-----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, J2hkTm7kpN0kOdCF4LHWLsWBPypcPGK5QxWmS0dkDS57eSAViMm8j8Okliyk5Rgk Db1X/GicOavnTWex7loICQ== 0000950135-95-002412.txt : 19951119 0000950135-95-002412.hdr.sgml : 19951119 ACCESSION NUMBER: 0000950135-95-002412 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 SROS: NASD 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-08841 FILM NUMBER: 95592884 BUSINESS ADDRESS: STREET 1: 60 STATE ST CITY: BOSTON STATE: MA ZIP: 02109-1820 BUSINESS PHONE: 8008211239 MAIL ADDRESS: STREET 1: 60 STATE STREET CITY: BOSTON STATE: MA ZIP: 02109-1820 10-Q 1 THE PIONEER GROUP, INC. 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the three months ended September 30, 1995 Commission File No. 0-8841 The Pioneer Group, Inc. ----------------------- (exact name of registrant as specified in its charter) Delaware 13-5657669 - -------------------------------------------------------------------------------- (State of other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 60 State Street, Boston, Massachusetts 02109 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (617) 742-7825 -------------- - -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changes since last report. Indicate by checkmark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. X Yes No --- --- As of September 30, 1995, there were 24,814,938 shares of the Registrant's Common Stock, $.10 par value per share, issued and outstanding. 2 PART I FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS THE PIONEER GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Dollars in Thousands Except Per Share Amounts)
9/30/95 12/31/94 ------- -------- ASSETS (unaudited) CURRENT ASSETS: Cash and cash equivalents, at cost which approximates market value........................ $ 24,205 $ 23,118 Investment in marketable securities, at value............................................. 9,514 6,458 Receivables: From securities brokers and dealers for sales of mutual fund shares.................................................... 7,692 7,406 For gold shipments................................................................... 3,841 4,393 Other................................................................................ 12,270 10,168 Mining inventory.......................................................................... 16,071 11,881 Other current assets...................................................................... 7,529 4,695 -------- -------- Total current assets.............................................................. 81,122 68,119 -------- -------- NONCURRENT ASSETS: Mining operations: Mining equipment and facilities (net of accumulated depreciation of $39,266 in 1995 and $29,793 in 1994).......................... 45,075 44,337 Deferred mining development costs (net of accumulated amortization of $10,805 in 1995 and $9,022 in 1994)........................... 9,934 11,061 Cost in excess of net assets of minority interest acquired (net of accumulated amortization of $1,686 in 1995 and $1,405 in 1994)............................. 2,060 2,341 Cost of acquisition in excess of net assets (net of accumulated amortization of $4,045 in 1995 and $2,458 in 1994)............................................... 21,298 22,789 Long-term venture capital investments, at value (cost $16,951 in 1995 and $18,181 in 1994)........................................... 22,737 19,835 Long-term investments..................................................................... 16,369 ------ Timber project in development: Deferred timber development costs.................................................... 15,220 6,765 Timber equipment and facilities....................................................... 11,518 5,384 Furniture, equipment, and leasehold improvements (net of accumulated depreciation and amortization of $9,576 in 1995 and $9,724 in 1994).................. 22,532 9,837 Dealer advances........................................................................... 12,951 4,399 Cost in excess of net assets of majority interest acquired (net of accumulated amortization of $77 in 1995)................................................... 1,770 ------ Other assets (including federal and state deferred income taxes, net)..................... 12,346 7,642 -------- -------- Total noncurrent assets........................................................... 193,810 134,390 -------- -------- $274,932 $202,509 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Payable to funds for shares sold.......................................................... $7,674 $7,075 Accrued expenses and accounts payable..................................................... 22,827 13,675 Accrued employees' compensation........................................................... 5,495 1,547 Accrued income taxes...................................................................... 332 748 Deferred revenues......................................................................... 705 ------ Current portion of notes payable.......................................................... 38,053 13,597 -------- -------- Total current liabilities......................................................... 75,086 36,642 -------- -------- NONCURRENT LIABILITIES: Notes payable, net of current portion..................................................... 13,263 9,101 Deferred income taxes, net................................................................ 16,264 17,331 -------- -------- Total noncurrent liabilities...................................................... 29,527 26,432 -------- -------- Total liabilities................................................................. 104,613 63,074 -------- -------- Minority interest......................................................................... 22,596 5,013 -------- -------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Common stock, $.10 par value; authorized 60,000,000 shares; issued 24,816,628 shares in 1995 and 24,697,960 shares in 1994 .................... 2,482 2,470 Paid-in capital...................................................................... 6,358 3,599 Retained earnings.................................................................... 142,672 130,715 Treasury stock at cost, 1,690 shares in 1995 and 28,772 shares in 1994............... (18) (167) -------- -------- 151,494 136,617 Less - Deferred cost of restricted common stock issued............................... (3,771) (2,195) -------- -------- Total stockholders' equity........................................................ 147,723 134,422 -------- -------- $274,932 $202,509 ======== ========
The Company's annual report on Form 10-K should be read in conjunction with these financial statements. 3 THE PIONEER GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1995 1994 1995 1994 ---------- ---------- ---------- ---------- Revenues and sales: Investment management fees.............................. $16,835 $16,566 $47,248 $48,456 Underwriting commissions and other fees................. 2,457 1,592 6,132 11,352 Shareholder services fees............................... 5,603 4,961 16,708 14,743 Trustee fees and other income........................... 3,977 1,984 7,677 5,392 ---------- ---------- ---------- ---------- Revenues from financial services businesses........... 28,872 25,103 77,765 79,943 Gold sales.............................................. 22,368 20,210 65,707 47,744 ---------- ---------- ---------- ---------- Total revenues and sales............................... 51,240 45,313 143,472 127,687 ---------- ---------- ---------- ---------- Costs and expenses: Management, distribution, shareholder service and administrative expenses............................ 24,084 19,291 66,827 56,527 Gold mining operating costs and expenses................ 17,071 11,407 47,726 30,311 ---------- ---------- ---------- ---------- Total costs and expenses............................... 41,155 30,698 114,553 86,838 ---------- ---------- ---------- ---------- Other (income) expense: Unrealized and realized gains on venture capital and marketable securities investments, net............. (2,473) (227) (7,132) (99) Interest expense........................................ 26 254 557 686 Minority interest....................................... 1,083 531 1,921 1,611 Other, net.............................................. 195 377 549 898 ---------- ---------- ---------- ---------- Total other (income) expense........................... (1,169) 935 (4,105) 3,096 ---------- ---------- ---------- ---------- Income before provision for federal, state and foreign income taxes.................................... 11,254 13,680 33,024 37,753 ---------- ---------- ---------- ---------- Federal, state and foreign income taxes: Provision for federal, state and foreign income taxes... 4,981 5,400 13,625 15,166 Cumulative deferred foreign income tax adjustment....... --- --- --- (4,431) ---------- ---------- ---------- ---------- Net provision for federal, state and foreign income taxes.. 4,981 5,400 13,625 10,735 ---------- ---------- ---------- ---------- Net income................................................. $6,273 $8,280 $19,399 $27,018 ========== ========== ========== ========== Earnings per share ........................................ $0.25 $0.33 $0.77 $1.07 ========== ========== ========== ========== Dividends per share........................................ $0.10 $0.08 $0.30 $0.215 ========== ========== ========== ========== Weighted average common and common equivalent shares outstanding ...................... 25,371,000 25,374,000 25,297,000 25,338,000 ========== ========== ========== ==========
The Company's annual report on Form 10-K should be read in conjunction with these financial statements. 4 THE PIONEER GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (DOLLARS IN THOUSANDS) NINE MONTHS ENDED (UNAUDITED) SEPTEMBER 30,
1995 1994 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income............................................................................................ $19,399 $27,018 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization....................................................................... 17,095 12,756 Unrealized and realized (gains) losses on venture capital and marketable securities,net............. (7,132) (99) (Equity in earnings of) other investments........................................................... (481) (558) Restricted stock plan expense....................................................................... 987 761 Deferred income taxes............................................................................... (643) (3,256) Deferred revenues................................................................................... 705 882 Minority interest................................................................................... 17,944 1,611 Changes in operating assets and liabilities: Receivable from securities brokers and dealers for sales of mutual fund shares...................... (286) 638 Receivables for gold shipments...................................................................... 552 (1,732) Other receivables................................................................................... (2,102) (3,342) Mining inventory.................................................................................... (4,190) (6,538) Other current assets ............................................................................... (2,834) (301) Dealer advances..................................................................................... (9,946) (2,530) Other assets ....................................................................................... (627) (311) Payable to funds for shares sold.................................................................... 599 (631) Accrued expenses and accounts payable............................................................... 9,152 4,791 Accrued employees' compensation..................................................................... 3,948 3,193 Accrued income taxes................................................................................ (225) 3,206 ------- ------- TOTAL ADJUSTMENTS................................................................................. 22,516 8,540 ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES......................................................... 41,915 35,558 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to furniture, equipment and leasehold improvements.......................................... (15,100) (4,081) Investments in marketable securities.................................................................. (5,273) (14,287) Proceeds from sale of marketable securities........................................................... 2,804 20,822 Long-term venture capital investments................................................................. (2,517) (2,864) Proceeds from sale of venture capital investments..................................................... 4,461 3,477 Deferred timber development costs..................................................................... (8,455) (4,259) Timber equipment and facilities....................................................................... (6,134) (2,260) Other investments..................................................................................... (4,020) (2,938) Cost of acquisition in excess of net assets........................................................... (1,943) (89) Purchase of mining equipment and facilities........................................................... (10,306) (7,566) Deferred mining development costs, net................................................................ (656) (2,126) Long-term investments................................................................................. (17,269) --- Proceeds from sale of long-term investments........................................................... 2,599 --- ------- ------- NET CASH USED IN INVESTING ACTIVITIES............................................................ . (61,809) (16,171) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid........................................................................................ (7,442) (5,303) Distributions to minority interest holder of gold mining subsidiary................................... (350) --- Distributions to limited partners of venture capital subsidiary......................................... (11) (53) Exercise of stock options............................................................................. 151 100 Restricted stock plan award........................................................................... 15 5 Repayments of notes payable........................................................................... (14,382) (2,839) Borrowings............................................................................................ 43,000 --- Reclassification of restricted cash................................................................... --- 398 ------- ------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES............................................... 20,981 (7,692) ------- ------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS.................................................... 1,087 11,695 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........................................................ 23,118 19,242 ------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.............................................................. $24,205 $30,937 ======= =======
THE COMPANY'S ANNUAL REPORT ON FORM 10-K SHOULD BE READ IN CONJUNCTION WITH THESE FINANCIAL STATEMENTS. 5 THE PIONEER GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 1995 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of The Pioneer Group, Inc. and its subsidiaries (the "Company") conform to generally accepted accounting principles. The Company has not changed any of its principal accounting policies from those stated in the Annual Report on Form 10-K for the year ended December 31, 1994. The footnotes to the financial statements reported in the 1994 Annual Report on Form 10-K are incorporated herein by reference, except to the extent that any such footnote is updated by the following: Certain reclassifications have been made to the accompanying 1994 consolidated financial statements to conform with the 1995 presentation. Income taxes paid were $14,238,000 and $10,100,000 for the nine months ended September 30, 1995, and September 30, 1994, respectively. In addition, interest paid was $1,793,000 for the nine months ended September 30, 1995, and $751,000 for the nine months ended September 30, 1994. NOTE 2 - MINING INVENTORY Mining inventories consist of the following:
September 30, December 31, 1995 1994 ---- ---- (Dollars in Thousands) Gold-in-process $ 1,125 $ 1,125 Materials and supplies 14,946 10,756 --------- -------- $ 16,071 $ 11,881 ========= ========
6 NOTE 3 - MINING EQUIPMENT
September 30, December 31, 1995 1994 ---- ---- (Dollars in Thousands) Processing plant and equipment $ 23,058 $ 22,485 Mining equipment (rolling stock) 30,933 26,958 Buildings and housing units 4,404 3,718 Leach pads and ponds 14,175 10,026 Construction in progress 1,517 1,010 All other equipment 10,254 9,933 -------- -------- 84,341 74,130 Less: accumulated depreciation (39,266) (29,793) -------- -------- Total mining equipment $ 45,075 $ 44,337 ======== ========
NOTE 4 - INCOME TAXES The Company adopted the accounting and disclosure rules specified by Statement of Financial Accounting Standards ("SFAS No. 109") "Accounting for Income Taxes" as of January 1, 1993. Under SFAS No. 109, deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns. The amounts of deferred tax assets or liabilities are based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the years in which the differences are expected to reverse. Deferred tax assets consist principally of deferred interest on debt paid to the Company by Teberebie Goldfields Limited, deferred rent expense, foreign tax credits and restricted stock plans' temporary differences. Deferred tax liabilities include principally deferred foreign income taxes, dealer advances and cumulative unrealized gains related to the Company's venture capital investment portfolio. NOTE 5 -- RESTRICTED STOCK PLANS AND STOCK OPTION PLAN The Company has a Restricted Stock Plan (the "1995 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 600,000 shares of the Company's stock may be awarded to participants under the 1995 Plan at a price to be determined by the Board of Directors, generally $.10 per share. The 1995 Plan expires in January 2000. The Company's 1990 Restricted Stock Plan (the "1990 Plan") expired in January 1995. The Company's 1981 Restricted Stock Plan (the "1981 Plan") expired in January 1990. The 1995 Plan, the 1990 Plan and the 1981 Plan are collectively referred to as the "Plans." 7 The following tables summarize restricted stock plan activity for the Plans during the first nine months of 1995. Unvested Shares ---------------
1995 Plan 1990 Plan 1981 Plan Total --------- --------- --------- ----- Balance at 12/31/94 ----- 419,264 15,684 434,948 Awarded 600 123,400 --------- 124,000 Vested ----- (134,450) (15,684) (150,134) Forfeited ----- (3,250) --------- (3,250) --------- -------- --------- --------- Balance at 9/30/95 600 404,964 --------- 405,564 ========= ======== ========= ========= Vested Shares ------------- 1995 Plan 1990 Plan 1981 Plan Total --------- --------- --------- ----- Balance at 12/31/94 ----- 219,000 1,489,648 1,708,648 Vested ----- 134,450 15,684 150,134 --------- -------- --------- --------- Balance at 9/30/95 ----- 353,450 1,505,332 1,858,782 ========= ======== ========= =========
The Company awarded 101,460 shares in 1994 and 164,800 shares in 1993 under the 1990 Plan. The participant's right to resell the awarded stock, under the Plans, is generally restricted as to 100% of the shares awarded during the first two years following the award, 60% during the third year and 20% less each year thereafter. The Company may repurchase unvested restricted shares at $.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, less the applicable tax benefit, is being amortized on a straight-line basis over a five year period. The Company also maintains the 1988 Stock Option Plan (the "Option Plan"), pursuant to which options on the Company's stock may be granted to key employees of the Company. The Company has reserved an aggregate of 2,400,000 shares for issuance under the Option Plan. Both incentive stock options intended to qualify under Section 422A of the Internal Revenue Code of 1986 and non-statutory options not intended to qualify for incentive stock option treatment ("non-statutory options") may be granted under the Option Plan. The Option Plan is administered by the Board of Directors or a committee of disinterested directors designated by the Board (the "Committee") and unless the Option Plan is earlier terminated, no option may be granted after August 1, 1998. The option price per share is determined by the Board 8 of Directors or the Committee, but (i) in the case of incentive stock options, may not be less than 100% of the fair market value of such shares on the date of option grant, and (ii) in the case of non-statutory options, may not be less than 90% of the fair market value on the date of option grant. Options issuable under the Option Plan become exercisable as determined by the Board of Directors or 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 the grant. The following table summarizes all stock option activity since December 31, 1992.
Number of Exercise shares price per share ------------------------ ---------------------- Outstanding at December 31, 1992 1,570,800 $4.188 - $ 7.063 Granted 139,000 $ 12.00 Terminated (12,000) $ 4.188 Exercised (62,800) $ 4.188 ------------------------ ---------------------- Outstanding at December 31, 1993 1,635,000 $4.188 - $ 12.00 Granted 191,500 15.875 - $ 21.25 Exercised (32,000) $ 4.188 ------------------------ ---------------------- Outstanding at December 31, 1994 1,794,500 $4.188 - $ 21.25 Exercised (25,000) $6.00 - $ 6.125 ------------------------ ---------------------- Outstanding at September 30, 1995 1,769,500 $4.188 - $ 21.25 ======================== ======================
At September 30, 1995, options to purchase 1,122,800 shares of common stock had vested under the Option Plan. NOTE 6 - NET CAPITAL As a broker-dealer, Pioneer Funds Distributor, Inc. ("PFD"), is subject to the Securities and Exchange Commission's regulations and operating guidelines which, among other things, require PFD to maintain a specified amount of net capital, as defined, and a ratio of aggregate indebtedness to net capital, as defined, not exceeding 15 to 1. Net capital and the related ratio of aggregate indebtedness to net capital may fluctuate on a daily basis. PFD's net capital, as computed under Rule 15c3-1, was $2,202,257 at September 30, 1995, which exceeded required net capital of $741,715 by $1,460,542. The ratio of aggregate indebtedness to net capital at September 30, 1995, was 5.05 to 1. PFD is exempt from the reserve requirements of Rule 15c3-3, since its broker-dealer transactions are limited to the purchase, sale and redemption of redeemable securities of registered investment companies. All customer funds are promptly transmitted and all securities received in connection with activities as a broker-dealer are promptly delivered. PFD does not otherwise hold funds or securities for, or owe money or securities to, customers. NOTE 7 - BENEFIT PLANS The Company and its subsidiaries have two defined contribution benefit plans for eligible employees: a retirement benefit plan and a savings and investment plan qualified under section 401(k) of the Internal Revenue Code of 1986. 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 these plans were $1,610,000 for the nine months ended September 30, 1995, and $1,339,000 for the nine 9 months ended September 30, 1994. Both of the Company's qualified 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 8% of their compensation to the plan, and the Company will match this contribution up to 2%. NOTE 8 - RELATED PARTY TRANSACTIONS Certain officers and/or directors of the Company and its subsidiaries are officers and/or trustees of the Pioneer mutual funds. Investment management fees earned from the mutual funds were approximately $46,479,000 for the nine months ended September 30, 1995, and $46,939,000 for the nine months ended September 30, 1994. Underwriting commissions and other fees earned from the sale of mutual funds shares were approximately $6,132,000 for the nine months ended September 30, 1995, and $11,352,000 for the nine months ended September 30, 1994, respectively. Shareholder services fees earned from the mutual funds were approximately $16,708,000 for the nine months ended September 30, 1995, and $14,743,000 for the nine months ended September 30, 1994. Within the Pioneer mutual funds, revenues from Pioneer II were approximately $23,941,000 for the nine months ended September 30, 1995, and $23,538,000 for the nine months ended September 30, 1994. Revenues from Pioneer Fund were $12,110,000 for the nine months ended September 30, 1995, and $11,502,000 for the nine months ended September 30, 1994. Certain partners of Hale and Dorr, the Company's legal counsel, are officers and/or directors of the Company and its subsidiaries. Amounts paid to Hale and Dorr for legal services were $1,940,000 for the nine months ended September 30, 1995, and $1,086,000 for the nine months ended September 30, 1994. At December 31, 1994, the Company had a receivable from an officer in the amount of $109,000. This receivable was fully paid in the second quarter of 1995. NOTE 9 - COMMITMENTS AND CONTINGENCIES Rental expense was $3,265,000 for the nine months ended September 30, 1995, and $2,409,000 for the nine months ended September 30, 1994. Future minimum payments amount to approximately $735,000 for the last three months of 1995, $3,051,000 in 1996, $3,129,000 in 1997, $3,220,000 in 1998, $3,342,000 in 1999, $3,197,000 in 2000 and $5,393,000 thereafter. These future minimum payments include estimated annual operating expenses of approximately $334,000 in the last three months of 1995, and $1,330,000 thereafter. In September 1993, TGL executed a commitment letter with the Overseas Private Investment Corporation ("OPIC") pursuant to which OPIC will provide loan guarantees for up to $5.0 million. The commitment terminates in December 1995 and carries commitment fees of 0.5% per year on the undisbursed and uncanceled amount of the guarantee commitment. At September 30, 1995, the full amount of the guarantee commitment remained undisbursed. 10 The Company is contingently liable to the Investment Company Institute Mutual Insurance Company for unanticipated expenses or losses 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. NOTE 10- NOTES PAYABLE Notes payable of the Company consists of the following:
September 30, December 31, 1995 1994 ---- ---- (Dollars in Thousands) Line of Credit................................................. $ 36,000 $ 10,000 Preferred option financing for acquisition of management company of Russian Voucher Fund, principal payable in three annual installments of $2,000,000 through 1998, interest payable at 5% ............... 6,000 --- Small Business Administration ("SBA") financing, notes payable to a bank, interest payable semi-annually at rates ranging from 6.12% to 9.8%, due in 1998 through 2003....................................... 4,950 4,950 Note payable to a bank guaranteed by the Swedish Exports Credits Guarantee Board, principal payable in nine semi-annual installments of $812,000 through March 31, 1997, interest payable at 5.77%, secured by equipment...................................................... 2,435 4,059 Notes payable to a bank, guaranteed by the Overseas Private Investment Corporation ("OPIC")........................ -0- 1,544 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...................... 1,931 2,145 -------- -------- 51,316 22,698 Less: Current portion......................................... (38,053) (13,597) -------- -------- $ 13,263 $ 9,101 ======== ========
In December 1991, OPIC certified that all conditions of a Project Completion Agreement had been satisfied pursuant to which the Company would no longer be required to guarantee TGL's loan guaranteed by OPIC. Among the conditions was the establishment of an escrow account covering nine months of all third party debt service payments. OPIC waived the condition of the Project Completion Agreement at December 31, 1994, which had previously required that TGL maintain the escrow account balance. The balance of such escrow account was $1.8 million at September 30, 1994. 11 In 1994, TGL prepaid a note payable to a supplier and a note payable to a bank with a remaining principal balance of approximately $761,000. Maturities of notes payable at September 30, 1995 for each of the next five years and thereafter are as follows (dollars in thousands): 1995 $38,053 1996 3,241 1997 2,429 1998 3,629 1999 214 Thereafter 3,750 ------- $51,316 =======
On February 28, 1995, the Company entered into an agreement with a commercial bank providing for a $30 million unsecured line of credit. Advances under the line bear interest at the Company's option at the higher of the bank's base lending rate or the federal funds rate plus 0.50%, the London Interbank Offered Rate plus 1.10% or at a money market rate set by the bank. The Company is required to pay additional interest to the bank at the rate of 0.25% per year of the unused portion of the line. The line expires February 27, 1996. On October 20, 1995, the Company entered into a second agreement with the commercial bank providing for an additional $15 million unsecured line of credit with substantially the same terms as the first agreement. This additional facility also expires on February 27, 1996. At September 30, 1995, the Company had $36,000,000 outstanding on the lines. NOTE 11 - MAJOR CUSTOMERS AND EXPORT SALES During the nine months ended September 30, 1995, gold sales aggregated $65.7 million. During this period, gold shipments from TGL in Ghana to two unaffiliated European refiners accounted for $37.1 million and $28.6 million of total gold sales, respectively, representing 100% of such total gold sales. During the nine months ended September 30, 1994, gold sales aggregated $47.7 million. During this period, gold shipments from TGL in Ghana to two unaffiliated European refiners accounted for $31.8 million and $15.9 million of total gold sales, respectively, representing 100% of such total gold sales. NOTE 12 - ACQUISITION OF MUTUAL OF OMAHA FUND MANAGEMENT COMPANY On December 1, 1993, the Company completed its acquisition of Mutual of Omaha Fund Management Company ("FMC"). The Company financed this acquisition through working capital in the amount of $23,500,000. The Company also incurred additional costs associated with the acquisition in the amount of $1,854,000. The Company has allocated cost in excess of net assets acquired in the amount of $25,343,000, as set forth below. This cost is being amortized on a straight-line basis beginning December 1, 1993, over the following periods: 12
Amount at Estimated September 30, 1995 Useful Life ------------------ ----------- (Dollars in Thousands) Goodwill $21,843 15 years Non-compete agreement 3,300 5 years Consulting 200 7 months ------- $25,343 Less: accumulated amortization 4,045 ------- Cost of acquisition in excess of net assets, net $21,298 =======
The Company also agreed to pay up to an additional $3 million in three years if certain conditions, as defined in the purchase agreement, are met. NOTE 13 - DEALER ADVANCES During 1994, certain of the Pioneer Family of Mutual Funds introduced a multi-class share structure, whereby the participant funds offer both the traditional front-end load shares and back-end load shares (B-shares). B-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. However, the Company pays upfront sales commissions (dealer advances) to broker-dealers ranging from 2% to 4%. The Company capitalizes and amortizes dealer advances for book purposes over periods which range from three to six years depending on the participating fund. The Company deducts the dealer advances in full for tax purposes in the year such advances are paid. In the first nine months of 1995, the Company paid dealer advances in the amount of $9.9 million. Dealer advances, net of amortization, were $13.0 million at September 30, 1995. NOTE 14 - FINANCIAL INFORMATION BY BUSINESS SEGMENT Total revenues and income (loss) by business segment, excluding intersegment transactions, were as follows: 13 NOTE 14 - FINANCIAL INFORMATION BY BUSINESS SEGMENT (DOLLARS IN THOUSANDS) (UNAUDITED)
MUTUAL FUND INVESTMENT UNDERWRITING VENTURE CAPITAL SHAREHOLDER MANAGEMENT AND OTHER INVESTMENTS SERVICES ---------- --------- ----------- -------- NINE MONTHS ENDED 9/30/95 9/30/94 9/30/95 9/30/94 9/30/95 9/30/94 9/30/95 9/30/94 ------- ------- ------- ------- ------- ------- ------- ------- REVENUES & OTHER INCOME $49,431 $48,803 $10,895 $15,921 $680 $421 $16,759 $14,798 ======= ======= ======= ======= ======= ======= ======= ======= INCOME (LOSS) BEFORE INCOME (1) (1) (2) (2) (3) (3) TAXES $32,008 $33,915 ($19,023) ($11,933) $ 3,093 ($934) $1,437 $2,545 ======= ======= ======= ======= ======= ======= ======= ======= DEPRECIATION & AMORTIZATION $1,006 $661 $4,100 $2,507 $81 $64 $1,251 $651 ======= ======= ======= ======= ======= ======= ======= ======= CAPITAL EXPENDITURES $9,871 $113 $2,638 $1,472 $55 $7 $2,470 $1,959 ======= ======= ======= ======= ======= ======= ======= ======= IDENTIFIABLE ASSETS AT QUARTER END $72,265 $40,362 $53,762 $44,628 $32,555 $26,116 $7,532 $7,710 ======= ======= ======= ======= ======= ======= ======= =======
[CAPTION] GOLD MINING OTHER CONSOLIDATED ----------- ----- ------------ NINE MONTHS ENDED 9/30/95 9/30/94 9/30/95 9/30/94 9/30/95 9/30/94 ------- ------- ------- ------- -------- -------- REVENUES & OTHER INCOME $65,707 $47,744 $0 $0 $143,472 $127,687 ======= ======= ======= ======= ======== ======== INCOME (LOSS) BEFORE INCOME (4) (4) (5) (5) TAXES $16,058 $15,058 ($549) ($898) $33,024 $37,753 ======= ======= ======= ======= ======== ======== DEPRECIATION & AMORTIZATION $11,644 $9,487 $0 $0 $18,082 $13,370 ======= ======= ======= ======= ======== ======== CAPITAL EXPENDITURES $10,372 $7,587 $6,134 $530 $31,540 $11,668 ======= ======= ======= ======= ======== ======== IDENTIFIABLE ASSETS AT QUARTER END $77,923 $69,455 $30,895 $13,003 $274,932 $201,274 ======= ======= ======= ======= ======== ======== (1) Net of minority interest of approximately $777,000 for the nine months ended September 30, 1995 and $0 for the nine months ended September 30, 1994. (2) Net of interest expense related to third parties of approximately $20,000 for the nine months ended September 30, 1995 and $0 for the nine months ended September 30, 1994. (3) Net of minority interest and interest expense related to third parties of approximately ($37,000) and $301,000 respectively, for the nine months ended September 30, 1995, and ($11,000) and $300,000 for the nine months ended September 30, 1994. (4) Net of minority interest and interest expense related to third parties of approximately $1,181,000 and $236,000 for the nine months ended September 30, 1995 and $1,622,000 and $386,000 for the nine months ended September 30, 1994. (5) Net of interest expense related to third parties of approximately $0 and expense related to the Company of $0 for the nine months ended September 30, 1995 and $0 and $744,000 for the nine months ended September 30, 1994.
14 PART I - FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SUMMARY OF OPERATIONS The Pioneer Group, Inc. (the "Company") reported third quarter 1995 earnings of 25 cents per share, a decrease of 8 cents per share compared to earnings in the third quarter of 1994. Current year third quarter results included decreased earnings from worldwide investment management businesses of 1 cent per share. The Company's new Russian investment management operations, however, contributed 4 cents per share to third quarter 1995 earnings of the worldwide investment management businesses. The Company's gold mining operations, which consist of its indirect wholly-owned subsidiary, Pioneer Goldfields Limited ("PGL"), and PGL's 90% owned subsidiary, Teberebie Goldfields Limited ("TGL"), earned 9 cents per share less in the third quarter of 1995 than in the third quarter of 1994. Earnings per share have been adjusted to reflect the 2-for-1 stock split effected by the payment of a 100% stock dividend in December 1994. For the nine months ended September 30, 1995, earnings were 77 cents per share, 30 cents lower than earnings during the comparable 1994 period. Earnings for the first nine months of 1994 included a favorable one-time deferred income tax rate adjustment of 16 cents per share relating to the Company's gold mining operations. During the first nine months of 1995, higher earnings from venture capital operations of 8 cents per share and higher earnings from gold mining operations of 1 cent per share (exclusive of the one-time deferred income tax rate adjustment) only partially offset a 24 cents per share decline in earnings from worldwide investment management businesses. Almost all of this decline related to a 23 cents per share decrease in earnings from the Company's Polish operations. FINANCIAL SERVICES BUSINESSES REVENUES. Revenues from the financial services businesses of $28.9 million in the third quarter of 1995 were $3.8 million higher than revenues in the comparable 1994 period, $2.4 million of which resulted from revenues from the Company's new Russian investment management operations. Revenues of $77.8 million for the nine months ended September 30, 1995, were $2.2 million lower than revenues in the comparable 1994 period, as significantly lower Polish mutual fund sales resulted in lower underwriting commissions. Management fees of $16.8 million in the third quarter of 1995 were $0.3 million, or 2%, higher than management fees in the third quarter of 1994. The $2.3 million increase in management fees earned from the U.S. registered mutual funds was offset by an equal decrease in management fees earned from the Company's two Polish mutual funds. Assets in the Company's Polish equity mutual fund decreased to approximately $300 million at the end of the third quarter. The Company also introduced a new fixed income Polish mutual fund in the second quarter of 1995. The Company earned $0.3 million in management fees in the third quarter of 1995 from its U.S. and Polish venture capital funds. 15 For the nine months ended September 30, 1995, management fees of $47.2 million were $1.2 million, or 2%, lower than management fees in the comparable 1994 period. The $3.9 million increase in management fees earned from the U.S. registered mutual funds was more than offset by a $5.9 million decrease in management fees earned from the Company's Polish mutual funds. Assets under management of $13.3 billion at September 30, 1995, increased by $2.2 billion since the beginning of the year. The increase was principally attributable to strong stock market performance. During the first nine months of 1995, the Company earned $0.8 million in management fees from its U.S. and Polish venture capital funds. Underwriting commissions and other fees of $2.5 million in the third quarter of 1995 were $0.9 million higher than underwriting commissions and other fees in the third quarter of 1994. Almost three quarters of this increase was derived from higher asset based sales charges resulting from significant increases in the assets of the Company's back-end load funds. The Company's U.S. registered mutual fund sales (including reinvested dividends) of $409 million in the third quarter of 1995 were 25% higher than sales during the prior year's comparable period, while redemptions of $268 million increased by 26%. The Company had net sales of $141 million in the third quarter of 1995 compared to $114 million in the third quarter of 1994. For the first nine months of 1995, underwriting commissions and other fees of $6.1 million were $5.2 million lower than underwriting commissions and other fees in the same period in 1994 as a result of significantly lower sales of the Company's Polish equity mutual fund. Sales of units of the Polish mutual funds were $17 million in the first nine months of 1995 and redemptions were $346 million as compared to sales of $724 million in the first nine months of 1994 and redemptions of $352 million. U.S. registered mutual fund sales of $1.2 billion in the nine months ended September 30, 1995 were 8% higher than sales during the comparable period in the prior year, while redemptions of $786 million increased by 19%. The Company had net sales of $404 million in the nine months ended September 30, 1995, compared to $444 million in the nine months ended September 30, 1994. Shareholder services fees of $5.6 million and $16.7 million for the third quarter of 1995 and the nine months ended September 30, 1995, respectively, increased by $0.6 million and $2.0 million, respectively, over the comparable 1994 periods as a result of an increase in the number of shareholder accounts and a fee increase effective January 1, 1995. All other income of $4.0 million and $7.7 million for the third quarter of 1995 and the nine months ended September 30, 1995, respectively, increased by $2.0 million and $2.3 million, respectively, over the comparable 1994 periods principally from interest and dividend income from the Company's new Russian investment management operations. COSTS AND EXPENSES. Worldwide financial services businesses costs and expenses of $24.1 million and $66.8 million for the third quarter of 1995 and the nine months ended September 30, 1995, respectively, increased by $4.8 million and $10.3 million, respectively, over the comparable 1994 periods. Virtually all of the increase resulted from higher payroll costs related to increased staffing in the investment management, marketing 16 and shareholder servicing groups, higher costs related to additional office space, higher costs related to mutual fund distribution (including printing and mailing of sales literature, paying commissions earned by the sales force and mutual fund advertising and public relations), higher expenses from the amortization of dealer advances and the costs associated with the Company's new Russian investment management operations. OTHER INCOME AND EXPENSE. The Company reported net venture capital investment portfolio gains (excluding operating expenses) of $0.7 million and $4.9 million for the third quarter of 1995 and the nine months ended September 30, 1995, respectively, compared to net gains of $0.1 million and $0.6 million for the comparable 1994 periods. These gains were all generated from investments in the Company's U.S. venture capital portfolios. The Company's investments in its own mutual funds during their startup phase contributed net gains of $0.1 million and $0.6 million, respectively, for the third quarter and nine months ended September 30, 1995, respectively, compared to net gains of $0.2 million and net losses of $0.5 million, respectively, during the same periods in 1994. The Company had realized gains of $1.7 million from investments held by the First Voucher Fund, the Russian investment fund in which the Company has a 51% interest. TAXES. The Company's effective tax rate for the financial services businesses of 45% for the first nine months of 1995 was slightly higher (1%) than the rate for the comparable 1994 period, resulting principally from the non-deductible minority interest expense associated with the Company's new Russian investment management operations. GOLD MINING OPERATIONS EARNINGS. Earnings for the gold mining operations of 11 cents per share in the third quarter of 1995 were 9 cents per share less than earnings in the third quarter of 1994. In 1994, gold mining operations benefited from a reduction in the Ghanaian income tax rate levied on mining companies from 45% to 35% which contributed, in part, to earnings of 55 cents per share in the first nine months of 1994. Excluding a related 16 cents per share reduction in deferred taxes recorded in prior years, earnings of 40 cents per share for the nine months ended September 30, 1995 were 1 cent per share over the corresponding nine month period in 1994. REVENUES. Revenues increased by 11% from the third quarter of 1994 to $22.4 million as gold sales increased by 12% to 58,500 ounces while the average realized price of gold decreased by 1% to $383 per ounce. Revenues increased by 38% to $65.7 million over the nine months ended September 30, 1994 as gold sales increased by 38% to 171,800 ounces while the average realized price of gold was essentially flat at $382 per ounce. COSTS AND EXPENSES. Based on TGL's estimated production of 235,000 ounces for the year ending December 31, 1995, cash costs are estimated at approximately $200 per ounce for 1995. The following table compares the cash and total cost per ounce for the three and nine months ended September 30, 1995 with the corresponding periods in 1994: 17
Three Months Ended Nine Months Ended September 30, September 30, ------------- ------------- 1995 1994 1995 1994 ---- ---- ---- ---- Cash Costs: Production Costs $168 $106 $161 $113 Royalties 12 15 11 15 ---- ---- ---- ---- 180 121 172 128 General and administrative 29 25 28 32 ---- ---- ---- ---- CASH COST PER OUNCE 209 146 200 160 Non Cash Costs: Depreciation and Amortization 70 70 68 76 Other 6 2 5 2 ---- ---- ---- ---- COST OF PRODUCTION PER OUNCE 285 218 273 238 Interest and other costs 10 12 9 13 ---- ---- ---- ---- TOTAL COST PER OUNCE $295 $230 $282 $251 ==== ==== ==== ====
Production costs represent costs attributable to mining ore and waste and processing the ore through crushing, leaching, and processing facilities. These costs increased by $62 per ounce and $48 per ounce compared with the respective three and nine months ended September 30, 1994 principally because of higher stripping ratios and the mining and processing of lower grade ore. Material hauled increased during the three and nine months ended September 30, 1995 by 88% and 106%, respectively, and ore processed increased by 33% and 62%, respectively, over the corresponding periods in 1994. The production cost per ounce was also affected adversely by the normal time lag inherent in developing new heap leach pads at TGL's West Plant and salary increases associated with the June 30, 1995 collective bargaining agreement. TGL also experienced cost increases in several mining and processing categories, including salaries and benefits, drilling and blasting costs, fuel, cement, equipment maintenance, and crushing costs. Royalty payments are linked to operating profits and tax depreciation and were estimated at 4% of revenue during the nine months ended September 30, 1994. Actual royalty payments were 3% of revenue in 1994 and are estimated at 3% of revenue for 1995. The decrease in the royalty estimate had the effect of decreasing the cost per ounce during the three and nine months ended September 30, 1995 by $3 and $4 per ounce, respectively. General and administrative costs consist principally of administrative salaries and related benefits, travel expenses, insurance, utilities, legal costs, employee meals, rents and vehicle expenditures. Since these costs are relatively fixed and unrelated to production levels, the cost per ounce decrease for the nine months ended September 30, 1995 compared with the corresponding 1994 period was attributable to higher production levels. During the third quarter of 1995, however, increases in salaries and benefits associated with the June 30, 1995 collective bargaining agreement, commercial insurance premiums, and customs duties and clearing costs contributed to a $4 increase in the cost per ounce over the third quarter of 1994. 18 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. Development cost amortization for the nine months ended September 30, 1995 decreased by $8 per ounce compared with the corresponding 1994 period principally because incremental development costs for the West Plant expansion were significantly lower than the East Plant resulting in lower overall amortization. Development costs are amortized by plant over 950,000 ounces. Other costs increased during the three and nine months ended September 30, 1995 by $4 per and $3 per ounce, respectively, compared with the corresponding periods in 1994 principally because of increases in core drilling costs. Interest expense and other costs decreased by $2 per ounce and $4 per ounce during the third quarter of 1995 and the nine months ended September 30, 1995, respectively, compared with the same periods in 1994 principally because of decreases in interest expense and premiums for a gold price floor program. This decrease was partially offset by increases in foreign exchange losses. In addition to interest expense, political risk insurance premiums, goodwill amortization, foreign exchange gains and losses, and premiums for a gold price floor program are included in this category. TAXES. Exclusive of the $4.4 million first quarter 1994 adjustment to deferred taxes recorded in prior years, accrued income taxes for the first nine months of 1995 and 1994 were $6.0 million and $5.4 million, respectively. During these periods, the effective tax rates were 37% and 36%, respectively, slightly above the statutory rate of 35% because of non-deductible expenses such as minority interest and goodwill amortization. PRODUCTION. TGL's production target for 1995 has decreased by 30,000 ounces to approximately 235,000 ounces primarily because the mine has experienced higher grade dilution from waste material, decreasing the grade of ore processed by the crusher, and lower recoveries at the West Plant associated with the normal time lag in gold processing inherent in developing new heap leach pads. In addition, it has taken more time to locate and train equipment operators and mine supervisors than was originally anticipated. TGL produced 176,400 ounces in 1994. LIQUIDITY AND CAPITAL RESOURCES FINANCIAL SERVICES BUSINESSES Internal Revenue Service regulations require that, in order to serve as trustee, the Company must maintain a net worth of at least 2% of the assets of Individual Retirement Accounts and other qualified retirement plans accounts at year end. At September 30, 1995, the Company served as trustee for $4.3 billion of qualified plan assets and the ratio of net worth to qualified assets was 3.5%. The Company's stockholders' equity of $147.7 million at September 30, 1995, would permit it to serve as trustee for up to an additional $3.1 billion of qualified plan assets. The Company completed the acquisition of Mutual of Omaha Fund Management Company ("FMC") on December 1, 1993. If certain asset targets are reached, the 19 Company would be obligated to pay up to $3 million of additional consideration to FMC's former owner in 1996. For certain funds in the Pioneer Family of Mutual Funds, the Company has introduced a multi-class share structure. Under the multi-class share structure, which was first introduced in April 1994, the participating funds offer both traditional front-end load shares and back-end load shares. On back-end load shares, the investor does not pay any sales charge unless there is a redemption before the expiration of the minimum holding period which ranges from three to six years. The Company, however, pays "up front" commissions to broker-dealers related to sales and service of the back-end load shares ranging from 2% to 4% of the sales transaction amount. The participating funds pay the Company distribution fees of 0.75%, and service fees of 0.25%, per annum of their respective net assets, subject to annual renewal by the trustees of the funds. Sales of back-end load shares were $280 million in the first nine months of 1995 and new dealer advances totaled $9.9 million. Dealer advances, net of amortization, were $13.0 million at September 30, 1995. The Company intends to finance this program through working capital and the line of credit described below. In April 1995, the Company acquired approximately 51% of the shares of First Voucher Fund (the "Voucher Fund"), one of the largest investment funds established in Russia in connection with that country's privatization program. The shares were issued by the Voucher Fund to two newly-formed subsidiaries of Pioneer Omega, Inc. ("Pioneer Omega"), a Delaware corporation in which the Company holds an approximate 70% direct interest. In addition to acquiring shares in the Voucher Fund, Pioneer Omega, acting through its subsidiary Pioneer First Russia, Inc. ("PFR"), acquired a Russian company that holds rights to manage the Voucher Fund's investments under a management agreement. Through its ownership of controlling interests in the Voucher Fund and the management company, Pioneer Omega will also effectively acquire the rights to carry out share distribution, investment and brokerage activities under the Voucher Fund umbrella. Pioneer Omega paid $2.0 million in cash and issued shares (the "Omega shares") valued at $6 million as consideration for the acquisition of the management company and related rights. The Omega shares represent the approximate 30% of the shares of Pioneer Omega not currently owned by the Company. The holder of the Omega shares has the right to cause the Company to purchase such shares (the "put option") and the Company has a corresponding right to purchase such shares from the holder (the "call option"). The put and call options are each exercisable with respect to one-third of the Omega shares on the first, second and third anniversaries of the closing of the transaction. The put and call option exercise price is $2 million per tranche, plus a 5% per annum premium on the option exercise price. If the put and/or call option is exercised in full, the Company will pay a total of $6.6 million for the Omega shares over a three-year period. GOLD MINING OPERATIONS TGL's cash balances decreased by $3.0 million to $0.5 million during the nine months ended September 30, 1995. Cash generated from operating activities aggregated 20 $14.9 million while capital expenditures and loan principal payments were $11.0 million and $3.4 million, respectively. TGL declared and paid its first dividend of $3.5 million during the first quarter of 1995 and generated sufficient operating cash flow to fund all of its scheduled third party debt service payments and short-term cash commitments. At the end of the third quarter of 1995, direct investment in TGL aggregated $6.3 million, comprised of $4.4 million of third party debt and $1.9 million of direct equity investment by the Company. Of such third party debt, $1.9 million was guaranteed by the Company. Scheduled third party debt service for the remainder of 1995 is expected to aggregate $0.2 million, all of which is expected to be funded from mining operations revenues. In August 1995, TGL received an additional certification from an independent technical consultant regarding the Teberebie mine's gold reserves. Proven and probable reserves were established based on mapping, sampling, drilling, assaying, and evaluation techniques typical of those that are generally employed in the mining industry. At August 31, 1995, remaining in-situ proven and probable reserves were approximately 9.2 million ounces, consisting of approximately 8.2 million ounces of heap leach ("crushed") ore and 1.0 million ounces of run-of-mine ("ROM") material. The minimum cut-off grade (based on a gold price of $385 per ounce) for crushed ore and ROM material was approximately 0.765 and 0.25 grams per tonne, respectively. Reported gold reserves and the distinction between crushed ore and ROM material differ from those previously reported because the previously reported gold reserves were based on an earlier assessment by the technical consultant and on an earlier mine plan. The following table shows certified proven and probable reserves at August 31, 1995:
Teberebie Mine Proven and Probable In-Situ Mineable Reserves August 31, 1995 Crushed ore more than 0.765 g/t ROM ore more than 0.25 & less than 0.765 g/t -------------------------- ----------------------------- 000's Grade 000's Grade tonnes g/t 000's oz tonnes g/t 000's oz ------ ----- -------- ------ ----- -------- MINEABLE RESERVES Total Proven 151,559 1.46 7,132 52,535 0.54 917 Total Probable 22,740 1.41 1,030 8,625 0.56 154 - ----------------------------------------------------------------------------------------- TOTAL RESERVES 174,299 1.46 8,162 61,160 0.54 1,071 - -----------------------------------------------------------------------------------------
TBL is continuing its development drilling program to further increase proven and probable reserves and to gain additional information for future mine planing. 21 The Company maintains $67.1 million of "political risk" insurance, principally from the Overseas Private Investment Corporation ("OPIC"), covering 90% of its equity and loan guarantees. The political risk insurance contract also covers 90% of the Company's proportionate share of cumulative retained earnings and provides up to $11.1 million in stand-by insurance, subject to semiannual coverage elections, to cover increases in retained earnings. TGL maintained a gold price floor program to limit its exposure to a decline in market prices to $310 per ounce. TGL also secured business interruption insurance coverage of up to $19.0 million for losses associated with machinery breakdown and property damage and continuing infrastructure and interest costs. On July 26, 1995, the Company's Board of Directors approved a mine expansion plan for TGL pursuant to which TGL would seek to increase gold production to a rate of at least 400,000 ounces per annum in 1998. The Company will replicate existing mining and processing technology while utilizing an in-pit gyratory crusher. Capital expenditures in 1996 are estimated at approximately $65 million, including approximately $46 million related to the proposed expansion. On September 29, 1995, TGL secured a conditional commitment from OPIC to provide a loan guarantee for up to $54 million in connection with the expansion project. On November 7, 1995, the Company reported that it had decided to postpone the proposed global offering of shares (the "Shares") (and global depository securities representing such Shares) of PGL pursuant to which the Company had intended to sell 14,812,500 Shares of PGL, or approximately 20% of its interest in PGL. OTHER NATURAL RESOURCE BUSINESS The Company's Russian venture, Forest Starma, in which the Company has a 63% direct interest (recently increased from 55%) and a 3% indirect interest is pursuing the development of timber production under two long-term leases comprising 88,800 hectares (approximately 219,500 acres) in the aggregate with annual cutting rights of 210,000 cubic meters awarded to the venture in the Khabarovsk Territory of Russia. Forest Starma has developed a site, including a jetty, from which it exports timber primarily to the Japanese market. Timber production commenced in the first quarter of 1995 and the first three shipments totaling approximately 10,000 cubic meters occurred in the third quarter of 1995. Forest Starma has reduced its estimated 1995 timber shipments from approximately 70,000 cubic meters to approximately 25,000 cubic meters principally as a result of delays in production. Capital required by this venture is now projected at approximately $26.0 million (net of an assumed Value Added Tax ("VAT") recovery on imports) of which $9.3 million would be financed pursuant to a conditional loan commitment already in place. The loan, which initially would be guaranteed by the Company, would cease to be guaranteed when the project meets certain production and cash flows tests. The Company expects to provide financing of $16.7 million in the form of equity and subordinated debt. Investments by the Company in the venture totaled $25.3 million (net of an assumed VAT recovery on 22 imports) at September 30, 1995, some of which is considered bridge financing by the Company. The Company has secured OPIC political risk insurance in 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. The Company is engaged in two additional ventures in the Khabarovsk Territory of Russia each of which is independently negotiating a lease in a large tract of forest land. The Company has a majority interest in each of these ventures. GENERAL The Company's liquid assets consisting of cash and marketable securities (exclusive of gold mining operations) increased by $7.1 million in the first nine months of 1995 to $33.7 million, principally as the result of the financing of the First Investment Voucher Fund acquisition. On February 28, 1995, the Company entered into an agreement with a commercial bank providing for a $30 million unsecured line of credit. Advances under the line bear interest, at the Company's option, at (a) the higher of the bank's base lending rate or the federal funds rate plus 0.50%, (b) the London Interbank Offered Rate plus 1.10%, or (c) at a money market rate set by the bank. The line, which expires on February 27, 1996, provides that the Company must pay additional interest to the bank at the rate of 0.25% per annum of the unused portion of the line. On October 20, 1995, the Company entered into a second agreement with the commercial bank providing for a $15 million unsecured line of credit with substantially the same terms as the first agreement including applicable interest rates and expiration date. At October 31, 1995, the Company had $39 million outstanding under the lines. 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. 23 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits. 10.1 Contract of Insurance Against Inconvertibility, Expropriation, and Political Violence dated September 29, 1995 between the Overseas Private Investment Corporation ("OPIC") and the Company. 10.2 Commitment letter dated September 29, 1995 between OPIC, the Company and Teberebie Goldfields Limited. 10.3 Letter Agreement dated October 20, 1995 between the Company and the First National Bank of Boston. 11 Computation of earnings per share. 27 Financial Data Schedule. (b) Reports filed on Form 8-K. During the fiscal quarter ended September 30, 1995, the Company filed a Current Report on Form 8-K, dated August 3, 1995, reporting that it has engaged an international securities house to underwrite the sale, in a global offering, of a minority interest in Pioneer Goldfields Limited, currently a wholly-owned subsidiary of the Company. SIGNATURES ---------- It is the opinion of management that the financial information contained in this report reflects all adjustments necessary to a fair statement of results for the period report, but such results are not necessarily indicative of results to be expected for the year due to the effect that stock market fluctuations may have on assets under management. All accounting policies have been applied consistently with those of prior periods. Such financial information is subject to year-end adjustments and annual audit by independent public accountants. Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE PIONEER GROUP, INC. /s/ William H. Keough William H. Keough Senior Vice President Chief Financial Officer and Treasurer 24 EXHIBIT INDEX ------------- Exhibit No. Description - ----------- ----------- 10.1 Contract of Insurance Against Inconvertibility, Expropriation, and Political Violence dated September 29, 1995 between the Overseas Private Investment Corporation ("OPIC") and the Company. 10.2 Commitment letter dated September 29, 1995 between OPIC, the Company and Teberebie Goldfields Limited. 10.3 Letter Agreement dated October 20, 1995 between the Company and the First National Bank of Boston. 11 Computation of earnings per share. 27 Financial Data Schedule EX-10.1 2 CONTRACT OF INSURANCE 1 EXHIBIT 10.1 Form 234 KGT 12-85 (Second Revised) NS OPIC Contract of Insurance No. E136 OVERSEAS PRIVATE INVESTMENT CORPORATION CONTRACT OF INSURANCE Against Inconvertibility Expropriation Political Violence as defined below, between the Overseas Private Investment Corporation ("OPIC") and The Pioneer Group, Inc. 60 State Street, 19th Floor Boston, Massachusetts 02109-1975 a corporation organized and existing under the laws of the State of Delaware (the "Investor"). 2 TABLE OF CONTENTS
Title Page ----- ---- Article I - Subject of Insurance and Exchange of Promises 1.01 Subject ............................................ I-1 1.02 Promises ........................................... I-2 1.03 Maximum Aggregate Compensation ..................... I-2 1.04 Full Faith and Credit .............................. I-3 1.05 Term ............................................... I-3 1.06 Premiums and Active Amount Elections ............... I-3 1.07 Administrative Fee ................................. I-3 Article II - Inconvertibility - Scope of Coverage* 2.01 Inconvertibility of Local Currency ................. II-1 2.02 Exclusions ......................................... II-1 Article III - Inconvertibility - Amount of Compensation* 3.01 Rate of Compensation for Inconvertibility ..........III-1 3.02 Limitation .........................................III-1 Article IV - Expropriation - Scope of Coverage* 4.01 Total Expropriation ................................ IV-1 4.02 Expropriation of Funds ............................. IV-1 4.03 Provocation Exclusion .............................. IV-1 Article V - Expropriation - Amount of Compensation* 5.01 Total Expropriation ................................ V-1 5.02 Expropriation of Funds ............................. V-1 5.03 Adjustments ........................................ V-1 5.04 Limitations ........................................ V-2 Article VI - Political Violence - Scope of Coverage* 6.01 Loss Due to Political Violence ..................... VI-1 6.02 Exclusions ......................................... VI-1
______________ *This Table of Contents applies to all coverages offered by OPIC whether or not all of those coverages are provided in this contract. 3 Title Page ----- ---- Article VII - Political Violence - Amount of Compensation* 7.01 Basis of Compensation .............................. VII-1 7.02 Limitations ........................................ VII-1 7.03 Investor's Share ................................... VII-2 7.04 Book Value of Insured Investment ................... VII-2 7.05 Appraisal .......................................... VII-3 7.06 Estimated Compensation ............................. VII-3 Article VIII - Procedures 8.01 Application for Compensation .......................VIII-1 8.02 Assignment of OPIC .................................VIII-1 8.03 Security ...........................................VIII-2 8.04 Excess Salvage Value ...............................VIII-2 8.05 Arbitration ........................................VIII-2 8.06 Election of Active Amounts and Coverage Ceilings ...VIII-3 8.07 Termination ........................................VIII-3 8.08 Legal and Miscellaneous ............................VIII-3 8.09 Notices ............................................VIII-3 8.10 Refund of Premiums .................................VIII-3 Article IX - Investor's Duties 9.01 Duties ............................................. IX-1 9.02 Default ............................................ IX-3 9.03 Non-Waiver ......................................... IX-3 9.04 Cure ............................................... IX-3 Article X - Amendments ................................................. X-1 -ii- 4 I-1 Article I - Subject of Insurance and Exchange of Promises. 1.01 Subject 1. Investment. The Investor promises that the Investor contributed or will contribute up to $22,800,750 in United States dollars consisting of (a) $22,000,750 in United States dollars consisting of (i) $750 in United States dollars in the form of an equity investment; and (ii) $22,000,000 in United States dollars in the form of 100 percent participation in a loan made or to be made by State Street Bank and Trust Company ("State Street Bank") to Forest-Starma Joint Stock Company ul. Koprovaya 4, Komsomolsk-on-Amur Khabarovsk 681005, Russia a joint stock company of the closed type organizaed under the laws of Russia (the "foreign enterprise") and (b) $800,000 in United States dollars to Starma-Holding ul. Koprovaya 4, Komsomolsk-on-Amur Khabarovsk 681005, Russia for which the Investor has acquired or will acquire up to (c) 750 shares of common stock for the investment identified in paragraph (a)(i) above, representing 50 percent equity interest in the foreign enterprise; and (d) 100 percent participation interest in a loan made by State Street Bank to Forest-Starma under the terms of the Master Short-Term Credit Agreement dated June 9, 1995, as evidenced by the participation certificates purchased by the Investor from State Street Bank pursuant to the Participation Agreement between the Investor and State Street Bank dated June 9, 1995, for the investment identified in paragraph (a)(ii) above; and 5 I-2 (e) 195 shares of common stock for the investment identified in paragraph (b) above, representing 13 percent equity interest in the foreign enterprise (together, the "investment"). Ninety percent of each of these interests acquired by the Investor is insured under this contract (the "insured investment"). 2. Project. The investment will be applied to timber harvesting, reforestation, and wood processing in Khabarovsk Krai in Russia (the "project"). 3. "Foreign governing authority" means the governmental authority(ies) in effective control in all or part of Russia. The term "foreign governing authority" includes not only the federal government of the project country and its agencies and instrumentalities exercising governmental (as distinguished from commercial) functions but also subordinate levels of government, local and municipal governments, and agencies and instrumentalities through which they exercise such governmental functions. The term "foreign governing authority" does not include any entity in which the foreign governing authority has an ownership interest if the entity performs commercial functions directly related to the project. 1.02 Promises. OPIC promises that if acts occur during the term of this contract which satisfy the requirements for coverage in Article II, IV or VI, OPIC will pay the Investor the amount of compensation provided in Article III, V or VII, in accordance with the procedures in Article VIII. The Investor promises to comply with the duties in Article IX. If the Investor violates any of those duties, the Investor may lose rights, including the right to compensation. Amendments to Articles I through IX may be contained in Article X. 1.03 Maximum Aggregate Compensation OPIC will not pay compensation under this contract in an aggregate amount that exceeds $47,000,000. 6 I-3 1.04 Full Faith and Credit. The full faith and credit of the United States of America is pledged to secure the full payment by OPIC of its obligations under this contract. 1.05 Term This contract shall enter into force on the date it has been signed by OPIC and the Investor and shall terminate 20 years afterward unless terminated earlier (Sec. 807; Sec. 9.02). 1.06 Premiums and Active Amount Elections. The Investor shall elect amounts of coverage (Sec. 8.06) and pay premiums on or before each annual anniversary of the effective date of the contract. The coverages and premiums for the first period shall be as follows:
Inconvertibility Expropriation Political Violence ---------------- ------------- ------------------ Coverage Ceiling $1,800,000 $47,000,000 $47,000,000 Active Amount $1,800,000 $16,400,000 $16,400,000 Premium Rate is x 0.40000% x 0.72000% x 0.63000% ---------- ----------- ----------- Total premium is: $ 7,200.00 +$118,080.00 +$103,320.00 = $228,600.00 -----------
1.07 Administrative Fee. The Investor will pay an annual fee for contract administration of 0.25% of the Investment amount (Sec. 1.01.1) on or before the contract effective date and on or before each annual anniversary of the contract effective date, but only if the administrative fee exceeds the premium due for the contract for that period. If the administrative fee exceeds the premium due for that period, the premium will be waived. 7 II-1 Article II - Inconvertibility - Scope of Coverage. 2.01 Inconvertibility of Local Currency. Local currency shall be deemed inconvertible and compensation shall be payable, subject to the exclusions (section 2.02) and limitation (section 3.02), if neither the Investor nor the foreign enterprise is able legally (a) to convert earnings from or returns of the insured investment into United States dollars through any channel during the 180 days immediately prior to a claim to OPIC, except at an exchange rate that is less favorable than the then-prevailing exchange rate described under section 3.01.2, or (b) to transfer such converted earnings to the United States during such period. 2.02 Exclusions. No compensation for inconvertibility shall be payable if (a) Pre-existing Restrictions. (1) An investor in comparable circumstances would have been unable legally (a) to convert local currency into United States dollars on the date of this contract or (b) to transfer such dollars to the United States on the date of this contract; and (2) The Investor knew or should have known about the restriction; or (b) Investor Diligence. The Investor has not made all reasonable efforts to convert the local currency into United States dollars or to transfer such dollars to the United States through all direct and indirect legal mechanisms reasonably available; or (c) Reconversions. The local currency represents funds which were previously converted into another currency; or (d) Provocation. The preponderant cause is unreasonable action attributable to the Investor, including corrupt practices. (e) Use Restricted by Expropriation. The use of such local currency is restricted by an expropriatory action (section 4.02). 8 III-1 Article III - Inconvertibility - Amount of Compensation 3.01 Rate of Compensation for Inconvertibility. 1. Date. If the requirements of inconvertibility are satisfied (Article II), subject to the limitation (Sec. 3.02), OPIC shall pay compensation (a) against prior delivery of the inconvertible local currency, or (b) if the Investor is unable legally to deliver the local currency or if OPIC so requests, against prior assignment of the Investor's right to receive the payment that is the subject of the claim. If the Investor delivers local currency or an assignment of rights denominated in local currency, compensation shall be the United States dollar equivalent of the local currency at the exchange rate in effect 0 days before OPIC receives the completed application for compensation. If the Investor delivers an assignment of rights denominated in United States dollars, compensation shall be the United States dollar amount of the rights so assigned. 2. Exchange Rate. (a) The exchange rate shall be the official exchange rate applicable to the type of remittance involved. (b) If, however, (1) United States dollars were not generally available at the applicable official exchange rate; and (2) exchanges of local currency for United States dollars were effected legally and customarily through another channel; then the exchange rate shall be the effective rate obtained through that channel. (c) In either case, the exchange rate shall be net of all deductions for governmentally imposed charges, such as taxes and commissions. 3.02 Limitation. Compensation shall not exceed the Active Amount (Sec. 8.06) in effect 180 days before OPIC receives the application for compensation. 9 IV-1 Article IV - Expropriation - Scope of Coverage. 4.01 Total Expropriation. Compensation is payable for total expropriation (Sec. 5.01), subject to the exclusions (Sec. 4.04) and limitations (Sec. 5.04), if an act or series of acts satisfies all of the following requirements: (a) the acts are attributable to a foreign governing authority which is in de facto control of the part of the country in which the project is located; (b) the acts are violations of international law (without regard to the availability of local remedies) or material breaches of local law; (c) the acts directly deprive the Investor of fundamental rights in the insured investment (Rights are "fundamental" if without them the Investor is substantially deprived of the benefits of the investment); and (d) the violations of law are not remedied (Sec. 9.01.9) and the expropriatory effect continues for six months. 4.02 Expropriation of Funds. Compensation is payable for an expropriation of funds that constitute a return of the insured investment or earnings on the insured investment (Sec. 5.02) if an act or series of acts (a) satisfies the governmental action, illegality and duration requirements (Sec. 4.01(a), (b) and (d)); and (b) directly results in preventing the Investor from (1) repatriating the funds; and (2) effectively controlling the funds in the country in which the project is located. 4.03 Exclusions. No compensation for expropriation shall be payable if (a) Provocation. The preponderant cause is unreasonable action attributable to the Investor, including corrupt practices. (b) Government Action. The action is taken by the foreign governing authority in its capacity or through its powers as a purchaser, supplier, creditor, shareholder, director or manager of the foreign enterprise. 10 V-1 Article V - Expropriation - Amount of Compensation. 5.01 Total Expropriation. For total expropriation (section 4.01), OPIC shall pay compensation in United States dollars in the amount of the book value of the insured investment, subject to adjustments (section 5.03) and limitations (section 5.04). Compensation is computed as of the date the expropriatory effect commences (section 4.01(c)) and is based on financial statements maintained in accordance with section 9.01.6 for the foreign enterprise. However, OPIC may (1) conform the financial statements to principles of accounting generally accepted in the United States; and (2) make adjustments (section 5.03). OPIC shall be bound by the Investor's choice among generally accepted accounting principles, if the choice is consistent with the Investor's own accounting, unless such choice results in a substantial overstatement of the fair market value of the insured investment or the foreign enterprise as an independent entity. 5.02 Expropriation of Funds. For expropriation of funds (section 4.02), OPIC shall pay compensation in the amount of the United States dollar equivalent of the expropriated funds at the exchange rate determined in accordance with section 3.01.2, computed as of the date the expropriation begins. Compensation for expropriation of funds shall be subject to the adjustments and limitations (section 5.03 and section 5.04). 5.03 Adjustments. 1. Investments of Property. Non-cash items contributed as part of the investment shall be adjusted if necessary to reflect the fair market value of the items furnished at the time of contribution to the project, plus freight, installation and other reasonable direct costs incurred in furnishing the items to the project. 2. Non-Insured Contribution. Any direct or indirect contribution (and retained earnings thereon) by the Investor after the insured investment is made shall be deducted from the book value of the foreign enterprise. 3. Special Accounting Rules. Dealings among related parties shall be adjusted if necessary to reflect transactions as they would have occurred had they been at arm's length, and forgiveness of obligations shall be disregarded. Each entity shall be accounted for as if it were a separate person for income tax purposes, and the effect of tax shifting arrangements shall be disregarded. Obsolescence or 11 V-2 permanent reduction in recoverable values shall be recognized by adjusting the book value of assets to realizable value. OPIC may adjust financial statements to reflect the effect of events that occur before the expropriatory effect commences, such as events of loss which are later confirmed. 4. Other Compensation and Retained Property. OPIC may reduce compensation by the amount of (a) compensation received from other sources on account of the loss (excluding compensation payable under other insurance policies, except to the extent necessary to prevent the Investor from recovering more than the amount of the loss as recognized under any of the policies under which compensation is due, without regard to policy limits); and (b) the book value of commercially viable property which remains subject to the Investor's effective disposition and control after the expropriatory effect commences (unless OPIC requires the Investor to assign the property (Section 8.02)); and (c) any obligation the Investor is relieved of by the expropriation. The reduction shall be proportionate to the extent that these items are attributable to the insured investment. 5. Start-up Expenses. If the book value of the insured investment of a new foreign enterprise in the development stage is less than the insured amount originally contributed, the accumulated loss will be disregarded if (a) the foreign enterprise is newly formed for the principal purpose of undertaking the project. (b) the foreign enterprise is a going concern as of the date the expropriatory effect commences. (c) that date is within three years of the date this contract is issued, and (d) it is clear that no adjustment to book value is necessary by reason of obsolescence or permanent reduction in recoverable values of productive facilities or assets. 5.04 Limitations. Compensation shall not exceed any of the following limitations: (a) Active Amount. The Active Amount (Section 8.06) on the date the expropriatory effect commences; 12 V-3 (b) Insolvency. If the liabilities of the foreign enterprise exceed its assets as of the date the expropriatory effect commences, the amount that the Investor would have been entitled to receive in insolvency proceedings with respect to the insured investment if assets had been liquidated at book value on that date: (c) Self-Insurance. The maximum amount which could be received by the Investor from OPIC without breaching Section 9.01.3. 13 VI-1 Article VI -- Political Violence -- Scope of Coverage. 6.01 Loss Due to Political Violence. Compensation is payable, subject to the exclusions (Section 6.02) and limitations (Section 7.02), if political violence is the direct and immediate cause of the permanent loss (including loss of value by damage or destruction) of tangible property of the foreign enterprise used for the project. "Political violence" means a violent act undertaken with the primary intent of achieving a political objective, such as declared or undeclared war, hostile action by national or international armed forces, civil war, revolution, insurrection, civil strife, terrorism or sabotage. However, acts undertaken primarily to achieve labor or student objectives are not covered. 6.02 Exclusions. No compensation for political violence shall be payable (a) Excluded Property. For loss of precious metals, gems, works of art, money or documents; (b) Minimum Loss. If the amount of compensation payable would be less than $5,000; (c) Reasonable Protective Measures. If the loss results from the failure to take reasonable measures to protect or preserve the property; or (d) Provocation. If the preponderant cause of the loss is unreasonable action attributable to the Investor, including corrupt practices. 14 VII-1 Article VII - Political Violence - Amount of Compensation 7.01 Basis of Compensation. If the requirements of Article VI are satisfied, and subject to the limitations (Sec. 7.02), OPIC shall pay compensation for a loss in United States dollars in the amount of (a) Adjusted Cost. Adjusted cost is the Investor's share (Sec. 7.03) of the lowest of (1) the original cost; (2) fair market value; or (3) the reasonable cost of repair; less anything of value received by the Investor on account of the property lost and less the Investor's share of any such receipts by the foreign enterprise; or (b) Replacement Cost. If the Investor so elects, OPIC will pay the reasonable cost to repair any item of lost property or to replace it with equivalent new property, less anything of value received by the Investor or the foreign enterprise on account of the property lost. Such compensation shall not exceed 200% of the original cost of the item. To receive such compensation, the Investor must repair or replace the lost property to the project within three years of the loss. OPIC shall not reduce the compensation payable under subsections (a) or (b) above by the amount of compensation payable under other insurance policies on account of the property lost, except to the extent necessary to prevent the Investor from recovering more than the amount of the loss as recognized under any of the policies under which compensation is due, without regard to policy limits. 7.02 Limitations. Compensation shall not exceed any of the following limitations: (a) Active Amount. The Active Amount (Sec. 8.06) on the date of the loss. (b) Self-insurance. The maximum amount which could be recovered by the Investor from OPIC without breaching Sec. 9.01.3. (c) Aggregate Adjusted Cost Compensation. Aggregate compensation for property compensated at adjusted cost shall not exceed the book value of the insured investment (Sec. 7.04) at the time of loss. 15 VII-2 7.03 Investor's Share. "Investor's share" means the ratio that the equity owned by the Investor bears to the total equity of the foreign enterprise. 7.04 Book Value of Insured Investment. (a) Book Value. Book value is based on financial statements maintained by the Investor in accordance with Section 9.01.6 for the foreign enterprise. However, OPIC may (1) conform the financial statements to principles of accounting generally accepted in the United States; and (2) make adjustments (Section 7.04(b)). OPIC shall be bound by the Investor's choice among generally accepted accounting principles, if the choice is consistent with the Investor's own accounting, unless such choice results in a substantial overstatement of the fair market value of the insured investment or the foreign enterprise as an independent entity. (b) Adjustments. (1) Investments of Property. Non-cash items contributed to the investment shall be adjusted if necessary to reflect the fair market value of the items furnished at the time of contribution to the project, plus freight, installation and other reasonable direct costs incurred in furnishing the items to the project. (2) Non-Insured Contribution. Any direct or indirect contribution (and retained earnings thereon) by the Investor after the insured investment is made shall be deducted from book value of the foreign enterprise. (3) Special Accounting Rules. Dealings among related parties shall be adjusted if necessary to reflect transactions as they would have occurred had they been at arm's length, and forgiveness of obligations shall be disregarded. Each entity shall be accounted for as if it were a separate person for income tax purposes, and the effect of tax shifting arrangements shall be disregarded. Obsolescence or permanent reduction in recoverable values shall be recognized by adjusting the book value of assets to realizable value. OPIC may adjust financial statements to reflect the effect of events that occur before the loss of property, such as events of loss which are later confirmed. 16 VII-3 (4) Start-up Expenses. If the book value of the insured investment of a new foreign enterprise in the development stage is less than the insured amount originally contributed, the accumulated loss will be disregarded if (a) the foreign enterprise is newly formed for the principal purpose of undertaking the project. (b) the foreign enterprise is a going concern as of the date of the loss. (c) that date is within three years of the date this contract is issued, and (d) it is clear that not adjustment to book value is necessary by reason of obsolescence or permanent reduction in recoverable values of productive facilities or assets. (c) Insolvency. If the labilities of the enterprise exceed its assets as of the date of the loss, book value of the insured investment shall not exceed the amount that the Investor would have been entitled to receive in insolvency proceedings with respect to the insured investment if assets had been liquidated at book value on the day prior to the loss. 7.05 Appraisal. If OPIC determines that compensation is payable but OPIC and the Investor are unable to agree on a question of valuation, either may demand the appointment of an impartial appraiser. If the parties are unable to agree on the appraiser, the appointment shall be made by the American Arbitration Association. The appraiser's itemized appraisal shall be binding. Appraisal costs shall be borne equally by OPIC and the Investor. 7.06 Estimated Compensation. If OPIC determines that compensation is payable but conditions in the project country preclude reasonable efforts by OPIC to determine the precise amount due, OPIC may pay estimated compensation based on the information then available. OPIC may revise its estimate and recover any excess or pay any additional amount due upon receipt of additional information. 17 VIII-1 Article VIII - Procedures. 8.01 Application for Compensation. An application for compensation shall demonstrate the Investor's right to compensation in the amount claimed. The Investor shall provide such additional information as OPIC may reasonably require to evaluate the application. The Investor may amend or withdraw an application for compensation at any time, but the right to recover compensation will be lost for any acts covered by a withdrawn application. (a) There is no time limit on application for inconvertibility compensation (Article III); however, compensation shall not exceed the Active Amount applicable in accordance with Section 3.02. (b) An application for expropriation compensation (Article V) must be filed within six months after the Investor has reason to believe that all requirements of Article IV have been satisfied. (c) A notice demonstrating the Investor's entitlement to political violence compensation for loss of assets (Article VI) must be filed within six months of the loss. The notice together with proof of the amount of compensation due will be considered a completed application, which must be filed within three years of the loss. The Investor may request adjusted cost compensation (Sec. 7.01(a)) and later amend the application within three years of the loss to elect replacement cost compensation (Sec. 7.01(b)). (d) OPIC shall have a reasonable time in which to complete processing of any application for compensation. 8.02 Assignment to OPIC. Within sixty days after OPIC notifies the Investor of the amount of compensation OPIC will pay under expropriation or political violence coverage, and concurrent with payment, the Investor shall transfer to OPIC (a) for expropriation, all interests attributable to the insured investment (Sec. 4.01) or funds (Sec.4.02) as of the date the expropriatory effect commences, including claims arising out of the expropriation, or (b) for political violence, claims arising out of the loss due to political violence (Sec. 6.01). The Investor shall transfer the interests and claims free and clear of, and shall agree to indemnify OPIC against, claims, defenses, counterclaims, rights of setoff and other encumbrances (except defenses relating to the expropriation). 18 VIII-2 In connection with an inconvertibility claim, immediately upon receipt of instructions from OPIC together with notification that it intends to pay such claim, the Investor shall deliver the local currency to OPIC by draft subject to collection (or, at OPIC's option, in cash), or, if the Investor is unable legally to deliver the local currency or if OPIC so requests, shall instead deliver an assignment of the Investor's rights with respect to the payment that is the subject of the claim. OPIC may decline all or any portion of the Investor's interests or claims; if so, the Investor's right to compensation shall be affected only as provided in Sec. 5.03.4(b). 8.03 Security. As a condition for paying compensation (including estimated compensation (Sec. 7.06)) prior to a final determination of its liability, OPIC may require the Investor to provide security, satisfactory to OPIC in its reasonable judgment, for repayment pursuant to section 9.02(b). 8.04 Excess Salvage Value. With respect to compensated expropriation and political violence claims, OPIC shall pay to the Investor any amounts OPIC realizes in United States dollars from the rights transferred (Sec. 8.02) in excess of (a) the compensation paid by OPIC; plus (b) reasonable interest; plus (c) OPIC's out-of-pocket expenses in maintaining and realizing funds from the transferred property. However, this provision shall not in any way restrict OPIC's discretion to deal with the rights transferred. OPIC shall have no obligation to take action with respect to the rights transferred and shall incur no liability to the Investor for any actions taken or not taken after the transfer. 8.05 Arbitration. Any controversy relating to this contract shall be settled by arbitration in Washington, D.C. according to the then prevailing Commercial Arbitration Rules of the American Arbitration Association. Unless the Investor initiates arbitration, OPIC's liability shall expire one year after OPIC notifies the Investor of its determination concerning an application for compensation. A decision by arbitrators shall be final and binding, and any court having jurisdiction may enter judgment on it. 19 VIII-3 8.06 Election of Active Amounts and Coverage Ceilings. By prior notice to OPIC effective as of the next due date for premiums (Sec. 1.06), the Investor may increase or decrease the Active Amount for any coverage for the remainder of the contract term, subject to the following limitations: (a) Active Amount shall not exceed the Coverage Ceiling (Sec. 1.06); (b) The Coverage Ceiling shall be reduced automatically by compensation paid by OPIC; Active Amount shall also be reduced for the remainder of the annual election period to which the claim relates (Sec. 3.02, Sec. 5.04(a), or Sec. 7.02(a)); (c) For inconvertibility, expropriation, and political violence coverages, Active Amount shall not be less that the lesser of book value (Sec. 5.01) or the Coverage Ceiling for that coverage. 8.07 Termination. The Investor may terminate this contract effective as of any premium due date unless the premium is already paid. However, termination shall not affect any rights or obligations of either party relating to prior periods. 8.08 Legal and Miscellaneous. This contract shall be governed by the law of the District of Columbia, its conflict of law rules excepted. This contract constitutes the complete agreement between the parties, superseding any prior understandings. This contract may be modified, or its terms waived, only in writing. 8.09 Notices. Notices must be in writing and shall be effective when received. Notices may be given to the Investor at the address on the title page (unless changed in writing), and to OPIC at Overseas Private Investment Corporation Washington, D.C. 20527 Attention: Vice-President, Insurance. 8.10 Refund of Premiums. Upon timely written request, OPIC will refund premiums pro rata if (a) excess coverage is elected while a valid claim for compensation is pending; or (b) the Investor becomes ineligible for coverage or ceases to hold all or a portion of the insured investment, in which case any refund shall be calculated from the later of (i) the date the Investor becomes ineligible or ceases to hold the insured investment, or (ii) the date OPIC receives such written request. 20 IX-1 Article IX - Investor's Duties. 9.01 Duties. 1. Representations and Project Execution. The Investor understands that OPIC has issued this contract based on statutory policy goals (22 U.S.C. Sec. 2191) as well as underwriting considerations. All statements made by the Investor to OPIC in connection with this contract are true and complete, and the investment and the project shall be carried out as described. 2. Ownership and Eligibility. The Investor shall at all times remain the beneficial owner of the insured investment and shall remain eligible for OPIC insurance as (a) a citizen of the United States; or (b) a corporation or other association created under the laws of the United States, its states or territories, or which more than 50% of both the total interest and of each class of shares is beneficially owned by citizens of the United States; or (c) an entity created under foreign law in which a 95% interest is owned by entities eligible under (a) or (b). 3. Self-Insurance. The Investor shall continue to bear the risk of loss of at least 10% of the book value of its interest in the foreign enterprise. 4. Assignment. The Investor shall not assign this contract, or any of its rights, without OPIC's written consent, which shall not be withheld unreasonably. 5. Premiums. The Investor shall pay the premiums for this contract in accordance with Article I. In the event that premiums are not paid when due, the Investor shall be in default but may cure this default within sixty days by paying the premiums plus interest at a rate of 12% per annum. 6. Accounting Records. (a) The Investor shall maintain in the United States true and complete copies of the records, books or account and current financial statements for the foreign enterprise necessary to compute and substantiate compensation, including (1) records documenting the investment; (2) annual balance sheets; 21 IX-2 (3) annual statements of income, retained earnings, cash flow and related footnotes. (b) Accounting records shall be maintained and financial statements prepared in United States dollars in accordance with principles of accounting generally accepted in the United States (including principles of accounting generally accepted in the United States (including principles of currency translation), as modified by the special accounting rules (Section 5.03.3 and Section 7.04(b)(3)). (c) Subject to the obligations of the Investor under Section 9.01.6, the Investor or the foreign enterprise shall retain all accounting records until (1) the deadline for filing an application for compensation has expired (Section 8.01); or (2) final action has been taken on an application for compensation (including arbitration and judicial appeals). However, if compensation has been paid, the accounting records shall be retained for three years after the Investor receives the compensation. 7. Reports and Access to Information. In order that OPIC may perform its statutory duties, including settling claims and reporting to the Congress (22 U.S.C. Section 2200a), the Investor shall furnish OPIC with such information as OPIC may reasonably request, including (a) making available for interviews any persons subject to the Investor's practical control (including employees of the project and independent accountants); (b) making available for inspection and copying all documents and accounting records relating to the project (including workpapers of independent accountants if available); (c) permitting OPIC to inspect the project; and (d) furnishing available information concerning the effects of the project on the economy of the United States, the environment, and the economic and social development of the country in which the project is located. The Investor's duties under this paragraph shall continue for the periods specified for retention of accounting records (Section 9.01.6(c)). 8. Compulsory Notice. The Investor shall notify OPIC promptly if it has reason to believe that the Investor or the foreign enterprise will not be able to convert or transfer local currency during the waiting period (Article II). The Investor shall notify OPIC promptly of any acts or threats to act in a manner which may come within the scope of the expropriation or political violence coverage (Articles IV and VI) and shall keep OPIC informed as to all relevant developments. 22 IX-3 9. Preservation, Transfer and Continuing Cooperation. At OPIC's request, the Investor shall promptly assign rights with respect to the investment, as required by Section 8.02. Prior to the assignment of rights required by Section 8.02, the Investor shall, in consultation with OPIC, take all reasonable measures to preserve property, to pursue available administrative and judicial remedies, and to negotiate in good faith with the governing authority of the country in which the project is located and other potential sources of compensation. After a transfer of rights or delivery of local currency, in exchange for reimbursement of reasonable out-of-pocket expenses, the Investor shall take all actions reasonably requested by OPIC to assist OPIC in preserving the property and rights transferred to OPIC and in prosecuting related claims. 10. Other Agreements. The Investor shall not enter into any agreement with any foreign governing authority with respect to compensation for ay acts within the scope of coverage (Article II, IV or VI) without OPIC's prior written consent. 9.02 Default. Material breach or misrepresentation by the Investor shall constitute default, and OPIC may: (a) refuse to make payments to the Investor. (b) recover payments made; and (c) terminate this contract effective as of the date of the breach by giving notice to the Investor. 9.03 Non-Waiver. Neither OPIC's failure to invoke its rights, nor its acceptance of premiums, shall constitute waiver of any of its rights, even though OPIC knows of the Investor's breach. 9.04 Cure. OPIC may permit the Investor to cure a breach in a manner satisfactory to OPIC, but shall have no obligation to allow breaches to be cured. 23 X-1 ARTICLE X - AMENDMENTS The following amendments are hereby incorporated as part of this Contract of Insurance No. E136: 10.01 The issuance by OPIC of this Contract of Insurance shall not constitute an acknowledgment or assurance by OPIC of the validity of any agreement or arrangement constituting or relating to the investment under the laws of Russia. 10.02 Anything in the contract to the contrary notwithstanding, the book value of the portion of the issued investment described in Section 1.01.1(a)(ii) and Section 1.01.1(d) shall be the lesser of (a) the aggregate unpaid balance of the amount thereof actually received by the recorded as a liability on the books of the foreign enterprise, as evidenced by promissory notes or other documentation satisfactory to OPIC in the reasonable exercise of its discretion, together with unpaid interest accrued thereon, (the "Liability") reduced by the amount of any provision for uncollectibility of the Liability on the books of the Investor, and (b) the amount of the Liability that would be recoverable by the Investor as a liability of the foreign enterprise, in accordance with the priority of the Liability among the creditors of the foreign enterprise, if the assets of the foreign enterprise were liquidated at book value on the relevant date. 10.03 Section 1.05, "Term", is amended in its entirety to read as follows: "1.05 Term. This contract shall enter into force on the date it has been signed by OPIC and the Investor and shall terminate as follows: (a) 20 years afterward unless terminated earlier (Section 8.07; Section 9.02), with respect to the individual investment component identified in subparagraph 1.01.1(a) above and the corresponding shares of common stock identified in subparagraph 1.01.1(c) above; and (b) April 30, 1996, with respect to the individual investment component identified in subparagraph 1.01.1(b) above and the corresponding participation interest identified in subparagraph 1.0.1(d) above unless otherwise agreed in writing by OPIC prior to such date." 10.04 Notwithstanding any other provision of this contract to the contrary, the Investor shall not file applications for compensation under, and OPIC shall have no liability for claims under, inconvertibility coverage (Articles II and III) in excess of $450,000 in any 91-day period. 10.05 Subsection 4.01(b) is amended by deleting the words "or material breach of local law". 10.06 Notwithstanding any other provision of this contract to the contrary, any amount of value-added tax under the laws of the Russian Federation imposed on the loan shall be deducted from compensation paid by OPIC shall have no liability for such value-added tax. 24 X-2 10.07 Section 9.01. "Duties", is amended by adding the following new subsections 11, 12, 13 and 14 at the end thereof: "11. Legality. The Investor has implemented and shall implement the investment and the project in compliance in all material respects with all applicable laws, decrees, regulations, administrative determinations and procedures of the foreign governing authority. "12. Workers Rights. The Investor agrees not to take actions to prevent employees of the foreign enterprise from lawfully exercising their right of free association and their right to organize and bargain collectively. The Investor further agrees to observe applicable laws relating to a minimum age for employment of children, acceptable conditions of work with respect to minimum wages, hours of work, and occupational health and safety, and not to use forced labor. The Investor agrees not to interfere with or coerce an employee of the foreign enterprise on the basis of trade union activities or membership. The Investor further agrees not to take any action on the basis of such activities or membership which may result in the termination, suspension, demotion, or transfer of said employee by the foreign enterprise, or by an officer, agent or other representative thereof. The Investor is not responsible under this paragraph for the actions of a foreign government. "13. Environmental Covenants. The Investor covenants that with respect to the project. (a) The foreign enterprise will comply with in all material respects, and shall conduct its business, operations, assets, equipment, property, leaseholds, and other facilities materially in compliance with, the provisions of all applicable environmental, health and safety laws, codes and ordinances, and all rules and regulations promulgated thereunder. The foreign enterprise shall maintain all material required permits, licenses, certificates and approvals relating to: (i) air emissions, (ii) discharges to surface water or ground water, (iii) noise emissions, (iv) solid or liquid waste disposal, (v) the use, generation, storage, transportation or disposal of toxic or hazardous substances or wastes, or (vi) other environmental, health or safety matters, to the extent applicable. (b) The foreign enterprise will annually obtain a logging ticket and duly comply with the provisions of the environmental guidelines set forth in Annex A hereto (the "environmental guidelines"). The foreign enterprise shall appoint an independent environmental advisory committee (the "oversight group"), to be composed of three members chosen by the foreign enterprise, with OPIC's prior approval (such approval not to be unreasonably withheld) and one representative of the foreign enterprise. The oversight group will (i) review the foreign enterprise's harvesting plan submitted to the Khabarovsk Kray Forest Natural Resources Authority for approval (the "harvesting plan"), and (ii) annually monitor the foreign enterprise's compliance with the harvesting plan and Annex A. 25 "14. Modifications. The Investor shall not terminate, amend or grant any waiver of, or assign any of the respective duties or obligations under, the Participation Agreement dated June 9, 1995, between State Street Bank and the Investor (other than amendments or waivers, either to correct manifest error or which are of a formal, minor, or technical nature and do not change materially any party's rights or obligations) without OPIC's prior written consent, which consent shall not be withheld unreasonably. The Investor shall not permit State Street Bank and Trust Company to terminate, amend or grant any waiver of, or assign any of the respective duties or obligations under, the Master Short-Term Credit Agreement dated June 9, 1995, between State Street Bank and Trust Company and the foreign enterprise (other than amendments or waivers, either to correct manifest error or which are of a formal, minor, or technical nature and do not change materially any party's rights or obligations) without OPIC's prior written consent, which consent shall not be withheld unreasonably." 10.08 Notwithstanding any other provision of this contract, neither the non-renewal of the licenses and land leases granted by the foreign governing authority related to the project nor cancellation of the licenses and leases by the foreign governing authority due to non-fulfillment by the Investor of its obligations under the licenses and leases shall constitute compensable acts under Articles IV and V of this contract. THE PIONEER GROUP, INC. By: /s/ JOHN F. LAWLOR Date: 9/29/95 ---------------------------- ---------------------------- Effective September 29, 1995 John F. Lawlor, Vice-President - ----------------------------------------------------------------------------- Print Name and Title OVERSEAS PRIVATE INVESTMENT CORPORATION By: /s/ DANIEL W. RIORDAN Date: 10/2/95 ---------------------------- ---------------------------- Effective September 29, 1995 Daniel W. Riordan, Vice President for Insurance - -------------------------------------------- Print Name and Title 26 ANNEX A -- ENVIRONMENTAL GUIDELINES The foreign enterprise will conduct its operations in accordance with the "Environmental Impact Assessment of the Siziman Timber Project" prepared by Jaakko Poyry Consulting Oy dated September 15, 1994 and revised on November 14, 1994, and attached hereto as Annex B, as amended by this Annex A. The foreign enterprise shall do so in compliance in all material respects with all applicable laws, decrees, regulations, administrative determinations and procedures of the foreign governing authority. - - Harvesting of timber in the "coastal protection forest" will use selective logging techniques only. No clearcutting will take place in the coastal protection forest. - - In the "Siziman Production Forest," clearcutting will be conducted in a manner consistent with the June, 1992 U.S.F.S. Policy Guidelines, unless application of the U.S.F.S. Policy Guidelines (attached hereto as Annex C) clearly support a different approach. - - Consistent with effective fire prevention policy and Russian law, the foreign enterprise will seek to leave as much slash as possible in harvested areas, so as to maximize conditions for regeneration and soil protection. - - No clearcutting of timber or road building will take place on slopes greater than 17 degrees. Any selective harvesting of timber on slopes of between 17 and 27 degrees will make use of cables rather than heavy machinery wherever feasible. - - Any exceptions to the clearcutting or slope standards noted above will be reviewed by a committee of experts appointed jointly by OPIC, the Investor, and Starma-Holding, a shareholder in Forest-Starma (together, the "sponsors"). - - Natural reforestation will be favored wherever feasible and will be supplemented by artificial reforestation as necessary to attain maximum regeneration of harvested areas in a manner approximating natural forest conditions. - - The sponsors will fund a local study of possible internationally protected species' habitats in the Project area and will take effective measures to protect such habitats. - - As part of its monitoring requirements, OPIC will have the right to review timber management plans for consistency with the above representations, in advance of their submission to regional or federal authorities for final approval. EX-10.2 3 COMMITMENT LETTER 1 EXHIBIT 10.2 OVERSEAS PRIVATE INVESTMENT CORPORATION WASHINGTON, D.C. 20527, U.S.A. [Seal] OFFICE OF THE PRESIDENT September 29, 1995 Teberebie Goldfields Limited c/o The Pioneer Group, Inc. 60 State Street Boston, Massachusetts 02109 Attention: Lucien Girard The Pioneer Group, Inc. 60 State Street Boston, Massachusetts 02109 Attention: Donald Hunter Re: Overseas Private Investment Corporation ("OPIC") Commitment to Guarantee Loans to Teberebie Goldfields Limited (the "Company") Ladies and Gentlemen: This letter (the "Commitment Letter") constitutes and sets forth the terms and conditions of OPIC's commitment to guarantee, pursuant to Section 234(b) of the Foreign Assistance Act of 1961, as amended, a loan or loans to the Company, which is a corporation organized and existing under the laws of the Republic of Ghana and directly ninety percent (90%) owner by Pioneer Goldfields Limited, which is a company limited by shares organized and existing under the laws of Guernsey, the Channel Islands ("PGL"), and wholly-owned by the Pioneer Group, Inc., a Delaware corporation (the "Sponsor"). OPIC is willing to guarantee, and, by its acceptance of this Commitment Letter, the Company confirms that it is willing to borrow, a loan or loans (the "Loan") to be applied to the Project (as defined below) on the following terms and conditions: 1. Parties: (a) The Company, which will be the borrower of the Loan; and (b) the Sponsor. 1100 NEW YORK AVE., N.W. - WASHINGTON, D.C. 20527 - FAX (202) 408-9859 - (202) 336-8400 2 2. Project: An expansion of the Company's existing gold mine operations located southwest of the town of Tarkwa in western Ghana (the "Teberebie Mine"), intended to increase the Teberebie Mine's output from approximately 270,000 to approximately 427,000 troy ounces of gold per year, as more fully described in the following documents that the Sponsor has submitted to OPIC: the U.S. Sponsor Disclosure Report, dated August 11, 1995; the draft report of Pincock, Allen & Holt, dated August 8, 1995, captioned "Due Diligence Review, Pioneer Goldfields Limited, Teberebie Gold Mine, Ghana, West Africa"; and the draft "Five-Year Business Plan (1996-2000) of TGL and PGL". 3. Amount: The outstanding principal amount of the Loan shall not exceed $54,000,000 (the "Guaranty Commitment"). As used herein the symbol "$" indicates United States dollars. 4. Financial Plan: The Project's total cost is estimated to be $74,000,000, to be funded as follows (the "Financial Plan"): Senior Debt: Amount ----------- ----------- The Loan $54,000,000 Equity: ------ Company funds from operations 20,000,000 ----------- Total Funding: $74,000,000 ------------- ----------- 5. Term: The Loan shall be repaid in 12 approximately equal semi-annual installments, commencing on the later of (a) June 15, 1997 and (b) the first Payment Date (as defined below) to occur after the date of the first disbursement of the Loan. 6. Interest Rate: Payable semi-annually in arrears at a rate or on a basis to be negotiated with the guaranteed lender or lenders on terms 3 - 3 - acceptable to OPIC. The Company shall pay to OPIC a default premium at the rate of two percent (2%) per annum with respect to any amount not paid when due under the Finance Agreement (as defined in paragraph 14(a) below). 7. Guaranty Fee: Two and sixty-five hundredths percent (2.65%) per annum on the outstanding balance of the Loan, payable to OPIC semi-annually in arrears (the "Guaranty Fee") on each Payment Date. 8. Facility Fee: One percent (1%) of the Guaranty Commitment (the "Facility Fee"), of which (i) $200,000 was previously paid as a retainer to be credited toward the Facility Fee, (ii) one-half ($270,000) is due and payable to OPIC on the date of execution of this Commitment Letter and (iii) the remainder shall be due and payable on the date of execution of the Finance Agreement. 9. Commitment Fee: One-half of one percent (0.5%) per annum on the undisbursed and uncanceled amount of the Guaranty Commitment (the "Commitment Fee"). Such fee shall accrue from the date of this Commitment Letter and be due and payable to OPIC semi-annually in arrears on December 15 and June 15 of each year (each such date a "Payment Date"), and upon either the termination of this Commitment Letter or the date of execution of the Finance Agreement. The Commitment Fee will continue to accrue under and shall be payable as provided in the Finance Agreement on the undisbursed and uncanceled amount of the Guaranty Commitment. No disbursement of the Loan shall occur after September 30, 1997. 10. Maintenance Fee: The Company shall pay to OPIC an annual maintenance fee of $5,000 on each December 15 so long as the Loan remains outstanding (the "Maintenance Fee"). 4 - 4 - 11. Cancellation Fee: The Company may cancel any portion of the Guaranty Commitment to the extent of any undisbursed portion of the Loan upon payment to OPIC of a cancellation fee (the "Cancellation Fee") equal to (a) for the cancellation of any part of the Guaranty Commitment that, together with all other canceled parts of the Guaranty Commitment (if any), does not exceed $9 million in the aggregate, one-half percent (0.5%) of the amount canceled and (b) for the cancellation of any part of the Guaranty Commitment that, together with all other canceled parts of the Guaranty Commitment (if any), does exceed $9 million in the aggregate, one and one-half percent (1.50%) of the amount canceled. Any portion of the Guaranty Commitment that for any reason expires or is terminated without being disbursed shall be deemed to have been canceled, and the Cancellation Fee shall apply. 12. Reimbursement of Expenses: The Company or the Sponsor shall pay or reimburse OPIC for all reasonable expenses incurred by OPIC in connection with this Commitment Letter and the negotiation, execution and implementation of the Finance Agreement and the Financing Documents (as defined in paragraph 14(b) below), including reasonable fees and expenses for outside legal counsel, business advisers and consultants, travel expenses, cost of reproducing and binding post-closing document transcripts (including up to five OPIC copies) and other such out-of-pocket expenses incurred by OPIC, including any costs of collecting any amount due hereunder. Such payment or reimbursement shall be due and payable within 30 days after the Company's receipt of OPIC's request therefor from time to time and upon the extension or termination of this Commitment Letter or execution of the Finance Agreement, provided that, to the extent of any portion of the Facility Fee that has been paid to OPIC, travel expenses incurred by OPIC staff shall be 5 -5- reimbursed out of such fee. The payment or reimbursement of OPIC expenses shall be due whether or not this Commitment Letter expires without renewal or is canceled or a Finance Agreement is executed or any disbursement of the Loan is made thereunder. 13. Payments: All payments due hereunder to OPIC shall be paid by wire transfer as follows: U.S. Treasury Department New York, NY ABA No. 0210-3000-4 TREAS NYC/CTR/BNF=AC-71000001 OBI=OPIC Loan Number 641-95-353-IG 14. Other Conditions: (a) The terms and conditions of the Loan and of OPIC's guaranty thereof (the "OPIC Guaranty") shall be set forth in a finance agreement with the Company (the "Finance Agreement") providing the foregoing terms, the terms and conditions set forth in the term sheet attached thereto as Annex A and such other terms and conditions as are mutually agreed to between the parties. (b) On the date of execution of the Finance Agreement, no condition shall exist that in OPIC's judgment materially adversely affects the Company's or the Sponsor's ability to carry out the Project or to perform their respective obligations under the Finance Agreement and all documents, instruments and approvals required by the Finance Agreement (collectively with the Finance Agreement, the "Financing Documents"). (c) The Financing Documents shall be satisfactory to OPIC in form and substance. (d) The Company shall arrange for, and pay all costs associated with, the funding of the Loan, including without limitation the fees of all placement agents, paying agents and liquidity facility providers 6 -6- and their respective counsel, and all documents, instruments and approvals required in connection with such funding shall be satisfactory to OPIC in form and substance. 15. Termination: If for any reason the Finance Agreement is not executed and delivered on or before March 1, 1996, OPIC's commitment and its obligations hereunder will thereupon terminate. In addition, OPIC may, by written notice to the Sponsor, terminate this commitment and its obligations hereunder as of an earlier date if, in OPIC's reasonable judgment, the Sponsor or the Company is unlikely to be able or willing to perform its obligations under any Financing Document. Upon any such termination, the Company or the Sponsor shall forthwith pay to OPIC the Commitment Fee, the Cancellation Fee and any other amounts then due hereunder. 16. Extension of Commitment: The parties hereto shall use their best efforts to complete negotiations of the Financing Documents as soon as possible prior to the termination of this Commitment Letter. Extension of the term of this Commitment Letter shall be subject, at OPIC's sole discretion, to modification of the terms hereof. 17. Indemnity: The Company and the Sponsor shall indemnify and hold harmless OPIC and each of its directors, officers and employees (each, an "indemnified person") in connection with any losses, claims, damages, liabilities (or actions in respect thereof) or other expenses (including without limitation attorneys' fees and expenses as they are incurred in connection with investigating, preparing, or defending any such action or claim) (any of the foregoing being a "Loss" and collectively "Losses") to which such indemnified person may become subject arising out of or relating to this Commitment Letter, the provision of the 7 financing and guaranty contemplated hereby or the use or intended use of the proceeds thereof; provided that such indemnity shall not apply to the extent that there is a final determination that the Loss resulted from (a) the gross negligence or willful misconduct of the indemnified person, (b) a failure by OPIC to fulfill its guarantee obligations with respect to the Loan or (c) a failure by the Company to pay its financial obligations under the Financing Documents (except to the extent arising from fraud or misrepresentation). This indemnity obligation shall survive the execution of the Finance Agreement and the expiration, termination or other modification of the Guaranty Commitment set forth herein. 18. Joint and Several Obligations: Payment of all fees and expenses payable to OPIC hereunder shall be the joint and several obligation of the Company and the Sponsor, provided that the Sponsor shall have no obligation for any such fees and expenses incurred after Project Completion, other than (a) costs of enforcement of any direct obligation of the Sponsor hereunder and (b) any amounts owed by the Sponsor pursuant to Section 17. 19. Counterparts: This Commitment Letter may be executed in separate counterparts, each of which shall be an original and all of which taken together shall constitute one and the same agreement. 20. Governing Law: This Commitment Letter shall be governed by the law of the State of New York. In consideration of OPIC's Commitment set forth herein, the Sponsor and the Company jointly and severally represent and warrant to OPIC that (i) the Sponsor and the Company and their respective officers, directors, employees and agents have complied in all material respects with all applicable Corrupt Practices Laws (as hereinafter defined) in obtaining any consents, licenses, approvals, authorizations, rights or privileges in respect of the Project, (ii) the Company is 8 otherwise conducting its business in compliance in all material respects with all applicable Corrupt Practices Laws and (iii) the internal management and accounting practices and controls of the Company and the Sponsor are adequate to ensure compliance with applicable Corrupt Practices Laws. This representation shall survive the execution of the Finance Agreement and any termination or expiration of the Guaranty Commitment set forth herein. As used herein, "Corrupt Practices Laws" means (i) the Foreign Corrupt Practices Act of 1977, Pub.L. No. 95-213, as amended (codified in Sections of 15 U.S.C. Section 78 (1988)) and (ii) any other law, regulation, order, decree, or directive having the force of law and relating to bribery, kick-backs, or similar corrupt business practices. If the foregoing correctly sets forth our understanding and agreement, please confirm your acceptance thereof by (i) signing and returning to OPIC an executed counterpart of this Commitment Letter and (ii) wiring to OPIC the amount referred to in paragraph 8 in partial payment of the Facility Fee, all no later than September 29, 1995. If OPIC receives such countersigned 9 copy and funds by such time, then this Commitment Letter shall constitute an agreement between us effective and legally binding on each of us as of its date. Very truly yours, OVERSEAS PRIVATE INVESTMENT CORPORATION By: /s/ DANIEL W. RIORDAN ------------------------------------------ Daniel W. Riordan Title: Executive Vice President -------------------------------------- ACCEPTED AND AGREED TO as of the date of this Commitment Letter: TEBEREBIE GOLDFIELDS LIMITED By: /s/ Lucien Girard, III ------------------------------------ Title: Managing Director --------------------------------- THE PIONEER GROUP, INC. By: /s/ JOHN F. LAWLOR ------------------------------------ John F. Lawlor Title: Vice President --------------------------------- 10 ANNEX A TERM SHEET FOR $54,000,000 OPIC LOAN GUARANTY FOR TEBEREBIE GOLDFIELDS LIMITED All capitalized terms used herein have the meanings given them in the Commitment Letter to which this Term Sheet is attached, unless the context otherwise requires. The Finance Agreement shall include the following terms and conditions, in addition to standard representations and warranties, covenants and events of default: 1. Drawdown and Commitment Period: The Loan shall be disbursed is not more than four disbursements. No disbursement of the Loan shall be made after September 30, 1997 (the period from today through such date being the "Commitment Period"). 2. Voluntary Prepayment: In addition to any requirements of the lender(s), the Loan, after the Commitment Period, may be prepaid in inverse order of maturity upon the payment to OPIC of the following premiums (each a "Prepayment Premium"), each expressed as a percent of the principal amount prepaid. If prepayment occurs in the twelve-month period commencing with: (i) the last day of Commitment Period, the Prepayment Premium shall be 3%, (ii) the first anniversary of last day of Commitment Period, the Prepayment Premium shall be 2%, (iii) the second anniversary of last day of Commitment Period, the Prepayment Premium shall be 1%, and (iv) thereafter, prepayments may be made without premium. 3. Mandatory Prepayment: Prepayment of the Loan shall be mandatory in the event that, and in the amount by which, (i) insurance proceeds received by the Company in any fiscal year in excess of $500,000 are not used to repair or replace damaged assets and (ii) dividends 11 -2- paid in any fiscal year exceed seventy percent (70%) of the prior year's net income. 4. Security: Subject to the next sentence, the Company's obligations to OPIC shall be secured by a perfected first lien and charge on all of the Company's assets, including without limitation the escrow account referred to below and all rights of the Company (and of the Sponsor or any affiliate of the Sponsor) under (i) any existing or future agreements with purchasers of ore or other output from the Teberebie Mine; (ii) the Deed of Warranty Confirmation and Conditions from the Government of Ghana dated December 3, 1987 and any amendment thereof or supplement thereto; (iii) the Mining Lease from the Government of Ghana dated February 2, 1988 and any amendment thereof or supplement thereto; and (iv) any other agreements with the Government of Ghana relating to the Teberebie Mine. The lien and charge so granted may be of second priority with respect to any crushing equipment that is subject to prior mortgage (the "Equipment Mortgage") securing loans outstanding under a Credit Agreement dated June 1, 1993 between the Company and Skandinaviska Enskilda Banken (the "SEB Credit Agreement"). 5. Escrow: The Company shall maintain on deposit in an escrow account in a financial institution satisfactory to OPIC an amount equal on any date to debt service (including principal, interest and Guaranty Fee) due on the Loan during the immediately succeeding six-month period. 6. Subordination: All fees, debt service and any other amounts payable by the Company to the Sponsor or affiliates thereof shall be subordinated to the payment of all amounts due in respect of the Loan, provided that the Company may (a) pay dividends subject to the dividend restrictions set forth in paragraph 9(d) below and (b) pay to 12 -3- officers of the Company that are also affiliates of the Sponsor compensation on an unsubordinated basis for services as an officer of the Company at a rate established on an arm's length basis. 7. Principal Conditions Precedent to Loan Disbursement: (a) The following agreement shall have been entered into by the Company and the other respective parties on terms and conditions satisfactory to OPIC and shall each be fully effective: (i) a share retention agreement between the Sponsor and OPIC requiring the Sponsor to maintain at least a minimum indirect percentage interest in the Company; (ii) agreements and other documents providing the security, escrow, and subordination arrangements in favor of OPIC referred to above; (iii) a project completion agreement among the Company, the Sponsor and OPIC establishing the obligations and project completion tests described below in paragraph 11; (iv) a Participation and OPIC Guaranty Agreement among the Company, OPIC and a paying agent satisfactory to OPIC, together with all other documents and instruments required to fund the Loan on terms and conditions satisfactory to OPIC; (v) other construction, supply, lease, management or other relevant contracts reasonably required as conditions for disbursement; (b) OPIC shall have received satisfactory evidence of all necessary Government of Ghana consents and approvals, including without limitation: (i) approval of the Project for purposes of the OPIC guaranty; (ii) registration of the Loan with the Central Bank of Ghana and foreign exchange consents 13 permitting the remittance of all amounts payable under the Financing Documents; and (iii) all approvals, permits and consents necessary for the Company to carry out the Project and its ongoing operations at the Teberebie Mine. (c) OPIC shall have received satisfactory evidence of all necessary corporate documents and authorizations of the Company and the Sponsor. (d) OPIC shall have received satisfactory evidence that adequate insurance coverage has been obtained, with OPIC named as an additional insured. (e) OPIC shall have received legal opinions of (i) counsel to OPIC in Ghana, (ii) counsel to the Company in Ghana, (iii) counsel to the Company in the United States and (iv) counsel to the Sponsor in the United States, each in form and substance satisfactory to OPIC. (f) As of the date of each disbursement, (i) no default under the Finance Agreement shall have occurred and be continuing, (ii) the representations and warranties contained in the Finance Agreement shall be true and correct as if made on such date, and (iii) no change in circumstances shall have occurred which materially adversely affects the Company's or the Sponsor's financial condition or ability to fulfill their respective obligations under the Financing Documents. (g) An environmental impact assessment which takes the implementation of the Project into account shall have been delivered to OPIC, and OPIC shall be satisfied with the views and conclusions set forth therein. 8. Reporting Requirements: (a) The Company shall furnish OPIC with financial information and reports expressed in U.S. dollars and in the English language, all prepared in accordance with U.S. generally accepted accounting principles, including but not limited to quarterly financial statements, audited annual financial statements, compliance certificates and, prior to Project Completion (as defined below under the caption "Project Completion"), quarterly progress reports. 14 OPIC shall have reasonable access to the Company's books and records and to the Company's premises for purposes of inspection. (b) The Company shall annually complete and deliver to OPIC a "Self-Monitoring Questionnaire" in such form as OPIC may from time to time prescribe and an environmental compliance report in form and substance satisfactory to OPIC with respect to the Company's compliance with the environmental protection requirements of the Finance Agreement. 9. Principal Financial Covenants: (a) Indebtedness Restrictions: The Company shall not incur any indebtedness other than: (i) that provided in the Financial Plan; (ii) trade credit on terms not exceeding 90 days; (iii) indebtedness to the Sponsor or PGL that is subordinated to the Loan on terms fully acceptable to OPIC; and (iv) other indebtedness (including lease obligations), provided that the Company's ratio of total indebtedness to tangible net worth (which for this purpose shall include the Company's capitalized costs of development of the Project) shall not exceed 1.5 to 1. (b) Mortgage and Lien Restrictions: The Company shall not create or suffer to exist any liens, security interests or encumbrances on any of its properties or assets other than: (i) The liens and encumbrances securing the Loan; (ii) the Equipment Mortgage, securing not more than $3.12 million of indebtedness outstanding under the SEB Credit Agreement as of the date of this Commitment Letter; (iii) tax, mechanics' and other statutory liens being contested or litigated in good faith; and (iv) liens and encumbrances securing indebtedness referred to in paragraph (a)(iii) above that 15 - 6 - OPIC in its sole discretion shall have determined could not in any way interfere with OPIC's rights as a secured creditor of the Company or its ability to enforce such rights without restriction. (c) Debit Service Coverage Ratio: For the four most recently completed fiscal quarters of the Company, taken as a single accounting period, the ratio of (i) the sum of (x) cash generated by the Company and available for debt service and (y) cash on hand at the beginning of such period to (ii) the Company's debt service payments shall not be less than 2.00 to 1. (d) Dividend Restrictions: The Company may declare or pay dividends or make other distributions on or in respect of shares of its capital stock only if (i) no default or event of default under the finance Agreement then exists or would exist after giving effect to any such dividend or distribution; (ii) after giving effect to each such dividend or distribution (w) the ratio of the Company's total indebtedness to its tangible net worth (which for this purpose shall include the Company's capitalized costs of development of the Project) would not exceed 1.5 to 1, (x) the Company's tangible net worth would not be less than $45,000,000, of the prior year's net income unless the Loan is prepaid at the time of such dividend or distribution in the amount of such excess; and (iii) for the four next succeeding fiscal quarters of the Company, taken as a single accounting period, the ratio of (x) the sum of (A) cash projected to be generated by the Company and available for debt service and (b) cash on hand at the beginning of such period to (y) the Company's projected debt service payments shall be not less than 2.00 to 1. (e) Tax Gross-up: If for any reason any withholding or other tax is applied to any payments due under the Finance Agreement, the Company shall gross up all such payments. 16 10. Other Covenants: (a) All inter-company transactions involving the Company, the Sponsor or any affiliate thereof shall be conducted on an arm's-length basis and reported to OPIC. (b) The Company shall not, without OPIC's prior written consent, either: (i) form any subsidiaries or (ii) make any investments outside the ordinary course of business. (c) The Company shall not carry on any business other than (i) completion and operation of the Project and the Teberebie Mine and (ii) exploration activities costing less than $2,000,000 in any fiscal year of the Company that are carried on for the purpose of locating other gold deposits within Ghana, and the Company shall not take any action that would constitute or result in any material alteration to the nature or scope of that business. (d) Standard covenants will be provided in the Finance Agreement, including no material changes in the Project, the documents referred to herein or the Company's Memorandum or Articles of Association, no substantial disposition of assets and no merger, consolidation, etc. (e) The Company shall not take actions to prevent its employees from lawfully exercising their right of free association and their right to organize and bargain collectively. The Company shall observe applicable laws relating to a minimum age for employment of children, acceptable conditions of work with respect to minimum wages, hours of work, and occupational health and safety, and shall not use forced labor. The Company is not responsible for the actions of a government. (f) The Company shall not require employees to work more than eight hours per day for six consecutive days (a "standard work week"), except with financial remuneration at a rate in excess of that to which such workers would otherwise be entitled for working a standard work week. The Company will not employ workers under the age of 16 years. 17 (g) The Project shall be operated in compliance with World Bank environmental and health and safety standards applicable to gold mining, except to the extent that OPIC shall have waived compliance therewith. (h) The Company shall comply with all applicable Corrupt Practices Laws. 11. Project Completion: (a) The Sponsor and the Company shall execute a Project Completion Agreement that will require the Sponsor (i) to cause the Company to fulfill all of the requirements needed to achieve Project Completion, (ii) up to Completion Date, unconditionally and irrevocably to guarantee the payment of all of the Company's financial obligations as they become due and payable, including, without limitation, the Company's obligations under the Finance Agreement and the Notes, and (iii) pursuant to such guaranty, to pay amounts demanded from time to time by OPIC. The Sponsor's payment obligations pursuant to the Project Completion Agreement shall be subject to a cap equal, at any time, to the dollar equivalent of the amount of dividends paid by the Company from the date hereof through the earlier of such time and the date of Project Completion. "Project Completion" shall means and be deemed to have occurred at the time that OPIC has notified the Sponsor that the following have been accomplished to OPIC's satisfaction: (w) Physical Completion Test: All buildings, facilities and necessary infrastructure for the Project shall have been completely constructed utilizing first-class standards of workmanship and materials and in accordance with the Project plans and the terms of applicable construction agreements, and all equipment shall have been installed and be operating in accordance with applicable specifications; (x) Operational Completion Tests: After satisfaction of the foregoing physical completion test the Company shall have demonstrated its production capabilities by producing 195,000 troy ounces of gold over a period of six months consecutive months; 18 - 9 - (y) Legal conditions: (i) the Company shall have good freehold title or valid leasehold interests free and clear of all Liens and encumbrances (except for security interests permitted by the Finance Agreement) to all of the land and all buildings, equipment and facilities now or at the time known to be required for the Project: (ii) the Company shall have granted liens in favor of OPIC with respect to all of the assets required to be pledged pursuant to the Finance Agreement, and in accordance with the requirements thereof; (iii) the Company shall have met all of its material obligations of any kind through the date of Project Completion, including, without limitation, payment of all amounts at any time to become due under contracts for construction, procurement, installation and improvement of land, buildings, equipment and facilities for the Project; (iv) each Financing Document and each other document identified in the Finance Agreement as being necessary to the Project remains in full force and effect; and (v) no Event of Default (or condition or event that, with the giving of notice, or lapse of time, or both, would constitute an Event of Default) under the Finance Agreement shall then exist; and (z) Financial Tests: (i) the ratio of total liabilities to tangible net worth of the Company shall not exceed 1.5 to 1; and (ii) The Company shall have made at least one principal repayment on the Loan as and when due from cash flow generated from the Project. 19 -10- (b) The Company shall use its best efforts to achieve Project Completion by December 31, 1998. 12. Governing Law: The Finance Agreement, the Project Completion Agrement, the other Financing Documents and related agreements shall be governed by the laws of the State of New York. EX-10.3 4 LETTER AGREEMENT 1 EXHIBIT 10.3 [BANK OF BOSTON LETTERHEAD] October 20, 1995 Mr. William H. Keough SVP, CFO and Treasurer The Pioneer Group, Inc. 60 State St. Boston, MA 02110 Dear Bill: We are pleased to confirm that The First National Bank of Boston, (the "Bank") holds available an unsecured $15,000,000.00 line of credit for The Pioneer Group, Inc. (the "Company") through February 27, 1996. This facility supersedes and replaces the $10,000,000 line of credit established on May 22, 1995. 1. Term. This line of credit shall commence October 20, 1995 and expire on February 27, 1996. 2. Notice and Manner of Borrowings. Each loan made under this line of credit must be in a minimum amount of $1,000,000.00 or any larger amount which is an integral multiple of $100,000.00, and aggregate loans outstanding may not exceed $15,000,000.00. Requests by the Company for loans must be received by the Bank no later than 12:00 noon (Boston time) on the day of the requested loan (in the case of Alternate Base Loans or Money Market Loans) or two business days prior to such date (in the case of Eurodollar Rate Loans). Promptly upon receipt of such notice, and provided that the condition set forth in paragraph 10 has been satisfied, the Bank will make the requested loans by crediting the proceeds thereof to the demand deposit account of the Company maintained with the Bank. 3. Evidence of Indebtedness. All Alternate Base Rate Loans and Eurodollar Rate Loans will be evidenced by a promissory note (a "Note") in the form attached hereto as Exhibit I. All Money Market Loans will be evidenced by a promissory note in the form attached hereto as Exhibit II (also a "Note"). The Company hereby authorizes the Bank to record each loan and the corresponding information on the schedule forming part of the applicable Note, and, absent manifest error, this record shall be conclusive and binding. 4. Interest Rates. Subject to the terms and conditions hereof, the Company may elect in its request for a loan to have interest thereon accrue at any of the following interest rate options: (a) a rate per annum equal to the higher of the rate of interest announced from time to time by the Bank at its head office as its Base Rate, or the overnight Federal Funds Rate plus 1/2% (the "Alternate Base Rate"), or (b) a rate quoted by the Bank in its sole discretion (it being understood that the Bank is under no obligation to quote such rate) to the Company as the fixed rate of interest at which it is willing to make a "money market" advance to the Company in the amount and for the period of the requested loan (the "Money Market Rate"); or (c) a rate quoted by the Bank to the Company as the prevailing rate per annum at which U.S. dollar deposits are offered to the Bank by first class banks in the interbank Eurodollar market in which it 2 2 regularly participates at approximately 10:00 a.m. (Boston time) two business days before the date of the requested loan in the amount and for an interest period approximately equal to that of the requested loan, adjusted for reserve requirements, plus 1.10% per annum. Loans bearing interest as provided in paragraphs (a), (b) and (c) of this section 5 shall be referred to herein as "Alternate Base Rate Loans", "Money Market Loans", and "Eurodollar Rate Loans", respectively. Money Market Loans may be requested for interest periods of up to 180 days; Eurodollar Rate Loans may be requested for interest periods of one, two or three months; and no loan shall have an interest period that extends beyond the expiration of this line of credit. In the event that the Company fails to specify an interest period in its request for a loan, the interest period for the Money Market Loans shall be deemed to be one month. Interest on each loan shall be calculated on the basis of a 360-day year for the actual number of days elapsed and shall be payable as set forth in the Notes. 5. Additional Interest. The Company shall pay to the Bank additional interest at the rate of .25 of 1% per annum on the unused amount of the line of credit. Additionally, such interest shall be payable quarterly in arrears at the end of each March, June, September, and December of any year. 6. Payments and Prepayments. Base Rate Loans shall be payable on demand. Money Market Loans and Eurodollar Rate Loans shall be payable on the last day of the interest period applicable thereto. The Company may prepay Alternate Base Rate Loans, in whole or in part, at any time and without prepayment penalties, but prepayments of Money Market Loans will not be permitted. Your ability to prepay Eurodollar Rate Loans is subject to the requirement that you compensate us for any funding losses and other costs (including lost profits) incurred as a result of such prepayment. If the Company for any reason makes any payment with respect to a Money Market Loan or Eurodollar Rate Loan before its maturity, or fails to borrow a Money Market Loan or Eurodollar Rate Loan requested by the Company pursuant to Section 2, the Company will be required to pay any costs, losses or liabilities incurred by the Bank as a result thereof, including any losses incurred in obtaining, liquidating or employing deposits with reference to which the rate of interest for such loan was determined, upon presentation by the Bank of a statement in the amount and setting forth the Bank's calculation thereof, which statement shall be deemed true and correct absent manifest error. 7. Changed Circumstances; Increased Costs (a) In the event that any law, regulation, treaty or official directive or the interpretation or application thereof by any court or governmental authority or the compliance with any guideline or request of any central bank or other governmental authority (whether or not having the force of law): (i) subjects the Bank to any tax with respect to any amounts payable hereunder by the Company or otherwise with respect to the transactions contemplated hereunder (except for taxes on the overall net income of the Bank imposed by the United States of America or any political subdivision thereof), or (ii) imposes, modifies or deems applicable any deposit insurance, reserve, special deposit, capital maintenance or similar requirement against assets held by, or deposits in or for the account of, or loans or commitments to make loans by, the Bank (other than such requirements the effect of which is included in the determination of the interest rates for loans made hereunder), or (iii) imposes upon the Bank any other condition with respect to the loans made hereunder, 3 3 and the result of any of the foregoing is to increase the cost to the Bank, reduce the income receivable by or return on equity of the Bank or impose any expense upon the Bank with respect to any loans or commitments to make loans hereunder, the Bank shall so notify the Company. The Company agrees to pay to the Bank the amount of such increase in costs, reduction in income, reduced return on equity or additional expense as and when such cost, reduction or expense is incurred or determined, upon presentation by the Bank of a statement in the amount and setting forth the Bank's calculation thereof, which statement shall be deemed true and correct absent manifest error. 8. Loan Participations. The Bank may sell, transfer or grant participations in the Note without the prior consent of the Company, and the Company agrees that any transferee or participant shall be entitled to the benefits of paragraph 7 and 8 hereof to the same extent as if such transferee or participant were the Bank hereunder. 9. Availability of Loans. The availability of loans under this facility is subject to (a) the Bank's usual condition that the Bank continue to be satisfied that there shall have been no material adverse change in the assets, liabilities, financial condition, business operations or prospects of the Company or the Guarantor since the date, hereof; and (b) any substantive changes in government regulations or monetary policies. Sincerely, The First National Bank of Boston By: /s/ STEWART P. NEFF --------------------------- Title: Managing Director Acknowledged and Accepted: The Pioneer Group, Inc. By: /s/ William H. Keough ------------------------- Title: Senior Vice President, and Treasurer Date: Oct. 28, 1995 4 4 EXHIBIT I THE PIONEER GROUP, INC. PROMISSORY NOTE Boston, Massachusetts October 20, 1995 FOR VALUE RECEIVED, the undersigned hereby promises to pay to THE FIRST NATIONAL BANK OF BOSTON (the "Bank"), or order, at the head office of the Bank in Boston, Massachusetts, the aggregate principal amount of all loans made by the Bank to the undersigned pursuant to the letter agreement between the Bank and the undersigned dated October 20, 1995, as shown in the schedule attached hereto (the "Note Schedule"), together with interest on each loan from the date such loan is made until the maturity thereof at the applicable rate set forth in the Note Schedule. The principal amount of each loan shall be payable on demand or on the maturity date of such loan as indicated in the Note Schedule, and in any event, the aggregate outstanding principal amount of all loans hereunder shall be due and payable on February 27, 1996. Interest on the principal amount of each loan shall be payable in arrears on the same day as the principal amount is due, provided that (i) interest on each loan bearing interest at the Alternate Base Rate shall be payable on the last day of each quarter, beginning on the first of such dates occurring after the date of such loan and when such loan is due, and (ii) if the maturity of any loan is more than 90 days from the date of such loan, then interest shall be payable at intervals of 90 days and when such loan is due. Loans which are shown as bearing interest at the Alternate Base Rate shall bear interest at a rate per annum equal to the greater of (i) the rate of interest announced from time to time by the Bank at its head office as its "Base Rate", and (ii) the rate equal to the weighted average of the published rates on overnight Federal Funds transactions with members of the Federal Reserve System plus 1.2%, in each case plus the applicable margin, if any, which interest rate shall change as and when the Alternate Base Rate changes. Interest shall be computed on the basis of a 360 day year and paid for the actual number of days elapsed. All payments shall be made in lawful currency of the United States of America in immediately available funds. Overdue payments of principal of any loan (whether at stated maturity, by acceleration or otherwise), and, to the extent permitted by law, overdue interest, shall bear interest, payable on demand and compounded daily, at a rate per annum equal to two percent (2%) above the greater of (i) the Alternate Base Rate and (ii) the rate applicable to such loan prior to the date such loan was due. If any of the following events of default shall occur ("Defaults:): (a) default in the payment of any amounts due hereunder or performance of any of the Obligations or of any obligations of any Obligor to others for borrowed money or in respect of any extension of credit or accommodations; (b) failure of any representation or warranty, statement or information in any documents or financial statements delivered to the Bank for the purpose of inducing it to make or maintain any loan under this Note to be true and correct; (c) failure of the undersigned to file any tax return, or to pay or remit any tax, when due; (d) failure to furnish the holder promptly on request with financial information about, or to permit inspection by the holder of books, records and properties of, any Obligor; (e) loss, theft, substantial damage, sale or encumbrance to or of any property constituting any collateral for the Obligations, or the making of any levy, seizure or attachment thereof or thereon or the failure to pay when due any tax thereon or, with respect to any insurance policy, any premium therefore; (f) default under any instrument constituting, or under any agreement relating to, any collateral; (g) Any Obligor generally not paying its debts as they become due; (h) death, dissolution, termination of existence, insolvency, business failure, appointment of a 5 5 receiver or other custodian of any part of the property of, assignment for the benefit of creditors by, or the commencement of any proceedings under any bankruptcy or insolvency laws by or against, any Obligor; (i) change in the condition or affairs (financial or otherwise) of which in the opinion of the holder will impair its security or increase its risk; then immediately and automatically with respect to any Defaults set forth in clauses (g) and (h) above, and thereupon or at any time thereafter with respect to each other Default (such Default not having been previously cured), at the option of the holder, all Obligations of the undersigned shall become immediately due and payable without notice or demand and, if there is any collateral for the Obligations, the holder shall then have in any jurisdiction where enforcement hereof is sought, in addition to all other rights and remedies, the rights and remedies of a secured party under the Uniform Commercial Code of Massachusetts. Any sums from time to time credited by or due from the holder to any Obligor, and any property of the undersigned or any guarantor in which the holder has from time to time any security interest or which from time to time may be in the possession of the holder for any purpose shall constitute collateral security for the payment or performance of the Obligations of the undersigned or such guarantor hereunder, and the undersigned hereby grants the holder a security interest in such sums and property. Regardless of the adequacy of any collateral, the holder may apply such sums or property or realizations upon any such security interest against such Obligations at any time in the case of the primary Obligor but only against matured Obligations in the case of a secondary Obligor. The undersigned hereby waives presentment, demand, notice of dishonor, protest and all other demands and notices in connection with the delivery, acceptance, performance and enforcement of this Note. Each Obligor waives presentment, demand, notice of dishonor protest and all other demands and notices in connection with the delivery, acceptance, performance, default and enforcement of this Note or of any collateral, and assents to any extension or postponement of the time of payment or any other indulgence under this Note or with respect to any collateral, to any substitution, exchange or release of any collateral and/or to the addition or release or any other party or person primarily or secondarily liable hereunder. As used herein "Obligor" means any person primarily or secondarily liable hereunder or in respect hereto; "Obligation" means any obligation hereunder or otherwise of any Obligor to the holder whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising; and "holder" means the payee or any endorsee of this Note who is in possession of it, or the bearer hereof if this Note is at the time payable to the bearer. The undersigned will pay on demand all costs of collection and attorney's fees paid or incurred by the holder in enforcing the Obligations of any Obligor. This instrument shall have the effect of an instrument executed under seal and shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts. The Pioneer Group, Inc. By: /s/ William H. Keough ---------------------------- Title: Senior Vice President and Treasurer 6 6 NOTE SCHEDULE TO $15,000,000 PROMISSORY NOTE OF THE PIONEER GROUP, INC. DATED October 20, 1995 Date and Amount of Principal Payment Notation Made Date of Loan Amount of Loan Maturity Date Interest Rate Received By - ------------ -------------- ------------- ------------- --------- -------------
7 7 EXHIBIT II THE PIONEER GROUP, INC. PROMISSORY NOTE (MONEY MARKET NOTE) October 20, 1995 Boston, Massachusetts FOR VALUE RECEIVED, the undersigned hereby promises to pay to THE FIRST NATIONAL BANK OF BOSTON (the "Bank"), or order, at the head office of the Bank in Boston, Massachusetts, the aggregate principal amount of all loans made by the Bank to the undersigned pursuant to the letter agreement between the Bank and the undersigned dated October 20, 1995, as shown in the schedule attached hereto (the "Note Schedule"), together with interest at the rate or rates set forth in the Note Schedule. The principal amount of each loan as shown on the Note Schedule shall be payable on the maturity date set forth therein, and interest with respect to such principal amount is due. Interest shall be computed on the basis of a 360-day year and paid for the actual number of days elapsed in any interest period. All payments shall be made in lawful currency of the United States of America in immediately available funds. No prepayment of the principal amount of any loan shall be permitted. Upon the occurrence of any of the following events of default: (a) default in the payment or performance of any of the Obligations or of any obligations of any Obligor to others for borrowed money or in respect of any extension of credit or accommodation; (b) failure of any representation and warranty hereunder or of any representation or warranty, statement or information in any documents or financial statements delivered to the Bank for the purpose of inducing it to make or maintain the loans under this Note to be true and correct; (c) failure to furnish the holder promptly on request with financial information about, or to permit inspection by the holder of books, records and properties of, any Obligor; (d) any Obligor generally not paying its debts as they become due; (e) death, dissolution, termination of existence, insolvency, business failure, appointment of a receiver or other custodian of any part of the property of, assignment for the benefit of creditors by, or the commencement of any proceedings under any bankruptcy or insolvency laws by or against, any Obligor; then the unpaid principal balance of this Note, plus accrued interest may, at the option of the Bank, be declared immediately due and payable. As used herein "Obligor" means any person primarily or secondarily liable hereunder or in respect hereto; "Obligation" means any obligation hereunder or otherwise of any Obligor to the holder whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising; and "holder" means the payee or any endorsee or assignee of this Note. Overdue payments of principal (whether at stated maturity, by acceleration or otherwise), and to the extent by law, overdue interest, shall bear interest, payable on demand and compounded monthly, at a rate per annum equal to two percent (2%) above the rate of interest announced from time to time by the First National Bank of Boston at its head office as its Base Rate (the "Base Rate"), which rate shall change as the Base Rate changes. The parties hereunder, including the undersigned, hereby waive presentment, demand, notice of dishonor, protest and all other demands and notices in connection with the delivery, acceptance, performance and enforcement of this Note. 8 8 The undersigned agrees to pay all charges of the Bank in connection with the collection or enforcement of this Note, including reasonable attorneys' fees. This instrument shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. THE PIONEER GROUP, INC. By: /s/ William H. Keough ------------------------------ Title: Senior Vice President and Treasurer 9 9 NOTE SCHEDULE TO $15,000,000 PROMISSORY NOTE OF THE PIONEER GROUP, INC. DATED October 20, 1995
Date and Amount of Principal Maturity Interest Payment Notation Date of Loan Amount of Loan Date Rate Received Made By - ------------ -------------- -------- -------- --------- --------
EX-11 5 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 THE PIONEER GROUP, INC. Computation of Earnings Per Share (Unaudited) (Dollars in Thousands Except Per Share Amounts)
COMPUTATION FOR CONSOLIDATED STATEMENT OF INCOME THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, ------------------- -------------------------------- ------------------------------- 1995 1994 1995 1994 ---- ---- ---- ---- NET INCOME (1) $6,273 $8,280 $19,399 $27,018 ========== ========== ========== ========== SHARES Weighted average number of common shares outstanding (2) 24,816,000 24,672,000 24,804,000 24,664,000 Dilutive effect of stock options and restricted stock proceeds as common stock equivalents computed under the treasury stock method using the average price during the period (2) 555,000 702,000 493,000 674,000 ---------- ---------- ---------- ---------- WEIGHTED AVERAGE NUMBER OF SHARES outstanding as adjusted (1) (2) 25,371,000 25,374,000 25,297,000 25,338,000 ========== ========== ========== ========== EARNINGS PER SHARE (1) (2) $0.25 $0.33 $0.77 $1.07 ========== ========== ========== ========== ------------------- (1) These amounts agree with the related amounts in the Consolidated Statement of Income. (2) Adjusted for December 1, 1994, 2-for-1 stock split effected in the form of a 100% stock dividend.
EX-27 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF PIONEER GROUP FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS 9-MOS DEC-31-1995 JAN-01-1995 SEP-30-1995 1.00000 24,205 9,514 23,803 0 16,071 81,122 127,967 (48,842) 274,932 75,086 0 2,482 0 0 145,241 274,932 0 143,472 0 114,553 (4,662) 0 557 33,024 13,625 0 0 0 0 19,399 0.770 0.770
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