, we reassess whether nascent operations merit continued investment or a change in strategy. While we certainly did not foresee the convergence of so many difficult circumstances affecting all of our businesses in 1998, Pioneer was fortunate to have already been in the midst of a broad strategic review. The conclusion of our strategic review was that we should reposition Pioneer's assets and re-focus our energies on our core capabilities of investment management and asset development. While it will take time to fully accomplish this undertaking, we are now moving to capture the growth in the value of several of our asset development endeavors. We recently sold our interests in the assets of our U.S. venture capital business and are seeking to sell our Ghanaian gold mine. Additionally, we are seeking a strategic partner to strengthen and bolster our results - and mitigate Pioneer's risk - in our Russian Far East timber operation. 2 5 These are the opening moves through which we intend to reduce debt and achieve more consistent earnings growth. To effectively implement these priorities, we have realigned Pioneer's operating units into three strategic business units: Pioneer Investment Management, Pioneer International Financial Services and Pioneer Global Investments, each with a strong, focused and committed management team. To support and link the new business units, we have also heightened the importance of two departments. The global operations and technology department, under William Smith's leadership, enables Pioneer to harness the increasing opportunities offered by new information and processing technology. This area provides superior record keeping and transfer agent services for more than 4 million fund shareowner accounts worldwide, and maintains Pioneer's corporate operating platform at the highest industry standards. Under the leadership of our new chief financial officer, John Boynton, the finance department is significantly strengthening our financial planning, and is implementing more advanced financial performance measurement systems to drive greater discipline and bottom-line accountability. With the completion of Pioneer's strategic review and corporate restructuring, we have increased our management depth, leveraged the teamwork of our professionals, and streamlined the company's overall cost structure with tightened expense controls. We believe that the new corporate structure and management teams provide a strong foundation for building Pioneer's future within our core capabilities of investment management and asset development. Following is an overview of the major contributors to 1998's results, grouped by our new strategic business units. A fuller discussion is included in the sections that follow. Pioneer Investment Management Despite the volatility that characterized Wall Street in 1998, our core investment management, mutual fund distribution and institutional businesses continued their upward trends, with net income rising 12.1% to $36.0 million, fueled both by the strong performance and sales of a number of our funds and by the gain from the sale of our Class B Share rights. For the year, sales of domestic mutual funds increased 39% to $3.9 billion and net sales rose over 105% to $1.6 billion. These results are the product of years of strengthening our investment management expertise, sharpening our mutual fund mix and broadening our distribution channels. Pioneer International Financial Services The results for Pioneer International Financial Services reflect both the turmoil in Russia and the expenses associated with building our franchise as one of Poland's leading financial service providers. Pioneer International Financial Services posted a loss from continuing operations of $17.7 million, compared to net income of $5.9 million in 1997. The bulk of the losses stemmed from Russia, as mentioned above. In response, we have reduced our Russian operations to a prudent level and significantly pared expenses. In sharp contrast to Russia, in 1998 Poland's transition to a free market economy continued to mature in a measured and positive manner. However, with the investments we are making to build market share as a part of the country's far-reaching pension system reform program, and the relatively weak stock market conditions that prevailed in both Poland and the Czech Republic, our Central European operations posted a loss for the year. 3 6 Pioneer Global Investments Results for Pioneer Global Investments were shaped principally by prices for gold and timber, which were at or near recent historic lows in 1998, as well by various challenging operating conditions. Overall, Pioneer Global Investments lost $41.2 million in 1998, compared to a loss of $6.9 million in 1997. Our gold mine in Ghana, which is in the process of being sold, posted a loss of $19.8 million in 1998, compared to a loss of $2.8 million in 1997. In addition to the lingering low commodity price for gold, the loss was also due to continuing productivity shortfalls resulting in reduced output. Our Russian timber operation was hindered by several factors - principally Asia's economic woes - which led to a loss of $18.7 million in 1998, compared to a loss of $6.7 million in 1997. However, the picture did brighten significantly in the fourth quarter with a pick-up in productivity and a sharp rebound in timber prices. Priorities and Growth Initiatives In 1999, our priorities are well defined and straightforward. We will strive to achieve our growth objectives, control expenses, reduce debt, and divest ourselves of the non-core ventures discussed earlier. Also, we will seek to realize an increased level of profitability from our domestic and international investment management businesses. These measures will help put us on the path toward the sustainable, consistent earnings growth that we seek for our stockholders. And they will enable us to re-focus our energies on growth initiatives within our core capabilities, which include: Investment management expertise In 1998, we added senior management professionals to both equity and fixed- income teams. Fundamental, proprietary investment research has been Pioneer's hallmark for seven decades, and we will continue to invest in the expertise necessary to maintain this competitive advantage. Domestic distribution Broadening and strengthening our mutual fund distribution network and our institutional sales efforts are ongoing priorities at Pioneer. Our approach in 1999 will be consistent with that of previous years: to build on the foundation of our first-class sales and marketing team. We are combining state-of-the-art sales presentation technology and personal service to give investment professionals and institutional clients every reason they need to start - and to continue - doing business with Pioneer. Global distribution Pioneer began distribution of our funds in Germany more than 30 years ago, and we continue to see a growing number of opportunities throughout Europe, especially with an increasingly unified European economic structure. Over the past several years, we have been introducing Dublin-registered offshore funds to broaden the distribution effort not only in Europe, but also around the globe. This effort will continue in 1999 and beyond, with carefully targeted new funds and sales initiatives. 4 7 [Photo of Pioneer's executive management team] Pioneer's executive management team: William H. Smith, Jr., Alicja K. Malecka, John A. Boynton, John F. Cogan, Jr., David D. Tripple, and Stephen G. Kasnet Global retirement services Over the last 70 years, individuals in the U.S. have increasingly looked to mutual funds and other privately managed accounts to provide security in retirement. This trend is now in full force globally and represents an historic business opportunity - one that is a major focus for Pioneer. Our unique role in Poland's pension privatization illustrates just one way in which we are committing our resources in this area. We are also pursuing new distribution channels with the capability to serve clients ranging from individual investors to the largest corporations. With the restructuring, we have set ambitious goals as we approach the twenty-first century: * to rank consistently as a top-tier investment manager and asset developer, and * to apply our unique expertise in providing first-class financial services to individuals and institutions worldwide, founded on increasingly sophisticated technology and innovation. Last year represented a turning point for Pioneer - one in which we sharpened our focus on our core strengths and honed our organizational structure to best complement the team effort of our talented professional staff. We are committed to our 70-year tradition of service and building value for our stockholders and clients. We shall continue building a company with impressive capabilities and a discerning eye for new opportunities. The pages that follow describe our accomplishments and plans more fully, and underscore our confidence in the course we are charting. Sincerely, /s/ John F. Cogan, Jr. John F. Cogan, Jr. President March 25, 1999 5 8 Pioneer Investment Management [Photo of person sailing] "In 1998, Pioneer solidified its reputation as an asset gatherer and manager, with some impressive performance rankings, another year of record sales and growing recognition as a provider of retirement services. In 1999, we see opportunities for significant global expansion and for opening up new distribution channels." David D. Tripple, President Pioneer Investment Management During his 25-year career at Pioneer, David D. Tripple previously served as President of Pioneering Management Corporation and Chief Investment Officer. 9 Pioneer Investment Management (Pioneer Investments), our U.S. investment management arm, manages assets on behalf of individual and institutional clients. Pioneer Investments also distributes abroad our core U.S. mutual funds and offshore, Dublin-based mutual funds. Investment Management Over the last seven decades, Pioneer has remained true to a single goal: to produce superior investment performance in all market environments. During that time, we have also witnessed dramatic growth in competition in the U.S. mutual fund arena, from four funds to well over 8,000. Competition among money managers both here and abroad is rapidly increasing. Staying on the leading edge of this universe requires a strong effort and commitment of resources. To that end, over the last several years we have broadened our product line and added depth and expertise to our investment management staff. In 1998, we were gratified that this commitment was securely in place as the market proved to be a challenge for money managers in many sectors. Despite a gain of almost 29% by the Standard & Poor's 500 Index, stocks of smaller companies suffered their worst relative performance in the post-war period and emerging markets plunged in economic turmoil. Managers using a value investment style, as do most of Pioneer's fund managers, were particularly affected. Even blue-chip managers struggled to keep up with the S&P 500, with just 13% of equity mutual funds outperforming that benchmark. While Pioneer's funds with exposure to the small-cap and emerging markets sectors were not immune to the difficult environment, five of Pioneer's 22 funds ranked in the top 25% of their respective categories. In addition, two of Pioneer's funds were among those few that outperformed the S&P 500. In 1998, we continued to build our investment management team with the addition of four senior portfolio managers and team leaders, on both the equity and fixed-income sides. These additions complemented the continuing internal development of our investment staff. A team of investment professionals composed of portfolio managers and analysts supports each Pioneer fund to ensure that maximum resources are brought to bear on every portfolio we manage. We have four teams providing comprehensive coverage of the U.S. equity markets, as well as teams for both international equity and fixed income. A growing number of Pioneer products draw upon the combined skills of several teams. Pioneer has also been aggressively upgrading the technology that supports all of our investment operations, from analysis and decision-making to execution and confirmation. In 1998, we made significant progress in this ongoing effort, introducing a state-of-the-art internal management and electronic trading and compliance system. U.S. Asset Gathering Mutual fund distribution Pioneer funds have always been sold exclusively through investment representatives, and providing these professionals with top-flight service is a major focus of our business. That is why we are particularly gratified that so many brokers, dealers and independent financial planners rate us highly. In the 1998 national broker survey by Dalbar, a nationally recognized broker research firm, Pioneer ranked first in 21 of 42 mutual fund and variable annuity categories, including general opinion, product information, overall marketing and overall operations. These are truly exceptional results. Quality service - along with performance - was a major factor propelling Pioneer's 39% increase in sales for 1998 to $3.9 billion, despite one of the most volatile stock markets in recent memory. Over the last five years, domestic sales of Pioneer funds have increased by an annual average of 34%. In comparison, other "non-proprietary" mutual fund 7 10 groups - those not captive of a broker-dealer or other financial institution - have increased an average of only 14% over the comparable period. Behind the sales numbers is an equally important trend. Pioneer's service orientation has resulted in a steadily increasing number of individual dealers who sell a significant amount of our funds: the number of investment professionals selling $1 million or more grew by 26% in 1998, a trend that has been consistently positive since 1991. Retirement Products Enjoying a secure, comfortable retirement is a key goal of an increasing number of individuals worldwide. The continuing national debate over the future of Social Security has heightened awareness of the growing role performed by Pioneer and other private-sector financial intermediaries in helping investors meet their goals. As Congress has added more retirement-oriented incentives to the tax code, Pioneer has been at the forefront of educating investors about how they can best take advantage of these measures. For example, the Roth IRA, passed into law in 1997, has been one of the most popular new products in the retirement arena. However, the new IRA rules added another layer of complexity to financial planning. Pioneer responded with the "IRA Roadmap," which helps investors cut through the thicket of requirements. The Roadmap has become a standard reference piece for investment professionals and is boosting Pioneer's brand recognition and sales. Pioneer provides innovative and custom-tailored retirement plans for the broad range of needs in Corporate America. We are especially focused on small businesses, which represent a significant market for financial service providers. We offer traditional 401(k), SIMPLE, SEP, 403(b) and profit sharing plans, including newer adaptations recently made possible by the tax code. A good example is our "Double Advantage Safe Harbor" 401(k) plan, available for the first time in 1999. The plan frees small businesses from the complexities of "top-heavy" testing, and adds flexibility in allocating company contributions. Sales of Pioneer retirement plans increased by 77% in 1998, including a 124% increase in new accounts. As of the end of 1998, retirement-related assets represented more than 40% of Pioneer's $23 billion in assets under management. Pioneer Vision Variable Annuity represents an important option for investors, as part of their overall retirement savings program. The product offers investors a tax- advantaged way to save for the future while benefiting from the same professional investment management enjoyed by shareowners of Pioneer funds. In 1998, we added two new investment portfolios to Pioneer Vision - Europe and Emerging Markets. The 12 investment options in Pioneer Vision give investors the full flexibility they need in creating - and living with - an investment program designed to last through their retirement years. Institutional Pioneer's strengths in performance and service are well suited to the institutional marketplace, which represents in excess of $6 trillion of assets in the U.S. and an additional $10 trillion worldwide. Pioneer is committed to expanding our institutional market share, building on our depth of fundamental research, original thinking and disciplined adherence to investment style - qualities that are in great demand by consultants and their clients. In 1998, Pioneer invested significantly in marketing and sales, marketing support, client service and new business development to support continued building of institutional assets under management. Pioneer's focus is on the entire range of institutional clients, including pension, foundation, endowment, subadvisory and insurance accounts, both in the U.S. and abroad. In 1999 Pioneer will be targeting pension-related asset management accounts, through a variety of relationships with insurance companies, defined benefit plans, municipalities, banks and other financial intermediaries. 8 11 Shareowner Service Pioneer is committed to providing our mutual fund shareowners and their investment representatives with service that ranks among the best in the financial services industry. We have a philosophy of continually striving to improve account access, while maximizing the information and educational resources at our clients' fingertips, through materials such as our comprehensive shareowner service guide and complete year-end tax materials. In 1998, we undertook projects to build and improve our shareowner web site, redesign our quarterly newsletter and completely revamp our single and combined account statements. To guide our service efforts, we solicit feedback from shareowners on a quarterly basis. In 1998, we received a 96.5% approval rating, based on responses to 8,000 surveys mailed to customers over the course of the year. Offshore Asset Gathering In the U.S., about 40% of households own mutual funds, representing about $5.5 trillion in assets. The combined mutual fund assets of France, Italy, Japan, UK, Germany, Spain and Canada add up to less than half of that. In the next decade, Pioneer believes that the mutual fund will emerge on a global scale, buoyed by several related trends, including a growing need for alternatives to bank savings, increased consumer sophistication and the privatization of many government-managed retirement plans. Pioneer first began an overseas distribution network in Germany more than 30 years ago, with the offering of two U.S.-registered funds, and we have continued to build our European presence. With the advent of the Euro in 1998 and the prospect of further economic integration in the near future, this is an especially exciting time to extend our franchise elsewhere in Europe and elsewhere around the globe. In recent years, additions to our offshore product line included seven funds registered in Dublin, the site of our international service center. Irish registration facilitates the global offering of these funds. In 1998, we established a sales presence in Spain in preparation for wider distribution of our funds. In addition, we are rapidly building partnerships with broker-dealers and banks with global distribution capabilities. Our U.S.-based investment professionals manage all of the offshore assets raised by Pioneer Investments. In contrast, Pioneer International Financial Services, discussed in the following section, develops a strong local presence by building and managing domestic financial service franchises in selected countries. The synergy developed through the interaction of our strategic business units adds to the unique base of research and expertise that supports all Pioneer investment professionals. 9 12 Pioneer International Financial Services [Photo of ship sailing] "The demand for mutual funds has grown dramatically in recent years, fueled in large measure by the increasing global need for individual retirement savings. With 30 years of international experience, and a unique track record in developing the technological infrastructures for new markets, Pioneer is well-positioned to service - and profit from - this growing need." Alicja K. Malecka, President Pioneer International Financial Services Alicja K. Malecka has over 25 years of experience in international banking and capital markets and has directed Pioneer's efforts in Poland and the Czech Republic since 1992. 13 Pioneer International Financial Services applies Pioneer's expertise in asset gathering and management to selected countries and markets. With local staff and business partners, Pioneer International Financial Services builds domestic financial service franchises that invest in their home markets and serve local investors. Poland Since establishing the first mutual fund in Poland in 1992, Pioneer has become one of Poland's premier financial service providers. Pioneer manages four mutual funds with approximately $325 million under management - roughly 70% of all the assets invested in Polish mutual funds. In addition, Pioneer provides related record keeping and transfer agent services. This technology was adapted from Pioneer's U.S. systems and customized to meet the unique needs of our Polish operation. In 1998, Pioneer became the first organization to be licensed and registered to gather and manage assets as part of Poland's far-reaching pension system reform program. The reform program consists of three "pillars," or stages. Pillar I is an extension of the current "pay-as-you-go" government-managed pension system. Pillar II, the program under which Pioneer became licensed, is a private-sector program in which individuals select financial service providers. Participation in Pillar II is mandatory for all employees under 30 years old, and elective for those from 30 to 50. Pillar III is a voluntary, corporate-sponsored, private-sector program - much like the 401(k) market in the U.S. Clearly, 1999 will be crucial for Pioneer in terms of extending our dominant franchise in Poland, as Pillar II gets underway. The influx of new money is likely to spark significant growth in Poland's financial markets - currently, just 1% of the population invests. However, competition with other financial intermediaries will be intense and, even with Pioneer's substantial franchise in the mutual fund sector, our pension fund programs will require additional near-term investment to bolster our sales, distribution and processing capabilities. Czech Republic In 1995, Pioneer was the first non-Czech company to establish an open-end mutual fund in the Czech Republic. During 1998, the assets under managment in our Czech Fund grew by nearly 60%, and by the end of the year we managed $68 million for 32,000 clients. We are pleased that in a young, rapidly growing financial market, Pioneer Czech Investment Company has established a reputation for integrity and expert management. Russia By any measure, 1998 was a year of major setbacks to Russia's effort to develop its economy along a free-market model. The well-publicized economic turmoil resulted in both a currency devaluation and a sharp reduction in securities trading. In response to a truly challenging environment and trying times, our majority-owned bank suspended operations in the second quarter and was subsequently sold, our 51%-owned Pioneer First Investment Fund took a reduction in the cost basis of certain of its holdings in the third and fourth quarters, and early in 1999 we took steps to close our majority-owned brokerage company. In sum, we have reduced our Russian operations to a prudent level required to manage the Pioneer First Investment Fund and two smaller mutual funds, as we await the recovery of the Russian capital markets. India Pioneer offers an array of mutual funds to Indian citizens through our 48%-owned joint venture, Kothari Pioneer AMC, headquartered in Chennai (Madras). Since 1993, when we established the first private sector Indian mutual fund - Kothari Pioneer Prima Fund - assets under management have grown to approximately $110 million, on behalf of over 300,000 accounts. Kothari Pioneer's distribution network includes 17 regional and branch offices and more than 16,000 investment professionals throughout the country. The countries in which Pioneer International Financial Services builds its franchises are chosen carefully. They boast a newly emerging middle class that has embraced a free market economy. And they are receptive to new tools for savings and investment in pursuit of long-term financial security. Pioneer enters such markets only when we believe our unique expertise can be applied profitably to help them achieve that important goal. 11 14 Pioneer Global Investments "Pioneer Global Investments seeks asset development opportunities that offer the potential for high return on investment, where the risks are readily gauged and the exit strategies are clearly defined. We view our strengths as those of identifying value and nurturing young businesses to the initial commercialization stage. As such, we expect to grow the enterprises and realize their increased value within an intermediate-term time frame." Stephen G. Kasnet, President Pioneer Global Investments [Photo of ship sailing] Stephen G. Kasnet has 20 years of institutional advisory, capital market and real estate investment and management experience. Mr. Kasnet previously served as president of Pioneer Real Estate Advisors. 15 Pioneer Global Investments leverages our asset development investments and capabilities. These currently include gold mining, timber, venture capital and real estate. Several of our investments are now in the value realization stage, as discussed more fully below. Gold Mining In 1998, we decided to pursue the sale of Pioneer Goldfields, holder of our 90% equity interest in Teberebie Goldfields Limited, as discussed earlier. Since securing the site concession in 1986, Pioneer successfully proved feasibility and developed it into a world-class gold mine, achieving full-scale commercial production in 1991. In light of Pioneer's overall restructuring, and the broad consolidation now taking place in the mining industry, a sale will realize the present value of Pioneer Goldfields and allow us to use the proceeds to reduce debt and make investments in our core businesses. To that end, we have retained Salomon Smith Barney as our investment-banking advisor, and an offering memorandum is being finalized for circulation to a select group of potential buyers. In 1998, the gold mine struggled with continuing production shortfalls due to drought-induced hydroelectric power shortages in Ghana and unexpected variability in gold recovery and crusher availability associated with ore that is generally less weathered and harder than that previously processed. As a result, gold production dropped 4% to 253,200 ounces in 1998. The average selling price fell 10% to $305 per ounce. The resulting decline in revenues was exacerbated by the expiration of put options in September. At prevailing gold prices, it has been uneconomical to extend the "floor" program for our gold sales. Timber Production Pioneer Forest is our timber production subsidiary in the Khabarovsk Territory of Russia. Pioneer Forest's holdings consist of annual cutting rights to 1.2 million cubic meters of timber harvested from three long-term leaseholds on 2.7 million acres, a land area equal to roughly 90% of the state of Connecticut. We are actively seeking to expand our cutting rights, which we believe will significantly increase the value of our holdings and further enhance Pioneer Forest's attractiveness to top-tier prospective partners. Results for the timber operations were constrained in 1998 by the troubled economies of neighboring Asian countries, principally Japan, with the average realized selling price for the year at $37 per cubic meter, down 39% from 1997. Additionally, harvesting and production of timber was suspended in mid-year for over four months under a governmental decree as logging crews were redeployed to help fight forest fires in the region. At the same time, there were several bright spots as 1998 drew to a close. Increasing the productivity of our crews was a key goal for the year, and we are pleased that we exceeded our monthly production targets throughout the fourth quarter. For the year we shipped 280,000 cubic meters, an increase of over 44% from 1997. In addition, prices for our shipped timber mix rebounded 82% from their average in the third quarter to an average of $51 per cubic meter in the fourth quarter. Revenues and expenses are now at budgeted levels, and the operations are currently self-sustaining on a cash-flow basis. To help smooth out the timing of cash flow, Pioneer has entered into an advanced-selling arrangement for timber harvested but not shipped during the first five months of 1999. As we seek a strategic partner, we continue our efforts to increase production and productivity in 1999. 13 16 Direct Equity / Real Estate Pioneer is manager of several direct equity and real estate funds. In March 1999, we sold our interests in the assets of our U.S. venture capital business as a way to enhance liquidity, reduce debt and fund investments in our core businesses. While we have sold our interests in domestic venture capital investments, Pioneer continues to view direct equity investment and management of institutional assets as squarely within our core investment management strategy and capabilities. We see great promise in our direct equity and real estate funds in Central Europe. We will retain management of these funds, and expect that they will provide value for our institutional clients. These initiatives include the following: $60 million Pioneer Poland Fund As of the first quarter of 1999, the fund is 70% invested in a portfolio of growing private Polish businesses; the balance is expected to be invested in the near term, based on commitments currently in place. $100 million Pioneer Central Europe Fund II Based on the success of the Poland Fund and drawing upon Pioneer's regional presence and knowledge, in 1999 we intend to organize a follow-on fund which will seek direct equity opportunities in a portfolio of private businesses throughout Central Europe. $60 million Pioneer Polish Real Estate Fund This fund, organized in 1997, is in the process of finalizing commitments and investing in a portfolio of commercial real estate opportunities. We anticipate that the fund will be fully invested within three years. $240 million Pioneer-Banc One Property Fund We intend to close this fund in 1999, in partnership with Banc One Capital Corporation, to invest in properties in Central Europe and the Newly Independent States of the former Soviet Union. In recognition of Pioneer's expertise in both real estate investment and the region, the debt portion of the financing of the fund is fully guaranteed by the Overseas Private Investment Corporation, an arm of the U.S. Commerce Department. Pioneer will continue to focus on opportunities with highly favorable risk/reward profiles where assets can be developed within well-defined time frames. We will proceed on a highly selective basis, where Pioneer's unique investment management skills can build value for our stockholders. 14 17 Financial Review [Photo of ship sailing] Financial Snapshot 16 Management's Discussion and Analysis 18 Market Risk Disclosure 29 Report of Independent Public Accountants 31 Consolidated Financial Statements 32 Notes to Consolidated Financial Statements 36
18 Financial Snapshot Assets Under Management at December 31: Dollars in Millions
1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- U.S. Registered Mutual Funds ............. $21,985 $19,635 $15,704 $12,701 $9,925 Non-U.S. Registered Mutual Funds ......... 814 715 502 280 589 ------- ------- ------- ------- ------ Total Registered Mutual Funds .......... 22,799 20,350 16,206 12,981 10,514 Closed-end and subadvised funds and private institutional accounts* .... 574 691 775 764 589 ------- ------- ------- ------- ------ Total .................................... $23,373 $21,041 $16,981 $13,745 $11,103 ======= ======= ======= ======= ======
* Excludes assets of funds managed by foreign joint ventures and venture capital pools. Quarterly Financial Data Dollars in Thousands Except Per Share Amounts
First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- 1998 Total revenues and sales .................................. $77,892 $81,583 $83,719 $81,680 ------- -------- -------- -------- Net income (loss) from continuing operations .............. 5,337 (6,211) (15,937) (10,208) Net income (loss) from discontinued operations ............ 10 (5,919) (540) -- ------- -------- -------- -------- Net income (loss) ......................................... $5,347 ($12,130) ($16,477) ($10,208) ======= ======== ======== ======== Per common share: Earnings (loss) from continuing operations .............. $0.21 ($0.25) ($0.63) ($0.40) Earnings (loss) from discontinued operations ............ -- ($0.23) ($0.02) -- ------- -------- -------- -------- Total earnings (loss) ................................... $0.21 ($0.48) ($0.65) ($0.40) ======= ======== ======== ======== Cash dividends declared ................................. $0.10 $0.10 -- -- ======= ======== ======== ======== Market price range:* High ................................................. $31-1/4 $33 $28-1/8 $19-3/4 Low .................................................. $25-1/4 $25-3/16 $15-1/16 $11-1/2 1997 Total revenues and sales .................................. $67,667 $77,422 $94,929 $90,498 ------- -------- -------- -------- Net income (loss) from continuing operations .............. 7,474 5,455 8,926 7,858 Net income (loss) from discontinued operations ............ (165) (480) 596 (498) ------- -------- -------- -------- Net income (loss) ......................................... $7,309 $4,975 $9,522 $7,360 ======= ======== ======== ======== Per common share: Earnings (loss) from continuing operations .............. $0.29 $0.21 $0.35 $0.31 Earnings (loss) from discontinued operations ............ -- ($0.02) $0.02 ($0.02) ------- -------- -------- -------- Total earnings (loss) ................................... $0.29 $0.19 $0.37 $0.29 ======= ======== ======== ======== Cash dividends declared ................................. $0.10 $0.10 $0.10 $0.10 ======= ======== ======== ======== Market price range:* High ................................................. $26-3/4 $26-1/2 $32-1/2 $33-3/8 Low .................................................. $22-7/8 $23 $22-3/4 $27-1/8
* The Company's common stock is quoted on the NASDAQ National Market under the symbol PIOG. Prices reflect the closing price of the common stock on the NASDAQ National Market. At March 1, 1999, the Company had approximately 5,000 shareholders. 16 19 Sales of Mutual Fund Shares: Dollars in Millions
Year Ended December 31, 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- U.S. Registered Mutual Funds: Sales* ................................. $3,971 $2,866 $2,602 $1,752 $1,499 Redemption of shares ................... 2,410 2,106 1,431 1,050 860 ------ ------ ------ ------ ------ Net sales of shares .................... $1,561 $ 760 $1,171 $ 702 $ 639 ====== ====== ====== ====== ======
Year Ended December 31, 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- Non-U.S. Registered Mutual Funds: Sales* ................................... $241 $410 $217 $ 25 $734 Redemption of shares ...................... 160 147 81 381 584 ---- ---- ---- ----- ---- Net sales (redemptions) of shares ......... $ 81 $263 $136 $(356) $150 ==== ==== ==== ===== ====
* Includes reinvestment of dividends, but excludes money market funds and funds managed by foreign joint ventures. Five Year Summary of Selected Financial Data: Dollars in Thousands Except Per Share Amounts
Year Ended December 31, 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- Results of Operations Revenues and sales ..................... $ 324,874 $ 330,516 $ 224,146 $ 196,334 $ 171,702 Costs and expenses ..................... 343,492 282,789 203,289 157,842 119,568 Unrealized and realized (gains) losses on venture capital and marketable securities investments, net .......... (4,418) (27,460) (12,279) (9,345) 946 Interest expense ....................... 16,303 11,395 3,318 1,024 1,305 Public offering costs .................. -- -- -- 4,863 -- Other, net ............................. 1,186 606 1,716 735 112 ---------- ---------- ---------- ---------- ---------- Income (loss) from continuing operations before provision for income taxes and minority interest .................... (31,689) 63,186 28,102 41,215 49,771 Provision for income taxes ............. 1,771 27,664 11,605 16,071 14,182 ---------- ---------- ---------- ---------- ---------- Income (loss) from continuing operations before minority interest ............. (33,460) 35,522 16,497 25,144 35,589 Minority interest ...................... (6,441) 5,809 1,220 2,965 2,129 ---------- ---------- ---------- ---------- ---------- Net income (loss) from continuing operations ................ (27,019) 29,713 15,277 22,179 33,460 Income (loss) from discontinued Russian banking operations ........... (6,449) (547) 3,560 632 -- ---------- ---------- ---------- ---------- ---------- Net (loss) income ...................... $ (33,468) $ 29,166 $ 18,837 $ 22,811 $ 33,460 ========== ========== ========== ========== ========== Diluted earnings (loss) per share: Continuing operations ................ $ (1.07) $ 1.16 $ 0.60 $ 0.88 $ 1.32 Discontinued operations .............. (0.25) (0.02) 0.14 0.02 -- ---------- ---------- ---------- ---------- ---------- Total diluted earnings (loss) per share $ (1.32) $ 1.14 $ 0.74 $ 0.90 $ 1.32 ---------- ---------- ---------- ---------- ---------- Cash dividends per share ............... $ 0.20 $ 0.40 $ 0.40 $ 0.40 $ 0.315 ========== ========== ========== ========== ========== Diluted shares outstanding ............. 25,350,000 25,630,000 25,460,000 25,311,000 25,354,000 Long-term notes payable ................ $ 133,395 $ 168,424 $ 149,500 $ 11,048 $ 9,101 Total assets ........................... $ 499,461 $ 567,214 $ 456,782 $ 310,790 $ 202,085 Stockholders' equity ................... $ 154,802 $ 183,687 $ 162,473 $ 150,343 $ 134,422 Stockholders' equity per share ......... $ 5.93 $ 7.28 $ 6.50 $ 6.05 $ 5.45
17 20 Management's Discussion & Analysis of Financial Condition and Results of Operations OVERVIEW The consolidated financial statements of The Pioneer Group, Inc. (the "Company") include the Company's three strategic business units. Pioneer Investment Management includes the investment management, marketing, distribution and servicing of the Company's mutual funds based in the United States and offshore funds based in Ireland. This business unit also provides investment management services for institutional investors. Pioneer International Financial Services includes the Company's investment management and financial services businesses in Poland, the Czech Republic, Russia and India. Pioneer Global Investments includes the Company's worldwide venture capital, real estate, gold mining and timber operations. Management's Discussion and Analysis of Financial Condition and Results of Operations is presented in four sections: Results of Operations, Liquidity and Capital Resources-General, Future Operating Results and Year 2000. RESULTS OF OPERATIONS Consolidated Operations The Company reported a loss of $33.5 million in 1998, or $1.32 per share, on revenues of $324.9 million, compared to net income of $29.2 million, or $1.14 per share, on revenues of $330.5 million in 1997. The Company had net income of $18.8 million in 1996, or $0.74 per share, on revenues of $224.1 million. Results for 1998 included a loss of $6.5 million, or $0.25 per share, from the Company's discontinued Russian banking operations. These discontinued operations lost $0.5 million in 1997, or $0.02 per share, in contrast to net income of $3.6 million, or $0.14 per share in 1996. Worldwide assets under management were $23.4 billion at December 31, 1998, compared to $21.0 billion at December 31, 1997. The increase in assets under management was principally attributable to strong net sales of U.S. registered mutual funds and a higher U.S. stock market. Table 1 details revenues and net income by business segment for 1998, 1997 and 1996. TABLE 1 Revenues And Net Income (Dollars in millions)
Revenues Net Income (Loss) ------------------------ --------------------------- Year Ended December 31, Year Ended December 31, ------------------------ --------------------------- Business Segment 1998 1997 1996 1998 1997 1996 ---- ---- ---- ---- ---- ---- Pioneer Investment Management: Mutual Funds and Institutional Accounts .......................... $200.0 $168.5 $126.4 $ 30.7 $ 32.1 $ 17.4 Sale of Class B Share Rights ........ 8.1 -- -- 5.3 -- -- ------ ------ ------ ------ ------ ------ 208.1 168.5 126.4 36.0 32.1 17.4 ------ ------ ------ ------ ------ ------ Pioneer International Financial Services: Russia .............................. 10.3 42.2 6.1 (13.0) 5.8 (2.3) Central and Eastern Europe .......... 15.3 15.5 10.6 (4.2) 0.1 (3.6) Asia ................................ -- -- -- (0.5) -- -- ------ ------ ------ ------ ------ ------ 25.6 57.7 16.7 (17.7) 5.9 (5.9) ------ ------ ------ ------ ------ ------ Pioneer Global Investments: Venture Capital ..................... 2.2 2.3 2.6 1.3 4.9 3.1 Real Estate ......................... 1.2 0.6 0.1 (2.9) (1.9) (0.2) Gold Mining ......................... 77.3 89.5 78.3 (19.8) (2.8) 2.6 Timber .............................. 10.5 11.9 -- (18.7) (6.7) (0.5) Other ............................... -- -- -- (1.1) (0.4) (0.6) ------ ------ ------ ------ ------ ------ 91.2 104.3 81.0 (41.2) (6.9) 4.4 ------ ------ ------ ------ ------ ------ Interest Expense and Other Expenses ..... -- -- -- (4.1) (1.4) (0.7) ------ ------ ------ ------ ------ ------ Total From Continuing Operations $324.9 $330.5 $224.1 $(27.0) $ 29.7 $ 15.2 ------ ------ ------ ------ ------ ------ Discontinued Russian Banking Operations . -- -- -- (6.5) (0.5) 3.6 ------ ------ ------ ------ ------ ------ Totals ...................... $324.9 $330.5 $224.1 $(33.5) $ 29.2 $ 18.8 ====== ====== ====== ====== ====== ======
18 21 Pioneer Investment Management 1998 Compared to 1997 Net income increased by $3.9 million to $36.0 million. Results for 1998 included a one-time gain of $5.3 million from the Company's sale of its rights to receive future distribution fees and deferred sales charges from the distribution of Class B Shares of its U.S. based mutual funds. Pioneer Investment Management's assets under management at December 31, 1998 were approximately $23.0 billion compared to $20.6 billion at December 31, 1997. In 1998, the Company had U.S. registered mutual fund sales (including reinvested dividends) of $3.9 billion compared to $2.9 billion in 1997, and net sales of $1.6 billion compared to net sales of $0.8 billion in 1997. Revenues of $208.1 million in 1998 increased by $39.6 million, or 24%. Management fee revenues of $130.5 million increased by $19.6 million, principally reflecting higher assets under management resulting from gains in the U.S. stock market and an increase in net sales of mutual fund shares. The Company also earned $8.1 million in revenues from the sale of its Class B share rights. Revenues from underwriting commissions, distribution fees, and shareholder servicing fees increased by $9.3 million to $57.4 million resulting from increased mutual fund sales, higher average Class B share assets under management, and increased mutual fund shareowner accounts. Costs and expenses increased by $33.2 million in 1998 to $149.5 million. The expense increase resulted principally from higher payroll costs, mutual fund distribution expenses and technology expenses. These increased expenses were incurred to strengthen the investment management team, broaden and expand mutual fund distribution and improve operating efficiencies. Pioneer Investment Management's effective tax rate for 1998 was 37% compared to 39% in 1997. The decrease resulted principally from a change in Massachusetts' tax law that provided certain tax incentives to Massachusetts based mutual fund companies which maintain and grow their Massachusetts employee base. 1997 Compared to 1996 Net income nearly doubled in 1997 versus 1996, increasing by $14.7 million to $32.1 million. Pioneer Investment Management's assets under management at December 31, 1997 were approximately $20.6 billion compared to $16.5 billion at December 31, 1996. In 1997, the Company had U.S. registered mutual fund sales (including reinvested dividends) of $2.9 billion compared to $2.7 billion in 1996, and net sales of $0.8 billion compared to net sales of $1.2 billion in 1996. Revenues of $168.5 million in 1997 increased by $42.1 million, or 33%. Management fee revenues of $110.9 million increased by $31.4 million, principally reflecting higher assets under management resulting from the strong U.S. stock market performance. Revenues from underwriting commissions, distribution fees, and shareholder servicing fees increased by $7.9 million to $48.1 million resulting from increased mutual fund sales, higher average Class B share assets under management, and increased mutual fund shareowner accounts. Costs and expenses increased by $20.0 million in 1997 to $116.3 million. The expense increase resulted principally from higher payroll costs, part of which related to the Company's efforts to strengthen its investment management personnel, higher expenses associated with the amortization of dealer advances resulting from sales of back-end load mutual fund shares, and higher office space costs. Pioneer Investment Management's effective tax rate for 1997 was 39% compared to 37% in 1996. Pioneer International Financial Services 1998 Compared to 1997 During 1998, Pioneer International Financial Services ("PIFS") lost $17.7 million from continuing operations on revenues of $25.6 million compared to net income of $5.9 million on revenues of $57.7 million in 1997. 19 22 Management's Discussion & Analysis (continued) Revenues from PIFS' Russian financial services operations decreased by $31.9 million to $10.3 million principally from the brokerage business. The reduced revenues led to a loss of $4 million in 1998 in the brokerage business. In response, the Company announced in the first quarter of 1999 the closing of its Russian brokerage subsidiary and reduced its remaining financial services staff and related expenses. In addition, the Company had significant losses of $6.3 million associated with cost basis adjustments of certain securities of Pioneer First Investment Fund, its majority-owned investment fund, to reflect the lack of liquidity in the trading market for Russian equity securities and the write-down of receivables of Pioneer First Investment Fund deemed uncollectible. Central European operations lost $4.2 million in 1998 compared to net income of $0.1 million in 1997. The 1998 loss was principally attributable to the Company's Polish financial services operations. Polish mutual fund assets under management decreased by approximately $100 million in 1998 to $350 million. The Company also experienced losses associated with its Polish brokerage business and costs from its new subsidiary established to solicit accounts and manage pension assets under Poland's pension system reform program. 1997 Compared to 1996 PIFS had net income of $5.9 million in 1997 on revenues of $57.7 million compared to a loss of $5.9 million on revenues of $16.7 million in 1996. Revenues from PIFS' Russian financial services operations of $42.2 million in 1997 increased by $36.1 million. These operations reported net income of $5.8 million in 1997 compared to a loss of $2.3 million in 1996. The significant revenue and net income improvements resulted from the Russian brokerage business which benefited from the record volume experienced in the Russian stock market and increased net realized gains from investments sold by Pioneer First Investment Fund. Revenues from the Company's Central European financial services operations of $15.5 million in 1997 increased by $4.9 million, principally from higher management fees. These operations had net income of $0.1 million in 1997 compared to losses of $3.6 million in 1996. The favorable net income improvement of $3.7 million was split almost evenly between the Polish financial services and Czech mutual fund operations. At December 31, 1997, mutual fund assets under management in the Company's four Polish mutual funds were $446 million, virtually unchanged from the December 31, 1996 level. Pioneer Global Investments 1998 Compared to 1997 and 1996 During 1998, Pioneer Global Investments lost $41.2 million on revenues of $91.2 million compared to a loss of $6.9 million on revenues of $104.3 million in 1997. In 1996, Pioneer Global Investments had net income of $4.4 million on revenues of $81.0 million. Net income from the Company's U.S. venture capital operations was $3.3 million in 1998, $6.3 million in 1997, and $4.5 million in 1996. The Company had significant gains in 1997 and 1996 from two of its portfolio companies which conducted public offerings. The Company had losses from its Central and Eastern Europe venture capital operations of $2.0 million in 1998 and $1.4 million in 1997 and 1996, principally associated with development costs of the Company's venture capital funds. In response, the Company announced the closing of its Russian venture capital operations in the fourth quarter of 1998. On March 18, 1999, the Company sold its direct investments and indirect interests of its U.S. venture capital business for $34.9 million. The sale was to an entity formed by management of the Company's venture capital division and a private equity partnership managed by a third party venture capital investor. As part of the Company's previously announced restructuring, proceeds of the sale will be used to repay financing from the Small Business Administration, to reduce debt outstanding under the Company's bank revolving credit facility and to fund investments in core businesses. During the first quarter of 1999, the Company expects to report a loss of approximately $3.1 million, or $0.12 per share, in connection with this transaction, including costs associated with the transaction. 20 23 The Company's real estate services operations reported losses of $2.9 million in 1998, $1.9 million in 1997 and $0.2 million in 1996. Most of the losses were attributable to costs associated with the development of the Company's Polish and Eastern Europe real estate investment and property and facilities management operations. The gold mining and timber businesses are discussed below. Gold Mining Business - -------------------- The results of the gold mining business are substantially attributable to the operations of Teberebie Goldfields Limited ("TGL"), the principal operating subsidiary of the Company's wholly owned subsidiary, Pioneer Goldfields Limited ("PGL"). The Company's reported earnings give effect to the 10% minority interest in TGL held by the Government of Ghana. Gold mining results are also affected by PGL's exploration activities in Africa and by the exploration activities in the Russian Far East of Closed Joint Stock Company "Tas-Yurjah Mining Company" ("Tas-Yurjah"), the Company's majority owned (95%) Russian subsidiary. Exploration costs are charged to operations as incurred. Recent Developments In the fourth quarter of 1998, TGL identified the source of lower than expected heap-leaching recoveries. Compared with the predominant material processed since project inception, the more recently processed ore is inherently less weathered and harder, adversely affecting crusher throughput and availability. The Company now believes that the hardness of the ore also contributed to lower than expected crusher production in the second and fourth quarters of 1998. Based on TGL's existing heap leach technology, this ore exhibits a significantly longer leach cycle and yields extraction values below historical rates. Testing work conducted by TGL personnel to date has confirmed that acceptable extraction values are achievable at liberation sizes below those feasible by present crushing methods. TGL has determined that the high incidence of the less weathered and harder ore will necessitate a transition from heap leaching to conventional milling. A comprehensive testing program is nearing completion, which delineates the recovery characteristics of this ore and identifies both its location and frequency in the current pit design. As a result of this new finding, TGL is currently developing a new mine plan which will: (i) synthesize the results of the comprehensive testing program, (ii) incorporate a new, modified pit design, and (iii) specify the equipment necessary to efficiently process the less weathered ore. Until the new mine plan is complete, TGL cannot quantify its effect on previously reported proven and probable in situ mineable reserves of 5.9 million ounces or on annual production levels. TGL anticipates, however, that proven and probable in situ mineable reserves will be reduced. In October 1998, the Company engaged the services of an investment banking firm to sell PGL, including its African exploration rights and its 90% equity interest in TGL, PGL's operating subsidiary. Upon completion of the new mine plan, expected in April 1999, an offering document will be finalized for circulation to a select group of potential buyers. Results of Operations In 1998, the gold mining segment lost $19.8 million compared to a $2.8 million loss in 1997. In 1996, the gold mining business had net income of $2.6 million. The effective tax rates for the segment in 1998, 1997 and 1996 were a 27% benefit, a 15% benefit and a 32% provision, respectively. TGL - 1998 Compared to 1997 Gold Sales. Revenues decreased by $12.2 million to $77.3 million in 1998 as gold shipments decreased by 9,800 ounces, or 4%, to 253,200 ounces. The average realized price of gold decreased by $35 to $305 per ounce. In 1998 and 1997, the average realized price of gold included proceeds of $3.1 million, or $12 per ounce, and $4.0 million, or $15 per ounce, respectively, from the sale of floor program options. Gold Production and Costs. Table 2 provides production results and compares TGL's cash costs and total costs per ounce for 1998 with the prior year's costs.
Table 2 Twelve months ended ------------------- December 31, ------------ Increase/ 1998 1997 (Decrease) ---- ---- ---------- Production (ounces) ............... 253,200 263,000 (9,800) ======= ======= ====== Cash costs: Production costs .............. $ 247 $ 189 $ 58 Royalties ..................... 9 10 (1) General and administrative .... 28 31 (3) --- --- -- Cash costs per ounce ....... 284 230 54 Non-cash costs: Depreciation and amortization 100 87 13 Other ........................ 4 5 (1) --- --- -- Cost of production per ounce 388 322 66 Interest and other costs .......... 21 15 6 --- --- -- Total costs per ounce ...... $ 409 $ 337 $ 72 === === ==
21 24 Management's Discussion & Analysis (continued) During 1998, production levels fell short of forecasted levels as TGL experienced difficulties in crusher throughput and heap-leaching recoveries. A drought-induced hydroelectric power shortage significantly decreased crusher availability in the first half of 1998. During this period, crusher production was also affected adversely by delayed parts shipments and vendor equipment downtime associated with electrical controls and instrumentation at the gyratory stockpile reclaim feeders. Although power shedding and rationing occurred elsewhere in Ghana, TGL's power supply was virtually uninterrupted in the second half of 1998. In this regard, the Republic of Ghana took several measures in 1998 to ensure continuous power supply. TGL currently leases sufficient back-up power generation equipment to sustain all major processing equipment. During the second half of 1998, equipment vendor representatives significantly improved the flow of spare parts and completed remedial work on electrical controls and instrumentation at the gyratory stockpile feeders. Production Costs. Production costs represent costs attributable to mining ore and waste and processing the ore through crushing and processing facilities. TGL's costs of production are affected by ore grade, gold recovery rates, the waste to ore ("stripping") ratio, the age and availability of equipment, weather conditions, availability and cost of labor, haul distances, foreign exchange fluctuations and the inherent lag in gold production from heap leaching operations. In 1998, production costs increased by $58 to $247 per ounce compared with 1997, principally because of higher mining and processing costs, lower recovery rates associated with the previously discussed less weathered ore, and a reduction in the ore grade. Mining costs per tonne hauled increased by 18% compared with 1997 because of higher maintenance costs, higher drilling and blasting costs and the greater use of contract drilling services. In addition, the cost to process a tonne of ore increased by 16% because of a 300% increase in purchased power costs, the rental and use of power generation equipment, and higher crusher maintenance and wear parts costs related to the processing of harder ore. A comparison of key production statistics for the twelve months ended December 31, 1998 and 1997 is shown on Table 3.
Table 3 Twelve months ended December 31 ------------------------------- 1998 1997 ---- ---- Tonnes mined (in thousands): Waste ........................ 30,180 27,824 Run-of-mine .................. -- 610 ------ ------ Tonnes Waste and Run-of-Mine 30,180 28,434 Ore .......................... 9,830 9,096 ------ ------ Total Tonnes Mined ......... 40,010 37,530 ====== ====== Stripping Ratio ((waste+run-of-mine)/ore) .... 3.07:1 3.13:1 Ore Processed ................ 9,888 9,072 Process Grade (grams/tonne) .. 1.25 1.29
Depreciation and Amortization. Depreciation and amortization is calculated using units-of-production and straight-line methods designed to fully depreciate property, plant, and equipment over the lesser of their estimated useful lives or ten years. In 1998, these costs increased by $13 per ounce principally because of higher depreciation on crushing and leaching facilities related to the Phase III mine expansion, which were commissioned in the second quarter of 1997 and operated throughout 1998, and higher mining equipment depreciation related to fourth quarter 1997 mining equipment additions. In addition, run-of-mine pad depreciation was accelerated in 1998 reflecting the elimination of this process and consequent termination of the useful lives of the underlying assets. Income Taxes. The statutory tax rate for mining companies in Ghana in each of 1998 and 1997 was 35%. TGL - 1997 Compared to 1996 Gold Sales. Revenues increased by $11 million to $89.5 million as gold shipments increased by 59,900 ounces, or 29%, to 263,000 ounces. The average realized price of gold decreased by $45 to $340 per ounce. In 1997, the average realized price of gold included proceeds of $4.0 million, or $15 per ounce, from the sale of floor program options. Gold Production and Costs. Table 4 provides production results and compares TGL's cash costs and total costs per ounce for 1997 with the prior year's costs.
Table 4 Twelve months ended ------------------- December 31, ------------ Increase/ 1998 1997 (Decrease) ---- ---- ---------- Production (ounces) ................ 263,000 203,100 59,900 ======= ======= ====== Cash costs: Production costs ............... $189 $218 ($29) Royalties ...................... 10 12 (2) General and administrative ..... 31 36 (5) ---- ---- ---- Cash costs per ounce ........ 230 266 (36) Non-cash costs: Depreciation and amortization 87 81 6 Other ......................... 5 4 1 ---- ---- ---- Cost of production per ounce 322 351 (29) Interest and other costs ........... 15 10 5 ---- ---- ---- Total costs per ounce ....... $337 $361 ($24) ==== ==== ====
22 25 During 1997, TGL experienced several negative factors which caused production to fall short of the forecasted level. The most significant was the delay in commissioning the Phase III expansion and achieving design throughputs at the new South and modified West crushing plants. These delays added to the time lag inherent in bringing new heaps into full production. Other contributing items include a shortage of diesel fuel early in the year and heavy rains in June. Production Costs. In 1997, production costs decreased by $29 to $189 per ounce compared with 1996, principally because of the economies of scale realized upon completion of the Phase III mine expansion, coupled with the decision to decrease the stripping ratio to ensure a sufficient ore feed to the crushing plants. The introduction of bulk zone mining and the elimination of run-of-mine dump leaching also contributed to a reduction in the stripping ratio and the elimination of run-of-mine processing costs. In response to lower gold prices, significant emphasis was placed on mining in the South pit where ore grades are marginally higher. This emphasis favorably affected costs on a unit-of-production basis. During 1997, TGL also experienced a decrease in the cost per tonne hauled because of lower explosive costs. A comparison of key production statistics for the twelve months ended December 31, 1997 and 1996 is shown on Table 5.
Table 5 Twelve months ended December 31, ------------------ 1997 1996 ---- ---- Tonnes mined (in thousands): Waste .................................................. 27,824 21,068 Run-of-mine ............................................ 610 6,209 ------ ------ Tonnes Waste and Run-of-Mine ........................ 28,434 27,277 Ore .................................................... 9,096 7,036 ------ ------ Total Tonnes Mined .................................. 37,530 34,313 ====== ====== Stripping Ratio ((waste+run-of-mine)/ore) ............................. 3.13:1 3.88:1 Ore Processed .......................................... 9,072 6,540 Process Grade (grams/tonne) ........................... 1.29 1.26
Depreciation and Amortization. Depreciation and amortization costs increased by $6 per ounce in 1997 compared with the prior year principally because of mining and crushing equipment additions associated with the Phase III mine expansion. Increases were also experienced in run-of-mine leach pad depreciation and capitalized rebuilds. However, such increases were largely offset by lower development cost amortization. Income Taxes. The statutory tax rate for mining companies in Ghana in 1997 and 1996 was 35%. Liquidity and Capital Resources Cash Flow. The cash balances of the gold mining segment decreased by $5.0 million to $2.6 million during 1998, $2.3 million of which remained in escrow and was unavailable to pay short-term obligations. Cash generated from operating activities aggregated $5.0 million while capital expenditures were $10.2 million. Major capital expenditures during the year included $5.1 million for leach pad and pond development, $1.6 million for capitalized rebuilds, $1.2 million for conveyors and crushing equipment, and $0.8 million for facilities construction. Third-Party Debt. At the end of 1998, third-party debt aggregated $42.0 million, including $15.8 million from the Overseas Private Investment Corporation ("OPIC") for which the Company is subject to limited recourse, and $0.4 million from other sources which the Company guarantees. Scheduled third-party debt service for 1999 is expected to aggregate $10.7 million, of which $7.7 million represents principal payments. Timber Business The results of the timber business are substantially attributable to the operations of Forest-Starma, the 97% owned principal operating subsidiary of the Company's wholly owned subsidiary, Pioneer Forest, Inc. Forest-Starma harvests timber under a 49-year lease comprising 390,100 hectares (approximately 964,000 acres) in the aggregate with annual cutting rights of 555,000 cubic meters awarded in the Khabarovsk Territory of Russia. Forest-Starma has developed a modern logging camp, including a harbor, from which it exports timber to markets in the Pacific Rim. While Forest-Starma harvests timber and incurs the resulting operating expenses throughout the year, it ships timber from mid-April through December. As a result, Forest-Starma has incurred, and expects to continue to incur, operating losses from fixed costs in the first quarter of the Company's fiscal year. Results of Operations In 1998, the timber business lost $18.7 million compared to a loss of $6.7 million in 1997. In 1996, the timber business lost $0.5 million. Forest-Starma commenced commercial operations in January 1997. 23 26 Management's Discussion & Analysis (continued) 1998 Compared to 1997 Timber Sales. Although timber shipments increased by 86,000 to 280,000 cubic meters in 1998, revenues decreased by $1.4 million to $10.5 million. The average realized price of timber decreased by $24 to $37 per cubic meter in 1998. The average realized price of timber in the fourth quarter of 1998 was $51 per cubic meter. Timber Production. Forest-Starma produced 248,000 cubic meters in 1998 which was 4% below 1997's production of 257,000 cubic meters. Production in 1998 was hindered by a fire disruption during the second and third quarters of 1998, which required the redeployment of logging crews and equipment to contain the fire. The fire was contained in the third quarter of 1998. Based on aerial reconnaissance and mapping by Forest-Starma personnel and estimates recently prepared by the territorial administration of Khabarovsk, the damage is more extensive than previously reported. There was damage to approximately 7.8 million cubic meters of standing timber on 76,000 hectares, as well as 5,500 cubic meters of decked logs. The Company does not believe the fire damage will have a material impact on production over the next several years. The territorial administration has offered to make available, on terms to be negotiated, additional timber stands to sustain Forest-Starma's cutting rights of 555,000 cubic meters. Productivity improved in the fourth quarter of 1998 as Forest-Starma produced 108,000 cubic meters, or 44% of its total 1998 production. Cost of Goods Sold. Forest-Starma values its inventory at the lower of cost or market under the full absorption accounting method and accordingly, includes operating costs such as payroll, fuel, spare parts, site related general and administrative expenses, depreciation and amortization and other taxes in cost of goods sold. Cost of goods sold increased by $6.0 million to $19.2 million in 1998. The increased cost of goods sold reflected the higher shipments in 1998 and higher inventory write-downs due to lower of cost or market adjustments. Other Costs and Expenses. Other costs and expenses include interest expense, management fees expense, foreign exchange gains and losses, non-income tax expenses, bad debt expenses and other expenses. These expenses increased by $4.8 million in 1998 to $9.5 million, principally from increased interest expense, foreign exchange losses, non-income tax expenses and other expenses. 1997 Compared to 1996 The timber business lost $6.7 million in 1997, its first year of commercial operations. In 1996, this business lost $0.5 million from costs incurred in the U.S. related to the Russian timber business. In 1996, Forest-Starma shipped 133,000 cubic meters of timber. Since Forest-Starma remained in the development stage through the end of 1996, timber shipment proceeds aggregating $10.1 million were used to partially offset capitalized interest and development costs. Liquidity and Capital Resources Forest-Starma had $6.2 million of external debt at December 31, 1998. Scheduled debt service for 1999 is expected to aggregate $1.8 million. Other Ventures. In 1995, Closed Joint-Stock Company "Amgun-Forest" and Closed Joint-Stock Company "Udinskoye," the Company's other Russian timber ventures, each executed a long-term lease (50 years) relating to timber harvesting. The Amgun-Forest lease covers 485,400 hectares (approximately 1,200,000 acres) with annual cutting rights of 350,000 cubic meters while the Udinskoye lease covers 201,000 hectares (approximately 497,000 acres) with annual cutting rights of 300,000 cubic meters. As of December 31, 1998, Pioneer Forest, Inc. had an 80.6% direct interest and 7.9% indirect interest in Amgun-Forest and a 72% direct interest and 11.76% indirect interest in Udinskoye. Recent Developments During the period between January and mid-April, the Siziman harbor is typically frozen. In December 1998, Forest-Starma entered into an agreement with its sales agent to sell 150,000 cubic meters at an average price of $48 per cubic meter for production covering approximately five months of production. This agreement allows Forest-Starma to receive partial cash payments for logs produced during this five month period. The Company is continuing discussions with several potential strategic partners as participants in its timber business. Other 1998 Compared to 1997 The Company had net interest expense and other expenses of $4.1 million in 1998 compared to $1.4 million in 1997. The increase resulted principally from higher interest expense from increased borrowings, a mark-to-market adjustment on the Company's interest rate protection agreements and higher borrowing costs. 24 27 1997 Compared to 1996 The Company had net interest expense and other expenses of $1.4 million in 1997 compared to $0.7 million in 1996. The increase resulted principally from higher interest expense from increased borrowings. LIQUIDITY AND CAPITAL RESOURCES - GENERAL The Company's liquid assets consisting of cash and marketable securities (exclusive of gold mining and timber operations) decreased by $13.7 million in 1998 to $50.0 million principally from decreased cash and investments held by the Russian financial services businesses. IRS regulations require that, in order to serve as trustee of qualified plan assets, the Company must maintain a net worth of at least 2% of the assets of Individual Retirement Accounts and other qualified retirement plan accounts at year end. At December 31, 1998, the Company served as trustee for $6.6 billion of qualified plan assets and the ratio of net worth to qualified assets was 2.3%. The Company's stockholders' equity of $154.8 million at December 31, 1998, would permit it to serve as trustee for up to $7.7 billion of qualified plan assets. For a description of the Company's $80 million senior credit facility and $20 million senior notes, including interest rates and applicable covenants, see Note 11 (Notes Payable) to Notes to the Company's Consolidated Financial Statements included elsewhere in this Annual Report. At December 31, 1998, the Company had borrowed $70 million under the senior credit facility and had $20 million of senior notes outstanding. The Company believes that it is in sound financial condition, that it has sufficient liquidity from operations and financing facilities to cover short-term commitments and contingencies and that it has adequate capital resources to provide for long-term commitments. Recent Accounting Pronouncements In April 1998, the American Institute of Certified Public Accountants (the "AICPA") issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities". The new standard, which must be adopted in the first quarter of 1999, requires that entities expense costs of start-up activities as those costs are incurred. The Company has capitalized certain pre-operating costs in connection with its natural resource operations, and has capitalized certain organizational costs associated with its financial services operations. At adoption, the Company must record a cumulative effect of a change in accounting principle and write-off all remaining unamortized start-up costs. The Company has estimated unamortized capitalized start-up costs of approximately $12.3 million related principally to its timber operations. FUTURE OPERATING RESULTS Certain of the information contained in this Annual Report, including information with respect to the Company's plans and strategies for its domestic and international financial services and global investment business units and Year 2000 plans, consists of forward-looking statements. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Important factors that could cause actual results to differ materially from those indicated by the forward-looking statements made in this Annual Report and presented elsewhere by management from time to time include, but are not limited to, the following: The Company derives a significant portion of its revenues from investment management fees and underwriting and shareholder services fees. Success in the investment management and mutual fund share distribution businesses is substantially dependent on investment performance. Good performance stimulates sales of shares and tends to keep redemptions low. Sales of shares result in increased assets under management, which, in turn, generate higher management fees. Good performance also attracts institutional accounts. Conversely, relatively poor performance results in decreased sales and increased redemptions and the loss of institutional accounts, with corresponding decreases in revenues to the Company. Investment performance may also be affected by economic or market conditions which are beyond the control of the Company. In addition, four of the Company's mutual funds (including the two largest funds) have management fees which are adjusted based upon the funds' performance relative to the performance of an established index. As a result, management fee revenues may be subject to unexpected volatility. The mutual fund industry is intensely competitive and is undergoing substantial consolidation. Many organizations in this industry are attempting to sell and service the same clients and customers, not only with mutual fund investments but with other financial services products. Some of the Company's competitors have more products and product lines and substantially greater assets under management and financial resources. 25 28 Management's Discussion & Analysis (continued) The Company and its domestic financial services subsidiaries are primarily dependent upon their associations with the Pioneer Family of Mutual Funds with which they have contractual relationships. In the event any of the management contracts, underwriting contracts or service agreements was canceled or not renewed on similarly favorable terms, the Company could be substantially adversely affected. The Securities and Exchange Commission has jurisdiction over registered investment companies, registered investment advisers, broker-dealers and transfer agents. The Securities and Exchange Commission could, in the event the Company or its subsidiaries violated any applicable rules or regulations, take action that could have a serious negative impact on the Company and its financial performance. Because a material portion of the Company's revenues are derived from the mining and sale of gold by TGL, the Company's earnings are directly impacted by gold production, the cost of such production, and the price of gold. TGL's gold production is dependent upon a number of factors that could cause actual gold production to differ materially from projections, including obtaining and maintaining necessary equipment, accessing key supplies, including electric power, cement, and diesel fuel, and hiring, training and retaining supervisory personnel and skilled workers. Gold production is also affected by the time lag inherent in heap leaching technology, subject to weather conditions and dependent on the continued political stability in the Republic of Ghana. Gold prices have historically fluctuated significantly and are affected by numerous factors, including expectations for inflation, the strength of the U.S. dollar, global and regional demand, central bank gold supplies and political and economic conditions. If, as a result of a decline in gold prices, TGL's revenues from gold sales were to fall below cash costs of production, and to remain below cash costs of production for any substantial period, the Company could determine that it is not economically feasible for TGL to continue commercial production. TGL is currently executing a comprehensive testing program to determine the location and frequency of the less weathered and harder ore at the mine and to define the recovery characteristics of this ore. Testing work conducted by TGL personnel to date has confirmed that acceptable extraction values are achievable at liberation sizes below those feasible by present crushing methods. TGL has determined that the high incidence of the less weathered and harder ore will necessitate a transition from heap leaching to conventional milling. TGL is not yet in a position to determine the additional costs that will be required to mine the less weathered and harder ore efficiently but is aware that such costs could have a material impact on the Company's financial position. The commercial feasibility of Forest-Starma is dependent upon a number of factors which are not within the control of the Company including the price of timber, weather conditions, political stability in Russia and the strength of the Japanese economy, the primary market for Forest-Starma's timber. While the Company continues to believe that the project will achieve commercial feasibility in the long term, there can be no assurance that it will do so. The Company has a significant number of operations and investments located outside of the U. S., including the gold mining operations at TGL, the timber operations in the Russian Far East and the financial services operations in Eastern and Central Europe. Foreign operations and investments may be adversely affected by exchange controls, currency fluctuations, taxation, political and economic instability, ineffective regulatory oversight and laws or policies of the particular countries in which the Company may have operations. There is no assurance that the Company can obtain permits, authorizations, regulatory approvals and agreements to implement plans at its foreign projects under conditions or within time frames that make such plans economically feasible. Also, there can be no assurance that applicable laws or the governing political authorities will not change unfavorably or that such changes will not result in the Company's having to incur material additional expenditures. YEAR 2000 Summary. The Company has for some time been addressing actively the potential impact of the Year 2000 problem to its businesses and has established a comprehensive project to help ensure that all of its business units will be able to function normally before, during and after the century date rollover. Furthermore, the Company is aware that Year 2000 issues have the potential to impact the capital markets and macroeconomic conditions globally. While the Company is monitoring the threat of such impact and is taking measures reasonably designed to protect the investments of its fund shareholders and corporate investors, there can be no assurance that factors outside its control will not disrupt the Company's operations. 26 29 Management. The Company is executing and managing its Year 2000 project activities at several levels within the organization, including: * regular senior-level management briefings * regular Company audit committee briefings * oversight subcommittee established by the Trustees of the Company's U.S. mutual funds * Year 2000 Steering Committee comprised of representatives from all operational areas empowered to review progress and ensure the successful completion of the Year 2000 project * Year 2000 project office responsible for centralized monitoring, reporting and support of project activities * local project managers within each subsidiary of the Company responsible for executing local Year 2000 plans The Company is separately tracking the Year 2000 readiness of each of its corporate entities and has created comprehensive reporting for each project team worldwide. The Company has developed reports to monitor risk management and project status both for systems and vendors. The Company may also utilize, on an as needed basis, the services of outside companies and consultants specializing in Year 2000 issues. Approach and Status. The Company's Year 2000 initiative addresses hardware, software, embedded systems and vendor systems and consists of the following six phases: * Awareness -- communicating management's commitment to identify and resolve Year 2000 issues * Inventory, Assessment, and Planning -- identifying all systems and vendors with potential Year 2000 problems, rating the business criticality of each, and planning for all project tasks * Repair -- executing all necessary system remediation plans * Testing -- ensuring that all remediated systems function correctly in both current date and future date environments * Contingency Planning -- developing project contingency and business continuation plans for each business unit * Vendor Analysis -- working closely with all important third parties to ensure that their systems and businesses have adequately addressed Year 2000 issues The Company has completed both the awareness and assessment phases and is nearing completion of the repair phase with respect to its core systems. The testing and contingency planning phases are well underway and will continue throughout 1999. Vendor analysis is ongoing and will continue through the end of the project. At March 1, 1999, the Company had completed the repair phase for approximately 93% of its 500 core systems. To date, the Company has tested virtually all of its internal information technology systems and non-information technology systems and expects to complete the remaining testing in the first half of 1999. The Company expects to complete the following additional activities during the remainder of 1999: * testing any vendor systems delivered in late 1998 or 1999 to upgrade non-compliant systems * correcting and retesting any problems that were discovered during initial testing * conducting company-wide integration tests and, with respect to the domestic mutual fund business, participating in industry-wide testing * participating in tests with third parties, including both point-to-point testing with vendors with whom the Company shares automated data transfers * finalizing the development of contingency plans Certain Risks and Contingency Planning. The Company is heavily dependent on third party software and vendor services. As a result, the Company believes that its greatest risk from the Year 2000 transition is its reliance on its material vendors to complete their own Year 2000 projects successfully and on time. Although the majority of the Company's most critical "core" applications are provided by third parties, most of these applications are relatively new and all have been certified as Year 2000 compliant. With respect to each critical third party, the Company has been monitoring closely Year 2000 progress and to date has not identified a need to replace any of these providers. In the U.S., the Company's other external dependencies are upon functioning capital markets (trading, clearing and settlement), as well as telecommunications and other basic infrastructures, such as electricity and water. The upcoming industry-wide tests are designed to evaluate further the Year 2000 readiness of the domestic capital markets. With respect to telecommunications and basic infrastructure, the Company expects to be able to react appropriately to short term or isolated disruptions based on its contingency plans. In the event of long term or pervasive failures, however, the 27 30 Management's Discussion & Analysis (continued) Company's risk is as significant as that of any other firm or entity that relies upon such services. Internationally, the outlook is less certain with respect to the Year 2000 readiness efforts of third parties and infrastructure elements. The Company has indigenous operations in a number of countries, and these countries have demonstrated various levels of awareness and readiness with respect to Year 2000 issues. The Company is preparing its systems and evaluating its vendors in each of these operations in the same manner as in the U.S. The Company's approach to contingency planning, which is intended to address the risks described above, has two components: (i) ensuring the Company's ability to achieve Year 2000 compliance, even in the event of a vendor failure in 1999; and (ii) preparing business continuity plans for various potential failure scenarios which, despite the Company's best efforts, could occur on or around January 1, 2000. At March 1, 1999, substantially all of the Company's operating units have developed initial contingency plans. Plans will continue to be reviewed and revised, as necessary, throughout 1999. Finally, the Company has disaster recovery plans in place to address potential infrastructure failures, including basic services such as electrical power and telecommunications, and is leveraging and enhancing those plans to address potential Year 2000 scenarios. Costs. Total Year 2000 project costs are based on currently available information and management's estimates with respect to the costs of repairing and replacing software, hardware, embedded systems and vendor systems. For this purpose, the Company defines costs as incremental expenditures and cost estimates include both period costs and disbursements that typically would be treated as capital. Estimates do not include overhead with respect to the portion of certain employees' time allocated to the Year 2000 project or opportunity costs associated with other projects that may have been delayed by the Year 2000 project. As of December 31, 1998, the Company had incurred and expensed approximately $1.0 million in connection with its Year 2000 project. The Company estimates its total remaining costs to be approximately $1.5 million, which will be expensed as incurred during 1999. All Year 2000 project costs have been and will continue to be funded from operating cash flows. Year 2000 project costs are relatively minimal primarily because the Company owns little internally developed code. The result of the Company's strategy of outsourcing technology-based operations is that it has only a small base of proprietary code that it must analyze and remediate. Consequently, the cost of the Year 2000 compliance efforts are not expected to be material to the Company's financial position. The Company believes that it will not incur significant Year 2000 related costs on behalf of third parties from whom it purchases technology or outsources technology-based functions. The Company's ability to complete its Year 2000 project by the dates projected and the total costs incurred to accomplish those efforts are based on estimates of the Company's management in reliance on certain assumptions. Such assumptions include, among others, the Company's ability to locate and identify all potential Year 2000 issues in the systems it uses, successful remediation efforts by the Company's vendors and other third parties upon which it relies, the continued availability of personnel capable of carrying out the Year 2000 project efforts and the availability of suitable alternative software and systems. There can be no assurances that management's reliance on such assumptions will prove to be valid. The failure of any these assumptions to hold true or the existence of additional significant uncertainties could result in the inaccurateness of any of the foregoing estimates. As a result, actual completion of the Company's Year 2000 project could be later than anticipated or involve costs materially higher than those estimated. Furthermore, the impact of any such failures on the Company's customers or other third parties could vary significantly, as could such customers' or third parties' definitions of Year 2000 compliance; therefore, the extent of any claims resulting from such failures is difficult to estimate. There can be no assurance that the costs of resolving any such claims will not materially affect the Company's business, financial condition or results of operations. 28 31 Market Risk Disclosure The Company monitors its exposure to adverse changes in interest rates, foreign currency rates and the market prices paid for gold and timber. Historically, the Company has purchased certain derivative financial instruments to help mitigate the impact of adverse changes, or in some instances to mitigate the impact of any changes. The Company's long term debt, taken together with the interest rate swaps for the corporate revolver, is all at a fixed interest rate. Accordingly, the Company's interest expense will not change as a result of changes in interest rates, however the fair value of its long term debt will vary inversely with changes in interest rates. A 10% change in market interest rates will result in an approximately $2.9 million change in the fair value of the Company's long term debt taken together with the interest rate swaps. The Company is exposed to certain changes in foreign currency exchange rates. While Pioneer Global Investments conducts its timber producing and gold mining operations in foreign countries, the prices paid for the goods produced are denominated in US dollars. However, as most of the timber produced is exported to the Asian markets, the US dollar prices paid have been influenced by the respective foreign currency exchange rates. Pioneer International Financial Services conducts operations in Russia, the Czech Republic and Poland. The functional currency of its Russian operations is the US dollar, while the functional currencies of the Czech and Poland operations are the respective local currencies. All of these operations have some costs denominated in the local currency which act as a natural hedge to the revenues denominated in local currencies. The revenues of the Company's natural resource operations are also subject to changes in the market prices paid for both gold and timber. In the past the Company has purchased put options to secure certain minimum selling prices for gold production. Currently, there are no put options outstanding with respect to future gold production. The Company does have an agreement to sell the first 150,000 cubic meters of timber produced in 1999, at certain fixed prices. 29 32 - -------------------------------------------- Report of Independent Public Accountants To the Stockholders and Board of Directors of The Pioneer Group, Inc.: We have audited the accompanying consolidated balance sheets of The Pioneer Group, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Pioneer Group, Inc. and subsidiaries as of December 31, 1998 and 1997 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Boston, Massachusetts February 2, 1999 (except for the matters discussed in Note 16, as to which the date is March 18, 1999) 31 33 - ------------------------------------------------- Consolidated Statements of Operations Dollars in Thousands Except Per Share Amounts
Year Ended December 31, 1998 ------------ Revenues and sales: Investment management fees .................................... $ 142,266 Underwriting commissions and distribution fees ................ 26,511 Shareholder services fees ..................................... 31,610 Revenues from brokerage activities ............................ 2,153 Gain on sale of B share rights ................................ 8,132 Trustee fees and other income ................................. 26,422 ------------ Revenues from financial services businesses .................. 237,094 Gold sales .................................................... 77,329 Timber sales .................................................. 10,451 ------------ Total revenues and sales ..................................... 324,874 ------------ Costs and expenses: Management, distribution, shareholder service and administrative expenses ...................................... 214,734 Gold mining operating costs and expenses ...................... 100,377 Timber operating costs and expenses ........................... 28,381 ------------ Total costs and expenses ..................................... 343,492 ------------ Other (income) expense: Unrealized and realized gains on venture capital and marketable securities investments, net ................... (4,418) Interest expense .............................................. 16,303 Other, net .................................................... 1,186 ------------ Total other (income) expense ................................. 13,071 ------------ Income (loss) from continuing operations before provision for income taxes and minority interest ........................ (31,689) Provision for income taxes ..................................... 1,771 ------------ Income (loss) from continuing operations before minority interest ............................................. (33,460) ------------ Minority interest .............................................. (6,441) ------------ Net income (loss) from continuing operations ................... (27,019) Income (loss) from discontinued Russian banking operations ..... (6,449) ------------ Net (loss) income .............................................. $ (33,468) ============ Basic earnings (loss) per share: Continuing operations ......................................... $ (1.07) Discontinued operations ....................................... (0.26) ------------ Total basic earnings (loss) per share .......................... $ (1.33) ============ Diluted earnings (loss) per share: Continuing operations ......................................... $ (1.07) Discontinued operations ....................................... (0.25) ------------ Total diluted earnings (loss) per share ........................ $ (1.32) ============ Basic shares outstanding ....................................... 25,148,000 ============ Diluted shares outstanding ..................................... 25,350,000 ============
Year Ended December 31, 1997 1996 ----------- ----------- Revenues and sales: Investment management fees .......................... $ 121,372 $ 87,843 Underwriting commissions and distribution fees ...... 23,322 16,636 Shareholder services fees ........................... 28,002 25,340 Revenues from brokerage activities .................. 35,570 2,232 Gain on sale of B share rights ...................... -- -- Trustee fees and other income ....................... 20,884 13,816 ----------- ----------- Revenues from financial services businesses ........ 229,150 145,867 Gold sales .......................................... 89,487 78,279 Timber sales ........................................ 11,879 -- ----------- ----------- Total revenues and sales ........................... 330,516 224,146 ----------- ----------- Costs and expenses: Management, distribution, shareholder service and administrative expenses ........................ 178,395 129,996 Gold mining operating costs and expenses ............ 88,915 72,563 Timber operating costs and expenses ................. 15,479 730 ----------- ----------- Total costs and expenses ........................... 282,789 203,289 ----------- ----------- Other (income) expense: Unrealized and realized gains on venture capital and marketable securities investments, net ......... (27,460) (12,279) Interest expense .................................... 11,395 3,318 Other, net .......................................... 606 1,716 ----------- ----------- Total other (income) expense ....................... (15,459) (7,245) ----------- ----------- Income (loss) from continuing operations before provision for income taxes and minority interest .... 63,186 28,102 Provision for income taxes ........................... 27,664 11,605 ----------- ----------- Income (loss) from continuing operations before minority interest ............................ 35,522 16,497 ----------- ----------- Minority interest .................................... 5,809 1,220 ----------- ----------- Net income (loss) from continuing operations ......... 29,713 15,277 Income (loss) from discontinued Russian banking operations .................................. (547) 3,560 ----------- ----------- Net (loss) income .................................... $ 29,166 $ 18,837 =========== =========== Basic earnings (loss) per share: Continuing operations ............................... $ 1.19 $ 0.62 Discontinued operations ............................. (0.02) 0.15 ----------- ----------- Total basic earnings (loss) per share ................ $ 1.17 $ 0.77 =========== =========== Diluted earnings (loss) per share: Continuing operations ............................... $ 1.16 $ 0.60 Discontinued operations ............................. (0.02) 0.14 ----------- ----------- Total diluted earnings (loss) per share .............. $ 1.14 $ 0.74 =========== =========== Basic shares outstanding ............................. 24,873,000 24,620,000 =========== =========== Diluted shares outstanding ........................... 25,630,000 25,460,000 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 32 34 - ------------------------------------------------- Consolidated Balance Sheets Dollars in Thousands Except Per Share Amount
December 31, 1998 1997 -------- -------- Assets Current assets: Cash and cash equivalents, at cost which approximates fair value ...... $ 44,519 $ 55,601 Restricted cash ....................................................... 7,815 7,078 Investment in marketable securities, at fair value .................... 3,638 10,649 Receivables: From securities brokers and dealers for sales of mutual fund shares .. 14,072 11,752 From Pioneer Family of Mutual Funds .................................. 17,334 17,428 For securities sold .................................................. 1,089 11,466 For gold shipments ................................................... 2,851 3,451 Other ................................................................ 15,865 12,695 Mining inventory ...................................................... 18,297 22,032 Timber inventory ...................................................... 3,585 5,897 Other current assets .................................................. 14,186 10,453 -------- -------- Total current assets ............................................... 143,251 168,502 -------- -------- Noncurrent assets: Mining operations: Mining equipment and facilities (net of accumulated depreciation of $94,282 in 1998 and $76,060 in 1997) ................ 86,740 99,164 Deferred mining development costs (net of accumulated amortization of $21,819 in 1998 and $16,177 in 1997) ................ 15,030 17,521 Cost of acquisitions in excess of net assets acquired (net of accumulated amortization of $14,900 in 1998 and $12,083 in 1997) ................................................ 17,415 20,216 Long-term venture capital investments, at fair value (cost $117,547 in 1998 and $71,754 in 1997) .......................... 129,560 95,382 Long-term investments, at cost ........................................ 7,006 15,671 Timber operations: Timber equipment and facilities (net of accumulated depreciation of $5,346 in 1998 and $1,260 in 1997) .................. 18,800 17,898 Deferred timber development costs (net of accumulated amortization of $2,841 in 1998 and $1,611 in 1997) .................. 20,034 21,264 Building (net of accumulated depreciation of $1,413 in 1998 and $598 in 1997) ..................................... 25,136 25,087 Furniture, equipment and leasehold improvements (net of accumulated depreciation and amortization of $13,146 in 1998 and $8,565 in 1997) ............................... 20,309 16,521 Dealer advances (net of accumulated amortization of $17,366 in 1997) .. -- 41,871 Other noncurrent assets ............................................... 16,180 20,696 Net noncurrent assets of discontinued operations ...................... -- 7,421 -------- -------- Total noncurrent assets ............................................ 356,210 398,712 -------- -------- $499,461 $567,214 ======== ======== Liabilities and Stockholders' Equity Current liabilities: Payable to funds for shares sold ...................................... $ 14,053 $ 11,766 Accounts payable ...................................................... 17,962 18,048 Accrued expenses ...................................................... 33,768 27,414 Brokerage liabilities ................................................. 5,669 14,702 Accrued income taxes .................................................. 19,647 7,641 Current portion of notes payable ...................................... 9,476 17,411 Current liabilities net of current assets of discontinued operations ........................................... 413 4,939 -------- -------- Total current liabilities .......................................... 100,988 101,921 -------- -------- Noncurrent liabilities: Notes payable, net of current portion ................................. 133,395 168,424 Deferred income taxes, net ............................................ -- 29,334 -------- -------- Total noncurrent liabilities ....................................... 133,395 197,758 -------- -------- Total liabilities .................................................. 234,383 299,679 -------- -------- Minority Interest ..................................................... 110,276 83,848 -------- -------- Commitments and Contingencies (Note 10) Stockholders' Equity: Common stock, $0.10 par value; authorized 60,000,000 shares; issued 26,134,103 shares in 1998 and 25,219,567 shares in 1997 ...... 2,613 2,522 Paid-in capital ...................................................... 30,110 15,912 Retained earnings .................................................... 133,013 171,558 Treasury stock at cost, 11,303 shares in 1998 and 2,670 shares in 1997 ............................................ (265) (65) Cumulative translation adjustment .................................... (1,855) (1,277) -------- -------- 163,616 188,650 Less--Deferred cost of restricted common stock issued ................ (8,814) (4,963) -------- -------- Total stockholders' equity ........................................ 154,802 183,687 -------- -------- $499,461 $567,214 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 33 35 - ---------------------------------------------------------- Consolidated Statements of Changes in Stockholders' Equity Dollars in Thousands Except Per Share Amounts
Common Stock ----------------------------- Shares Paid-in Retained Issued Amount Capital Earnings ---------- ------ -------- ---------- Balance, December 31, 1995 ..................... 24,833,508 $2,483 $ 7,660 $ 143,603 ---------- ------ ------- --------- Add (Deduct) Net income .................................... -- -- -- 18,837 Dividends paid--$0.40 per share ............... -- -- -- (9,983) Shares awarded under the 1995 restricted stock plan (78,137 shares) ................... 74,667 8 2,041 -- Shares purchased under the 1995 employee stock purchase plan 33,433 shares) ............................... 17,368 2 351 -- Amortization of deferred cost of restricted common stock issued .......................... -- -- -- -- Additional tax benefits from stock plans ...... -- -- 664 -- Forfeiture of shares awarded under the 1990 and 1995 restricted stock plans (12,225 shares) .............................. -- -- -- -- Shares issued and returned to treasury ........ 10,070 -- 273 -- Exercise of stock options awarded under the 1988 stock option plan (80,000 shares) .............................. 78,150 8 461 -- Comprehensive income .......................... -- -- -- -- ---------- ------ ------- --------- Balance, December 31, 1996 ..................... 25,013,763 $2,501 $11,450 $ 152,457 ---------- ------ ------- --------- Add (Deduct) Net income .................................... -- -- -- 29,166 Dividends paid--$0.40 per share ............... -- -- -- (10,065) Shares awarded under restricted stock plans (162,207 shares) ....................... 156,945 16 3,679 -- Shares purchased under the 1995 employee stock purchase plan (34,527 shares) .............................. 17,682 2 330 -- Amortization of deferred cost of restricted common stock issued .......................... -- -- -- -- Additional tax benefits from stock plans ...... -- -- 306 -- Forfeiture of shares awarded under restricted stock plans (38,690 shares) ....... -- -- -- -- Exercise of stock options awarded under the 1988 stock option plan (46,000 shares) .............................. 31,177 3 147 -- Cumulative translation adjustment ............. -- -- -- -- Comprehensive income .......................... -- -- -- -- ---------- ------ ------- --------- Balance, December 31, 1997 ..................... 25,219,567 $2,522 $15,912 $ 171,558 ---------- ------ ------- --------- Add (Deduct): Net loss ...................................... -- -- -- (33,468) Dividends paid--$0.20 per share ............... -- -- -- (5,077) Shares awarded under restricted stock plan, (301,098 shares) ....................... 292,707 29 7,519 -- Shares purchased under the 1995 employee stock purchase plan (41,938 shares) ......................... 19,420 2 282 -- Amortization of deferred cost of restricted common stock issued .......................... -- -- -- -- Additional tax benefits from stock plans ...... -- -- 3,681 -- Forfeiture of shares awarded under restricted stock plans (43,161 shares) ....... -- -- -- -- Exercise of stock options awarded under the 1988 stock option plan (628,600 shares) ............................. 602,409 60 2,716 -- Cumulative translation adjustment ............. -- -- -- -- Comprehensive income .......................... -- -- -- -- ---------- ------ ------- --------- Balance, December 31, 1998 ..................... 26,134,103 $2,613 $30,110 $ 133,013 ========== ====== ======= =========
Deferred Cost Total Cumulative of Stock- Comprehensive Treasury Translation Restricted holders' Income Stock Adjustment Stock Equity (Loss) -------- ----------- ---------- --------- ------------- Balance, December 31, 1995 ..................... $ -- $ -- $ (3,403) $ 150,343 ------- -------- -------- --------- Add (Deduct) Net income .................................... -- -- -- 18,837 18,837 Dividends paid--$0.40 per share ............... -- -- -- (9,983) -- Shares awarded under the 1995 restricted stock plan (78,137 shares) ................... 66 -- (1,951) 164 -- Shares purchased under the 1995 employee stock purchase plan (33,433 shares) .............................. 365 -- -- 718 -- Amortization of deferred cost of restricted common stock issued .......................... -- -- 1,221 1,221 -- Additional tax benefits from stock plans ...... -- -- -- 664 -- Forfeiture of shares awarded under the 1990 and 1995 restricted stock plans (12,225 shares) .............................. (214) -- 214 -- -- Shares issued and returned to treasury ........ (273) -- -- -- -- Exercise of stock options awarded under the 1988 stock option plan (80,000 shares) .............................. 40 -- -- 509 -- Comprehensive income .......................... -- -- -- -- $ 18,837 ------- -------- -------- --------- ========= Balance, December 31, 1996 ..................... $ (16) $ -- $ (3,919) $ 162,473 ------- -------- -------- --------- Add (Deduct) Net income .................................... -- -- -- 29,166 29,166 Dividends paid--$0.40 per share ............... -- -- -- (10,065) -- Shares awarded under restricted stock plans (162,207 shares) ....................... 103 -- (3,673) 125 -- Shares purchased under the 1995 employee stock purchase plan (34,527 shares) .............................. 350 -- -- 682 -- Amortization of deferred cost of restricted common stock issued .......................... -- -- 1,821 1,821 -- Additional tax benefits from stock plans ...... -- -- -- 306 -- Forfeiture of shares awarded under restricted stock plans (38,690 shares) ....... (808) -- 808 -- -- Exercise of stock options awarded under the 1988 stock option plan (46,000 shares) .............................. 306 -- -- 456 -- Cumulative translation adjustment ............. -- (1,277) -- (1,277) (1,277) Comprehensive income .......................... -- -- -- -- $ 27,889 ------- -------- -------- --------- ========= Balance, December 31, 1997 ..................... $ (65) $ (1,277) $ (4,963) $ 183,687 ------- -------- -------- --------- Add (Deduct): Net loss ...................................... -- -- -- (33,468) (33,468) Dividends paid--$0.20 per share ............... -- -- -- (5,077) -- Shares awarded under restricted stock plan, (301,098 shares) ....................... 200 -- (7,652) 96 -- Shares purchased under the 1995 employee stock purchase plan (41,938 shares) ......................... 529 -- -- 813 -- Amortization of deferred cost of restricted common stock issued .......................... -- -- 2,786 2,786 -- Additional tax benefits from stock plans ...... -- -- -- 3,681 -- Forfeiture of shares awarded under restricted stock plans (43,161 shares) ....... (1,015) -- 1,015 -- -- Exercise of stock options awarded under the 1988 stock option plan (628,600 shares) ............................. 86 -- -- 2,862 -- Cumulative translation adjustment ............. -- (578) -- (578) (578) Comprehensive income .......................... -- -- -- -- $ (34,046) ------- -------- -------- --------- ========= Balance, December 31, 1998 ..................... $ (265) $ (1,855) $ (8,814) $ 154,802 ======= ======== ======== =========
The accompanying notes are an integral part of these consolidated financial statements. 34 36 - ------------------------------------------------- Consolidated Statements of Cash Flows
Dollars in Thousands Year Ended December 31, 1998 ------------- Cash flows from operating activities: Net income (loss) ....................................................................... $ (33,468) Less net income (loss) from discontinued operations ..................................... (6,449) --------- Net income (loss) from continuing operations ............................................ $ (27,019) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization .......................................................... 53,649 Gain on sale of B share rights ......................................................... (8,132) Unrealized and realized gains on venture capital, marketable securities investments, and long term investments, net ......................................................... (4,418) Provision on other investments ......................................................... 5,090 Restricted stock plan expense .......................................................... 2,786 (Prepaid) deferred income taxes ........................................................ (31,482) Minority interest ...................................................................... (6,441) Changes in operating assets and liabilities: Investments in marketable securities, net .............................................. 5,206 Receivable from securities brokers and dealers for sales of mutual fund shares ......... (2,320) Receivables for securities sold ........................................................ 10,377 Receivables for gold shipments ......................................................... 600 Receivables from Pioneer Family of Mutual Funds and other .............................. (3,284) Mining inventory ....................................................................... 3,735 Timber inventory ....................................................................... 2,312 Other current assets ................................................................... (5,219) Other noncurrent assets ................................................................ 1,945 Payable to funds for shares sold ....................................................... 2,287 Accrued expenses and accounts payable .................................................. 6,268 Brokerage liabilities .................................................................. (9,033) Accrued income taxes ................................................................... 15,687 --------- Total adjustments and changes in operating assets and liabilities ..................... 39,613 --------- Net cash provided by continuing operating activities .................................. 12,594 --------- Net cash used in discontinued operating activities .................................... (3,554) --------- Net cash provided by operating activities ............................................. 9,040 --------- Cash flows from investing activities: Purchase of mining equipment and facilities ............................................. (9,808) Deferred mining development costs ....................................................... (584) Additions to furniture, equipment and leasehold improvements ............................ (11,770) Building ................................................................................ (864) Long-term venture capital investments ................................................... (45,774) Proceeds from sale of long-term venture capital investments ............................. 22,040 Deferred timber development costs ....................................................... -- Purchase of timber equipment and facilities ............................................. (4,988) Other investments ....................................................................... (1,373) Proceeds from sales of other investments ................................................ -- Cost of acquisition in excess of net assets acquired .................................... (16) Purchase of long-term investments ....................................................... (2,245) Proceeds from sale of long-term investments ............................................. 5,007 --------- Net cash used in continuing investing activities ...................................... (50,375) --------- Net cash used in investing activities, discontinued operations ........................ -- --------- Net cash used in investing activities ................................................. (50,375) --------- Cash flows from financing activities: Dividends paid .......................................................................... (5,077) Distributions to minority interestholders subsidiary .................................... -- Distributions to limited partners of venture capital subsidiary ......................... (68) Amounts raised by venture capital investment partnerships ............................... 34,559 Additional minority interest capital raised by foreign subsidiaries ..................... -- Employee stock purchase plan ............................................................ 813 Exercise of stock options ............................................................... 2,862 Restricted stock plan award ............................................................. 96 Dealer advances ......................................................................... (20,702) Sale of dealer advances ................................................................. 61,631 Revolving credit agreement borrowings, net .............................................. (26,000) Borrowings of notes payable ............................................................. 447 Repayments of notes payable ............................................................. (17,411) Reclassification of restricted cash ..................................................... (737) --------- Net cash provided by continuing financing activities .................................. 30,413 --------- Net cash provided by financing activities, discontinued operations .................... -- --------- Net cash provided by financing activities ............................................. 30,413 Effect of foreign currency exchange rate changes on cash and cash equivalents ............ (160) Net increase (decrease) in cash and cash equivalents ..................................... (11,082) Cash and cash equivalents at beginning of year ........................................... 55,601 --------- Cash and cash equivalents at end of year ................................................. $ 44,519 =========
Dollars in Thousands Year Ended December 31, 1997 1996 ----------- ----------- Cash flows from operating activities: Net income (loss) ....................................................................... $ 29,166 $ 18,837 Less net income (loss) from discontinued operations ..................................... (547) 3,560 -------- --------- Net income (loss) from continuing operations ............................................ $ 29,713 $ 15,277 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization .......................................................... 45,090 29,952 Gain on sale of B share rights ......................................................... -- -- Unrealized and realized gains on venture capital, marketable securities investments, and long term investments, net ......................................................... (27,460) (12,279) Provision on other investments ......................................................... 2,710 107 Restricted stock plan expense .......................................................... 1,821 1,221 (Prepaid) deferred income taxes ........................................................ 3,765 11,066 Minority interest ...................................................................... 5,097 3,280 Changes in operating assets and liabilities: Investments in marketable securities, net .............................................. (1,632) (5,884) Receivable from securities brokers and dealers for sales of mutual fund shares ......... (2,742) 3,375 Receivables for securities sold ........................................................ (8,866) (2,600) Receivables for gold shipments ......................................................... (765) 2,724 Receivables from Pioneer Family of Mutual Funds and other .............................. (1,514) (17,393) Mining inventory ....................................................................... 1,470 (7,897) Timber inventory ....................................................................... (4,491) 81 Other current assets ................................................................... 476 (3,804) Other noncurrent assets ................................................................ (306) (3,858) Payable to funds for shares sold ....................................................... 2,770 (3,373) Accrued expenses and accounts payable .................................................. 2,851 19,030 Brokerage liabilities .................................................................. 13,232 2,040 Accrued income taxes ................................................................... 6,257 1,702 -------- --------- Total adjustments and changes in operating assets and liabilities ..................... 37,763 17,490 -------- --------- Net cash provided by continuing operating activities .................................. 67,476 32,767 -------- --------- Net cash used in discontinued operating activities .................................... (10,286) (13,998) -------- --------- Net cash provided by operating activities ............................................. 57,190 18,769 -------- --------- Cash flows from investing activities: Purchase of mining equipment and facilities ............................................. (11,520) (74,789) Deferred mining development costs ....................................................... (9,568) (3,088) Additions to furniture, equipment and leasehold improvements ............................ (9,016) (5,038) Building ................................................................................ (2,865) (10,101) Long-term venture capital investments ................................................... (26,945) (14,256) Proceeds from sale of long-term venture capital investments ............................. 6,688 9,576 Deferred timber development costs ....................................................... (354) (6,716) Purchase of timber equipment and facilities ............................................. (5,206) (2,466) Other investments ....................................................................... (5,871) (1,824) Proceeds from sales of other investments ................................................ 1,732 -- Cost of acquisition in excess of net assets acquired .................................... (87) (928) Purchase of long-term investments ....................................................... (4,026) (5,353) Proceeds from sale of long-term investments ............................................. 13,884 7,200 -------- --------- Net cash used in continuing investing activities ...................................... (53,154) (107,783) -------- --------- Net cash used in investing activities, discontinued operations ........................ (2,557) (6,903) -------- --------- Net cash used in investing activities ................................................. (55,711) (114,686) -------- --------- Cash flows from financing activities: Dividends paid .......................................................................... (10,065) (9,983) Distributions to minority interestholders subsidiary .................................... -- (354) Distributions to limited partners of venture capital subsidiary ......................... (94) (23) Amounts raised by venture capital investment partnerships ............................... 21,024 7,848 Additional minority interest capital raised by foreign subsidiaries ..................... -- 6,269 Employee stock purchase plan ............................................................ 682 718 Exercise of stock options ............................................................... 456 509 Restricted stock plan award ............................................................. 125 164 Dealer advances ......................................................................... (16,331) (23,247) Sale of dealer advances ................................................................. -- -- Revolving credit agreement borrowings, net .............................................. 8,500 35,500 Borrowings of notes payable ............................................................. 28,420 62,960 Repayments of notes payable ............................................................. (10,587) (6,059) Reclassification of restricted cash ..................................................... (5,414) (1,664) -------- --------- Net cash provided by continuing financing activities .................................. 16,716 72,638 -------- --------- Net cash provided by financing activities, discontinued operations .................... 12,843 20,901 -------- --------- Net cash provided by financing activities ............................................. 29,559 93,539 Effect of foreign currency exchange rate changes on cash and cash equivalents ............ (728) -- Net increase (decrease) in cash and cash equivalents ..................................... 30,310 (2,378) Cash and cash equivalents at beginning of year ........................................... 25,291 27,669 -------- --------- Cash and cash equivalents at end of year ................................................. $ 55,601 $ 25,291 ======== =========
The accompanying notes are an integral part of these consolidated financial statements. 35 37 - ------------------------------------------------- Notes to Consolidated Financial Statements December 31, 1998 Note 1-- Nature of Operations and Organization The operations of The Pioneer Group, Inc. and its subsidiaries (collectively, the "Company"), are divided among three strategic business units: (i) Pioneer Investment Management ("PIM"), (ii) Pioneer International Financial Services, and (iii) Pioneer Global Investments. PIM includes the (i) investment management and marketing of the Company's 25 U.S. registered investment companies (comprised of 36 investment portfolios) in the Pioneer Family of Mutual Funds, as well as the seven offshore mutual funds based in Ireland, (ii) distribution of shares of the Pioneer Family of Mutual Funds by Pioneer Funds Distributor, Inc. ("PFD"), and (iii) shareowner servicing for the Pioneer Family of Mutual Funds by Pioneering Services Corporation. PIM also provides separate account management services for institutional investors, and through subsidiaries also distributes and services the Irish offshore mutual funds. Pioneer International Financial Services includes investment management and financial services operations in (i) Warsaw, Poland, where the Company manages, distributes and services units of four mutual funds, owns a majority interest in a brokerage company, owns a unitholder servicing agent, and in 1998 established a private pension fund management company, (ii) Prague, Czech Republic, where the Company manages, distributes and services participation certificates in a Czech mutual fund, and (iii) Moscow, Russia, where the Company manages, distributes and services two mutual funds, and owns 51% of Pioneer First Investment Fund. Pioneer International Financial Services also includes investment management operations in India and Taiwan. Pioneer Global Investments includes the Company's diversified strategic businesses, consisting of U.S. and international venture capital operations, U.S. and international real estate operations, gold mining and timber harvesting. Pioneer Capital Corporation ("PCC"), and its subsidiaries, engage in venture capital investing and management activities in the U.S. The Company's wholly owned subsidiary, Pioneer Goldfields Limited ("PGL"), conducts mining and exploration activities in the Republic of Ghana and exploration activities elsewhere in Africa. PGL's principal asset is its ownership of 90% of the outstanding shares of Teberebie Goldfields Limited ("TGL"), which operates a gold mine in the western region of the Republic of Ghana. The Republic of Ghana owns the remaining 10% of TGL. In addition, the Company's majority-owned subsidiary Closed Joint-Stock Company "Tas-Yurjah Mining Company" conducts mining exploration activities in the Russian Far East. The Company's wholly owned subsidiary, Pioneer Forest, Inc. ("Pioneer Forest"), conducts timber harvesting and timber development activities in the Russian Far East. Pioneer Forest's principal asset is its ownership of 97% of the outstanding shares of Closed Joint-Stock Company "Forest-Starma", which harvests timber in the Russian Far East and which commenced commercial production on January 1, 1997. Note 2-- Summary of Significant Accounting Policies Principles of Consolidation and Basis of Presentation The accompanying consolidated financial statements include the accounts of the Company, its wholly owned and majority-owned subsidiaries and certain partnerships that the Company controls. The Company has consolidated the Pioneer Ventures Limited Partnership II, Pioneer Poland U.S. L.P. and Pioneer Poland U.K. L.P. in which the Company's ownership interest is 14.0%, 7.2% and 9.2%, respectively. Control is defined by several factors, including, but not limited to, the fact that the Company is the general partner, the general partner has absolute and unilateral authority to make investment decisions, the limited partners may not remove the general partner and the general partner has absolute and unilateral authority to declare, or not declare, distributions of partnership income to the partners. All material intercompany balances and transactions have been eliminated in consolidation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The most significant estimates with regard to these consolidated financial statements relate to the valuation of venture capital investments, other investments and the estimated future cash flows of the Company's natural resource operations, as discussed herein. Certain reclassifications have been made to 1997 and 1996 amounts to conform with the 1998 presentation. Consolidated Statements of Cash Flows Cash and cash equivalents consist primarily of cash on deposit in banks and amounts invested in commercial paper, Pioneer money market mutual funds and U.S. Treasury bills with original maturities of three months or less. Restricted cash consists of cash on deposit in banks, use of which is restricted by certain loan covenants and cash reserved for the exclusive benefit of brokerage customers. Income taxes paid were approximately $14,816,000, $18,719,000 and $1,149,000 in 1998, 1997 and 1996, respectively. In addition, $15,168,000, $13,146,000 and $7,263,000 of interest was paid in 1998, 1997 and 1996, respectively. The amounts paid in 1997 and 1996 include approximately $1,353,000 and $4,800,000, respectively, of interest that was capitalized related to the development of the Company's building, Russian timber operations and the Phase III mining expansion operations. Recognition of Revenues Investment management, shareholder services, trustee and other fees are recorded as income during the period in which services are performed. Agreements with certain of the Pioneer Family of Mutual Funds provide for fee reductions, which are based on the excess of annual expenses of each mutual fund over certain limits. Fee reductions are recorded on an accrual basis. 36 38 - ------------------------------------------------- Notes to Consolidated Financial Statements (Continued) Underwriting commissions earned from the distribution of the Pioneer Family of Mutual Fund shares and the systematic investment plans are recorded as income on the trade (execution) dates. Distribution fees are earned based on 0.75% of certain Pioneer Family of Mutual Fund net assets. In September 1998, the Company sold its rights to receive these distribution fees. Commencing in October 1998, the gains on sales of Class B share rights sold pursuant to the Class B Shares Rights Program were included in distribution fees (see Note 15). Revenues from brokerage activities are derived from net realized and unrealized gains and losses from securities trading activities. The Company's principal brokerage activities relate to the purchase and sale of Russian securities, including Russian government debt securities and the equity and debt securities of companies based in Russia. The Company records sales of gold at sales value net of refining costs when gold is shipped to a refinery. Through September 30, 1998, the Company had purchased put options as "insurance" against significant declines in the market price of gold. The receipts from the exercise of put options are included as gold sales in the accompanying consolidated statements of operations. During 1998 and 1997, put option proceeds of approximately $3.2 million and $4 million, respectively, were received. The Company records timber sales when timber is shipped. Building The building represents the Meridian Commercial Tower in Russia. The Meridian Commercial Tower is an office building which is wholly owned by the Pioneer First Investment Fund. The Company owns a 51% interest in the Pioneer First Investment Fund. Furniture, Equipment and Leasehold Improvements Depreciation and amortization are provided for financial reporting purposes on a straight-line basis over the following estimated useful lives: furniture and equipment, 3-5 years, and leasehold improvements, over the term of the lease. In the event of retirement or other disposition of furniture and equipment, the cost of the assets and the related accumulated depreciation and amortization amounts are removed from the accounts, and any resulting gains or losses are reflected in earnings. Mining Inventory Gold bullion inventory and gold-in-process contained in the processing plant are valued at the lower of cost or market. Material and supplies are valued at the lower of average cost or replacement cost. Mining Equipment and Facilities Processing plant and equipment is recorded at cost and is depreciated on a units-of-production basis, which anticipates recovery over ten years or less. Mining equipment (rolling stock) is recorded at cost and is depreciated on a units-of-production basis which anticipates recovery over seven years or less. Buildings and housing units are recorded at cost and are depreciated on a straight-line basis over ten years. Leach pads are recorded at cost and are depreciated on a units-of-production basis. All other equipment and facilities are recorded at cost and are depreciated over their estimated useful lives on a straight-line basis ranging from three to ten years. Depreciation begins at the time construction is completed and the assets are placed into service. Deferred Mining Development Costs Deferred mining development costs, which include the cost of site development, capitalized interest and infrastructure costs during the development and construction phases of the project, are recorded at cost and amortized on a units-of-production basis, which anticipates recovery over ten years or less. Costs incurred to develop economically viable ore bodies, to further define mineralization in existing ore bodies, or to secure rights to proven reserves are capitalized as development costs. Exploration costs associated with the initial identification of ore reserves are expensed. Property and lease acquisition costs incurred in the process of acquiring exploration mineral rights are expensed as incurred. Mining Reclamation Costs Estimated future reclamation costs are based principally on anticipated environmental and regulatory requirements and are accrued and charged to expense over the expected operating life of the mine on a units-of-production basis. The accrual is maintained on an undiscounted basis. Deferred Timber Development Costs Deferred timber development costs principally consist of construction and engineering expenditures and infrastructure costs incurred in developing the site, the roads, capitalized interest, legal, timber rights, other pre-operating costs and organizational costs. These costs are amortized on a units-of-production basis which anticipates recovery principally over ten years. Timber Equipment and Facilities Timber equipment and facilities consist of logging machinery and building and housing units. These costs are principally depreciated on a units-of-production basis which anticipates recovery over five to twenty years. Cost in Excess of Net Assets Acquired Cost in excess of net assets acquired is amortized on a straight-line basis over five to fifteen years. Cost in excess of net assets acquired, net, as reflected in the accompanying consolidated balance sheets, consists of the following: 37 39 - ------------------------------------------------- Notes to Consolidated Financial Statements (Continued)
December 31, 1998 1997 ------- ------- (Dollars in thousands) Mutual of Omaha Fund Management Company .................. $14,482 $16,530 Russian investment operations ......... 1,811 2,163 Gold mining operations ................ 842 1,217 Polish brokerage operations ........... 280 306 ------- ------- $17,415 $20,216 ======= =======
Valuation of Long-Term Venture Capital Investments The Company's long-term venture capital investments consist of the following (in thousands):
December 31, 1998 1997 -------- ------- Domestic ......... $ 79,475 $68,937 Non-U.S. ......... 50,085 26,445 -------- ------- $129,560 $95,382 ======== =======
The Company's domestic and non-U.S. venture capital investments are in companies that are primarily engaged in bringing new technology to market as well as more mature companies in need of capital for expansion, acquisitions, management buyouts or recapitalizations. At the time the investments are made, the Company's investments are primarily in the form of unregistered common and preferred stock, warrants and promissory notes. Most securities are valued at fair value, as determined in good faith by management and approved by the Board of Directors, when market quotes are not available. Of the total domestic venture capital value at December 31, 1998, the value of securities for which market quotes are not available was $63,538,000. In addition, total domestic venture capital investments included cash that has been restricted for the future purchase of venture capital investments of $6,026,000. In addition, non-U.S. venture capital investments are the investments held by certain consolidated partnerships. These venture capital investments are in companies that are domiciled in Poland. Of the total non-U.S. venture capital value at December 31, 1998, the value of securities for which market quotes are not available was $27,499,000. In addition, total non-U.S. venture capital investments included cash that has been restricted for the future purchase of venture capital investments of $22,586,000. In determining fair value, investments are initially stated at cost until significant subsequent events require a change in valuation. The Company considers the financial condition and operating results of the investee, prices paid in subsequent private offerings of the same or similar securities, the amount that the Company can reasonably expect to realize upon the sale of these securities, and any other factors deemed relevant. Securities for which market quotations are available are valued at the closing price as of the valuation date with an appropriate discount, if restricted. Long-term Investments Long-term investments consists mainly of Russian investments of the Pioneer First Investment Fund. These securities are classified as available for sale. The securities in the Pioneer First Investment Fund are carried at cost with adjustments made for any other-than-temporary impairment in value until such time as the breadth and scope of the Russian securities markets develop to certain quantifiable levels. When the breadth and scope of the Russian securities market develop to certain quantifiable levels, the securities will be recorded at fair value with unrealized gains and losses recorded in stockholders' equity after income taxes and minority interest. At December 31, 1998, the approximate fair value of these securities was $13.4 million (based upon available market quotations and appraisals). Valuation of Financial Instruments The Company considers the liquid nature and readily available market quotations when estimating fair value of financial instruments. As stated in the accompanying consolidated balance sheets, the carrying values of the Company's financial instruments approximate fair value, except for the long-term investments of Pioneer First Investment Fund, as discussed above. Earnings Per Share The following table details the calculation of basic and diluted earnings per share ("EPS"). Basic EPS is computed by dividing reported earnings available to stockholders by weighted average shares outstanding not including contingently issuable shares. Diluted EPS includes the effect of the contingently issuable shares and other common stock equivalents.
Net Earnings/ Income/ (Loss) (Loss) Shares Per Share --------- ------ --------- For the year ended 12/31/98 (Dollars and shares in thousands - --------------------------------- except per share amounts) Basic earnings per share calculation: Continuing operations ........... $(27,019) 25,148 $(1.07) Discontinued operations ......... $ (6,449) 25,148 $(0.26) -------- ------ ------ Total .......................... $(33,468) 25,148 $(1.33) ======== ====== ====== Options ......................... 188 Restricted stock ................ 14 ------ Diluted earnings per share calculation: Continuing operations ........... $(27,019) 25,350 $(1.07) Discontinued operations ......... $ (6,449) 25,350 $(0.25) -------- ------ ------ Total .......................... $(33,468) 25,350 $(1.32) ======== ====== ====== For the year ended 12/31/97 - ---------------------------------- Basic earnings per share calculation: Continuing operations ........... $ 29,713 24,873 $ 1.19 Discontinued operations ......... $ (547) 24,873 $(0.02) -------- ------ ------ Total .......................... $ 29,166 24,873 $ 1.17 ======== ====== ====== Options ......................... 692 Restricted stock ................ 65 ------ Diluted earnings per share calculation: Continuing operations ........... $ 29,713 25,630 $ 1.16 Discontinued operations ......... $ (547) 25,630 $(0.02) -------- ------ ------ Total .......................... $ 29,166 25,630 $ 1.14 ======== ====== ======
38 40 - ------------------------------------------------- Notes to Consolidated Financial Statements (Continued)
Net Earnings/ Income/ (Loss) (Loss) Shares Per Share -------- ------ --------- For the year ended 12/31/96 (Dollars and shares in thousands - --------------------------------- except per share amounts) Basic earnings per share calculation: Continuing operations ........... $15,277 24,620 $ 0.62 Discontinued operations ......... $ 3,560 24,620 $ 0.15 ------- ------ ------ Total .......................... $18,837 24,620 $ 0.77 ======= ====== ====== Options ......................... 745 Restricted stock ................ 95 ------ Diluted earnings per share calculation: Continuing operations ........... $15,277 25,460 $ 0.60 Discontinued operations ......... $ 3,560 25,460 $ 0.14 ------- ------ ------ Total .......................... $18,837 25,460 $ 0.74 ======= ====== ======
In the second, third and fourth quarters of 1998, the Company reported a net loss. Accordingly, all contingently issuable shares and common stock equivalents were excluded from the computation of diluted EPS because they were anti-dilutive. Comprehensive Income The Company adopted Statement of Financial Accounting Standards (SFAS) 130, "Reporting Comprehensive Income" in the first quarter of 1998. SFAS 130 establishes standards for the reporting of comprehensive income and its components. Comprehensive income, as defined, includes all changes in equity during a period from non-owner sources. The Company's foreign currency translation adjustments, which are excluded from net income, are included in comprehensive income. Foreign Currency Translation In accordance with SFAS 52, "Foreign Currency Translation", the functional currency of the Company's natural resource operations is the U.S. dollar, as the revenues, costs of capital equipment and financing costs are principally denominated in U.S. dollars. The functional currency of the Company's financial services operations is generally the currency of the country in which those operations are conducted. However, some of those operations are conducted in countries having highly inflationary economies and as a result the functional currency is currently the U.S. dollar. For those entities, the gains and losses which result from remeasuring into the U.S. dollar for reporting purposes are included in the accompanying consolidated statements of operations. The net foreign currency losses were $0.7 million in 1998, $1.7 million in 1997 and $1.3 million in 1996. For those entities for which the functional currency is the local currency, the gains and losses which result from translating into the U.S. dollar for reporting purposes are included in the accompanying consolidated balance sheets' stockholders' equity section as a cumulative translation adjustment. Long-Lived Assets The Company periodically reviews its long-lived assets which it continues to hold and use for potential impairment. Those long-lived assets held and used in connection with the Company's natural resource operations are reassessed whenever there is a significant change in the market price of the goods produced, and continuously during capital intensive periods of expansion. Additionally, the building is reassessed for potential impairment when there are significant changes in market rental rates or market values of comparable buildings. The Company assesses the future useful life of these assets whenever events or changes in circumstances indicate that the current useful life has diminished. Concentration of Risk The Company performs ongoing evaluations of its subsidiaries and investments and obtains political risk insurance which mitigates its exposure in foreign countries. Costs of Start-Up Activities In April 1998, the American Institute of Certified Public Accountants (the "AICPA") issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities". The new standard requires that entities expense costs of start-up activities as those costs are incurred. The Company has capitalized certain pre-operating costs in connection with its natural resource operations, and has capitalized certain organizational costs associated with its financial services operations. The Statement must be adopted in the first quarter of 1999. At adoption, the Company must record a cumulative effect of a change in accounting principle and write-off all remaining unamortized start-up costs. The Company has estimated unamortized capitalized start-up costs of approximately $12.3 million, related principally to its timber operations. Derivative Instruments and Hedging Activities In June 1998, the Financial Accounting Standards Board issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." The Statement establishes accounting and reporting standards requiring that every derivative instrument be recorded on the balance sheet as either an asset or a liability measured at its fair value. The Statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. The Company has not yet quantified the impact of adopting Statement 133 on its financial statements and has not determined the timing of or method of its adoption of Statement 133. Statement 133 is effective for fiscal years beginning after June 15, 1999. Note 3-- Mining Inventory Mining inventories consist of the following:
December 31, 1998 1997 ------- ------- (Dollars in Thousands) Gold-in-process ................ $ 2,236 $ 1,998 Materials and supplies ......... 16,061 20,034 ------- ------- $18,297 $22,032 ======= =======
39 41 - --------------------------------------------- Notes to Consolidated Financial Statements (Continued) Note 4-- Mining Equipment and Facilities
December 31, 1998 1997 -------- -------- (Dollars in Thousands) Mobile mine equipment ............................ $70,756 $70,163 Crusher, processing plant and laboratory ......... 57,609 56,752 Leach pads and ponds ............................. 30,054 26,685 Building and civil works ......................... 14,298 13,987 Office furniture and equipment ................... 2,102 2,089 Motor vehicles ................................... 3,500 3,201 Construction in progress ......................... -- 69 Other assets ..................................... 2,703 2,278 ------- ------- Total cost ....................................... 181,022 175,224 Accumulated depreciation ......................... (94,282) (76,060) ------- ------- $86,740 $99,164 ======= =======
Note 5-- Income Taxes The following is a summary of the components of income (loss) from continuing operations before provision for income taxes and minority interest for financial reporting purposes:
1998 1997 1996 -------- ------- ------- (Dollars in Thousands) Domestic ......... $ 38,589 $51,394 $26,484 Foreign .......... (70,278) 11,792 1,618 -------- ------- ------- $(31,689) $63,186 $28,102 ======== ======= =======
The components of the provision for federal, state and foreign income taxes consist of:
1998 1997 1996 ------- ------- ------- (Dollars in Thousands) Current: Federal .......... $28,465 $13,328 $ 1,197 State ............ 4,828 2,188 376 Foreign .......... (40) 8,383 (1,034) Deferred (Prepaid): Federal .......... (19,100) 4,536 6,326 State ............ (4,745) (2) 2,531 Foreign .......... (7,637) (769) 2,209 ------- ------- ------- $ 1,771 $27,664 $11,605 ======= ======= =======
Income taxes, as stated as a percentage of income (loss) from continuing operations before provision for income taxes, are comprised of the following:
1998 1997 1996 ------- ----- ----- Federal statutory tax rate .......... (35.0)% 35.0% 35.0% Increases (decreases) in tax rate resulting from: State income tax (net of effect on federal income tax) ...................... -- 2.3 5.6 Foreign income taxes ............... 43.2 5.4 (0.8) Other, net ......................... (2.6) 1.1 1.5 ----- ---- ---- Effective tax rate ................. 5.6% 43.8% 41.3% ===== ==== ====
The approximate income tax effect of each type of temporary difference is as follows:
1998 1997 -------- --------- (Dollars in Thousands) Deferred taxes related to foreign mining operations ...................... $ -- $ (7,637) Net operating losses of foreign subsidiaries ........................... 21,807 4,600 Restricted stock ......................... 1,235 774 Reserves ................................. 1,530 1,041 Goodwill ................................. 620 447 Dealer advances .......................... -- (16,347) Venture capital and other investments..... (2,111) (8,732) Other temporary differences, net ......... 874 1,120 ------- -------- 23,955 (24,734) Valuation allowance ...................... (21,807) (4,600) ------- -------- Net deferred tax asset (liability) ....... $ 2,148 $(29,334) ======= ========
A valuation allowance has been established to fully reserve the tax benefits associated with certain net operating losses of foreign subsidiaries as the realizability of these tax benefits is not probable. U.S. Federal income taxes have been provided on all foreign earnings except for the amount considered to be permanently invested outside the U.S. which approximates $50,000,000 at December 31, 1998. Note 6-- Stock Plans The Company has a Stock Incentive Plan (the "1997 Plan") to provide incentives to certain employees who have contributed and are expected to contribute materially to the success of the Company and its subsidiaries. An aggregate total of 1,500,000 shares of the Company's common stock may be awarded to participants under the 1997 Plan. Under the 1997 Plan, the Company may grant restricted stock, stock options and other stock based awards. The 1997 Plan is administered by the Compensation Committee of the Board of Directors (the "Committee"). The 1997 Plan expires in February 2007. The Company's 1995 Restricted Stock Plan (the "1995 Plan") and 1988 Stock Option Plan (the "1988 Option Plan") were terminated upon the approval of the 1997 Plan by the stockholders of the Company on May 20, 1997. The Company's 1990 Restricted Stock Plan (the "1990 Plan") expired in January 1995. The 1997 Plan, 1995 Plan and the 1990 Plan are collectively referred to as the "Plans." Restricted stock is granted at a price to be determined by the Board of Directors, generally $0.10 per share. The following tables summarize restricted stock plan activity for the Plans during 1998.
Unvested Shares ---------------------------------------------- 1997 Plan 1995 Plan 1990 Plan Total --------- --------- --------- ------- Balance at 12/31/97 ......... 25,355 192,760 105,884 323,999 Awarded .................... 301,098 -- -- 301,098 Vested ..................... (4,700) (27,752) (58,820) (91,272) Forfeited .................. (4,128) (34,643) (4,390) (43,161) ------- ------- ------- ------- Balance at 12/31/98 ......... 317,625 130,365 42,674 490,664 ======= ======= ======= =======
40 42 - --------------------------------------------- Notes to Consolidated Financial Statements (Continued)
Vested Shares ------------------------------------------- 1997 Plan 1995 Plan 1990 Plan Total --------- --------- --------- ------- Balance at 12/31/97 ......... 2,520 12,926 609,340 624,786 Vested ..................... 4,700 27,752 58,820 91,272 ----- ------ ------- ------- Balance at 12/31/98 ......... 7,220 40,678 668,160 716,058 ===== ====== ======= =======
The Company awarded 27,875 shares in 1997 under the 1997 Plan. The Company awarded 134,332 shares in 1997 and 78,137 shares in 1996 under the 1995 Plan. The participant's right to sell the awarded stock under the Plans is generally restricted as to 100% of the shares awarded during the first year following the award, 75% during the second year and 25% less each year thereafter. The Company may repurchase unvested restricted shares at $0.10 per share upon termination of employment. Awards under the Plans are compensatory, and accordingly, the difference between the award price and the market value of the shares under the Plans at the award date, is being amortized on a straight-line basis over a four-year period. Options issuable under the 1997 Plan become exercisable as determined by the Committee not to exceed ten years from the date of grant. Options granted to date vest over five years at an annual rate of 20% on each anniversary date of the date of grant. Prior to the adoption of the 1997 Plan, options were granted under the 1988 Option Plan. As of December 31, 1998, 175,155 shares of the Company's common stock remain available for grant under the 1997 Plan. In May 1995, the Company adopted the 1995 Employee Stock Purchase Plan (the "1995 Purchase Plan"), which qualifies as an "Employee Stock Purchase Plan" within the meaning of Section 423 of the Internal Revenue Code of 1986. An aggregate total of 500,000 shares of common stock have been authorized for issuance under the 1995 Purchase Plan, to be implemented through one or more offerings, each approximately six months in length beginning on the first business day of each January and July. The price at which shares may be purchased during each offering will be the lower of (i) 85% of the closing price of the common stock as reported on the NASDAQ National Market (the "closing price") on the date that the offering commences or (ii) 85% of the closing price of the common stock on the date the offering terminates. In 1998, 1997 and 1996, the Company issued 41,938, 34,527 and 33,433 shares under the 1995 Purchase Plan, respectively. The Company records stock compensation in accordance with Accounting Principles Board ("APB") Opinion 25. Had the compensation cost for these plans been determined consistent with SFAS 123, "Accounting for Stock-Based Compensation", the Company's net income and earnings per share would have been the following pro forma amounts:
1998 1997 1996 --------- ------- ------- Net (loss)/income: As reported $(33,468) $29,166 $18,837 Pro forma $(34,983) $28,327 $18,369 Diluted EPS: As reported $ (1.32) $ 1.14 $ 0.74 Pro forma $ (1.38) $ 1.11 $ 0.72
The weighted-average grant-date fair value of options granted during 1998, 1997 and 1996 was approximately $5,206,000, $4,651,000 and $2,952,000, respectively. For purposes of the pro forma disclosure, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:
1998 1997 1996 ------- ------- ------- Volatility 42% 36% 34% Risk-Free interest rate 4.6% 5.8% 6.6% Dividend yield 1.06% 1.43% 1.71% Expected life of options 9 years 9 years 9 years
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:
1998 1997 1996 -------- -------- -------- Volatility 39% 28% 18% Risk-Free interest rate 5.5% 5.7% 5.8% Dividend yield 1.06% 1.43% 1.71% Expected life of options 6 months 6 months 6 months
Because the SFAS 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. The following table summarizes the Option Plans activity for the three years ended December 31, 1998.
Weighted average Number of exercise price shares per share ---------- ---------------- Outstanding at December 31, 1995 1,977,000 $ 9.30 Granted 268,500 $ 24.88 Exercised (80,000) $ 6.34 --------- ------- Outstanding at December 31, 1996 2,165,500 $ 11.51 Granted 345,000 $ 29.52 Exercised (46,000) $ 9.89 Terminated (26,500) $ 19.24 --------- ------- Outstanding at December 31, 1997 2,438,000 $ 13.60 Granted 667,500 $ 15.46 Exercised (628,600) $ 5.37 Terminated (12,500) $ 27.50 --------- ------- Outstanding at December 31, 1998 2,464,400 $ 16.53 Exercisable at year end 1,264,000 $ 12.54
The following table summarizes information about options outstanding at December 31, 1998:
Weighted Weighted Average Weighted Average Number Contractual Average Exercise Price Outstanding Life in Years Exercise Price -------------- ----------- ------------- -------------- $4.19-$7.07 714,900 3.21 $ 5.26 $12.00-$19.00 809,000 9.08 $ 14.77 $21.25-$29.875 940,500 7.92 $ 26.61 --------- 2,464,400 =========
Note 7-- Net Capital As a broker-dealer, PFD is subject to the Securities and Exchange Commission's ("SEC") regulations and operating guidelines which, among other things, require PFD to maintain a specified amount 41 43 - --------------------------------------------- Notes to Consolidated Financial Statements (Continued) of net capital. Net capital may fluctuate on a daily basis. Effective with the June 30, 1998 net capital computation, the Company changed its method of net capital computation from the Aggregate Indebtedness method to the Alternative Standard. PFD's net capital, as computed under Rule 15c3-1, was $1,946,975 at December 31, 1998, which exceeded required net capital of $250,000 by $1,696,975. Note 8--Benefit Plans The Company and its subsidiaries have two defined contribution plans for eligible employees: a retirement benefit plan and a savings and investment plan ("the Benefit Plans") qualified under Section 401 of the Internal Revenue Code. The Company makes contributions to a trustee, on behalf of eligible employees, to fund both the retirement benefit and the savings and investment plans. The Company's expenses under the Benefit Plans were approximately $3,462,000 in 1998, $2,666,000 in 1997 and $2,531,000 in 1996. Both of the Company's qualified Benefit Plans described above cover all full-time employees who have met certain age and length-of-service requirements. Regarding the retirement benefit plan, the Company contributes an amount which would purchase a certain targeted monthly pension benefit at the participant's normal retirement date. In connection with the savings and investment plan, participants can voluntarily contribute up to 12% of their compensation to the plan, and the Company will match this contribution up to 2%. Note 9--Related Party Transactions Certain officers and/or directors of the Company and its subsidiaries are officers and/or trustees of the Pioneer Family of Mutual Funds and the Company's international mutual funds. Investment management fees earned from the mutual funds were approximately $137,753,000 in 1998, $118,851,000 in 1997 and $84,178,000 in 1996. Underwriting commissions and distribution fees earned from the sales of mutual fund shares were approximately $26,511,000 in 1998, $23,322,000 in 1997 and $16,636,000 in 1996. Shareholder services fees earned from the mutual funds were approximately $31,610,000 in 1998, $28,002,000 in 1997 and $25,340,000 in 1996. Within the Pioneer Family of Mutual Funds, total revenues from Pioneer II were approximately $47,535,000 in 1998, $50,933,000 in 1997 and $39,102,000 in 1996. Total revenues from Pioneer Fund were $42,323,000 in 1998, $28,918,000 in 1997 and $20,621,000 in 1996. Certain partners of Hale and Dorr LLP, the Company's legal counsel, are officers and/or directors of the Company and its subsidiaries. Amounts paid to Hale and Dorr LLP consist of legal fees of approximately $663,000 in 1998, $635,000 in 1997 and $1,189,000 in 1996. Hale and Dorr LLP is a partner in the law firm Brobeck Hale and Dorr International. The Company paid legal fees in the amount of approximately $5,000 in 1998, $76,000 in 1997 and $188,000 in 1996 to Brobeck Hale and Dorr International. Note 10--Commitments U.S. rental expense amounted to approximately $4,577,000 in 1998, $3,766,000 in 1997 and $2,977,000 in 1996, respectively. Future minimum payments under the leases amount to approximately $5,069,000 in 1999, $4,784,000 in 2000, $4,901,000 in 2001, $1,624,000 in 2002, $563,000 in 2003 and $1,830,000 thereafter. These future minimum rental payments include estimated annual operating and tax expenses. In 1999, these operating and tax expenses will approximate $2,200,000. Rental expense for the Polish Mutual Fund operations amounted to approximately $1,100,000, $956,000 and $963,000 in 1998, 1997 and 1996, respectively. The lease is open-ended and can be terminated by either the Company or the lessor upon 90 days notice. The Company is contingently liable to the Investment Company Institute Mutual Insurance Company for unanticipated expenses or losses in connection with its mutual fund operations in an amount not to exceed $500,000. Two thirds of this amount is secured by an irrevocable standby letter of credit with a bank. At December 31, 1998, the Company was committed to additional capital contributions of $0.8 million to Pioneer Ventures Limited Partnership II, a U.S. venture capital fund. The Company acts as a passive, non-bank trustee for retirement plan accounts. IRS regulations and operating guidelines allow a passive, non-bank trustee to accept fiduciary accounts only if the trustee's net worth (determined as of the end of the most recent taxable year) exceeds the greater of (1) $100,000 or (2) two percent of the net assets of fiduciary accounts. At December 31, 1998, the Company's net worth of $154.8 million was 2.3% of the net assets of fiduciary accounts. Note 11--Notes Payable Notes payable of the Company consist of the following:
December 31, 1998 1997 ------- --------- (Dollars in Thousands) Revolving Credit Agreement ................. $70,000 $96,000 Senior note payable to a commercial lender, principal payable on August 15, 2004, interest payable at 8.95%. ......... 20,000 20,000 Preferred shares financing related to the Russian investment operations ............ -- 2,000 Small Business Administration ("SBA") financing, notes payable to a bank, interest payable semi-annually at rates ranging from 6.12% to 9.8%, principal due through 2003 ......................... 3,750 4,950 Note payable to a bank, interest and principal payable monthly at the one- month Warsaw Bank rate plus 1.75% through August 2002 ...................... 447 -- Note payable to a bank, interest payable quarterly at the three month LIBOR rate plus 6%, principal due in eight quarterly installments through January, 1999, secured by lease rental payments and proceeds from insurance policies ......... 456 1,897
42 44 - --------------------------------------------- Notes to Consolidated Financial Statements (Continued)
December 31, 1998 1997 --------- --------- (Dollars in Thousands) Notes payable to a bank, guaranteed by the Company, principal payable in semi-annual installments, of $214,000 through November 30, 1999, no interest payable, secured by equipment ...................... 430 858 Note payable to a bank, guaranteed by the Swedish Exports Credits Guarantee Board, principal payable in semi-annual installments of $1,650,000 through January 31, 2002, interest payable at 6.42%, secured by equipment ........................ 9,902 12,732 Note payable to a supplier, principal payable in quarterly installments ranging from $250,000 to $482,000 through April 15, 2001, interest payable at 7.85%, secured by equipment ........................ 3,355 4,699 Note payable to a supplier, principal and interest payable in quarterly installments ranging from $70,000 to $130,000 through April 15, 2001, interest payable at 7.85%, secured by equipment ..................... 919 1,239 Note payable to a supplier, principal payable in quarterly installments ranging from $248,000 to $387,000 through May 15, 2001, interest payable at 8.00%, secured by equipment ........................ 2,848 3,988 Note payable to a supplier, principal payable in quarterly installments ranging from $212,000 to $439,000 through December 15, 2001, interest payable at 8.25%, secured by equipment ........................ 3,885 5,237 Note payable to a supplier, principal payable in semi-annual installments ranging from $294,000 to $800,000 through April 15, 2003, interest payable at 8.30%, secured by equipment ..................... 4,847 5,795 Note payable to a bank, guaranteed by OPIC, principal payable in equal semi- annual installments of $1,583,000 through September 15, 2003, interest payable at 9.02% ................................... 15,832 19,000 Project financing, guaranteed by OPIC, payable in semi-annual installments of $620,000 through December 15, 2003, interest payable at 9.95% .......................... 6,200 7,440 -------- -------- 142,871 185,835 Less: Current portion ................................ (9,476) (17,411) -------- -------- $133,395 $168,424 ======== ========
Maturities of notes payable at December 31, 1998, for each of the next five years and thereafter are as follows (dollars in thousands): 1999 ............... $ 9,476 2000 ............... 16,523 2001 ............... 83,361 2002 ............... 7,309 2003 ............... 6,202 Thereafter ......... 20,000 -------- $142,871 ========
The Company entered into an agreement in 1996 with a syndicate of commercial banks for a senior credit facility (the "Credit Facility"). Under the Credit Facility, the Company could borrow up to $60 million (the "B-share Revolver") to finance Dealer Advances relating to sales of back-end load shares of the Company's domestic mutual funds. In September 1998, the Company sold to a third party its rights to receive future distribution fees and deferred sales charges from the distribution of Class B Shares of Pioneer Mutual Funds. The agreement also provides for the sale at a premium of additional rights arising from future sales of Class B Shares on a monthly basis through September 2001, thereby eliminating the need to finance Class B Shares as the Company had previously done. The Company used the proceeds from the sale of Class B-share rights to repay the $49.5 million outstanding under the B-share Revolver and the B-share Revolver was terminated in October 1998. The Credit Facility also provides that the Company may borrow up to $80 million for general corporate purposes (the "Corporate Revolver"). The Corporate Revolver is payable in full in June 2001. Advances under the Corporate Revolver bear interest, at the Company's option, at (a) the higher of the bank's base lending rate plus 0.25% or the federal funds rate plus 0.50% or (b) LIBOR plus the applicable margin of 2.25%. The Credit Facility provides that the Company must pay additional interest at the rate of 0.375% per annum of the unused portion of the facility and an annual arrangement fee of $35,000. At December 31, 1998, the Company had borrowed $70 million under the Corporate Revolver. The Credit Facility contains restrictions that limit, among other things, encumbrances on the assets of the Company's domestic mutual fund subsidiaries and certain mergers and sales of assets. Additionally, the Credit Facility requires that the Company meet certain financial covenants including covenants that require the Company to maintain certain minimum ratios with respect to debt to cash flow and interest payments to cash flow and a minimum tangible net worth, all as defined in the Credit Facility. In December 1998 the Credit Facility was amended. The amendment included changes to certain financial covenants. The amendment addressed the potential need for a reduced standard in certain financial covenant tests through June 30, 1999. As of December 31, 1998, the Company was in compliance with all applicable covenants, as amended. For the years ended December 31, 1998, 1997 and 1996, the weighted average interest rate on the borrowings under the Credit Facility and lines of credit outstanding was 8.0%, 8.0%, and 7.3%, respectively. As of December 31, 1998, the Company had six five-year interest rate swap agreements with a member of the Company's banking syndicate which has effectively fixed the interest rate on notional amounts totaling $100 million. Under these agreements, the Company will pay the bank a weighted average fixed rate of 6.76%, plus the applicable margin of 2.25% on the notional principal. The bank will pay the Company interest on the notional principal at the current variable rate stated under the Credit Facility. The Company has incurred approximately $1,220,000, $976,000 and $499,000 of interest expense on these swap agreements during 1998, 1997 and 1996, respectively. At December 31, 1998, 43 45 - --------------------------------------------- Notes to Consolidated Financial Statements (Continued) the Company had $30 million of overhedged swaps and recognized approximately $1,300,000 of expense in 1998 in accordance with generally accepted accounting principles related to these swaps. At December 31, 1998, the fair value of the swaps was ($4,564,000), compared to a book value of ($1,300,000). If the Company were to terminate these agreements, it would be required to pay an amount approximating fair value. In 1997, the Company entered into an agreement (the "Note Agreement") with a commercial lender pursuant to which the Company issued to the lender Senior Notes in the aggregate principal amount of $20 million. The Senior Notes, which bear interest at the rate of 8.95% per annum, have a maturity of seven years. Certain covenants of the Senior Notes were also amended in December 1998. The amended restrictions and financial covenants under the Note Agreement are substantially similar to the amended restrictions and financial covenants under the Credit Facility. TGL's loan agreement with OPIC contains certain covenants. TGL did not comply with certain of these covenants during 1998 and received appropriate waivers from OPIC. Note 12--Minority Interest The Company's minority interest liability includes the interests of the other equity holders of the Company's consolidated entities. The liability for each entity is recorded based upon the net book value of that entity at the balance sheet date, except for those instances in which agreements could result in the Company redeeming those interests at amounts greater than their share of the net book value. In those instances, adjustments are made to the liability to reflect the minority equity holders' economic interests under those agreements. As of December 31, 1998 and 1997, the Company's minority interest liability consisted of the following (dollars in thousands):
1998 1997 -------- ------- Gold mining operations $ 5,865 $ 7,958 Russian investment operations 15,433 26,091 Polish brokerage operations 4 13 Poland Fund--venture capital 45,649 24,269 Pioneer Ventures Limited Partnerships--venture capital 43,325 28,346 -------- ------- Totals $110,276 $86,677 ======== =======
Note 13--Major Customers During the year ended December 31, 1998, gold sales aggregated $77.3 million. During 1998, gold shipments from TGL in Ghana to two unaffiliated European refiners accounted for $38.5 million and $35.7 million, respectively, representing 96% of such total sales. During the year ended December 31, 1997, gold sales aggregated $89.5 million. During 1997, gold shipments from TGL in Ghana to two unaffiliated European refiners accounted for $43.9 million and $41 million, respectively, representing 95% of such total sales. During the year ended December 31, 1996, gold sales aggregated $78.3 million. During 1996, gold shipments from TGL in Ghana to two unaffiliated European refiners accounted for $41.2 million and $37.1 million, respectively, representing 100% of such total sales. Note 14--Discontinued Operations In the third quarter of 1998, the Company decided to liquidate its Russian banking operations. Accordingly, the operating results for the bank have been segregated from the results from the continuing operations and reported as a separate line on the consolidated statements of operations for all periods presented. The 1998 loss included a provision of approximately $3,600,000 for the expected costs and certain losses associated with liquidating the bank. In December 1998, the Company sold its stock in the Bank to an unrelated third party. The sale is subject to certain regulatory approvals. The remaining liability of $0.4 million recorded at December 31, 1998 is related to certain costs associated with the liquidation of the Bank. The following is a summary of the results of discontinued operations for the years ended December 31, 1998, 1997 and 1996, respectively.
Year Ended December 31, 1998 1997 1996 -------- -------- -------- (Amounts in Thousands) Revenues from banking activities ............................. $ 2,150 $ 12,324 $ 14,966 ------- -------- -------- Income (loss) before income taxes and minority interest ............ (9,589) (1,376) 5,563 Income taxes ............................. (311) (117) (57) ------- -------- -------- Income (loss) from discontinued operations before minority interest ............... (9,278) (1,259) 5,620 ------- -------- -------- Minority interest ........................ (2,829) (712) 2,060 ------- -------- -------- Net income (loss) from discontinued operations ................ $(6,449) $ (547) $ 3,560 ======= ======== ========
Note 15--Dealer Advances Certain of the Pioneer Family of Mutual Funds maintain a multi-class share structure whereby the participating funds offer both the traditional front-end load shares (Class A shares) and back-end load shares (Class B and Class C shares). Back-end load shares do not require the investor to pay any sales charge unless there is a redemption before the expiration of the minimum holding period, which ranges from three to six years in the case of Class B shares and is one year in the case of Class C shares. However, the Company pays upfront sales commissions (dealer advances) to broker-dealers ranging from 2% to 4% of the sales transaction amount on Class B shares and 1% on Class C shares. The participating Funds pay the Company distribution fees of 0.75% and service fees of 0.25%, per annum of their net assets invested in Class B and Class C shares, subject to annual renewal by the participating Fund's Board of Trustees. In addition, the Company is paid a contingent deferred sales charge (CDSC) on Class B and C shares redeemed within the minimum holding period. The CDSC is paid based on declining rates ranging from 2% to 4% on the purchases of Class B shares and 1% for Class C shares. In 1998, 1997, and 1996, the Company paid B-share dealer advances in the amount of $20.8 million, $16.3 million, and $23.2 million, respectively. On September 30, 1998, the Company entered into an agreement to sell to a third party its rights to receive future distribution fees and deferred sales charges from the then outstanding Class B shares assets of the Pioneer Family of Mutual Funds. The Class B share rights were sold for $61.7 million resulting in a pre-tax gain on sale of $8.1 million and an after-tax gain of $5.3 million, as reported in the accompanying consolidated statements of opera- 44 46 - --------------------------------------------- Notes to Consolidated Financial Statements (Continued) tions. In addition, the agreement (Class B share rights program) also provides for the sale, at a premium, of additional rights arising from future sales of Class B shares on a monthly basis through September 30, 2001. The Company capitalizes and amortizes Class C share dealer advances for financial statement purposes over a twelve month period. The Company deducts the dealer advances in full for tax purposes in the year such advances are paid. Distribution fees received by the Company from participating Funds are recorded in income as earned. CDSC received by the Company from redeeming shareholders reduce unamortized dealer advances directly. Note 16--Venture Capital Subsequent Event On March 18, 1999, the Company sold its U.S. venture capital business to a third party for approximately $34.9 million. The sale included certain venture capital investments owned by a wholly owned subsidiary and a majority owned partnership, as well as the Company's interest in a consolidated partnership which serves as an investment vehicle for a number of institutional investors. In connection with the sale, the Company incurred a net loss of approximately $3.1 million, which included certain costs associated with the transaction. Note 17--Financial Information by Business Segment The Company adopted SFAS 131, "Disclosures about Segments of an Enterprise and Related Information" in 1997. SFAS 131 requires companies to present segment information using the management approach. The management approach is based on the way that management organizes the segments within a Company for making operating decisions and assessing performance. The Company's operating segments are organized around services and products provided, as well as geographic regions. The segment information for 1996 has been restated to conform to these requirements. The intersegment transactions are for management services and the secondment of employees. These transactions are generally priced on a cost or cost plus basis. 45 47 - --------------------------------------------- Notes to Consolidated Financial Statements (Continued) Note 17--Financial Information by Business Segment (Continued) The following details total revenues and income (loss) by business segment and geographic region (dollars in thousands):
Pioneer International Financial Services ---------------------------------------------- Pioneer Investment Czech Management Russia Poland Republic Asia ---------- --------- -------- -------- ------ Year ended December 31, 1998: Gross revenues and sales ................................... $ 217,544 $ 10,289 $ 13,685 $ 1,641 $ -- ========== ========= ======== ======== ====== Intersegment eliminations .................................. $ (9,521) $ -- $ -- $ -- $ -- ========== ========= ======== ======== ====== Net revenues and sales ..................................... $ 208,023 $ 10,289 $ 13,685 $ 1,641 $ -- ========== ========= ======== ======== ====== Income (loss) before income taxes and minority interest ................................................. $ 57,172 $ (23,857) $ (2,660) $ (937) $ (859) ========== ========= ======== ======== ====== Income taxes .............................................. $ 21,191 $ (2,893) $ 744 $ (174) $ (344) ========== ========= ======== ======== ====== Minority interest .......................................... $ -- $ (7,961) $ (13) $ -- $ -- ========== ========= ======== ======== ====== Net income (loss) ......................................... $ 35,981 $ (13,003) $ (3,391) $ (763) $ (515) ========== ========= ======== ======== ====== Depreciation and amortization ............................. $ 21,234 $ 1,407 $ 1,777 $ 132 $ -- ========== ========= ======== ======== ====== Interest expense ........................................... $ 2,632 $ 328 $ 59 $ -- $ -- ========== ========= ======== ======== ====== Capital expenditures ....................................... $ 7,597 $ 3,147 $ 1,737 $ 132 $ -- ========== ========= ======== ======== ====== Gross identifiable assets at December 31, 1998 ............. $ 209,754 $ 49,855 $ 23,198 $ 1,148 $ -- ========== ========= ======== ======== ====== Intersegment eliminations .................................. $ (118,236) $ (143) $ -- $ (86) $ -- ========== ========= ======== ======== ====== Net identifiable assets at December 31, 1998 ............... $ 91,518 $ 49,712 $ 23,198 $ 1,062 $ -- ========== ========= ======== ======== ====== Year ended December 31, 1997: Gross revenues and sales ................................... $ 176,900 $ 42,384 $ 14,542 $ 1,046 $ -- ========== ========= ======== ======== ====== Intersegment eliminations .................................. $ (8,427) $ (188) $ -- $ -- $ -- ========== ========= ======== ======== ====== Net revenues and sales ..................................... $ 168,473 $ 42,196 $ 14,542 $ 1,046 $ -- ========== ========= ======== ======== ====== Income (loss) before income taxes and minority interest .... $ 52,146 $ 14,187 $ 2,409 $ (1,406) $ -- ========== ========= ======== ======== ====== Income taxes ............................................... $ 20,086 $ 5,528 $ 1,114 $ (162) $ -- ========== ========= ======== ======== ====== Minority interest .......................................... $ -- $ 2,798 $ (52) $ -- $ -- ========== ========= ======== ======== ====== Net income (loss) .......................................... $ 32,060 $ 5,861 $ 1,347 $ (1,244) $ -- ========== ========= ======== ======== ====== Depreciation and amortization .............................. $ 17,509 $ 1,522 $ 625 $ 280 $ -- ========== ========= ======== ======== ====== Interest expense ........................................... $ 2,885 $ 226 $ 6 $ -- $ -- ========== ========= ======== ======== ====== Capital expenditures ....................................... $ 7,405 $ 3,561 $ 322 $ -- $ -- ========== ========= ======== ======== ====== Gross identifiable assets at December 31, 1997 ............. $ 263,073 $ 99,230 $ 16,308 $ 237 $ -- ========== ========= ======== ======== ====== Intersegment eliminations .................................. $ (127,705) $ (3,877) $ -- $ -- $ -- ========== ========= ======== ======== ====== Net identifiable assets at December 31, 1997 ............... $ 135,368 $ 95,353 $ 16,308 $ 237 $ -- ========== ========= ======== ======== ====== Year ended December 31, 1996: Gross revenues and sales ................................... $ 130,854 $ 6,181 $ 10,374 $ 245 $ -- ========== ========= ======== ======== ====== Intersegment eliminations .................................. $ (4,474) $ -- $ -- $ -- $ -- ========== ========= ======== ======== ====== Net revenues and sales ..................................... $ 126,380 $ 6,181 $ 10,374 $ 245 $ -- ========== ========= ======== ======== ====== Income (loss) before income taxes and minority interest $ 27,683 $ (2,908) $ (885) $ (3,172) $ -- ========== ========= ======== ======== ====== Income taxes ............................................... $ 10,246 $ (1,749) $ (72) $ (272) $ -- ========== ========= ======== ======== ====== Minority interest .......................................... $ -- $ 1,065 $ (83) $ -- $ -- ========== ========= ======== ======== ====== Net income (loss) .......................................... $ 17,437 $ (2,224) $ (730) $ (2,900) $ -- ========== ========= ======== ======== ====== Depreciation and amortization .............................. $ 13,388 $ 501 $ -- $ -- $ -- ========== ========= ======== ======== ====== Interest expense ........................................... $ 2,328 $ 450 $ -- $ -- $ -- ========== ========= ======== ======== ====== Capital expenditures ....................................... $ 3,599 $ 10,445 $ 213 $ 631 $ -- ========== ========= ======== ======== ====== Gross identifiable assets at December 31, 1996 ............. $ 211,661 $ 56,646 $ 9,507 $ 313 $ -- ========== ========= ======== ======== ====== Intersegment eliminations .................................. $ (96,894) $ (1,315) $ -- $ -- $ -- ========== ========= ======== ======== ====== Net identifiable assets at December 31, 1996 ............... $ 114,767 $ 55,331 $ 9,507 $ 313 $ -- ========== ========= ======== ======== ======
Subtotal-Pioneer International Financial Services ------------------- Year ended December 31, 1998: Gross revenues and sales ................................... $ 25,615 ========= Intersegment eliminations .................................. $ -- ========= Net revenues and sales ..................................... $ 25,615 ========= Income (loss) before income taxes and minority interest ................................................. $ (28,313) ========= Income taxes .............................................. $ (2,667) ========= Minority interest .......................................... $ (7,974) ========= Net income (loss) ......................................... $ (17,672) ========= Depreciation and amortization ............................. $ 3,316 ========= Interest expense ........................................... $ 387 ========= Capital expenditures ....................................... $ 5,016 ========= Gross identifiable assets at December 31, 1998 ............. $ 74,201 ========= Intersegment eliminations .................................. $ (229) ========= Net identifiable assets at December 31, 1998 ............... $ 73,972 ========= Year ended December 31, 1997: Gross revenues and sales ................................... $ 57,972 ========= Intersegment eliminations .................................. $ (188) ========= Net revenues and sales ..................................... $ 57,784 ========= Income (loss) before income taxes and minority interest .... $ 15,190 ========= Income taxes ............................................... $ 6,480 ========= Minority interest .......................................... $ 2,746 ========= Net income (loss) .......................................... $ 5,964 ========= Depreciation and amortization .............................. $ 2,427 ========= Interest expense ........................................... $ 232 ========= Capital expenditures ....................................... $ 3,883 ========= Gross identifiable assets at December 31, 1997 ............. $ 115,775 ========= Intersegment eliminations .................................. $ (3,877) ========= Net identifiable assets at December 31, 1997 ............... $ 111,898 ========= Year ended December 31, 1996: Gross revenues and sales ................................... $ 16,800 ========= Intersegment eliminations .................................. $ -- ========= Net revenues and sales ..................................... $ 16,800 ========= Income (loss) before income taxes and minority interest .... $ (6,965) ========= Income taxes ............................................... $ (2,093) ========= Minority interest .......................................... $ 982 ========= Net income (loss) .......................................... $ (5,854) ========= Depreciation and amortization .............................. $ 501 ========= Interest expense ........................................... $ 450 ========= Capital expenditures ....................................... $ 11,289 ========= Gross identifiable assets at December 31, 1996 ............. $ 66,466 ========= Intersegment eliminations .................................. $ (1,315) ========= Net identifiable assets at December 31, 1996 ............... $ 65,151 =========
46 48 - --------------------------------------------- Notes to Consolidated Financial Statements (Continued)
Pioneer Global Investments - ----------- --------------------------------------------------------------- Real Estate U.S. Venture Cent. & East. Europe Gold Russian Services Capital Venture Capital Mining Timber - ----------- ------------ -------------------- --------- ---------- $ 1,208 $ 1,666 $ 4,668 $ 77,329 $ 10,451 ======== ======= ========= ========= ========= $ -- $ -- $ (4,086) $ -- -- ======== ======= ========= ========= ========= $ 1,208 $ 1,666 $ 582 $ 77,329 $ 10,451 ======== ======= ========= ========= ========= $ (3,939) $15,443 $ (11,207) $ (29,066) $ (23,250) ======== ======= ========= ========= ========= $ (1,074) $ 2,347 $ (3,074) $ (7,186) $ (4,548) ======== ======= ========= ========= ========= $ -- $ 9,800 $ (6,175) $ (2,092) $ -- ======== ======= ========= ========= ========= $ (2,865) $ 3,296 $ (1,958) $ (19,788) $ (18,702) ======== ======= ========= ========= ========= $ 108 $ 183 $ 371 $ 25,603 $ 5,481 ======== ======= ========= ========= ========= $ 24 $ 333 $ -- $ 5,082 $ 4,211 ======== ======= ========= ========= ========= $ -- $ 21 $ -- $ 9,808 $ 4,988 ======== ======= ========= ========= ========= $ 6,311 $86,602 $ 49,323 $ 131,476 $ 52,921 ======== ======= ========= ========= ========= $ (953) $ (7) $ -- $ (39) $ -- ======== ======= ========= ========= ========= $ 5,358 $86,595 $ 49,323 $ 131,437 $ 52,921 ======== ======= ========= ========= ========= $ 543 $ 1,828 $ 603 $ 89,487 $ 11,879 ======== ======= ========= ========= ========= $ -- $ -- $ (81) $ -- $ -- ======== ======= ========= ========= ========= $ 543 $ 1,828 $ 522 $ 89,487 $ 11,879 ======== ======= ========= ========= ========= $ (2,939) $14,678 $ (2,454) $ (2,818) $ (6,996) ======== ======= ========= ========= ========= $ (1,035) $ 4,348 $ 297 $ (426) $ (270) ======== ======= ========= ========= ========= $ -- $ 4,005 $ (1,386) $ 444 $ -- ======== ======= ========= ========= ========= $ (1,904) $ 6,325 $ (1,365) $ (2,836) $ (6,726) ======== ======= ========= ========= ========= $ 55 $ 176 $ 214 $ 23,260 $ 2,871 ======== ======= ========= ========= ========= $ -- $ 402 $ -- $ 2,766 $ 3,045 ======== ======= ========= ========= ========= $ 344 $ 38 $ 34 $ 11,520 $ 5,206 ======== ======= ========= ========= ========= $ 7,173 $77,101 $ 28,767 $ 152,866 $ 50,998 ======== ======= ========= ========= ========= $ (1,847) $ (7) $ -- $ -- $ -- ======== ======= ========= ========= ========= $ 5,326 $77,094 $ 28,767 $ 152,866 $ 50,998 ======== ======= ========= ========= ========= $ 104 $ 1,989 $ 594 $ 78,279 $ -- ======== ======= ========= ========= ========= $ -- $ -- $ -- $ -- $ -- ======== ======= ========= ========= ========= $ 104 $ 1,989 $ 594 $ 78,279 $ -- ======== ======= ========= ========= ========= $ (463) $ 9,272 $ (3,689) $ 4,737 $ (729) ======== ======= ========= ========= ========= $ (186) $ 2,964 $ (90) $ 1,519 $ (246) ======== ======= ========= ========= ========= $ -- $ 1,804 $ (2,210) $ 644 $ -- ======== ======= ========= ========= ========= $ (277) $ 4,504 $ (1,389) $ 2,574 $ (483) ======== ======= ========= ========= ========= $ 2 $ 124 $ -- $ 16,371 $ 116 ======== ======= ========= ========= ========= $ -- $ 403 $ -- $ 137 $ -- ======== ======= ========= ========= ========= $ 14 $ 14 $ 24 $ 74,789 $ 2,466 ======== ======= ========= ========= ========= $ 2,692 $58,454 $ 15,603 $ 149,613 $ 43,367 ======== ======= ========= ========= ========= $ -- $ (7) $ -- $ -- $ -- ======== ======= ========= ========= ========= $ 2,692 $58,447 $ 15,603 $ 149,613 $ 43,367 ======== ======= ========= ========= =========
Other -Subtotal- Natural Pioneer Global Resources Investments Other Total - --------- -------------- ---------- ----------- $ -- $ 95,322 $ 12,747 $ 351,228 ======== ========= ========= ========== $ -- $ (4,086) $ (12,747) $ (26,354) ======== ========= ========= ========== $ -- $ 91,236 $ -- $ 324,874 ======== ========= ========= ========== $ (1,537) $ (53,556) $ (6,992) $ (31,689) ======== ========= ========= ========== $ (427) $ (13,962) $ (2,791) $ 1,771 ======== ========= ========= ========== $ -- $ 1,533 $ -- $ (6,441) ======== ========= ========= ========== $ (1,110) $ (41,127) $ (4,201) $ (27,019) ======== ========= ========= ========== $ 6 $ 31,752 $ 133 $ 56,435 ======== ========= ========= ========== $ -- $ 9,650 $ 3,634 $ 16,303 ======== ========= ========= ========== $ -- $ 14,817 $ -- $ 27,430 ======== ========= ========= ========== $ 895 $ 327,528 $ 31,774 $ 643,257 ======== ========= ========= ========== $ -- $ (999) $ (24,332) $ (143,796) ======== ========= ========= ========== $ 895 $ 326,529 $ 7,442 $ 499,461 ======== ========= ========= ========== $ -- $ 104,340 $ 9,667 $ 348,879 ======== ========= ========= ========== $ -- $ (81) $ (9,667) $ (18,363) ======== ========= ========= ========== $ -- $ 104,259 $ -- $ 330,516 ======== ========= ========= ========== $ (761) $ (1,290) $ (2,860) $ 63,186 ======== ========= ========= ========== $ (298) $ 2,616 $ (1,518) $ 27,664 ======== ========= ========= ========== $ -- $ 3,063 $ -- $ 5,809 ======== ========= ========= ========== $ (463) $ (6,969) $ (1,342) $ 29,713 ======== ========= ========= ========== $ 3 $ 26,579 $ 396 $ 46,911 ======== ========= ========= ========== $ -- $ 6,213 $ 2,065 $ 11,395 ======== ========= ========= ========== $ -- $ 17,142 $ 177 $ 28,607 ======== ========= ========= ========== $ 1,169 $ 318,074 $ 23,030 $ 719,952 ======== ========= ========= ========== $ -- $ (1,854) $ (19,302) $ (152,738) ======== ========= ========= ========== $ 1,169 $ 316,220 $ 3,728 $ 567,214 ======== ========= ========= ========== $ -- $ 80,966 $ 2,679 $ 231,299 ======== ========= ========= ========== $ -- $ -- $ (2,679) $ (7,153) ======== ========= ========= ========== $ -- $ 80,966 $ -- $ 224,146 ======== ========= ========= ========== $ (959) $ 8,169 $ (785) $ 28,102 ======== ========= ========= ========== $ (320) $ 3,641 $ (189) $ 11,605 ======== ========= ========= ========== $ -- $ 238 $ -- $ 1,220 ======== ========= ========= ========== $ (639) $ 4,290 $ (596) $ 15,277 ======== ========= ========= ========== $ -- $ 16,613 $ 671 $ 31,173 ======== ========= ========= ========== $ -- $ 540 $ -- $ 3,318 ======== ========= ========= ========== $ 17 $ 77,324 $ 182 $ 92,394 ======== ========= ========= ========== $ 1,136 $ 270,865 $ 16,973 $ 565,965 ======== ========= ========= ========== $ -- $ (7) $ (10,967) $ (109,183) ======== ========= ========= ========== $ 1,136 $ 270,858 $ 6,006 $ 456,782 ======== ========= ========= ==========
47 49 The Pioneer Group, Inc. Directors and Executive Officers Wholly and Majority Owned Subsidiaries Pioneer Investment Management, Inc., Pioneer Funds Distributor, Inc., Pioneering Services Corporation, Pioneer Investment Poland Limited, Pioneer Fonds Marketing GmbH, PGIA Corporation, Pioneer International Corporation, Pioneer First Polish Investment Fund Joint Stock Company S.A., Pioneer Financial Services Limited, Pioneer Polski Dom Maklerski, S.A., Pioneer Universal Pension Fund Company, Pioneer Management (Ireland) Limited, Pioneer Omega, Inc., Pioneer First Russia, Inc., "Pioneer First Investment Fund," Closed Joint Stock Company "Pioneer Securities," UKS Securities Limited, Closed Joint Stock Company "Pioneer Services," Closed Joint Stock Company "Pioneer First," Pioneer Czech Investment Company, A.S., Pioneer Czech Financial Company, s.r.o., Beijing Pioneer Zhong Investment Consulting Company, Limited, Pioneer Goldfields Holdings, Inc., Pioneer Goldfields Limited, PGH Nebraska, Inc., Teberebie Goldfields Limited, Pioneer Forest, Inc., Closed Joint-Stock Company "Forest-Starma," Closed Joint-Stock Company "Amgun-Forest," Closed Joint-Stock Company "Udinskoye," Pioneer Metals and Technology, Inc., Closed Joint-Stock Company "Pioneer Metals International," Closed Joint-Stock Company "Tas-Yurjah Mining Company," PIOGlobal Corporation, Pioneer Real Estate Advisors, Inc., Pioneer Investments Corporation, PIOGlobal Insurance Company Limited, Pioneer Explorer, Inc., Pioneer Real Estate Advisors Poland. Joint Ventures Kothari Pioneer AMC Limited, Pioneer-Banc One Property Capital, LP. John F. Cogan, Jr., Chairman of the Board, Director and President Chairman of the Board, President and Trustee of each of the Pioneer Family of Mutual Funds Alan J. Strassman, Vice Chairman of the Board and Director Partner and Chairman of the Board of Martingale Asset Management Robert L. Butler, Director Senior Managing Director - International Fund Distribution, Pioneer Investment Management, Inc. Maurice Engelman, Director Chairman and CEO of Professional Equity Corporation and Marketing Two, Inc.; Principal, Engelman & Associates Jaskaran S. Teja, Director Senior Vice President of Pioneer International Corporation David D. Tripple, Director and Executive Vice President Executive Vice President and Trustee of each of the Pioneer Family of Mutual Funds; President of Pioneer Investment Management, Inc. John H. Valentine, Director Director of Entrepreneurial Management of Health Policy Institute; Director of Visualization Technology, Inc. John A. Boynton, Executive Vice President, Chief Financial Officer and Treasurer Treasurer of each of the Pioneer Family of Mutual Funds Stephen G. Kasnet, Executive Vice President President of Pioneer Global Investments Alicja K. Malecka, Executive Vice President President of Pioneer International Financial Services William H. Smith, Jr., Executive Vice President - Global Operations and Technology. Timothy T. Frost, Senior Vice President - -Corporate Communications and Planning Robert P. Nault, Senior Vice President, General Counsel and Assistant Secretary Joseph P. Barri, Esq., Secretary Legal Counsel Hale and Dorr LLP, Boston, Massachusetts Transfer Agent State Street Bank and Trust Company, Boston, Massachusetts Independent Public Accountants Arthur Andersen LLP, Boston, Massachusetts The Company has filed an Annual Report on Form 10-K with the Securities and Exchange Commission for the year ended December 31, 1998. A copy of that Report is available, free of charge, to stockholders of the Company, upon request to Timothy Frost, Senior Vice President, The Pioneer Group, Inc., 60 State Street, Boston, MA 02109. 50 [BACK COVER] [Pioneer Logo] The Pioneer Group, Inc. 60 State Street Boston, MA 02109 www.pioneerfunds.com 0399-6041 (C) The Pioneer Group, Inc. EX-21 11 SUBSIDIARIES 1 Exhibit 21 Subsidiaries - ---------------------------------------------------------------------------------------- Pioneer Investment Management, Inc. Delaware - ---------------------------------------------------------------------------------------- Pioneer Funds Distributor, Inc. Massachusetts - ---------------------------------------------------------------------------------------- Pioneering Services Corporation Massachusetts - ---------------------------------------------------------------------------------------- Pioneer Investments Poland, Ltd. Poland - ---------------------------------------------------------------------------------------- Pioneer Fonds Marketing GmbH Germany - ---------------------------------------------------------------------------------------- PGIA Corporation Delaware - ---------------------------------------------------------------------------------------- Pioneer International Corporation Delaware - ---------------------------------------------------------------------------------------- Pioneer First Polish Investment Fund Joint Stock Company s.a. Poland - ---------------------------------------------------------------------------------------- Pioneer Financial Services Ltd. Poland - ---------------------------------------------------------------------------------------- Pioneer Polski Dom Maklerski, S.A. Poland - ---------------------------------------------------------------------------------------- Pioneer Universal Pension Fund Company Poland - ---------------------------------------------------------------------------------------- Pioneer Management (Ireland) Limited Ireland - ---------------------------------------------------------------------------------------- Pioneer Omega, Inc. Delaware - ---------------------------------------------------------------------------------------- Pioneer First Russia, Inc. Delaware - ---------------------------------------------------------------------------------------- "Pioneer First Investment Fund" Russian Federation - ---------------------------------------------------------------------------------------- Closed Joint Stock Company "Pioneer Securities" Russian Federation - ---------------------------------------------------------------------------------------- UKS Securities Limited United Kingdom - ---------------------------------------------------------------------------------------- Closed Joint Stock Company "Pioneer Services" Russian Federation - ---------------------------------------------------------------------------------------- Closed Joint Stock Company "Pioneer First" Russian Federation - ---------------------------------------------------------------------------------------- Pioneer Czech Investment Company, A.S. Czech Republic - ---------------------------------------------------------------------------------------- Pioneer Goldfields Holdings, Inc. Delaware - ---------------------------------------------------------------------------------------- Pioneer Czech Financial Company, s.r.o. Czech Republic - ---------------------------------------------------------------------------------------- Beijing Pioneer Zhong Investment Consulting Co., Ltd. China - ---------------------------------------------------------------------------------------- Pioneer Goldfields Limited Guernsey, Channel Islands - ---------------------------------------------------------------------------------------- PGH Nebraska, Inc. Delaware - ---------------------------------------------------------------------------------------- Teberebie Goldfields Limited Republic of Ghana - ---------------------------------------------------------------------------------------- Pioneer Forest, Inc. Delaware - ---------------------------------------------------------------------------------------- Closed Joint-Stock Company "Forest-Starma" Russian Federation - ---------------------------------------------------------------------------------------- Closed Joint-Stock Company "Amgun-Forest" Russian Federation - ---------------------------------------------------------------------------------------- Closed Joint Stock Company "Udinskoye" Russian Federation - ---------------------------------------------------------------------------------------- Pioneer Metals and Technology, Inc. Delaware - ---------------------------------------------------------------------------------------- Closed Joint-Stock Company "Pioneer Metals International" Russian Federation - ---------------------------------------------------------------------------------------- Closed Joint-Stock Company "Tas-Yurjah Mining Company" Russian Federation - ---------------------------------------------------------------------------------------- PIOGlobal Corporation Delaware - ---------------------------------------------------------------------------------------- Pioneer Real Estate Advisors, Inc. Delaware - ---------------------------------------------------------------------------------------- Pioneer Investments Corporation Massachusetts - ---------------------------------------------------------------------------------------- PIOGlobal Insurance Company Limited Bermuda - ---------------------------------------------------------------------------------------- Pioneer Explorer, Inc. Delaware - ---------------------------------------------------------------------------------------- Pioneer Real Estate Advisors Poland Sp.z o.o. Poland - ---------------------------------------------------------------------------------------- Pioneer Plans Corporation Delaware - ---------------------------------------------------------------------------------------- Theta Enterprises, Inc. Delaware - ---------------------------------------------------------------------------------------- Luscinia, Inc. Delaware - ---------------------------------------------------------------------------------------- Closed Joint Stock Company "Starma-Holding" Russian Federation - ----------------------------------------------------------------------------------------
2 Exhibit 21 - ---------------------------------------------------------------------------------------- JSL Co. Dalplaz Russian Federation - ---------------------------------------------------------------------------------------- Closed Joint Stock Company "Starma-Port" Russian Federation - ---------------------------------------------------------------------------------------- Closed Joint Stock Company "Pioneer Starma Equipment" Russian Federation - ---------------------------------------------------------------------------------------- Pioneer Mercury Sp z.o.o. Poland - ---------------------------------------------------------------------------------------- Closed Joint Stock Company "Gradient" Russian Federation - ---------------------------------------------------------------------------------------- AS Holdings, Inc. Delaware - ---------------------------------------------------------------------------------------- Pioneer Poland US (Jersey) Limited Guernsey, Channel Islands - ---------------------------------------------------------------------------------------- Pioneering Management (Jersey) Limited Guernsey, Channel Islands - ---------------------------------------------------------------------------------------- Pioneer Global Funds Distributor, Ltd. Bermuda - ----------------------------------------------------------------------------------------
EX-23 12 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report, incorporated by reference into this Form 10-K, into the Company's previously filed Registration Statement File Nos. 33-61932, 33-59185, 33-59183, 333-31847. Arthur Andersen LLP Boston, Massachusetts March 31, 1999 EX-27.98 13 FINANCIAL DATA SCHEDULE FOR 1998
5 1,000 U.S. DOLLARS 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 1 44,519 3,638 51,211 0 21,882 143,251 265,172 (114,187) 499,461 100,988 133,395 0 0 2,613 152,189 499,461 0 324,874 0 343,492 (9,673) 0 16,303 (25,248) 1,771 (27,019) (6,449) 0 0 (33,468) (1.330) (1.320)
EX-27.97 14 FINANCIAL DATA SCHEDULE FOR 1997
5 1,000 U.S. DOLLARS 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 1 55,601 10,649 56,792 0 27,929 168,502 245,153 (86,483) 567,214 101,921 168,424 0 0 2,522 181,165 567,214 0 330,516 0 282,789 (21,045) 0 11,395 57,377 27,664 29,713 (547) 0 0 29,166 1.170 1.140
EX-27.96 15 FINANCIAL DATA SCHEDULE FOR 1996
5 1,000 U.S. DOLLARS 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 1 25,291 8,484 43,186 0 24,908 115,222 227,903 (69,436) 456,782 64,769 149,500 0 0 2,501 159,972 456,782 0 224,146 0 203,289 (9,343) 0 3,318 26,882 11,605 15,277 3,560 0 0 18,837 0.770 0.740
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