-----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, ViarrRS8vXz3YjIZfxaDVukN8unPFK6gcFpnVj96UCz0nnB1GX17pY1gAjR5g/jJ Cxzl8+z6N+WRPpvSxDS8JQ== 0000950135-99-002646.txt : 19990514 0000950135-99-002646.hdr.sgml : 19990514 ACCESSION NUMBER: 0000950135-99-002646 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990513 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: SEC FILE NUMBER: 000-08841 FILM NUMBER: 99620200 BUSINESS ADDRESS: STREET 1: 60 STATE ST STREET 2: 19TH FLOOR CITY: BOSTON STATE: MA ZIP: 02109-1820 BUSINESS PHONE: 8008211239 MAIL ADDRESS: STREET 1: 60 STATE STREET STREET 2: 19TH FLOOR CITY: BOSTON STATE: MA ZIP: 02109-1820 10-Q 1 THE PIONEER GROUP, INC. 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE THREE MONTHS ENDED MARCH 31, 1999 COMMISSION FILE NO. 0-8841 ------------------------ THE PIONEER GROUP, INC. (exact name of registrant as specified in its charter) ------------------------ DELAWARE 13-5657669 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 60 STATE STREET, BOSTON, MASSACHUSETTS 02109 (Address of principal executive offices) (Zip Code) 617-742-7825 (Registrant's telephone number, including area code) NO CHANGES (Former name, former address and former fiscal year, if changes since last report) ------------------------ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ ------------------------ As of March 31, 1999, there were 26,312,172 shares of the Registrant's Common Stock, $.10 par value per share, issued and outstanding. ================================================================================ 2 PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS THE PIONEER GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNT)
MARCH 31, DECEMBER 31, 1999 1998 ----------- ------------ (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents, at cost which approximates fair value..................................................... $ 28,499 $ 44,519 Restricted cash............................................. 6,778 7,815 Investment in marketable securities, at fair value.......... 2,400 3,638 Receivables: From securities brokers and dealers for sales of mutual fund shares............................................ 16,077 14,072 From Pioneer Family of Mutual Funds..................... 19,989 17,334 For securities sold..................................... 905 1,089 For gold shipments...................................... 3,205 2,851 Other................................................... 10,406 15,865 Mining inventory............................................ 17,679 18,297 Timber inventory............................................ 7,241 3,585 Other current assets........................................ 14,706 14,186 -------- -------- Total current assets................................ 127,885 143,251 -------- -------- NONCURRENT ASSETS: Mining operations: Mining equipment and facilities (net of accumulated depreciation of $100,738 in 1999 and $94,282 in 1998).................................................. 82,703 86,740 Deferred mining development costs (net of accumulated amortization of $22,858 in 1999 and $21,819 in 1998)... 14,130 15,030 Cost of acquisition in excess of net assets (net of accumulated amortization of $15,436 in 1999 and $14,900 in 1998)..................................................... 16,869 17,415 Long-term venture capital investments, at fair value (cost $56,137 in 1999 and $117,547 in 1998)..................... 49,916 129,560 Long-term investments, at lower of cost or fair value....... 7,006 7,006 Timber operations: Timber equipment and facilities (net of accumulated depreciation of $5,346 in 1999 and in 1998)............ 19,520 18,800 Deferred timber development costs (net of accumulated amortization of $2,841 in 1999 and in 1998)............ 8,838 20,034 Building (net of accumulated amortization of $1,539 in 1999 and $1,413 in 1998)....................................... 24,602 25,136 Furniture, equipment, and leasehold improvements (net of accumulated depreciation and amortization of $14,401 in 1999 and $13,146 in 1998)................................. 19,798 20,309 Other noncurrent assets..................................... 19,306 16,180 -------- -------- Total noncurrent assets............................. 262,688 356,210 -------- -------- $390,573 $499,461 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Payable to funds for shares sold............................ $ 16,063 $ 14,053 Accounts payable............................................ 18,408 17,962 Accrued expenses............................................ 38,953 33,768 Brokerage liabilities....................................... 3,680 5,669 Accrued income taxes........................................ 6,351 19,647 Current portion of notes payable............................ 12,032 9,476 Current liabilities net of current assets of discontinued operations................................................ 273 413 -------- -------- Total current liabilities........................... 95,760 100,988 -------- -------- NONCURRENT LIABILITIES: Notes payable, net of current portion....................... 94,966 133,395 -------- -------- Total noncurrent liabilities........................ 94,966 133,395 -------- -------- Total liabilities................................... 190,726 234,383 -------- -------- Minority interest........................................... 66,801 110,276 -------- -------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Common stock, $0.10 par value; authorized 60,000,000 shares; issued 26,317,377 shares in 1999 and 26,134,103 shares in 1998......................................... 2,632 2,613 Paid-in capital......................................... 33,231 30,110 Retained earnings....................................... 112,453 133,013 Treasury stock at cost, 5,205 shares in 1999 and 11,303 shares in 1998......................................... (130) (265) Cumulative translation adjustment....................... (4,192) (1,855) -------- -------- 143,994 163,616 Less -- Deferred cost of restricted common stock issued...................................................... (10,948) (8,814) -------- -------- Total stockholders' equity.......................... 133,046 154,802 -------- -------- $390,573 $499,461 ======== ========
The Company's Annual Report on Form 10-K should be read in conjunction with these financial statements. 2 3 THE PIONEER GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ---------------------------- 1999 1998 ---- ---- Revenues and sales: Investment management fees.............................. $ 35,275 $ 33,631 Underwriting commissions and distribution fees.......... 4,090 6,665 Shareholder services fees............................... 11,085 7,596 Revenues from brokerage activities...................... 215 781 Trustee fees and other income........................... 7,654 5,562 ------------ ------------ Revenues from financial services businesses............. 58,319 54,235 Gold sales.............................................. 19,976 23,373 Timber sales............................................ -- 284 ------------ ------------ Total revenues and sales........................... 78,295 77,892 ------------ ------------ Costs and expenses: Management, distribution, shareholder service and administrative expenses................................ 52,641 44,994 Gold mining operating costs and expenses................ 25,222 24,251 Timber operating costs and expenses..................... 362 1,986 ------------ ------------ Total costs and expenses........................... 78,225 71,231 ------------ ------------ Other (income) expense: Unrealized and realized (gains) losses on venture capital and marketable securities investments, net..... 3,292 (6,138) Interest expense........................................ 3,528 3,836 Other, net.............................................. 579 150 ------------ ------------ Total other (income) expense....................... 7,399 (2,152) ------------ ------------ Income (loss) from continuing operations before provision for income taxes and minority interest.................... (7,329) 8,813 ------------ ------------ Provision for income taxes.................................. 476 3,387 ------------ ------------ Income (loss) from continuing operations before minority interest.................................................. (7,805) 5,426 ------------ ------------ Minority interest........................................... 643 89 ------------ ------------ Net income (loss) from continuing operations before cumulative effect of change in accounting principle....... (8,448) 5,337 Income from discontinued Russian banking operations......... -- 10 Cumulative effect of change in accounting principle, (start-up costs, net of income taxes of $261)............. (12,112) -- ------------ ------------ Net income (loss)........................................... $ (20,560) $ 5,347 ============ ============ Basic earnings (loss) per share: Continuing operations................................... $ (0.33) $ 0.21 Discontinued operations................................. -- -- Cumulative effect of change in accounting principle..... (0.47) -- ------------ ------------ Total basic earnings (loss) per share....................... $ (0.80) $ 0.21 ============ ============ Diluted earnings (loss) per share: Continuing operations................................... $ (0.33) $ 0.21 Discontinued operations................................. -- -- Cumulative effect of change in accounting principle..... (0.47) -- ------------ ------------ Total diluted earnings (loss) per share..................... $ (0.80) $ 0.21 ============ ============ Dividends per share......................................... -- $ 0.10 ============ ============ Basic shares outstanding.................................... 25,791,000 24,890,000 ============ ============ Diluted shares outstanding.................................. 25,791,000 25,772,000 ============ ============
The Company's Annual Report on Form 10-K should be read in conjunction with these financial statements. 3 4 THE PIONEER GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, -------------------- 1999 1998 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)......................................... $(20,560) $ 5,347 Less net income of discontinued operations................ -- 10 -------- -------- Net income (loss) from continuing operations.............. $(20,560) $ 5,337 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Cumulative effect of change in accounting principle..... 12,112 -- Depreciation and amortization........................... 11,589 12,258 Unrealized and realized gains on venture capital, marketable securities, and long term investments, net.. 3,292 (6,138) (Equity in earnings of) provision on other investments............................................ 34 (354) Restricted stock plan expense........................... 855 707 Deferred income taxes................................... (4,516) 133 Minority interest....................................... 643 66 Changes in operating assets and liabilities: Investments in marketable securities, net............... 1,148 (6,717) Receivable from securities brokers and dealers for sales of mutual fund shares.................................. (2,005) (55,928) Receivables for securities sold......................... 184 2,307 Receivables for gold shipments.......................... (354) 516 Receivables from Pioneer Family of Mutual Funds and other.................................................. 2,527 1,168 Mining inventory........................................ 618 945 Timber inventory........................................ (3,656) (3,777) Other current assets.................................... (1,063) (31) Other noncurrent assets................................. (426) (1,758) Payable to funds for shares sold........................ 2,010 55,899 Accrued expenses and accounts payable................... 5,631 (10,775) Brokerage liabilities................................... (1,989) (2,250) Accrued income taxes.................................... (13,206) 1,249 -------- -------- Total adjustments and changes in operating assets and liabilities..................................... 13,428 (12,480) -------- -------- Net cash (used in) continuing operating activities.......................................... (7,132) (7,143) -------- -------- Net cash (used in) provided by discontinued operating activities................................ (140) 10,468 -------- -------- Net cash (used in) provided by operating activities.......................................... (7,272) 3,325 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of mining equipment and facilities............... (2,419) (1,441) Deferred mining development costs......................... (180) (149) Additions to furniture, equipment and leasehold improvements............................................ (2,186) (2,856) Building.................................................. 408 340 Long-term venture capital investments..................... (884) (3,253) Proceeds from sale of long-term venture capital investments............................................. 742 4,998 Proceeds from sale of domestic venture capital operations.............................................. 34,945 -- Deferred timber development costs......................... -- (244) Purchase of timber equipment and facilities............... (720) 75 Other investments......................................... 362 (459) Purchase of long-term investments......................... -- (370) Proceeds from sale of long-term investments............... 135 1,204 -------- -------- Net cash (used in) provided by continuing investing activities.......................................... 30,203 (2,155) -------- -------- Net cash (used in) provided by investing activities, discontinued operations............................. -- (1,873) -------- -------- Net cash (used in) provided by investing activities.......................................... 30,203 (4,028) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid............................................ -- (2,539) Liquidation of venture capital partnership................ (1,972) -- Distributions to limited partners of venture capital subsidiary.............................................. (1,288) (68) Amounts raised by venture capital investment partnerships............................................ -- 281 Sale of stock by subsidiary............................... 555 -- Exercise of stock options................................. 180 57 Restricted stock plan award............................... 16 17 Dealer advances........................................... -- (5,635) Revolving credit agreement (repayments) borrowings, net... (30,000) 4,000 Repayments of notes payable............................... (5,873) (4,363) Reclassification of restricted cash....................... 1,037 (1,275) -------- -------- Net cash (used in) continuing financing activities.......................................... (37,345) (9,525) -------- -------- Net cash (used in) financing activities, discontinued operations............................. -- (8,595) -------- -------- Net cash (used in) financing activities............. (37,345) (18,120) -------- -------- EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS.......................................... (1,606) (134) NET DECREASE IN CASH AND CASH EQUIVALENTS................... (16,020) (18,957) -------- -------- CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 44,519 55,601 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 28,499 $ 36,644 ======== ========
The Company's Annual Report on Form 10-K should be read in conjunction with these financial statements. 4 5 THE PIONEER GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 1999 NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of the Company conform to generally accepted accounting principles. The Company has not changed any of its principal accounting policies from those stated in the Annual Report on Form 10-K for the year ended December 31, 1998. The footnotes to the financial statements reported in the 1998 Annual Report on Form 10-K are incorporated herein by reference, except to the extent that any such footnote is updated by the following: Certain reclassifications have been made to the accompanying 1998 consolidated financial statements to conform with the 1999 presentation. During the first quarter of 1999, the Company adopted the provisions of the American Institute of Certified Public Accountants (the "AICPA") SOP 98-5, "Reporting on the Costs of Start-Up Activities." The new standard requires that entities expense costs of start-up activities as those costs are incurred. The Company had capitalized certain pre-operating costs in connection with its natural resource operations, and had capitalized organizational costs associated with its financial services operations. Adoption of this statement resulted in a write-off of unamortized start-up costs of $12.1 million, or $0.47 per share, which is reflected in the accompanying consolidated financial statements as a change in accounting principle. The amount of pro forma net income in the first quarter of 1998 did not differ materially from the amount reported after giving effect to the change in accounting principle. Income taxes paid were $16,572,000 and $1,385,000 for the three months ended March 31, 1999, and March 31, 1998, respectively. In addition, interest paid was $3,212,000 for the three months ended March 31, 1999, and $3,857,000 for the three months ended March 31, 1998. NOTE 2 -- EARNINGS PER SHARE The following table details the calculation of basic and diluted earnings per share ("EPS"). Basic EPS is computed by dividing reported earnings available to stockholders by weighted average shares outstanding not including contingently issuable shares. Diluted EPS includes the effect of the contingently issuable shares and other common stock equivalents, if not antidilutive.
NET EARNINGS/ INCOME/ (LOSS) (LOSS) SHARES PER SHARE --------- ------- ---------- (DOLLARS AND SHARES IN THOUSANDS EXCEPT PER SHARE AMOUNTS) FOR THE THREE MONTHS ENDED 3/31/99 Basic earnings per share calculation........ $(20,560) 25,791 $(0.80) ======== ====== ====== Options..................................... -- Restricted stock............................ -- Diluted earnings per share calculation...... $(20,560) 25,791 $(0.80) ======== ====== ====== FOR THE THREE MONTHS ENDED 3/31/98 Basic earnings per share calculation:....... Continuing operations....................... $ 5,337 24,890 $ 0.21 Discontinued operations..................... $ 10 24,890 -- -------- ------ ------ Total..................................... $ 5,347 24,890 $ 0.21 ======== ====== ====== Options..................................... 745 Restricted stock............................ 137 ------ Diluted earnings per share calculation:..... Continuing operations....................... $ 5,337 25,772 $ 0.21 Discontinued operations..................... $ 10 25,772 -- -------- ------ ------ Total..................................... $ 5,347 25,772 $ 0.21 ======== ====== ======
5 6 THE PIONEER GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) MARCH 31, 1999 NOTE 3 -- COMPREHENSIVE INCOME The Company adopted SFAS 130, "Reporting Comprehensive Income" in the first quarter of 1998. SFAS 130 establishes standards for the reporting of comprehensive income and its components. Comprehensive income, as defined, includes all changes in equity during a period from non-owner sources. The Company's foreign currency translation adjustments, which are excluded from net income, are included in comprehensive income. The following table reports comprehensive income for the three months ended March 31, 1999 and 1998.
THREE MONTHS ENDED MARCH 31, ---------------------- 1999 1998 ---------- -------- (DOLLARS IN THOUSANDS) Net income (loss)........................................ $(20,560) $5,347 -------- ------ Other comprehensive (expense): Foreign currency translation adjustments............... (2,337) (159) -------- ------ Other comprehensive (expense)............................ (2,337) (159) -------- ------ Comprehensive (loss)/income.............................. $(22,897) $5,188 ======== ======
NOTE 4 -- MINING INVENTORY Mining inventories consist of the following:
MARCH 31, DECEMBER 31, 1999 1998 --------- ------------ (DOLLARS IN THOUSANDS) Gold-in-process.......................................... $ 2,236 $ 2,236 Materials and supplies................................... 15,443 16,061 ------- ------- $17,679 $18,297 ======= =======
NOTE 5 -- NET CAPITAL As a broker-dealer, Pioneer Funds Distributor, Inc. ("PFD") is subject to the Securities and Exchange Commission's ("SEC") regulations and operating guidelines which, among other things, requires PFD to maintain a specified amount of net capital. Net capital may fluctuate on a daily basis. PFD's net capital, as computed under Rule 15c3-1, was $1,091,591 at March 31, 1999, which exceeded required net capital of $250,000 by $841,591. PFD is exempt from the reserve requirements of Rule 15c3-3, since its U.S. broker-dealer transactions are limited to the purchase, sale and redemption of redeemable securities of registered investment companies. All customer funds are promptly transmitted and all securities received in connection with activities as a broker-dealer are promptly delivered. PFD does not otherwise hold funds or securities for, or owe money or securities to, customers. 6 7 THE PIONEER GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) MARCH 31, 1999 NOTE 6 -- NOTES PAYABLE Notes payable of the Company consist of the following:
MARCH 31, DECEMBER 31, 1999 1998 --------- ------------ (DOLLARS IN THOUSANDS) Revolving Credit Agreement.................................. $ 40,000 $ 70,000 Senior note payable to a commercial lender, principal payable on August 15, 2004, interest payable at 8.95%..... 20,000 20,000 Small Business Administration ("SBA") financing, notes payable to a bank......................................... -- 3,750 Note payable to a bank, interest and principal payable monthly at the one-month Warsaw Bank rate plus 1.75% through August 2002....................................... 363 447 Note payable to a bank, interest payable quarterly at the three month LIBOR rate plus 6%, principal due in eight quarterly installments through January, 1999, secured by lease rental payments and proceeds from insurance policies.................................................. -- 456 Notes payable to a bank, guaranteed by the Company, principal payable in semi-annual installments, of $214,000 through November 30, 1999, no interest payable, secured by equipment................................................. 430 430 Note payable to a bank, guaranteed by the Swedish Exports Credits Guarantee Board, principal payable in semi-annual installments of $1,650,000 through January 31, 2002, interest payable at 6.42%, secured by equipment........... 9,902 9,902 Note payable to a supplier, principal payable in quarterly installments ranging from $250,000 to $482,000 through April 15, 2001, interest payable at 7.85%, secured by equipment................................................. 3,355 3,355 Note payable to a supplier, principal and interest payable in quarterly installments ranging from $70,000 to $130,000 through April 15, 2001, interest payable at 7.85%, secured by equipment.............................................. 919 919 Note payable to a supplier, principal payable in quarterly installments ranging from $248,000 to $387,000 through May 15, 2001, interest payable at 8.00%, secured by equipment................................................. 2,848 2,848 Note payable to a supplier, principal payable in quarterly installments ranging from $212,000 to $439,000 through December 15, 2001, interest payable at 8.25%, secured by equipment................................................. 3,885 3,885 Note payable to a supplier, principal payable in semi-annual installments ranging from $294,000 to $800,000 through April 15, 2003, interest payable at 8.30%, secured by equipment................................................. 4,847 4,847 Note payable to a bank, guaranteed by OPIC, principal payable in equal semi-annual installments of $1,583,000 through September 15, 2003, interest payable at 9.02%..... 14,249 15,832 Project financing, guaranteed by OPIC, payable in semi-annual installments of $620,000 through December 15, 2003, interest payable at 9.95%........................... 6,200 6,200 -------- -------- 106,998 142,871 Less: Current portion....................................... (12,032) (9,476) -------- -------- $ 94,966 $133,395 ======== ========
7 8 THE PIONEER GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) MARCH 31, 1999 Maturities of notes payable at March 31, 1999, for each of the next five years and thereafter are as follows (dollars in thousands): 4/1/99-3/31/00.............................................. $ 12,032 4/1/99-3/31/01.............................................. 15,091 4/1/01-3/31/02.............................................. 51,181 4/1/02-3/31/03.............................................. 5,573 4/1/03-3/31/04.............................................. 3,121 Thereafter.................................................. 20,000 -------- $106,998 ========
In June 1996, the Company entered into an agreement with a syndicate of commercial banks for a senior credit facility (the "Credit Facility"). Under the Credit Facility, the Company may borrow up to $80 million for general corporate purposes (the "Corporate Revolver"). At March 31, 1999, the Company had borrowed $40 million under the Corporate Revolver. As of March 31, 1999, the Company had six five-year interest rate swap agreements with a member of the Company's banking syndicate which has effectively fixed the interest rate on notional amounts totaling $100 million. Under these agreements, the Company will pay the bank a weighted average fixed rate of 6.76%, plus the applicable margin of 2.25% on the notional principal. The bank will pay the Company interest on the notional principal at the current variable rate stated under the Credit Facility. The Company has incurred approximately $401,000 and $346,000 of interest expense on these swap agreements during the three months ended March 31, 1999 and March 31, 1998, respectively. At March 31, 1999, the Company had $60 million of overhedged swaps and recognized approximately $561,000 of expense during the first quarter of 1999, in accordance with generally accepted accounting principles, related to these swaps. At March 31, 1999, the fair value of the swaps was ($3,215,000), compared to a book value of ($1,800,000). If the Company were to terminate these agreements, it would be required to pay an amount approximating fair value. For the three months ended March 31, 1999, and March 31, 1998 the weighted average interest rate on the borrowings under the Credit Facility and Note Agreement was 8.31% and 7.92%, respectively. NOTE 7 -- DISCONTINUED OPERATIONS In the third quarter of 1998, the Company decided to liquidate its Russian banking operations. Accordingly, the operating results for the bank have been segregated from the results from the continuing operations and reported as a separate line on the consolidated statements of operations for all periods presented. In December 1998, the Company sold its stock in its Russian banking operations to an unrelated third party. The sale is subject to certain regulatory approvals. The following is an unaudited summary of the results of discontinued operations for the three months ended March 31, 1998:
THREE MONTHS ENDED MARCH 31, 1998 ------------------ (AMOUNTS IN THOUSANDS) Revenues from banking activities............................ $1,304 ------ Income before income taxes and minority interest............ 25 Income tax (expense) benefit................................ (38) ------ Loss from discontinued operations........................... (13) ------ Minority interest credit.................................... 23 ------ Net income from discontinued operations..................... $ 10 ------
8 9 THE PIONEER GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) MARCH 31, 1999 NOTE 8 -- FINANCIAL INFORMATION BY BUSINESS SEGMENT The Company adopted SFAS 131, "Disclosures about Segments of an Enterprise and Related Information" in 1997. SFAS 131 requires companies to present segment information using the management approach. The management approach is based on the way that management organizes the segments within a Company for making operating decisions and assessing performance. The Company's operating segments are organized around services and products provided, as well as geographic regions. The intersegment transactions are for management services and the secondment of employees. These transactions are generally priced on a cost or cost plus basis. 9 10 THE PIONEER GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 1999 NOTE 8 -- FINANCIAL INFORMATION BY BUSINESS SEGMENT (CONTINUED) The following details total revenues and income (loss) by business segment and geographic region, (dollars in thousands):
PIONEER - SUBTOTAL - INTERNATIONAL FINANCIAL SERVICES PIONEER PIONEER ------------------------------------ INTERNATIONAL INVESTMENT CZECH FINANCIAL MANAGEMENT RUSSIA POLAND REPUBLIC ASIA SERVICES ---------- ------- ------- -------- ----- ------------- THREE MONTHS ENDED MARCH 31, 1999 Gross revenues and sales............. $ 51,073 $ 3,275 $ 4,157 $ 360 $ -- $ 7,792 ========= ======= ======= ===== ===== ======= Intersegment eliminations............ $ (1,395) $ (68) $ -- $ -- $ -- $ (68) ========= ======= ======= ===== ===== ======= Net revenues and sales............... $ 49,678 $ 3,207 $ 4,157 $ 360 $ -- $ 7,724 ========= ======= ======= ===== ===== ======= Income (loss) before income taxes, minority interest and cumulative effect of accounting change........ $ 12,605 $ (427) $(2,830) $(293) $(212) $(3,762) ========= ======= ======= ===== ===== ======= Income taxes......................... $ 4,474 $ (283) $ (24) $ (68) $ (70) $ (445) ========= ======= ======= ===== ===== ======= Minority interest.................... $ -- $ 26 $ (37) $ -- $ -- $ (11) ========= ======= ======= ===== ===== ======= Net income (loss) from continuing operations before cumulative effect of accounting change............... $ 8,131 $ (170) $(2,769) $(225) $(142) $(3,306) ========= ======= ======= ===== ===== ======= Cumulative effect of change in Accounting Principle............... $ (205) $ (521) $ -- $ (14) $ -- $ (535) ========= ======= ======= ===== ===== ======= Net income (loss).................... $ 7,926 $ (691) $(2,769) $(239) $(142) $(3,841) ========= ======= ======= ===== ===== ======= Depreciation and amortization........ $ 3,213 $ 547 $ 315 $ 32 $ -- $ 894 ========= ======= ======= ===== ===== ======= Interest expense..................... $ -- $ 10 $ 17 $ -- $ -- $ 27 ========= ======= ======= ===== ===== ======= Capital expenditures................. $ 1,113 $ 111 $ 480 $ -- $ -- $ 591 ========= ======= ======= ===== ===== ======= Gross identifiable assets at March 31, 1999........................... $ 203,325 $45,466 $18,150 $ 646 $ -- $64,262 ========= ======= ======= ===== ===== ======= Intersegment eliminations............ $(111,802) $ (265) $ -- $ -- $ -- $ (265) ========= ======= ======= ===== ===== ======= Net identifiable assets at March 31, 1999............................... $ 91,523 $45,201 $18,150 $ 646 $ -- $63,997 ========= ======= ======= ===== ===== ======= PIONEER GLOBAL INVESTMENTS --------------------------------------------------- CENT. & EAST. - SUBTOTAL - REAL U.S. EUROPE OTHER PIONEER ESTATE VENTURE VENTURE GOLD RUSSIAN NATURAL GLOBAL SERVICES CAPITAL CAPITAL MINING TIMBER RESOURCES INVESTMENTS OTHER -------- -------- ------- -------- -------- --------- ------------ ------- THREE MONTHS ENDED MARCH 31, 1999 Gross revenues and sales............. $ 354 $ 129 $ 208 $ 19,976 $ -- $ 226 $ 20,893 $ 3,994 ======= ======== ======= ======== ======== ===== ======== ======= Intersegment eliminations............ $ -- $ -- $ -- $ -- $ -- $ -- $(3,994) ======= ======== ======= ======== ======== ===== ======== ======= Net revenues and sales............... $ 354 $ 129 $ 208 $ 19,976 $ -- $ 226 $ 20,893 $ -- ======= ======== ======= ======== ======== ===== ======== ======= Income (loss) before income taxes, minority interest and cumulative effect of accounting change........ $(1,346) $ (4,158) $ (316) $ (7,173) $ (1,005) $(363) $(14,361) $(1,811) ======= ======== ======= ======== ======== ===== ======== ======= Income taxes......................... $ (367) $ (1,892) $ (4) $ (355) $ (204) $(125) $ (2,947) $ (606) ======= ======== ======= ======== ======== ===== ======== ======= Minority interest.................... $ -- $ 1,373 $ (146) $ (573) $ -- $ -- $ 654 $ -- ======= ======== ======= ======== ======== ===== ======== ======= Net income (loss) from continuing operations before cumulative effect of accounting change............... $ (979) $ (3,639) $ (166) $ (6,245) $ (801) $(238) $(12,068) $(1,205) ======= ======== ======= ======== ======== ===== ======== ======= Cumulative effect of change in Accounting Principle............... $ (115) $ (183) $ (382) $ -- $(10,692) $ -- $(11,372) $ -- ======= ======== ======= ======== ======== ===== ======== ======= Net income (loss).................... $(1,094) $ (3,822) $ (548) $ (6,245) $(11,493) $(238) $(23,440) $(1,205) ======= ======== ======= ======== ======== ===== ======== ======= Depreciation and amortization........ $ 37 $ 45 $ 75 $ 7,603 $ 545 $ 1 $ 8,306 $ 31 ======= ======== ======= ======== ======== ===== ======== ======= Interest expense..................... $ 2 $ 203 $ -- $ 1,233 $ 364 $ -- $ 1,802 $ 1,699 ======= ======== ======= ======== ======== ===== ======== ======= Capital expenditures................. $ -- $ -- $ 70 $ 2,419 $ 720 $ -- $ 3,209 $ 4 ======= ======== ======= ======== ======== ===== ======== ======= Gross identifiable assets at March 31, 1999........................... $ 4,736 $ 25,343 $50,357 $126,251 $ 44,789 $ 804 $252,280 $13,473 ======= ======== ======= ======== ======== ===== ======== ======= Intersegment eliminations............ $ (274) $(24,193) $ -- $ (101) $ -- $ -- $(24,568) $(6,132) ======= ======== ======= ======== ======== ===== ======== ======= Net identifiable assets at March 31, 1999............................... $ 4,462 $ 1,150 $50,357 $126,150 $ 44,789 $ 804 $227,712 $ 7,341 ======= ======== ======= ======== ======== ===== ======== ======= TOTAL --------- THREE MONTHS ENDED MARCH 31, 1999 Gross revenues and sales............. $ 83,752 ========= Intersegment eliminations............ $ (5,457) ========= Net revenues and sales............... $ 78,295 ========= Income (loss) before income taxes, minority interest and cumulative effect of accounting change........ $ (7,329) ========= Income taxes......................... $ 476 ========= Minority interest.................... $ 643 ========= Net income (loss) from continuing operations before cumulative effect of accounting change............... $ (8,448) ========= Cumulative effect of change in Accounting Principle............... $ (12,112) ========= Net income (loss).................... $ (20,560) ========= Depreciation and amortization........ $ 12,444 ========= Interest expense..................... $ 3,528 ========= Capital expenditures................. $ 4,917 ========= Gross identifiable assets at March 31, 1999........................... $ 533,340 ========= Intersegment eliminations............ $(142,767) ========= Net identifiable assets at March 31, 1999............................... $ 390,573 =========
10 11 THE PIONEER GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) MARCH 31, 1999
PIONEER - SUBTOTAL - INTERNATIONAL FINANCIAL SERVICES PIONEER PIONEER ------------------------------------ INTERNATIONAL INVESTMENT CZECH FINANCIAL MANAGEMENT RUSSIA POLAND REPUBLIC ASIA SERVICES ---------- ------- ------- -------- ----- ------------- THREE MONTHS ENDED MARCH 31, 1998 Gross revenues and sales................. $ 49,871 $ 2,325 $ 3,069 $ 353 $ -- $ 5,747 ========= ======= ======= ===== ===== ======= Intersegment eliminations................ $ (2,036) $ -- $ -- $ -- $ -- $ -- ========= ======= ======= ===== ===== ======= Net revenues and sales................... $ 47,835 $ 2,325 $ 3,069 $ 353 $ -- $ 5,747 ========= ======= ======= ===== ===== ======= Income (loss) before income taxes and minority interest...................... $ 15,118 $(1,875) $ 165 $(326) $(214) $(2,250) ========= ======= ======= ===== ===== ======= Income taxes............................. $ 5,617 $ (660) $ (18) $ (44) $ (86) $ (808) ========= ======= ======= ===== ===== ======= Minority interest........................ $ -- $ (322) $ (1) $ -- $ -- $ (323) ========= ======= ======= ===== ===== ======= Net income (loss)........................ $ 9,501 $ (893) $ 184 $(282) $(128) $(1,119) ========= ======= ======= ===== ===== ======= Depreciation and amortization............ $ 5,255 $ 600 $ 135 $ 67 $ -- $ 802 ========= ======= ======= ===== ===== ======= Interest expense......................... $ 836 $ 83 $ 6 $ -- $ -- $ 89 ========= ======= ======= ===== ===== ======= Capital expenditures..................... $ 2,689 $ (242) $ 58 $ 9 $ -- $ (175) ========= ======= ======= ===== ===== ======= Gross identifiable assets at March 31, 1998................................... $ 331,193 $80,496 $16,623 $ 189 $ -- $97,308 ========= ======= ======= ===== ===== ======= Intersegment eliminations................ $(135,469) $(2,435) $ -- $ -- $ -- $(2,435) ========= ======= ======= ===== ===== ======= Net identifiable assets at March 31, 1998................................... $ 195,724 $78,061 $16,623 $ 189 $ -- $94,873 ========= ======= ======= ===== ===== ======= PIONEER GLOBAL INVESTMENTS ------------------------------------------------- CENT. & EAST. - SUBTOTAL - REAL U.S. EUROPE OTHER PIONEER ESTATE VENTURE VENTURE GOLD RUSSIAN NATURAL GLOBAL SERVICES CAPITAL CAPITAL MINING TIMBER RESOURCES INVESTMENTS OTHER -------- ------- ------- -------- ------- --------- ------------ -------- THREE MONTHS ENDED MARCH 31, 1998 Gross revenues and sales................. $ 234 $ 353 $ 3,785 $ 23,373 $ 284 $ -- $ 28,029 $ 5,011 ======= ======= ======= ======== ======= ====== ======== ======== Intersegment eliminations................ $ -- $ -- $(3,719) $ -- $ -- $ -- $ (3,719) $ (5,011) ======= ======= ======= ======== ======= ====== ======== ======== Net revenues and sales................... $ 234 $ 353 $ 66 $ 23,373 $ 284 $ -- $ 24,310 $ -- ======= ======= ======= ======== ======= ====== ======== ======== Income (loss) before income taxes and minority interest...................... $ (800) $ 3,999 $(1,088) $ (2,150) $(2,876) $ (238) $ (3,153) $ (902) ======= ======= ======= ======== ======= ====== ======== ======== Income taxes............................. $ (268) $ 1,446 $(1,007) $ (962) $ (169) $ (91) $ (1,051) $ (371) ======= ======= ======= ======== ======= ====== ======== ======== Minority interest........................ $ -- $ 561 $ (115) $ (34) $ -- $ -- $ 412 $ -- ======= ======= ======= ======== ======= ====== ======== ======== Net income (loss)........................ $ (532) $ 1,992 $ 34 $ (1,154) $(2,707) $ (147) $ (2,514) $ (531) ======= ======= ======= ======== ======= ====== ======== ======== Depreciation and amortization............ $ 17 $ 56 $ 33 $ 5,987 $ 710 $ -- $ 6,803 $ 105 ======= ======= ======= ======== ======= ====== ======== ======== Interest expense......................... $ -- $ 99 $ -- $ 980 $ 1,011 $ -- $ 2,090 $ 821 ======= ======= ======= ======== ======= ====== ======== ======== Capital expenditures..................... $ -- $ -- $ -- $ 1,441 $ (75) $ 1 $ 1,367 $ 1 ======= ======= ======= ======== ======= ====== ======== ======== Gross identifiable assets at March 31, 1998................................... $ 6,272 $78,978 $31,128 $145,074 $51,628 $1,565 $314,645 $ 28,207 ======= ======= ======= ======== ======= ====== ======== ======== Intersegment eliminations................ $(2,146) $ (7) $(1,504) $ -- $ -- $ -- $ (3,657) $(23,767) ======= ======= ======= ======== ======= ====== ======== ======== Net identifiable assets at March 31, 1998................................... $ 4,126 $78,971 $29,624 $145,074 $51,628 $1,565 $310,988 $ 4,440 ======= ======= ======= ======== ======= ====== ======== ======== TOTAL --------- THREE MONTHS ENDED MARCH 31, 1998 Gross revenues and sales................. $ 88,658 ========= Intersegment eliminations................ $ (10,766) ========= Net revenues and sales................... $ 77,892 ========= Income (loss) before income taxes and minority interest...................... $ 8,813 ========= Income taxes............................. $ 3,387 ========= Minority interest........................ $ 89 ========= Net income (loss)........................ $ 5,337 ========= Depreciation and amortization............ $ 12,965 ========= Interest expense......................... $ 3,836 ========= Capital expenditures..................... $ 3,882 ========= Gross identifiable assets at March 31, 1998................................... $ 771,353 ========= Intersegment eliminations................ $(165,328) ========= Net identifiable assets at March 31, 1998................................... $ 606,025 =========
11 12 ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The consolidated financial statements of The Pioneer Group, Inc. (the "Company") include the Company's three strategic business units. Pioneer Investment Management includes the investment management, marketing, distribution and servicing of the Company's mutual funds based in the United States and offshore funds based in Ireland. This business unit also provides investment management services for institutional investors. Pioneer International Financial Services includes the Company's investment management and financial services businesses in Poland, the Czech Republic, Russia and India. Pioneer Global Investments includes the Company's worldwide venture capital, real estate, gold mining and timber operations. Management's Discussion and Analysis of Financial Condition and Results of Operations is presented in four sections: Results of Operations, Liquidity and Capital Resources-General, Future Operating Results and Year 2000. RESULTS OF OPERATIONS CONSOLIDATED OPERATIONS The Company reported a first quarter loss of $20.6 million, or $0.80 per share, on revenues of $78.3 million. First quarter results included the impact of the write-off of unamortized capitalized start-up costs of $12.1 million, or $0.47 per share, as a result of the cumulative effect of a required change in accounting principle. First quarter results also included a loss of $3.4 million, or $0.13 per share, related to the Company's sale of its U.S. venture capital operations. Excluding the impact from the change in accounting principle and the loss from the venture capital sale, the Company would have reported a loss of $5.1 million, or $0.20 per share. During the first quarter of 1998, the Company reported net income of $5.3 million, or $0.21 per share, on revenues of $77.9 million. Worldwide assets under management were approximately $22.9 billion at March 31, 1999, compared to $23.4 billion at December 31, 1998. Worldwide assets under management were approximately $24.0 billion at April 30, 1999. The following table details revenues and net income (loss) by business segment for the three months ended March 31, 1999, and 1998, respectively. REVENUES AND NET INCOME (LOSS) (DOLLARS IN MILLIONS)
REVENUES NET INCOME -------------- (LOSS) THREE --------------- MONTHS THREE MONTHS ENDED ENDED MARCH 31, MARCH 31, -------------- --------------- BUSINESS SEGMENT 1999 1998 1999 1998 - ---------------- ----- ----- ------ ----- Pioneer Investment Management: Mutual Funds and Institutional Accounts................... $49.6 $47.8 $ 8.1 $ 9.5 ----- ----- ------ ----- Pioneer International Financial Services: Russia.................................................... 3.3 2.3 (0.2) (0.9) Central and Eastern Europe................................ 4.5 3.4 (3.0) (0.1) Asia...................................................... -- -- (0.1) (0.1) ----- ----- ------ ----- 7.8 5.7 (3.3) (1.1) ----- ----- ------ ----- Pioneer Global Investments: Venture Capital........................................... 0.3 0.5 (3.8) 2.0 Real Estate............................................... 0.4 0.2 (1.0) (0.5) Gold Mining............................................... 20.0 23.4 (6.2) (1.2) Timber.................................................... -- 0.3 (0.8) (2.7) Other..................................................... 0.2 -- (0.2) (0.1) ----- ----- ------ ----- 20.9 24.4 (12.0) (2.5) ----- ----- ------ ----- Interest Expense and Other Expenses......................... -- -- (1.3) (0.6) ----- ----- ------ ----- Total Before Accounting Change.......................... $78.3 $77.9 $ (8.5) $ 5.3 ----- ----- ------ ----- Cumulative Effect of Change in Accounting Principle (Start-up Costs).......................................... -- -- (12.1) -- ----- ----- ------ ----- Totals............................................. $78.3 $77.9 $(20.6) $ 5.3 ===== ===== ====== =====
12 13 PIONEER INVESTMENT MANAGEMENT Pioneer Investment Management ("PIM") had first quarter net income of $8.1 million compared to net income of $9.5 million in the first quarter of 1998. The earnings decline was attributable to higher expenses incurred to strengthen the investment management team, broaden and expand distribution, and enhance technology capabilities. PIM's assets under management at March 31, 1999 were approximately $22.5 billion compared to $23.0 billion at December 31, 1998. In the first quarter of 1999, sales of U.S. registered mutual funds (including reinvested dividends) were $950 million, matching sales in the first quarter of 1998. Net redemptions were $50 million, compared to net sales of $424 million in the first quarter of 1998. Revenues of $49.6 million in the first quarter of 1999 increased by $1.8 million, or 4%. Management fee revenues of $33.3 million increased by $2.2 million, principally reflecting higher average assets under management. Revenues from underwriting commissions, distribution fees, and shareholder servicing fees decreased slightly by $0.3 million to $13.7 million, as increased shareholder service fees mostly offset lower distribution fees. Costs and expenses increased by $4.2 million in the first quarter of 1999 to $36.9 million. The expense increase resulted principally from higher payroll costs, mutual fund distribution expenses and higher costs related to additional office space. Pioneer Investment Management's effective tax rate for the first quarter of 1999 was 35.5% compared to 37.2% in the first quarter of 1998. The decrease resulted principally from a change in Massachusetts' tax law that provided certain tax incentives to Massachusetts based mutual fund companies which maintain and grow their Massachusetts employee base. PIONEER INTERNATIONAL FINANCIAL SERVICES During the first quarter of 1999, Pioneer International Financial Services ("PIFS") lost $3.3 million on revenues of $7.8 million compared to a loss of $1.1 million in the first quarter of 1998 on revenues of $5.7 million. A majority of the first quarter 1999 loss occurred in Poland and was related to the Company's pension subsidiary that was established in conjunction with the Polish government's far-reaching pension reform program. The pension subsidiary initiated efforts to solicit pension accounts by commencing an advertising campaign, hiring and training personnel, and incurring registration fees for its brokers. In April 1999, the Company reached agreement with Nationwide Global Holdings, Inc., subject to Polish government approval, to sell 30% of its Polish pension company subsidiary for $20 million. In Russia, PIFS had a slight loss of $0.2 million, substantially eliminating recent operating losses. Also, PIFS substantially scaled back its Russian brokerage operations during the first quarter of 1999. PIONEER GLOBAL INVESTMENTS Pioneer Global Investments lost $12.0 million in the first quarter of 1999 on revenues of $20.9 million. The Company's venture capital operations lost $3.8 million, of which $3.4 million resulted from the U.S. venture capital sale. In March 1999, the Company sold its direct investments and indirect interests of its U.S. venture capital business for $34.9 million. The Company used the proceeds from the venture capital sale to repay financing from the Small Business Administration and to reduce debt outstanding under the Company's bank revolving credit facility. The Company's real estate services operations reported losses of $1.0 million in the first quarter of 1999 and $0.5 million in the first quarter of 1998. Most of the losses were attributable to costs associated with the development of the Company's Polish and Eastern Europe real estate investment and property and facilities management operations. The gold mining and timber businesses are discussed below. 13 14 GOLD MINING BUSINESS The results of the gold mining business are substantially attributable to the operations of Teberebie Goldfields Limited ("TGL"), the principal operating subsidiary of the Company's wholly owned subsidiary, Pioneer Goldfields Limited ("PGL"). The Company's reported earnings give effect to the 10% minority interest in TGL held by the Government of Ghana. Gold mining results are also affected by PGL's exploration activities in Africa and by the exploration activities in the Russian Far East of Closed Joint Stock Company "Tas-Yurjah Mining Company" ("Tas-Yurjah"), the Company's majority owned (95%) Russian subsidiary. Exploration costs are charged to operations as incurred. RECENT DEVELOPMENTS As previously reported, the Company's gold mining operations have recently been experiencing production problems related to the less weathered and harder ore. The Company has completed its testing program and has developed a new mine plan which incorporates the transition from heap leaching to conventional milling. As a result, the Company is able to provide updated reserves information, which it has incorporated into the offering memorandum related to sale of PGL. Set forth on the following table are the proven and probable gold reserves of Teberebie Goldfields Limited ("TGL"), the Company's 90%-owned indirect subsidiary located in Ghana, as of January 1, 1999 which have been certified by an independent mining consultant. These reserves are estimated on an in situ basis and contain provision for losses anticipated during mining but do not include metallurgical recovery. The mill ore has a lower bound cut-off grade of 0.67 grams per tonne while the heap leach ore has a lower bound cut-off grade of 0.25 recovered grams per tonne. The price of gold used to delineate reserves is $340 per ounce. PROVEN AND PROBABLE RESERVES AS OF JANUARY 1, 1999 ($340/OZ)
TONNES, ORE GRADE, G/T CONTAINED GOLD, OUNCES ----------- ---------- ---------------------- Heap Leaching: Pit..................................... 38,713,000 0.880 1,094,700 Dump Reclaim............................ 14,606,000 0.517 242,800 ----------- --------- Heap Leach Total........................ 53,319,000 0.780 1,337,500 Milling................................. 72,870,000 1.384 3,242,500 ----------- --------- Total Ore Reserve............. 126,189,000 1.129 4,580,000 =========== ===== =========
TGL's last reported proven and probable reserve estimate was 6.1 million ounces as of December 31, 1997. Approximately 0.4 million ounces of the 1.5 million ounce decrease in reserves is attributable to 1998 mine production. The balance of the difference is attributable to a lower heap leach recovery rate used in the reserve calculation based on a recently completed comprehensive testing program and higher operating costs associated with the planned transition to conventional milling. These decreases were offset, in part, by higher expected conventional milling recovery rates. Based on current and anticipated processing methods (heap leaching and conventional milling, respectively), it is estimated that recoverable gold from these open pit reserves will aggregate approximately 3.8 million ounces. Reported gold reserves are estimates. As such, no assurance can be given that the indicated quantities of gold will be produced. In addition, gold price fluctuations may render ore reserves containing relatively lower grades of gold mineralization uneconomic to mine. At May 12, 1999, the market spot price of gold was $278 per ounce. In October 1998, the Company engaged the services of an investment banking firm to sell PGL, including its African exploration rights and its 90% equity interest in TGL, PGL's operating subsidiary. An offering document, which incorporates a new mine plan and the revised reserve estimate, has been finalized and is currently being circulated to a select group of potential buyers. 14 15 RESULTS OF OPERATIONS In the first quarter of 1999, the gold mining segment lost $6.2 million compared with a $1.2 million loss in the corresponding period in 1998. The effective tax rate in the first quarter of 1999 was a 5% benefit compared with a 44% benefit in the first quarter of 1998. GOLD SALES. Revenues decreased by $3.4 million to $20 million as gold shipments decreased by 3,400 ounces, or 5%, to 70,100 ounces. The average realized price of gold decreased by $33 to $285 per ounce. In the first quarter of 1998, the average realized price of gold included proceeds of $1.7 million, or $23 per ounce, from the sale of floor program options. GOLD PRODUCTION AND COSTS. The table below provides production results and compares TGL's cash costs and total costs per ounce for the first quarter of 1999 with the prior year's costs:
THREE MONTHS ENDED MARCH 31, ------------------ INCREASE/ 1999 1998 (DECREASE) ------- ------- ---------- Production (ounces)....................................... 70,100 73,500 (3,400) ======= ======= ======= Cash costs: Production costs........................................ $ 209 $ 196 $ 13 Royalties............................................... 9 9 -- General and administrative.............................. 22 25 (3) ------- ------- ------- Cash costs per ounce.................................. 240 230 10 Non-cash costs: Depreciation and amortization........................... 107 91 16 Other................................................... 5 3 2 ------- ------- ------- Cost of production per ounce.......................... 352 324 28 Interest and other costs.................................. 21 16 5 ------- ------- ------- Total costs per ounce................................... $ 373 $ 340 $ 33 ======= ======= =======
PRODUCTION COSTS. Production costs represent costs attributable to mining ore and waste and processing the ore through crushing and processing facilities. TGL's costs of production are affected by ore grade, gold recovery rates, the waste to ore ("stripping") ratio, the age and availability of equipment, weather conditions, availability and cost of labor, haul distances, foreign exchange fluctuations and the inherent lag in gold production from heap leaching operations. A reduction in the ore grade and lower recovery rates associated with the previously discussed less weathered ore resulted in lower production levels and a $13 per ounce increase in the cost per ounce compared with the first quarter of 1998. Overall processing costs increased by approximately $1.1 million because of a 50% increase in tonnes processed; however, this increase was offset partially by a $0.8 million reduction in mining costs attributable to a reduction in the stripping ratio from 3.57:1 to 1.37:1. A comparison of key production statistics for the three months ended March 31, 1999, and March 31, 1998, is shown in the table below:
THREE MONTHS ENDED MARCH 31, ---------------- 1999 1998 ------ ------ Tonnes mined (in thousands): Waste....................................................... 4,440 7,424 Ore......................................................... 3,232 2,081 ------ ------ Total Tonnes Mined........................................ 7,672 9,505 ====== ====== Stripping Ratio (waste/ore)................................. 1.37:1 3.57:1 Ore Processed............................................... 3,198 2,162 Process Grade (grams/tonne)................................. 1.17 1.36
15 16 DEPRECIATION AND AMORTIZATION. Depreciation and amortization is calculated using units-of-production and straight-line methods designed to fully depreciate property, plant, and equipment over the lesser of their estimated useful lives or ten years. In the first quarter of 1999, these costs increased by $16 per ounce compared with the corresponding period in 1998 principally because of a reduction in the depreciable lives for certain of TGL's crushing and leaching equipment to reflect the expected transition from heap leaching to conventional milling. This resulted in an acceleration of the depreciation and amortization for these assets. INCOME TAXES. The statutory tax rate for mining companies in Ghana in each of 1999 and 1998 was 35%. LIQUIDITY AND CAPITAL RESOURCES CASH FLOW. The cash balances of the gold mining segment increased by $0.4 million to $3.0 million during the first quarter of 1999, $2.2 million of which remained in escrow and was unavailable to pay short-term obligations. Cash generated from operating activities aggregated $2.0 million while capital expenditures were $2.6 million. Major capital expenditures during the quarter included $1.8 million for leach pad and pond development and $0.4 million for capitalized rebuilds. THIRD-PARTY DEBT. At the end of the first quarter of 1999, third-party debt aggregated $40 million, including $14.2 million from the Overseas Private Investment Corporation ("OPIC") for which the Company is subject to limited recourse, and $0.4 million from other sources which the Company guarantees. Scheduled third-party debt service for the remainder of 1999 is expected to aggregate $8.1 million, of which $6.1 million represents principal payments. TRANSITION TO CONVENTIONAL MILLING. The cost of installing a 12,000 tonne per day, 4.2 million tonne per year, conventional mill is estimated at approximately $47 million. For planning purposes, the mill is scheduled to be fully operational in the year 2001. As discussed above, the Company plans to sell PGL and, as a result, does not intend to bear the expense related to the installation of the mill. TIMBER BUSINESS The results of the timber business are substantially attributable to the operations of Forest-Starma, the 97% owned principal operating subsidiary of the Company's wholly owned subsidiary, Pioneer Forest, Inc. Forest-Starma harvests timber under a 49-year lease comprising 390,100 hectares (approximately 964,000 acres) in the aggregate with annual cutting rights of 555,000 cubic meters awarded in the Khabarovsk Territory of Russia. Forest-Starma has developed a modern logging camp, including a harbor, from which it exports timber to markets in the Pacific Rim. While Forest-Starma harvests timber and incurs the resulting operating expenses throughout the year, it typically ships timber from mid-April through December. As a result, Forest-Starma has incurred, and expects to continue to incur, operating losses from fixed costs in the first quarter of the Company's fiscal year. There were no shipments in the first quarter of 1999. Forest-Starma shipped 8,300 cubic meters of low grade timber in the first quarter of 1998 at an average realized price of $34 per cubic meter. RESULTS OF OPERATIONS In the first quarter of 1999, the timber business lost $0.8 million compared to a loss of $2.7 million in the first quarter of 1998. The decrease in losses was attributable principally to a timber inventory cost-to-market write-down of $1.1 million in the first quarter of 1998. TIMBER PRODUCTION. Forest-Starma produced 85,600 cubic meters in the first quarter of 1999, 63% higher than first quarter of 1998 production of 52,500 cubic meters. Production costs for the first quarter of 1999 were approximately $44 per cubic meter, including approximately $9 per cubic meter of depreciation and amortization. These costs were recorded in inventory at the end of the first quarter of 1999. During the first quarter of 1998, the average production cost was $79 per cubic meter. 16 17 OTHER COSTS AND EXPENSES. Other costs and expenses include interest expense, management fees expense, foreign exchange losses, miscellaneous revenue and parent company charges. These expenses decreased by $0.6 million in 1999 to $0.8 million, principally from a decrease in parent company loan interest expense. LIQUIDITY AND CAPITAL RESOURCES Forest-Starma had $6.2 million of external debt at March 31, 1999. Scheduled debt service for the remainder of the year is expected to aggregate $1.8 million. OTHER VENTURES. In 1995, Closed Joint-Stock Company "Amgun-Forest" and Closed Joint-Stock Company "Udinskoye," the Company's other Russian timber ventures, each executed a long-term lease (50 years) relating to timber harvesting. The Amgun-Forest lease covers 485,400 hectares (approximately 1,200,000 acres) with annual cutting rights of 350,000 cubic meters while the Udinskoye lease covers 201,000 hectares (approximately 497,000 acres) with annual cutting rights of 300,000 cubic meters. As of March 31, 1999, Pioneer Forest, Inc. retained an 80.6% direct interest and 7.9% indirect interest in Amgun-Forest and a 72% direct interest and 11.76% indirect interest in Udinskoye. RECENT DEVELOPMENTS The Company is continuing discussions with several potential strategic partners as participants in its timber business. OTHER The Company had net interest expense and other expenses of $1.3 million in the first quarter of 1999 compared to $0.6 million in the first quarter of 1998. The increase resulted principally from a mark-to-market adjustment on the Company's interest rate protection agreements. LIQUIDITY AND CAPITAL RESOURCES -- GENERAL The Company's liquid assets consisting of cash and marketable securities (exclusive of gold mining and timber operations) decreased by $18.8 million in the first quarter of 1999 to $31.2 million principally related to the payment of current federal taxes arising from the Company's 1998 sale of its rights to receive future distribution fees and deferred sales charges from the distribution of Class B shares of its U.S. based mutual funds. For a description of the Company's $80 million senior credit facility and $20 million senior notes, including interest rates and applicable covenants, see Note 6 (Notes Payable) to Notes to the Company's Consolidated Financial Statements included elsewhere in this Quarterly Report. At March 31, 1999, the Company had borrowed $40 million under the senior credit facility and had $20 million of senior notes outstanding. ------------------------ THE COMPANY BELIEVES THAT IT IS IN SOUND FINANCIAL CONDITION, THAT IT HAS SUFFICIENT LIQUIDITY FROM OPERATIONS AND FINANCING FACILITIES TO COVER SHORT-TERM COMMITMENTS AND CONTINGENCIES AND THAT IT HAS ADEQUATE CAPITAL RESOURCES TO PROVIDE FOR LONG-TERM COMMITMENTS. RECENT ACCOUNTING PRONOUNCEMENTS In April 1998, the American Institute of Certified Public Accountants (the "AICPA") issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities". The new standard, which the Company adopted in the first quarter of 1999, required that entities expense costs of start-up activities as those costs are incurred. The Company had capitalized certain pre-operating costs in connection with its natural resource operations, and had capitalized certain organizational costs associated with its financial services operations. The Company recorded a cumulative effect of a change in accounting principle of approximately $12.1 million related principally to its timber operations. 17 18 FUTURE OPERATING RESULTS Certain of the information contained in this Quarterly Report, including information with respect to the Company's plans and strategies for its domestic and international financial services and global investment business units, liquidity and capital resources and Year 2000 plans, consists of forward-looking statements. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Important factors that could cause actual results to differ materially from those indicated by the forward-looking statements made in this Quarterly Report and presented elsewhere by management from time to time include, but are not limited to, the following as well as the factors presented in the Company's most recent Annual Report on Form 10-K: The Company derives a significant portion of its revenues from investment management fees and underwriting and shareholder services fees. Success in the investment management and mutual fund share distribution businesses is substantially dependent on investment performance. Good performance stimulates sales of shares and tends to keep redemptions low. Sales of shares result in increased assets under management, which, in turn, generate higher management fees. Good performance also attracts institutional accounts. Conversely, relatively poor performance results in decreased sales and increased redemptions and the loss of institutional accounts, with corresponding decreases in revenues to the Company. Investment performance may also be affected by economic or market conditions which are beyond the control of the Company. In addition, four of the Company's mutual funds (including the two largest funds) have management fees which are adjusted based upon the funds' performance relative to the performance of an established index. As a result, management fee revenues may be subject to unexpected volatility. The mutual fund industry is intensely competitive and is undergoing substantial consolidation. Many organizations in this industry are attempting to sell and service the same clients and customers, not only with mutual fund investments but with other financial services products. Many of the Company's competitors have more products and product lines and substantially greater assets under management and financial resources. The Company and its domestic investment management business unit are primarily dependent upon their contractual relationships with the Company's U.S. mutual funds. In the event any of these agreements were canceled or not renewed on similarly favorable terms, the Company would be substantially adversely affected. The Securities and Exchange Commission has jurisdiction over registered investment companies, registered investment advisers, broker-dealers and transfer agents. The Securities and Exchange Commission could, in the event the Company or its subsidiaries violated any applicable rules or regulations, take action that could have a serious negative impact on the Company and its financial performance. Because a material portion of the Company's revenues are derived from the mining and sale of gold by TGL, the Company's financial results are directly impacted by gold production, the cost of such production, and the price of gold. TGL's gold production is dependent upon a number of factors that could cause actual gold production to differ materially from projections, including obtaining and maintaining necessary equipment, accessing key supplies, including electric power, cement, and diesel fuel, and hiring, training and retaining supervisory personnel and skilled workers. Gold production is also affected by the time lag inherent in heap leaching technology, subject to weather conditions and dependent on the continued political stability in the Republic of Ghana. Gold prices have historically fluctuated significantly and are affected by numerous factors, including expectations for inflation, the strength of the U.S. dollar, global and regional demand, central bank gold supplies and political and economic conditions. If, as a result of a decline in gold prices, TGL's revenues from gold sales were to fall below cash costs of production, and to remain below cash costs of production for any substantial period, the Company could determine that it is not economically feasible for TGL to continue commercial production. The commercial feasibility of Forest-Starma is dependent upon a number of factors which are not within the control of the Company including the price of timber, weather conditions, political stability in Russia and the strength of the Japanese and Korean economies, the primary markets for Forest-Starma's timber. While the Company continues to believe that the project will achieve commercial feasibility in the long term, there can be no assurance that it will do so. 18 19 The Company has a significant number of operations and investments located outside of the U. S., including the gold mining operations at TGL, the timber operations in the Russian Far East and the financial services operations in Eastern and Central Europe. Foreign operations and investments may be adversely affected by exchange controls, currency fluctuations, taxation, political and economic instability, ineffective regulatory oversight and laws or policies of the particular countries in which the Company may have operations. There is no assurance that the Company can obtain permits, authorizations, regulatory approvals and agreements to implement plans at its foreign projects under conditions or within time frames that make such plans economically feasible. Also, there can be no assurance that applicable laws or the governing political authorities will not change unfavorably or that such changes will not result in the Company's having to incur material additional expenditures. YEAR 2000 SUMMARY. The Company has for some time been addressing actively the potential impact of the Year 2000 problem to its businesses and has largely completed a comprehensive project to help ensure that all of its business units will be able to function normally before, during and after the century date rollover. Furthermore, the Company is aware that Year 2000 issues have the potential to impact the capital markets and macroeconomic conditions globally. While the Company is monitoring the threat of such impact and is taking measures reasonably designed to protect the investments of its fund shareholders and corporate investors, there can be no assurance that factors outside its control will not disrupt the Company's operations. MANAGEMENT. The Company is executing and managing its Year 2000 project activities at several levels within the organization, including: - regular senior-level management briefings - regular Company Audit Committee briefings - oversight subcommittee established by the Trustees of the Company's U.S. mutual funds - Year 2000 Steering Committee comprised of representatives from all operational areas empowered to review progress and ensure the successful completion of the Year 2000 project - Year 2000 project office responsible for centralized monitoring, reporting and support of project activities - managers throughout the Company responsible for executing local Year 2000 plans The Company is separately tracking the Year 2000 readiness of each of its operating units and has created comprehensive reporting for each project team worldwide. The Company has developed reports to monitor risk management and project status both for systems and vendors. The Company has utilized the services of outside companies and consultants specializing in Year 2000 issues. APPROACH AND STATUS. The Company's Year 2000 initiative addresses hardware, software, embedded systems and vendor systems and consists of the following six phases: - Awareness -- communicating management's commitment to identify and resolve Year 2000 issues - Inventory, Assessment, and Planning -- identifying all systems and vendors with potential Year 2000 problems, rating the business criticality of each, and planning for all project tasks - Repair -- executing all necessary system remediation plans - Testing -- ensuring that all remediated systems function correctly in both current date and future date environments - Contingency Planning -- developing project contingency and business continuation plans for each business unit 19 20 - Vendor Analysis -- working closely with all important third parties to ensure that their systems and businesses have adequately addressed Year 2000 issues The Company has completed both the awareness and assessment phases of the project and has completed the repair phase with respect to approximately 97% of its 500 core systems. Remaining remediation work consists of installations that are expected to be completed by the end of the second quarter. The testing and contingency planning phases are well underway and will continue throughout 1999. Vendor analysis is ongoing and will continue through the end of the project. To date, the Company has performed stand-alone testing on all of its core information technology applications and critical imbedded systems. The Company recently participated in industry-wide testing sponsored by the Securities Industry Association. In this testing, performed in conjunction with the National Securities Clearing Corporation and other key third parties, the Company successfully processed mutual fund transactions in a future-dated environment. The Company expects to complete the following additional activities during the remainder of 1999: - conducting company-wide integration tests - participating in point-to-point testing with selected vendors - correcting and retesting any problems that may be discovered during integrated or third party testing - refining and testing contingency plans CERTAIN RISKS AND CONTINGENCY PLANNING. The Company segregates Year 2000 risks into four areas: (i) systems, (ii) vendors, (iii) capital markets infrastructure and (iv) basic infrastructure. SYSTEMS. Although the majority of the Company's most critical "core" applications are provided by third parties, most of these applications are relatively new and all have been certified as Year 2000 compliant. As a result of successful testing, the Company's comfort in the ability of these systems to operate properly after January 1, 2000 is relatively high. VENDORS. The Company has been monitoring closely Year 2000 progress of all critical third parties and to date has not identified a need to replace any of these providers. CAPITAL MARKETS. Particularly in the U.S., the Company is heavily reliant upon functional capital markets (trading, clearing and settlement). The recently completed industry-wide tests mitigated the Company's concerns regarding the Year 2000 readiness of the domestic trading and settlement infrastructure. BASIC INFRASTRUCTURE. The Company expects to be able to react appropriately to short term or isolated disruptions of basic infrastructure services (such as telecommunications, electricity, water and transportation) based on its contingency plans. In the event of long term or pervasive failures, however, the Company's risk is as significant as that of any other firm or entity that relies upon such services. Internationally, the outlook is less certain with respect to the Year 2000 readiness efforts of third parties and infrastructure elements. The Company has indigenous operations in a number of countries, and these countries have demonstrated various levels of awareness and readiness with respect to Year 2000 issues. The Company is preparing its systems and evaluating its vendors in each of these operations in the same manner as in the U.S. Nevertheless, the Company is subject to risks imposed by infrastructure failures beyond its control in the countries in which it has operations. Overall, the Company's approach to contingency planning, which is intended to address the risks described above, has two components: (i) ensuring the Company's ability to achieve Year 2000 compliance, even in the event of a vendor failure in 1999 and (ii) preparing business continuity plans for various potential failure scenarios which, despite the Company's best efforts, could occur on or around January 1, 2000. At May 13, 1999, substantially all of the Company's operating units had developed initial contingency plans. Plans will continue to be refined and tested, as necessary, throughout 1999. Finally, the Company has disaster recovery plans in place to address potential infrastructure failures, including basic services such as electrical power and telecommunications, and is leveraging and enhancing those plans to address potential Year 2000 scenarios. 20 21 COSTS. Total Year 2000 project costs are based on currently available information and management's estimates with respect to the costs of repairing and replacing software, hardware, embedded systems and vendor systems. For this purpose, the Company defines costs as incremental expenditures and cost estimates include both period costs and disbursements that typically would be treated as capital. Estimates do not include overhead with respect to the portion of certain employees' time allocated to the Year 2000 project or opportunity costs associated with other projects that may have been delayed by the Year 2000 project. As of March 31, 1999, the Company had incurred and expensed approximately $1.4 million in connection with its Year 2000 project. The Company estimates its total remaining costs to be approximately $1.1 million, which will be expensed as incurred during 1999. All Year 2000 project costs have been and will continue to be funded from operating cash flows. Year 2000 project costs are relatively minimal primarily because the Company owns little internally developed code. The result of the Company's strategy of outsourcing technology-based operations is that it has only a small base of proprietary code that it must analyze and remediate. Consequently, the cost of the Year 2000 compliance efforts are not expected to be material to the Company's financial position. The Company believes that it will not incur significant Year 2000 related costs on behalf of third parties from which it purchases technology or outsources technology-based functions. The Company's ability to complete its Year 2000 project by the dates projected and the total costs incurred to accomplish those efforts are based on estimates of the Company's management in reliance on certain assumptions. Such assumptions include, among others, the Company's ability to locate and identify all potential Year 2000 issues in the systems it uses, successful remediation efforts by the Company's vendors and other third parties upon which it relies, the continued availability of personnel capable of carrying out the Year 2000 project efforts and the availability of suitable alternative software and systems. There can be no assurances that management's reliance on such assumptions will prove to be valid. The failure of any of these assumptions to hold true or the existence of additional significant uncertainties could result in the inaccurateness of any of the foregoing estimates. As a result, actual completion of the Company's Year 2000 project could be later than anticipated or involve costs materially higher than those estimated. Finally, investors in the Company's funds who are concerned about the Year 2000 problem could withdraw their investments, which in turn would reduce assets under management and related management fee revenues. The Company's financial condition could be adversely affected if it experienced any of the problems associated with the risks described above. The impact of any such failures on the Company's customers or other third parties could vary significantly, as could such customers' or third parties' definitions of Year 2000 compliance; therefore, the extent of any claims resulting from such failures is difficult to estimate. There can be no assurance that the costs of resolving any such claims will not materially affect the Company's business, financial condition or results of operations. 21 22 PART II -- OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. The Exhibits filed with this Quarterly Report on Form 10-Q are listed on the "Index to Exhibits" below. (b) Reports filed on form 8-K: None. SIGNATURES It is the opinion of management that the financial information contained in this report reflects all adjustments necessary to a fair statement of results for the period report, but such results are not necessarily indicative of results to be expected for the year due to the effect that stock market fluctuations may have on assets under management. All accounting policies have been applied consistently with those of prior periods. Such financial information is subject to year-end adjustments and annual audit by independent public accountants. Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE PIONEER GROUP, INC. Dated: May 13, 1999 /s/ JOHN A. BOYNTON ------------------------------------ JOHN A. BOYNTON EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND TREASURER EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - -------------- ------------------------------------------------------------ 10.1 Shareholders' Agreement dated 8 April 1999 between the Company and Nationwide Global Holdings, Inc. ("Nationwide") 10.2 Share Subscription Agreement dated as of 8 April 1999 between the Company, Nationwide and Pioneer Powszechne Towarzystwd Emerytalne S.A. 27.99 Financial Data Schedule. 27.98 Financial Data Schedule.
22 EX-10.1 2 SHAREHOLDERS AGREEMENT 1 EXHIBIT 10.1 DATED 8 APRIL 1999 ---------------------------------------- (1) THE PIONEER GROUP, INC. (2) NATIONWIDE GLOBAL HOLDINGS, INC. ---------------------------------------- SHAREHOLDERS' AGREEMENT ---------------------------------------- 2 THIS AGREEMENT is made on 8 April 1999 BETWEEN:- (1) THE PIONEER GROUP, INC. a company duly established under Delaware law whose principal place of business is at 60 State Street, Boston, Massachusetts 02109, United States of America ("PIONEER"); and (2) NATIONWIDE GLOBAL HOLDINGS, INC. a company duly established under Ohio law whose principal place of business is at One Nationwide Plaza, Columbus, Ohio 43215, United States of America ("NATIONWIDE"). WHEREAS:- (A) Pioneer Powszechne Towarzystwo Emerytalne S.A. (the "SOCIETY") was registered by the Registration Court on 29th October 1998. The Society has a share capital of PLN 340,000,000 divided into 340,000 shares of PLN 100 each. Further details about the Society are set out in SCHEDULE 2 (DETAILS OF THE SOCIETY). (B) Pioneer, Nationwide and the Society have today signed a share subscription agreement (the "SHARE SUBSCRIPTION AGREEMENT") pursuant to which Nationwide has agreed to subscribe for 145,714 shares of PLN 100 each in the Society on the terms and conditions set out in that agreement. (C) Pioneer and Nationwide wish to participate as shareholders in the Society for the purposes and on the terms set out in this Agreement. IT IS AGREED as follows:- 1. DEFINITIONS AND INTERPRETATION 1.1 In this Agreement the words and expressions set out in SCHEDULE 1 (WORDS AND EXPRESSIONS) have, unless the context otherwise requires, the meanings there provided for them. 1.2 The recitals and schedules form part of this Agreement and shall have the same force and effect as if set out in the body of this Agreement. 1.3 Headings in this Agreement are inserted for convenience only and shall not affect its construction or interpretation. 1.4 Where appropriate, words denoting the singular shall include the plural and vice versa and words denoting any gender shall include the other genders. 1 3 1.5 References to recitals, schedules and clauses are to recitals and schedules to and clauses of this Agreement, unless otherwise stated. 1.6 References to any document or agreement (including this Agreement) include a reference to that document or agreement as varied, amended, supplemented, substituted, novated or assigned from time to time. 2. OBJECT OF THE SOCIETY 2.1 The object of the Society shall be to carry on the business of establishing and managing the Fund, an open pension fund established and registered in accordance with the Pension Law. 2.2 The Business shall be conducted under the name Pioneer Powszechne Towarzystwo Emerytalne in accordance with applicable Polish law and the Articles and in the best interests of the Society on sound commercial profit-making principles so as to generate the maximum achievable maintainable profits available for distribution and otherwise in accordance with the Business Plan, as varied by from time to time as provided herein. 2.3 In support of the Business, Nationwide will actively seek to assist and promote the business of the Society in the manner contemplated by the then current Business Plan through such measures as transfer of knowledge in the areas of sales training and sales management, with the aim of developing a professionally trained, compensated and supervised sales force which is directed toward the goals of increased business, enhanced customer satisfaction, enhanced customer loyalty to Pioneer funds and superior customer retention. 2.4 In support of the Business, Pioneer will use its best efforts to assist and promote the Business in the manner contemplated by the then current Business Plan through such measures as the use of Pioneer's brand name, professional money management skills, execution of appropriate advertising and promotion, support of the product through existing and future distribution channels, assisting in identifying and recruiting local staff and providing local market knowledge and expertise. 2.5 The Shareholders shall supply consulting and other services to the Society on an as needed basis. In general, ad hoc support service which requires less than full-time participation of individual employees of either Shareholders will be the responsibility of such Shareholder and will not be chargeable as a direct expense to the Society. In the event that the Shareholders agree that ongoing support is needed from either Shareholder, that contribution must be authorised by the Society in an approved written agreement and is chargeable as an expense to the Society. Reimbursement to each Shareholder for these services will be on an equitable and consistent basis for both Shareholders. 2 4 2.6 US$ 2,000,000 of the proceeds of the issue of the Subscription Shares will be used for an advertising campaign to launch the Fund. The balance of the proceeds of the Subscription Shares will be used by the Society for the Business in accordance with the then current Business Plan and Budget, subject to any restrictions on use of such funds arising under applicable Polish law. 3. MEMBERS OF THE SUPERVISORY BOARD 3.1 The Society will be supervised by the Supervisory Board as provided in the Articles and applicable Polish law. The number of members of the Supervisory Board holding office at any time shall be 6 members, unless otherwise agreed in writing by the Shareholders. 3.2 Pioneer shall have the right to nominate 4 persons to be members of the Supervisory Board, one of whom shall be designated by Pioneer as the chairman of the Supervisory Board. Nationwide shall have the right to nominate 2 persons to be members of the Supervisory Board, one of whom shall be designated by Nationwide as the vice-chairman of the Supervisory Board. 2 of the persons nominated to the Supervisory Board by Pioneer and 1 of the persons nominated to the Supervisory Board by Nationwide will be independent of Pioneer and Nationwide respectively and will otherwise meet all the qualification (including educational) requirements of UNFE. A person will be independent of Pioneer or Nationwide Group (as the case may be) if they meet the independence requirements of the Pension Law. The Shareholders will consult each other concerning the identity of their respective nominees to the Supervisory Board. Each Shareholder hereby undertakes to vote in support of any person nominated by the other as an appointee to the Supervisory Board provided that such person is properly qualified, satisfies applicable legal requirements, and his appointment is accepted by UNFE. 3.3 The procedures in relation to the functioning of the Supervisory Board and adopting resolutions by the Supervisory Board shall be established in the Supervisory Board by-laws in the agreed terms and adopted by the General Assembly. 4. CONDUCT OF THE SOCIETY'S AFFAIRS 4.1 Each of the Shareholders agrees with the other that it shall exercise all voting rights and other powers of control available to it in relation to the Society so as to cause (insofar as they are able by the exercise of such rights and powers) that at all times during the continuance of this Agreement without the prior written consent of the other Shareholder:- 4.1.1 there is a Budget resolved upon by the Supervisory Board in respect of the capital and revenue affairs of the Society (including (except 3 5 with respect to the Initial Budget), without prejudice to the generality of the foregoing, all staff salaries, bonuses and other remuneration) and that such Budget is for periods not exceeding a year and a replacement Budget is agreed for each Financial Year of the Society in advance and as superseded or modified from time to time as required. The first Budget is the Initial Budget; 4.1.2 the business of the Society shall consist exclusively of the Business (even if Polish law permits the Society to conduct some other business); 4.1.3 the Business shall be conducted in accordance with the Business Plan which shall be resolved upon by the Supervisory Board and replaced on a rolling basis from time to time and as superseded or modified from time to time. The first Business Plan shall be the Initial Business Plan; 4.1.4 Nationwide shall be entitled to receive from Pioneer copies of:- (a) all reports and documents legally required to be provided to the Shareholders in the Society; and (b) copies of all other documents provided by the Society to Pioneer; 4.1.5 without prejudice to the rights of the Shareholders and their respective Groups to carry on their other businesses in a proper and efficient manner, each Shareholder shall use all reasonable endeavours to promote the business and affairs of the Society; 4.1.6 members of the Supervisory Board shall be appointed in accordance with provisions of this Agreement and applicable law; 4.1.7 the Society shall comply with the provisions of its Articles; and 4.1.8 any transferee of Shares shall execute a deed of adherence in the form set out in SCHEDULE 5 (DEED OF ADHERENCE). 5. MATTERS REQUIRING CONSENT OF THE SHAREHOLDERS 5.1 Each of the Shareholders agrees with the other that it shall exercise all voting rights and other powers of control available to it in relation to the Society so as to cause (insofar as they are able by the exercise of such rights and powers) that the Society shall not without the unanimous consent of the Shareholders, whether in general meeting or in writing:- 5.1.1 alter the Articles; 4 6 5.1.2 redeem or purchase any Share; 5.1.3 increase the share capital of the Society or create or issue any shares or any option or other Encumbrance over Shares; 5.1.4 amend the Management Board by-laws or the Supervisory Board by-laws in a manner inconsistent with this Agreement; 5.1.5 cease operations or dissolve the Society 5.1.6 to the extent permitted by Polish Law, create another open pension fund or take over the management of any pension fund other than the Fund or transfer the management of the Fund to any other open pension fund society. 6. MATTERS REQUIRING CONSENT OF THE SUPERVISORY BOARD 6.1 Each of the Shareholders agrees with the other that it shall exercise all voting rights and other powers of control available to it in relation to the Society so as to cause (insofar as they are able by the exercise of such rights and powers) that the Society shall not without the prior unanimous consent of the Supervisory Board (whether in writing or at a duly convened and quorate meeting of the Supervisory Board at which both the chairmen and the vice-chairman of the Supervisory Board are present):- 6.1.1 enter into any contract, arrangement or commitment involving expenditure on capital account or the realisation of capital assets if the amount or the aggregate amount of such expenditure or realisation by the Society, would exceed US$ 100,000 (or its equivalent) in any one year or in relation to any one project, and for the purpose of this CLAUSE 6.1.1, the aggregate amount payable under any agreement for hire, hire purchase or purchase on credit sale or conditional sale terms shall be deemed to be capital expenditure incurred in the year in which such agreement entered into; 6.1.2 approve or replace any Budget or Business Plan or modify any Budget or Business Plan provided that prior unanimous consent shall not be required pursuant to this CLAUSE 6.1.2 for any modification to the Budget which varies the Budget by less than 10%; 6.1.3 enter into any contract or other obligation inconsistent with the then current Budget or omit to take any action which is required by the Budget provided that prior unanimous consent shall not be required pursuant to this CLAUSE 6.1.3 for any contract or other obligation which requires expenditure on the part of the Society less than 10% higher than the then current Budget; 5 7 6.1.4 undertake any action which is inconsistent with, or omit to undertake any action which is required by, the Business Plan; 6.1.5 pay any bonus to any member of the Management Board or the Supervisory Board or employee of the Society in excess of amount allocated for such bonuses in the relevant Financial Year set out in the then current Budget or Business Plan; 6.1.6 to the extent permitted by Polish Law, give any guarantee or indemnity or surety to secure the liabilities or obligations of any person; 6.1.7 sell, transfer, lease, assign, or otherwise dispose of the whole or a material part of the undertaking, property and/or assets of the Society, or acquire any material asset or business or contract so to do (whether by a single transaction or a series of transactions) where the value concerned exceeds US$ 100,000 (or its equivalent); 6.1.8 (except in the ordinary course of business) take or agree to take any leasehold interest in or licence over any land; 6.1.9 create any mortgage, charge, pledge or other encumbrance over the whole or any part of its undertaking, property or assets except for the purpose of securing the indebtedness of the Society to its bankers for sums borrowed in the ordinary and proper course of business; 6.1.10 borrow any sum (except from the Society's bankers in the ordinary and proper course of the Business) in excess of a maximum aggregate sum outstanding at any time of US$ 250,000 (or its equivalent); 6.1.11 to the extent permitted by Polish Law, make any loan or advance or give any credit (other than normal trade credit); 6.1.12 enter into or terminate any partnership, joint venture or profit-sharing agreement or enter into any collaboration agreement; 6.1.13 enter into any contract or transaction which a) is not in the ordinary course of the business of the Society; b) has a duration of more than three years; c) is not on arm's length terms; 6.1.14 enter into any contract or obligation with any shareholder or to any entity in the Pioneer Group or the Nationwide Group or any Associate or employee of any such person (including any renewal thereof or any variation in the terms of any existing contract or obligation) which involves or could involve expenditure or the 6 8 incurring of any obligation by the Society in excess of US$ 150,000 (or its equivalent); 6.1.15 take any major decisions relating to the initiation or conduct (including settlement) of material legal, arbitration, alternative dispute resolution or similar proceedings to which it is or would become a party (a potential liability or claim for US$ 250,000 (or its equivalent) being regarded as material for that purpose); 6.1.16 make a material change to the investment policy of the Fund; 6.1.17 change the depository bank of the Fund; 6.1.18 to the extent allowed by law, change the principles in relation to the calculation of assets of the Fund and the calculation of the rate of return on the assets of the Fund; 6.1.19 change the outside transfer agent of the Fund; 6.1.20 amend the fee rates or structure, the charging rates or structure or commission rate or structure of the Society or the Fund; 6.1.21 change the auditors of the Society; 6.1.22 acquire, purchase or subscribe for any shares, debentures, mortgages, or securities (or any interest therein) in any company, trust or other body; or 6.1.23 change the fiscal year end of the Society or the Fund. 6.2 At the first meeting of the Supervisory Board following Completion, the parties will cause (insofar as they are able by the exercise of such rights and powers) that the Supervisory Board will give a direction to the Management Board that the Management Board is to keep the Supervisory Board fully informed about any legal, arbitration, alternative dispute resolution or similar proceedings to which the Society is or becomes a party. 7. REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS 7.1 Pioneer hereby makes representations and warrants to Nationwide in the terms set out in SCHEDULE 3 (WARRANTIES) in relation to the Society and the Fund (as appropriate). Each of the Warranties shall be construed independently and (except as expressly otherwise provided) shall not be limited by reference to any other Warranty or by anything in this Agreement. 7.2 Pioneer accepts that Nationwide is entering into this Agreement upon the basis of and in reliance upon the Warranties. 7 9 7.3 The liability of Pioneer and Nationwide in respect of any claim in relation to the Warranties shall be limited as provided in SCHEDULE 4 (LIMITATION OF LIABILITY). 7.4 In relation to the Society and the Fund (as appropriate) Pioneer makes representations and warrants to Nationwide that all the Warranties (with the exception of the Warranties in PARAGRAPHS 1; 2.1; 3.1; 6.1; 6.2; THE FIRST SENTENCE OF PARAGRAPH 6.3; 7; 8.2; 13.1 AND 17 of SCHEDULE 3 (WARRANTIES)) will be true and accurate in all respects and not misleading at the date of this Agreement and at Completion: 7.4.1 as if they had been repeated on each such day by reference to the circumstances at the time of repetition; and 7.4.2 on the basis that a reference to the time of repetition were each time substituted for any express or implied reference to the time of this Agreement (but so that any period of time expressed to start at the date of this Agreement shall continue to be deemed to start then) and references in this Agreement to the Warranties shall include them as so repeated. 7.5 Pioneer undertakes that: 7.5.1 it shall not, and shall cause (as far as it can) that the Society shall not, at any time before Completion do (or permit or suffer to subsist or be done) any act or thing which would constitute a breach of any of the Warranties or which would make any of the Warranties untrue or misleading at Completion; 7.5.2 upon Pioneer becoming aware before Completion of the actual or impending occurrence or non-occurrence of any matter, event or circumstance (including any omission to act) which: (a) would or might reasonably be expected to cause or constitute a breach of any Warranty; or (b) would or might reasonably be expected to make any of the Warranties untrue or misleading at Completion; or (c) would have caused or constituted a breach of any Warranty had it been known to Pioneer before exchange of this Agreement, it will immediately give written notice of such event to Nationwide with sufficient details to enable Nationwide to assess accurately the impact of such event and (if requested by Nationwide) use its reasonable endeavours promptly to prevent or remedy the event. 8 10 7.6 Where any Warranty is qualified by Pioneer's knowledge it shall mean the actual knowledge of Alan Laughlin, Larry R. Wilder, Alicja Malecka and/or each of the members of the Management Board. 7.7 Pioneer hereby warrants to Nationwide that at Completion Pioneer and the Society have obtained all necessary corporate and other consents and approvals in relation to the performance of this Agreement and the Share Subscription Agreement and the other documents to be executed at Completion and accordingly they each have full power to enter into and perform this Agreement and the Share Subscription Agreement and the other documents to be entered into pursuant to this Agreement and the Share Subscription Agreement, each of which constitutes (or will when executed) binding obligations on Pioneer and the Society in accordance with their respective terms. 7.8 Nationwide hereby makes representations and warrants to Pioneer as follows: 7.8.1 Nationwide has full power to enter into this Agreement and the Share Subscription Agreement and the other documents to be entered into pursuant to this Agreement and the Share Subscription Agreement, each of which constitutes (or will when executed constitute) binding obligations on Nationwide in accordance with their respective terms. 7.8.2 Nationwide hereby warrants to Pioneer that at Completion Nationwide has obtained all necessary corporate and other consents and approvals in relation to the performance of this Agreement and the Share Subscription Agreement and the other documents to be executed at Completion and accordingly it has full power to enter into and perform this Agreement and the Share Subscription Agreement and the other documents to be entered into pursuant to this Agreement and the Share Subscription Agreement, each of which constitutes (or will when executed) binding obligations on Nationwide in accordance with their respective terms. 7.8.3 No officer or employee of Nationwide has made or received any Sensitive Payment in connection with the Business or any permission, confirmation or registration held by the Society or applied for pursuant to clause 2 of the Share Subscription Agreement. For the purposes of this CLAUSE 7.8.3 the expression "SENSITIVE PAYMENT" (whether or not illegal) shall include (i) bribes or kickbacks paid to any person, firm or company including central or local government officials or employees or (ii) amounts received with an understanding that rebates or refunds will be made in contravention of the laws of any jurisdiction either directly or through a third party or (iii) any political contribution which would be unlawful in Poland or (iv) payments or commitments (whether 9 11 made in the form of commissions, payments or fees for goods received or otherwise) made with the understanding or under circumstances that would indicate that all or part of the payment is to be paid by the recipient to central or local government officials or as a commercial bribe, influence payment or kickback. 7.9 In consideration of Nationwide entering into the Share Subscription Agreement Pioneer hereby undertakes to Nationwide that if the Society fails to make the payment of US$ 20,000,000 to Nationwide pursuant to clause 4.6 of the Share Subscription Agreement within the time limits prescribed in such clause, Pioneer shall cause the Society to make a payment of US$ 20,000,000 to Nationwide on the written demand of Nationwide. 8. CAPITAL AND FURTHER FINANCE 8.1 The issued share capital of the Society may from time to time be increased by such sum as shall be agreed between the Shareholders in accordance with this CLAUSE 8 and CLAUSE 5.1.3. 8.2 It is the intention of the parties that the Society should be self-financing and neither Shareholder shall be obliged to contribute further funds or participate for the benefit of the Society in any guarantee or similar undertaking. However, the Shareholders acknowledge their intention to support the Society in accordance with the then current Business Plan and will in good faith consider providing such additional funds, guarantees and undertakings as may reasonably be required to ensure the adequate funding of the Society. Unless the parties agree otherwise, all capital increases of the Society shall be made on a pro rata basis. 9. GUARANTEES, ETC. GIVEN BY THE SHAREHOLDERS Neither Shareholder (nor any member of its respective Group) shall be obliged to participate for the benefit of the Society in any guarantee, bond, indemnity or financing arrangement with any bank or financial institution, whether as a guarantor or in any other capacity whatsoever. 10. EXERCISE OF RIGHTS AND POWERS Each Shareholder undertakes with the other that (so far as it is legally able) it will exercise all voting rights and powers, direct and indirect, available to it in relation to any person and to the Society so as to ensure the complete and punctual fulfilment, observance and performance of the provisions of this Agreement (and the other agreements referred to in this Agreement) and generally that full effect is given to the principles set out in this Agreement including (without limitation) taking all appropriate steps to enforce this Agreement (and any such other agreements). 10 12 11. COMPETITION RESTRICTIONS AND REGULATORY ACTION 11.1 Neither of the Shareholders shall at any time whilst it is beneficially interested in any Shares or for a period of one year from the date on which such Shareholder ceases to be beneficially interested in any of the Shares, and shall cause that none of its Associates shall do (and whether alone or jointly with others or whether as principal, agent, shareholder or otherwise and whether for its own benefit or that of others) any of the following without the prior written consent of the other Shareholder:- 11.1.1 directly or indirectly carry on or be engaged, concerned or interested (except as the holder for investment of shares amounting in aggregate to less than 3 per cent. (3%) of the share capital quoted or dealt in on the Warsaw Stock Exchange) in any business competing in Poland with the Business; 11.1.2 solicit or entice away or endeavour to solicit or entice away any employee of the Society (including without limitation, a person whose services have been seconded to the Society by the other Shareholder or any of its Associates), but without prejudice to the right of such Shareholder to terminate arrangements under which any of its staff are seconded to the Society, provided that nothing in this CLAUSE 11.1.2 shall prevent a Shareholder making a job offer to an employee who responds to a job advertisement; or 11.1.3 carry on a trade or business or use a business name or mark under a title containing the name of the Society; provided that nothing in this clause shall preclude or restrict either Shareholder or other members of their respective Groups from:- (a) carrying on any activity carried on during the period of 12 months immediately preceding the date of this Agreement; (b) offering any service or goods similar to those previously supplied as part of the Business but subsequently discontinued and not supplied by the Society at the time when such similar service or goods are offered; (c) using any of its existing business names or trademarks; or (d) acquiring or holding shares amounting in aggregate between the Shareholder and any of its subsidiaries to less than three per cent. (3%) of the capital of a company quoted or dealt in on the Warsaw Stock Exchange. 11 13 12. DIVIDEND AND DISTRIBUTION POLICY 12.1 The Shareholders shall cause that unless otherwise expressly agreed by each of the Shareholders in writing or in general meeting, to the extent permitted by Polish law, the aggregate of the full amount of the profits of the Society available for distribution according to the audited accounts for any Financial Year and the accumulated distributable reserves of the Society from prior Financial Years but less accumulated losses shall be distributed by the Society by way of dividend (subject to any obligation on the Society imposed by Polish law to create or maintain any reserve). 13. SHARE TRANSFERS : PRE-EMPTION PROVISIONS 13.1 Except in the case of a transfer pursuant to CLAUSE 13.10, the right to transfer a Share shall be subject to the provisions contained in this CLAUSE 13. 13.2 Before transferring any Share, the Shareholder proposing to make the transfer (the "TRANSFEROR") shall give notice in writing (a "TRANSFER NOTICE") to the other Shareholders specifying the Shares (the "SALE SHARES") which the Transferor wishes to transfer. A Transfer Notice shall be irrevocable. 13.3 A Transfer Notice may include a condition (a "TOTAL TRANSFER CONDITION") that if all the Sale Shares are not sold to the other Shareholders, then none shall be so sold. 13.4 The Transfer Notice shall state, in addition to details of the Sale Shares: 13.4.1 the name or names of the person or persons (such person or persons being hereinafter referred to as the "PROPOSING TRANSFEREE") to whom the Sale Shares are proposed to be transferred and a summary of the terms and conditions on which such sale is proposed to be made in the event that the Sale Shares are not acquired by the other Shareholders; and 13.4.2 the entire consideration per Share for which any such transfer or transfers will be made (and, if any of the said consideration is not a cash price expressed in United States Dollars, an amount per share which is so expressed) and such consideration shall be the "Sale Price". 13.5 The Transfer Notice shall offer the Sale Shares for sale by the Proposing Transferor to all the other Shareholders at the Sale Price. 13.6 Any such offer as is required to be made by the Proposing Transferor pursuant to CLAUSE 13.5. shall limit a time (not being less than 14 days or more than 21 days) after such offer is made within which it must be accepted or, in default will lapse. Following any such offer, if acceptances are received in respect of an aggregate number of Shares in excess of that offered, the 12 14 number of Sale Shares shall be allocated amongst those who have accepted the same in proportion to the number of Shares held by each acceptor provided that no acceptor shall be obliged to acquire more Sale Shares than the number for which he has applied and so that the provisions of this CLAUSE 13.6. shall continue to apply mutatis mutandis until all Shares which any such acceptor would but for this proviso have acquired on the proportionate basis specified above have been allocated accordingly. 13.7 If a Transfer Notice shall contain a Total Transfer Condition, then any such offer as aforesaid shall be conditional upon such condition being satisfied and no acceptance of an offer of Sale Shares will become effective unless such condition is satisfied. Subject thereto, any such offer as is required to be made by the Proposing Transferor pursuant to this CLAUSE 13 shall be unconditional except as provided in CLAUSE 16. 13.8 If the Proposing Transferor shall, pursuant to the foregoing provisions of this CLAUSE 13, find other Shareholders to purchase some or (if CLAUSE 13.7. shall apply) all the Sale Shares, it shall as soon as practicable after so doing give notice in writing thereof to the accepting Shareholders. Every such notice shall state the name and address of each of the accepting Shareholders and the number of the Sale Shares to be purchased by him. Upon the giving by the Company of any such notice as aforesaid the Proposing Transferor shall be bound, subject to CLAUSE 16, to complete the sale of the Sale Shares at the Sale Price to which such notice relates in accordance with its terms. 13.9 If the Proposing Transferor shall not, prior to the expiry of the Prescribed Period, find other Shareholders willing to purchase some, or, if the relevant Transfer Notice contains a Total Transfer Condition, all, of the Sale Shares, it shall be at liberty (subject to receiving all relevant Regulatory Approvals) to transfer those of the Sale Shares not purchased by other Shareholders or all the Sale Shares (as the case may be) to the Proposing Transferee at the Sale Price and otherwise on terms and conditions summarised no more favourable than those in the Transfer Notice. 13.10 A Shareholder shall be permitted to transfer a Share without having to serve a Transfer Notice pursuant to CLAUSE 13.2 if the Shareholder proposes to transfer such Shares to any other member of its Group provided that in the case of a proposed transfer to a subsidiary of the Shareholder or to another member of its Group which is a lower tier subsidiary of its holding company than the Shareholder concerned, it obtains the prior written consent of the other Shareholders to such transfer, such consent not to be unreasonably withheld or delayed. 14. PROCEDURE IN THE EVENT OF DEADLOCK 14.1 The provisions of this clause shall apply in any case where:- 13 15 14.1.1 a substantial matter referred to in CLAUSES 4, 5, OR 6 hereof of the Society has been considered by a meeting of the Supervisory Board or the Shareholders General Meeting as the case may be after the text of the resolution was circulated to the members of the Supervisory Board referring to this clause; and 14.1.2 no resolution has been carried at such meeting of the Supervisory Board or the Shareholders, as the case may be, in relation to the matter by reason of a failure to achieve the required majority of votes or an equality of votes for and against any proposal for dealing with it. Any such case is hereinafter referred to as a "DEADLOCK". 14.2 In any case of Deadlock, Nationwide may, within ten Business Days of such Deadlock having arisen or become apparent, prepare and circulate to Pioneer a memorandum referring to this clause and setting out its position on the matter giving rise to the Deadlock and its reasons for adopting such position and requesting Pioneer to issue within the next ten (10) Business Days an equivalent memorandum. Each such memorandum shall be considered by the Chairman (or his nominee) of Nationwide and Pioneer and Pioneer and Nationwide shall each cause that its Chairman (or his nominee) shall use his reasonable endeavours to resolve the Deadlock within a period of thirty (30) days of his receipt of the first such memorandum or statement being circulated (whatever the date, if any, of any other such memorandum). If they agree upon a resolution or disposition of the matter, they shall exercise the voting rights and other powers of control available to them in relation to the Society to cause that such resolution or disposition is fully and promptly carried into effect. No memorandum shall be issued under this clause within 12 months of the date of this Agreement. 14.3 If a resolution or disposition of the matter giving rise to a Deadlock is not agreed to the satisfaction of both Nationwide and Pioneer in accordance with the provisions of CLAUSE 14.2 within ninety (90) days after the receipt by the Chairmen of the first memorandum mentioned therein (or such longer period as Nationwide and Pioneer may agree in writing) Nationwide may give a written notice (a "DEADLOCK OPTION NOTICE") to Pioneer of its intention to exercise an option (which Pioneer hereby grants to Nationwide) to require Pioneer to purchase all of the Shares held by Nationwide or any Associate of Nationwide on the terms set out in CLAUSE 16 at the Put Option Price. A Deadlock Option Notice shall state that it is a Deadlock Option Notice given pursuant to this clause of this Agreement and shall be irrevocable except with the consent of Pioneer. For the avoidance of doubt, the provisions in this CLAUSE 14 are in addition to any right which Nationwide may have including but not limited to selling its Shares to a third party. 14 16 14.4 In no circumstances shall either Shareholder create an artificial Deadlock under this clause nor shall Nationwide exercise, or seek to pursue, its rights under this clause when a Deadlock is or has become artificial. For the purposes of this provision, a Deadlock is artificial if caused by a Shareholder, or its appointees on the Supervisory Board, voting against or persisting in their opposition to a proposal (i) primarily or substantially with the intention of frustrating or delaying the proper and efficient carrying out of the Business or (ii) in any case where the passage or approval of the same is required to enable the Society to carry on the Business properly and efficiently and (in either case (i) or (ii)) the implementation of the proposal is not directly contrary to the significant business interests of that Shareholder nor required by its obligations under this or any other agreement between the parties hereto. 15. DEFAULT EVENT OPTION 15.1 In the event that Pioneer shall commit or suffer a Default Event, Nationwide shall subject to CLAUSE 15.2 be entitled but not obliged to adopt the procedure described in this CLAUSE 15. 15.2 Nationwide may whilst the Default Event continues to subsist but in any event within six (6) weeks of Nationwide first becoming aware of the Default Event give written notice (a "DEFAULT EVENT OPTION NOTICE") to Pioneer of its intention to exercise an option (which Pioneer hereby grants to Nationwide) to require Pioneer to purchase from Nationwide and any Associate of Nationwide all the Shares held by Nationwide and each member of Nationwide Group on the terms set out in CLAUSE 16 at the Put Option Price. 15.3 On the service of a Default Event Option Notice, Pioneer shall be deemed irrevocably to have accepted such offer at the Put Option Price. 15.4 The exercise of its rights by Nationwide under this CLAUSE 15 shall be without prejudice to any other rights or remedies available to Nationwide in respect of such Default Event including, but not limited to its right to sell any Shares held by it or any of its Associates to a third party or to seek damages or specific performance or some other form of equitable remedy. 15.5 For the purpose of this clause a "DEFAULT EVENT" means the occurrence of any of the following:- 15.5.1 that Shareholder committing a material breach of its obligations under CLAUSES 3, 4, 5, 6, 11 OR 13, of this Agreement and, in the case of a breach capable of remedy, failing to remedy the same to the reasonable satisfaction of the other Shareholder within thirty (30) Business Days of being required by notice (referring to this clause and specifying the breach) so to do by the other Shareholder; 15 17 15.5.2 that Shareholder ceasing or threatening to cease wholly or substantially to carry on its business, otherwise than for the purpose of a reconstruction or amalgamation without insolvency and on terms previously approved by the other Shareholder (such approval not to be unreasonably withheld or delayed); 15.5.3 any receiver, liquidator, assignee, trustee or sequestrator taking possession of or being appointed over the whole or any part of the undertaking, property or assets of that Shareholder; or 15.5.4. the making of an order or the passing of a resolution for the winding up of that Shareholder , otherwise than for the purpose of a reconstruction or amalgamation without insolvency on terms previously approved by Nationwide (such approval not to be unreasonably withheld or delayed). 15.6 The provisions of this CLAUSE 15 shall be without prejudice to any rights or remedies available to Pioneer in respect of a Default Event suffered or committed by Nationwide including, but not limited to Pioneer's right to sell any Shares held by it or any of its Associates to a third party or to seek damages or specific performance or some other form of equitable remedy. 16. SHARE TRANSFER MECHANICS 16.1 Completion of the transfer of any Shares by one Shareholder (the "VENDOR") together with any other relevant members of its Group to the other Shareholder (the "PURCHASER") pursuant to CLAUSES 13, 14 OR 15 shall take place on the seventh Business Day after whichever is the later of the date such obligation arises pursuant to those clauses and the date of ascertainment of the Put Option Price and the date of the obtaining of all necessary Regulatory Approvals and other third party consents and the Shareholders shall use their respective reasonable endeavours to obtain such Regulatory Approvals and other consents as soon as practicable and on terms which do not impose conditions which are both material and to which the affected party can reasonably (or does not) object. Subject to the obtaining of such Regulatory Approvals and other consents on such terms, completion shall take place at 12 noon at the registered office of the Vendor (or at such other place and time as the Shareholders shall agree) when the Vendor shall deliver to the Purchaser:- 16.1.1 a duly executed agreement transferring to the Purchaser (or as it may direct) the relevant Shares together with the relevant share certificates therefor, such Shares to be sold by the Vendor and any other relevant members of its Group free from any right of pre-emption, option, lien, charge, equity or other Encumbrance and to be sold together with all rights attaching thereto (including 16 18 dividends declared but not paid) on the date on which the sale is to take place; 16.1.2 all other documents of title relating to the relevant Shares and all such waivers or consents as the Purchaser may reasonably require to enable it to be registered as the holders of the relevant Shares; 16.1.3 all third party consents or approvals (insofar as these are within the power of the Vendor so to obtain) in connection with the transfer of the relevant Shares to the proposed Purchaser; 16.1.4 such evidence as the Purchaser may reasonably request that any relevant Regulatory Approvals and other necessary third party consents have been obtained and their conditions complied with; and 16.1.5 the written resignation by deed of all members of the Supervisory Board appointed or deemed to have been appointed by the Vendor. 16.2 Against receipt of the documents referred to in CLAUSE 16.1, the Purchaser shall as a further part of completion:- 16.2.1 deliver to the Vendor such evidence as the Vendor shall reasonably request that any relevant Regulatory Approvals and other necessary third party consents have been obtained and their conditions complied with; 16.2.2 put to the Vendor in (unless otherwise agreed by the Shareholders) cleared funds for the purchase consideration for the relevant Shares; and 16.2.3 procure the release of the Vendor (and any of its Associates) from any Guarantees given to third parties in respect of the Society provided that in the event that such release is not available at completion of such sale, the Purchaser (and any guarantor of its obligations hereunder) shall indemnify the Vendor in respect of any liability whatsoever (including costs) it or its Associates may have under any such Guarantees. 16.3 If Nationwide exercises the put option in CLAUSES 14.3 or 15.2, the Shareholders shall endeavour to agree the price at which Pioneer will acquire all the Shares held by Nationwide and its Associates. If the Shareholders fail to agree such price within 30 days of the Deadlock Option Notice or, as the case may be, the Default Event Option Notice, Nationwide and Pioneer shall each separately instruct an expert in the valuation of companies in the financial services sector (the "EXPERTS") to determine the open market value (the "MARKET VALUE") of the relevant Shares as between a willing seller and a willing third party buyer at the date of the Deadlock Option Notice or Default Event Option Notice (as the case may be). The Experts shall act as 17 19 experts and not as arbitrators and their decisions shall be incorporated on to a certificate. The fees and expenses claimed by each Expert shall be bourne by the party which instructed them. The Put Option Price shall be the average of the Market Values determined by the two Experts. 17. ASSIGNMENT Neither of the Shareholders shall assign or declare any trust of any Shares it holds from time to time or any interest therein nor assign or transfer or purport to assign or transfer or declare any trust of any of its rights or obligations under this Agreement without the prior written consent of the other Shareholder. 18. PROTECTION AND USE OF NAME 18.1 For the avoidance of doubt nothing in this Agreement permits or will permit Pioneer or any of its Associates or the Society to use the name "Nationwide" or any derivative thereof in any business conducted by Pioneer or any Associate of Pioneer. 18.2 For the avoidance of doubt, nothing in this Agreement permits or will permit Nationwide or any of its Associates to use the name "Pioneer" or any derivative thereof in any business conducted by Nationwide or any Associate of Nationwide. 18.3 Pioneer hereby confirms that it consents to the use by the Society and the Fund, in connection with the Business, of the name "Pioneer" and the trademarks and logo of Pioneer. Pioneer shall, and shall cause that its Associates shall, permit the Society and the Fund to use the name "Pioneer" for not less than four years following Completion and thereafter for so long as Pioneer of any other member of the Pioneer Group remains a Shareholder. Upon all members of the Pioneer Group ceasing to be a Shareholder, (a) Pioneer may give notice to the Society and the Fund that they are to cease to use the name "Pioneer" and thereafter (b) Nationwide (and any other Shareholder at that time that is a party to this Agreement) shall promptly exercise all voting rights and powers available to it to cause the Society and the Fund to change their names to remove the name "Pioneer" provided, however, that if Pioneer and the other members of the Pioneer Group cease to be a Shareholder before the fourth anniversary of Completion, such revocation of right and change of names shall not take effect until the fourth anniversary of Completion, unless the Shareholders agree otherwise on an earlier date. The parties further agree that as soon as practicable and in any event prior to Completion, Pioneer shall cause Pioneer Investment Fund Company to grant a non-exclusive royalty-free licence (the "LICENCE") to the Society to use the trademarks and logo of Pioneer in the Business. The parties to this 18 20 Agreement agree to negotiate the terms of the Licence in good faith as soon as practicable and in any event prior to Completion. Pioneer shall not and shall cause that its Associates shall not terminate the Licence or any other agreement permitting the Society and the Fund to use in connection with the Business, the trademarks or logo of Pioneer during the period of four years following Completion and thereafter for so long as Pioneer or any member of the Pioneer Group remains a Shareholder. Upon all members of the Pioneer Group ceasing to be a Shareholder, Pioneer may give, and may cause its Associates to give, notice to terminate or otherwise revoke the Licence and any other agreement permitting the Society and the Fund to use the trademarks or logo of Pioneer provided, however, that if Pioneer and the other members of the Pioneer Group cease to be a Shareholder before the fourth anniversary of Completion, such termination or revocation of rights shall not take effect until the fourth anniversary of Completion, unless the Shareholders agree otherwise on an earlier date. 19. THIS AGREEMENT NOT TO CONSTITUTE A PARTNERSHIP None of the provisions of this Agreement (or any of the arrangements contemplated by this Agreement) shall be deemed to constitute a partnership between the parties hereto at any time or, save as expressly provided herein, to constitute any party the agent of the other, or to have any authority to bind the others in any way except as expressly provided. 20. COSTS All costs, legal fees and other expenses incurred in the negotiation, preparation and execution of this Agreement shall be borne and paid by the party which incurred them. 21. CONFIDENTIAL INFORMATION 21.1 Each of the parties undertakes to the other that it shall not (and shall procure that none of its subsidiaries shall) disclose to any person (other than those persons (including that person's professional advisers) whose province it is to know the same on a "need-to-know" basis for the proper implementation of this Agreement) or use or exploit for any purpose whatever any of the trade secrets or confidential knowledge or information or any financial or trading information ("CONFIDENTIAL INFORMATION") relating to the business or affairs the other parties (or their Associates) which the relevant parties (or their Subsidiaries) may receive or obtain as a result of negotiating for or entering into this Agreement, and shall use its reasonable endeavours to prevent its (and their) employees and agents from so acting. 19 21 21.2 Each party shall (and shall cause their Associates shall) (i) cause that anyone coming into receipt of Confidential Information consistently with this clause shall be informed upon receipt that such information is Confidential Information and (ii) use their reasonable endeavours to procure that any person to whom disclosure is made under (i) of this clause shall comply with the provisions of this clause in respect of such Confidential Information as if they were Shareholders. 21.3 The restrictions in this clause shall continue to apply for three years after the expiration or sooner termination of this Agreement but shall cease to apply to information or knowledge which:- 21.3.1 may properly come into the public domain through no fault of or breach of this Agreement by the party so restricted; or 21.3.2 a party (or other person properly receiving the information consistent with CLAUSE 21.1) is required to disclose by law or by order of any court or by any competent governmental or other regulatory authority, provided that any information required to be disclosed pursuant to CLAUSE 21.3.2 shall be disclosed only to the extent required by such law, order governmental or other authority and only after consultation with the other parties; 21.3.3 information which is independently developed by the relevant party or acquired from a third party to the extent that it is acquired with the right to use or exploit or disclose the same; 21.3.4 any announcement made in accordance with the terms of CLAUSE 23 (ANNOUNCEMENTS). 22. DURATION 22.1 This Agreement shall unless otherwise agreed in writing between the Shareholders continue in full force and effect until the first to occur of the following dates:- 22.1.1 the date on which the Shareholders cease to be beneficially entitled to any Shares; 22.1.2 the date of commencement of the dissolution of the Society. Provided that notwithstanding the termination of this Agreement nothing shall:- 22.1.3 relieve either Shareholder or any of their Associates from any liability or obligation in respect of any act or omission by such Shareholder or Associate up to the date of termination of this 20 22 Agreement or under or pursuant to any other agreement or arrangement between any Shareholder (or any of its Associates) and the Society; 22.1.4 affect the obligations of the parties under clauses 11 (COMPETITION RESTRICTIONS AND REGULATORY ACTION), 21 (CONFIDENTIAL INFORMATION) OR 23 (ANNOUNCEMENTS), and other provisions of this Agreement which are expressed to survive termination hereof. 23. ANNOUNCEMENTS 23.1 Save, and insofar as required by the rules of any stock exchange or other governmental or regulatory authority (whether or not having the force of law) to which a party may be subject, no announcement shall be made by any party either before or after Completion in relation to any of the transactions provided for in this Agreement without the prior written consent of both Pioneer and Nationwide which prior written consent shall not be unreasonably withheld or delayed. 23.2 Each of the parties undertakes to provide all such information known to it or which, on reasonable enquiry, ought to be known to it as may reasonably be required by the other parties for the purpose of complying with the requirements of any stock exchange or other governmental or regulatory authority to which one of the parties to this Agreement is subject. 24. WAIVER, FORBEARANCE AND VARIATION 24.1 The rights of any party shall not be prejudiced or restricted by any indulgence or forbearance extended to any other party and no waiver by any party in respect of any breach shall operate as a waiver in respect of any subsequent breach. 24.2 This Agreement shall not be amended, varied or cancelled, unless such amendment, variation or cancellation shall be expressly agreed in writing by each party. 25. GOVERNING LAW, LANGUAGE AND JURISDICTION 25.1 The construction, validity and performance of this Agreement shall be governed in all respects by law of the state of Delaware, without regard to choice of law provisions. 25.2 All notices or formal communications under or in connection with this Agreement shall be in the English language or in any other language accompanied by a translation into English. In the event of any conflict 21 23 between the English text and the Polish text, if any, the English text shall prevail. 25.3 All and any disputes or differences arising out of or in connection with this Agreement, or the breach, termination or invalidity thereof shall be finally settled by arbitration in accordance with the International Arbitration Rules of the American Arbitration Association (the "AAA Rules"). 25.4 The place and seat of the arbitration shall be New York and the language of the arbitral proceedings shall be English. 25.5 All and any awards of the Arbitrators shall be made in accordance with the AAA Rules in writing and shall be final and binding on the parties who expressly exclude all and any rights of appeal from all and any awards, to the extent such exclusion may be validly made. 25.6 The parties agree to keep confidential to themselves and to their legal and professional advisers the existence and details of any proceedings pursuant to this clause including the parties' submissions and evidence, all and any awards (their content, reasons and result), save to the extent that such documents or information are in the public domain or their disclosure is required by a legal duty or is reasonably necessary to protect or pursue a legal right or remedy. 26. SEVERABILITY If any of the provisions of this Agreement is found by an arbitrator or other competent authority to be void or unenforceable, such provision shall be deemed to be deleted from this Agreement and the remaining provisions of this Agreement shall continue in full force and effect. Notwithstanding the foregoing the parties shall thereupon negotiate in good faith in order to agree the terms of a mutually satisfactory provision to be substituted for the provision so found to be void or unenforceable. 27. ENTIRE AGREEMENT 27.1 This Agreement and the Share Subscription Agreement and any other agreement to be entered into on Completion supersedes any previous agreement between the parties in relation to the matters dealt with herein and represents the entire understanding between the parties in relation thereto. 22 24 27.2 The provisions of CLAUSES 3, 4, 5, 6, 10, 11, 12, 13, 14, 15, 16 and 18 shall be conditional on the conditions in clause 2.1 of the Share Subscription Agreement being satisfied or waived and on Completion taking place. The remaining provisions of this Agreement shall come into full force and effect on the date of this Agreement. 28. THE TERMS OF THIS AGREEMENT TO PREVAIL In the event of any ambiguity or conflict arising between the terms of this Agreement and those of the Articles, the by-laws of the Management Board or the by-laws of the Supervisory Board, the terms of this Agreement shall prevail as between the parties and the Shareholders shall exercise such voting rights and other powers available to them to give full force and effect to this Agreement including without limitation to amend the Articles, the by-laws of the Management Board or the by-laws of the Supervisory Board (as the case maybe) to the extent reasonably necessary to remove such ambiguity or conflict. 29. NOTICES 29.1 Any notice to be given under this Agreement shall be in writing and delivered by hand and/or internationally recognised courier and/or sent by post (registered delivery if inland and airmail if overseas) or facsimile (in the case of facsimile to be confirmed in writing within 48 hours of being sent by such notice being delivered by hand or sent by registered delivery as aforesaid). The address for service of each party shall by as follows:- Party: THE PIONEER GROUP, INC Address: 60 State Street Boston MA United States of America Facsimile No: 001 617 422 4286 Attention of: Alicja Malecka Copy to: Robert P. Nault General Counsel The Pioneer Group, Inc. 60 State Street Boston MA United States of America Facsimile No: 001 617 422 4293 23 25 Party: NATIONWIDE GLOBAL HOLDING, INC. Address: One Nationwide Plaza Columbus, Ohio 43215 United States of America Facsimile No: 001 614 677 6254 Attention of: David Martin Copy to: Toni Ness Nationwide Global Holdings, Inc. One Nationwide Plaza Columbus Ohio 43215 United States of America Facsimile No: 001 614 249 7254 Any party may change any of its address, fax number or the name of the person for whose attention the notice is to be addressed by serving a notice on the other parties pursuant to this clause. 29.2 A notice shall be deemed to have been served as follows:- 29.2.1 if delivered by hand or internationally recognised courier, at the time of delivery; 29.2.2 if posted, at the expiration of 48 hours or (in the case of airmail) seven days after the envelope containing the same was delivered into the custody of the postal authorities; and 29.2.3 if sent by facsimile or telemessage, at the expiration of 12 hours after the same was despatched except that if a notice or other communication would be deemed to be delivered under the above provisions after 5.30pm or on any day which is not a Business Day, then it shall be deemed instead to have been delivered at 9.30am on the next day which is a Business Day. 29.3 In proving such service it shall be sufficient to prove that the envelope was properly addressed and personal delivery was made, or that the envelope containing such notice was delivered into the custody of the postal authorities as a prepaid first class recorded delivery or airmail letter (as appropriate) or that the telex, facsimile or telemessage was properly addressed and transmitted as the case may be. 24 26 30. COUNTERPARTS This Agreement may be executed in one or more counterparts each signed by each of the parties and such counterparts shall together constitute one document. 25 27 SCHEDULE 1 WORDS AND EXPRESSIONS "ARTICLES": the existing articles of association of the Society or any amended or substituted version of the articles of association of the Society current for the time being in accordance with the terms of this Agreement; "ASSOCIATE": in relation to any party to this Agreement any subsidiary or holding company of the party or subsidiary of such holding company from time to time (other than the Society); "AUDITORS": the auditors of the Society from time to time; "BUDGET": the Initial Budget and any budget for the Society agreed in accordance with CLAUSE 4.1.1 and applicable from time to time; "BUSINESS DAY": any day other than a Saturday, Sunday or any bank or other public holiday in Poland; "BUSINESS PLAN": the Initial Business Plan and any business plan for the Society agreed in accordance with CLAUSES 4.1.3 or 6.1.2 and applicable from time to time; "BUSINESS": the business of the Society as described in CLAUSE 2.1; "COMPLETION": has the meaning set out in the Share Subscription Agreement; "CONNECTED PERSON": in relation to Pioneer and the Society means any of the following: (a) any Associate of Pioneer or the Society; (b) any director, officer or employee of Pioneer and/or the Society; (c) any member of the Management Board or Supervisory Board; and (d) any spouse or infant child of any of the above; "DEFAULT EVENT": any of the events listed in CLAUSE 15.4; "DISCLOSURE LETTER": means the letter attached to this Agreement and described as such, dated as of the date of this Agreement and addressed by Pioneer to Nationwide; "ENCUMBRANCE" means any interest of any person (including any right to acquire, option or right of pre-emption) or any mortgage, pledge, lien, assignment, security interest, title relocation or other security agreement or any agreement to create any of the above. 26 28 "FINANCIAL YEAR": each accounting reference period of the Society which will end on 31 December in each year subject to any longer or shorter period being agreed between the Shareholders; "FUND": the Pioneer Open Pension Fund; "GROUP": either or both of the Pioneer Group or the Nationwide Group and references to "its Group" shall be to the Pioneer Group or the Nationwide Group as the context shall require; "GUARANTEES": all guarantees, indemnities, sureties and covenants and letters of comfort or support (irrespective of the fact they may not be legally binding) referred to in CLAUSE 9, as varied extended or renewed; "IN THE AGREED TERMS": in the form of the draft agreed between the parties attached to this Agreement and initialled for identification by or on behalf of Pioneer and Nationwide; "INITIAL BUDGET": the first budget for the Society in the agreed terms; "INITIAL BUSINESS PLAN": the first business plan for the Society in the agreed terms; "INTELLECTUAL PROPERTY": means all patents, trademarks, service marks, community trade marks, trade names, business names, unregistered trade and service marks, copyrights, design rights, database rights, rights to or in computer software, know-how, trade secrets, rights to or in confidential information and all other commercial monopoly rights, intellectual property rights and rights or forms of protection of the same or of a similar or equivalent nature or effect which may subsist anywhere in the world whether or not registered or capable of registration and any similar or analogous rights to any of the above, together with all applications for registration of and rights to apply for, and any licence to use, any of the foregoing; "LOANS": all loans, loan capital, borrowings and indebtedness in the nature of borrowing; "MANAGEMENT BOARD": the management board of the Society; "NAME": Pioneer Powszechne Towarzystwo Emerytalne; "NATIONWIDE GROUP": Nationwide and its Associates from time to time; "PENSION LAW" the law of 28th of August 1997 on Organising and Operation of Pension Funds, as amended; "PERSON": any person, whether or not having legal personality, including, without limitation, any firm or body corporate or an unincorporated association carrying on a trade or business with or without a view to profit; 27 29 "PIONEER GROUP": Pioneer and its Associates from time to time; "PUT OPTION PRICE": the price determined in accordance with CLAUSE 16.3 "REGULATORY APPROVALS": any necessary approvals required by any competent supranational, governmental or regulatory agencies or authorities; "SHAREHOLDERS": Pioneer and Nationwide or any person or persons to whom they may properly transfer their shares pursuant to the provisions of this Agreement; "SHARE SUBSCRIPTION AGREEMENT": has the meaning set out in RECITAL (B); "SHARES": shares in the share capital of the Society; "SOCIETY": Pioneer Powszechne Towarzystwo Emerytalne S.A.; "SUBSCRIPTION SHARES": the 145,714 Shares to be subscribed for by Nationwide pursuant to this Agreement; "SUPERVISORY BOARD": the supervisory board of the Society; "TERRITORY": Poland "WARRANTIES": means the representations and warranties set out in CLAUSE 7 and SCHEDULE 3. 28 30 SCHEDULE 2 DETAILS OF THE SOCIETY NAME: Pioneer Powszechne Towarzystwo Emerytalne S.A. NUMBER: 013232430 REGISTERED OFFICE: INTRACO, 29th Floor, 2 Stawki Street, 00-193Warsaw SHARE CAPITAL: PLN 34,000,000 divided in 340,000 registered common A Series Shares SHAREHOLDERS: - NAME: The Pioneer Group, Inc. - SHARES HELD: 340,000 MEMBERS OF THE MANAGEMENT BOARD: - Krzysztof Szajek - The President - Tomasz Orlik - Jaroslaw Skorulski. MEMBERS OF THE SUPERVISORY BOARD: - Alicja K. Malecka - Salomon - the Chairman, - Henryka Bochniarz - Vice Chairman - John F. Cogan, Jr., - Marek Kulczycki, - Zdzislaw Sadowski. AUDITORS: Arthur Andersen MORTGAGES AND CHARGES: None 29 31 SCHEDULE 3 REPRESENTATIONS AND WARRANTIES PART 1 GENERAL REPRESENTATIONS AND WARRANTIES 1. INFORMATION The information set out in RECITAL (A) and SCHEDULE 2 (DETAILS OF THE SOCIETY) is complete, true, accurate and not misleading. All information which has been given to Nationwide or its representatives or professional advisers by Pioneer and/or the Society or by their respective professional advisers or other agents in the course of the negotiations leading to this Agreement (a list of such information provided in written form being attached to the Disclosure Letter) was when given and is now complete, true and accurate in all material respects and not misleading in any material respect. Insofar as any such information are matters of opinion or represent a forecast, intention or expectation, such opinions, forecasts, intentions or expectations (as appropriate) are honestly held or believed by Pioneer and made on reasonable grounds. 2. THE SOCIETY 2.1 The copies of the articles of association of the Society, the statutes of the Fund, the by-laws of the Management Board and the by-laws of the Supervisory Board which are attached to the Disclosure Letter are true and complete in all respects. 2.2 All registers and minute books of the Society, the Supervisory Board and the Management Board have been properly kept and contain an accurate and complete record of the matters which should be dealt with in those books, to Pioneer's knowledge no notice or allegation that any of them is incorrect or should be rectified has been received and nor are there any circumstances to Pioneer's knowledge which might reasonably be expected to lead to any such notice or allegation being served on the Society. 2.3 All returns, particulars, resolutions and other documents required to be filed with or delivered to Commercial Register by the Society have been correctly and properly prepared and so filed or delivered. 2.4 Pioneer is the sole legal and beneficial owner of 340,000 Shares free from Encumbrances and such shares represent the entire issued share capital of the Society. There is no Encumbrance on, over or affecting any unissued shares of the Society and no person has the right (exercisable now or in the future 30 32 and whether contingent or not) to call for the issue of any share capital of the Society. 2.5 The Society is not and has not agreed to become a member of any partnership, joint venture, consortium or other unincorporated association other than a recognised trade association or any agreement or arrangement for sharing commissions or other income. 3. FINANCIAL STATEMENTS 3.1 The financial statements attached to the Disclosure Letter have been properly prepared in accordance with the accounting standards adopted by the Society and accurately state the level of turnover, operating loss and liabilities of the Society as at 31 December 1998 and for the period from the date of incorporation of the Society to 31 December 1998 and (save as expressly disclosed therein) do not include any unusual, exceptional, non-recurring or extraordinary item of income or expenditure. 4. POST INCORPORATION EVENTS 4.1 Since the date of its incorporation, the Society: 4.1.1 has carried on its business in the normal course and without any interruption or material alteration in the nature, scope or manner of its business; 4.1.2 has not acquired or disposed of or agreed to acquire or dispose of any assets or assumed or incurred or agreed to assume or incur any material liabilities (actual or contingent) or entered into any long term, substantial or unusual transaction, whether or not in the ordinary course of trading; 4.1.3 has not declared, made or paid any dividend, bonus or other distribution of capital or income; 4.1.4 save as set out in the Initial Business Plan, it has not entered into any contract involving capital expenditure in an amount exceeding US$ 100,000 or its equivalent or contracts in aggregate involving an amount exceeding US$ 100,000 or its equivalent; 5. TRANSACTIONS WITH MEMBERS OF THE PIONEER GROUP AND CONNECTED PERSONS 5.1 There is not outstanding: 5.1.1 any indebtedness or other liability (actual or contingent) owing by the Society to Pioneer or any Connected Person or owing to the 31 33 Society by any member of the Pioneer Group or any Connected Person; or 5.1.2 any guarantee or security for any such indebtedness or liability. 5.2 There is not outstanding, and there has not at any time since the formation of the Society been outstanding, any agreement, arrangement or understanding (whether legally enforceable or not) to which the Society is a party and in which any member of the Pioneer Group or to Pioneer's knowledge any Connected Person is or has been interested, whether directly or indirectly. 5.3 No member of the Pioneer Group or, to Pioneer's knowledge, any Connected Person, either individually or with any other person or persons, has any interest, directly or indirectly, in any business which has a trading relationship with the Society or (other than that now carried on by the Society) which is or is likely to become competitive with the Business save as registered holder or other owner of any class of securities of any company if such class of securities is listed on any stock exchange and if such person (together with Connected Persons and Affiliates) holds or is otherwise interested in less than five per cent. of such class of securities. 5.4 No member of the Pioneer Group either individually, collectively or with any other person or persons are interested in any way whatsoever in any Intellectual Property used and not wholly owned by the Society. 6. FINANCE 6.1 Particulars of all money borrowed by the Society (other than normal trade credit) including, in each case, the name and address of all banks with whom the Society holds an account and the name and number of such account, have been disclosed in the Disclosure Letter, and the Disclosure Letter lists all documents relating to all overdrafts, loans or other financial facilities outstanding or available to the Society and all Encumbrances to which any asset of the Society is subject. 6.2 Particulars of all money lent or agreed to be lent by the Society and which has not been repaid to it (other than normal trade credit) have been disclosed in the Disclosure Letter and lists of all such documentation relating to such arrangements are contained in the Disclosure Letter. 6.3 Full details of all grants made to the Society and all outstanding applications for any such grant, have been disclosed in the Disclosure Letter. No act or transaction has been effected in consequence of which the Society is or could be held liable to refund (in whole or in part) any such grant or in consequence of which any such grant for which application has been made by it will not or may not be paid or will or may be reduced. 32 34 6.4 The Society is not responsible (including on a contingent basis) for the indebtedness of any other person nor subject to any obligation (whatever called) to pay, purchase or provide funds for the payment of, or as an indemnity against the consequence of default in the payment of, any indebtedness of any other person. 6.5 No person other than the Society has given any guarantee of or security for any overdraft, loan or loan facility granted to the Society. 7. ASSETS OF THE SOCIETY The Disclosure Letter contains a complete and accurate list of (a) all assets owned by the Society and (b) assets in the possession of the Society and held under any leasing, hire-purchase, conditional sale, deferred payment or other similar agreement and up to date details of the rentals (or alike payments) payable by the Society thereunder. 8. INSURANCE 8.1 All the assets of the Society are insured as provided in the Disclosure Letter. 8.2 Particulars of all policies of insurance of the Society now in force have been disclosed in the Disclosure Letter and such particulars are true and correct and all premiums due on such policies have been duly paid. 9. LITIGATION 9.1 Except as plaintiff in the collection of debts (not exceeding PLN4,000 in the aggregate) arising in the ordinary course of trading, neither the Society nor (in relation to the Society's Business) any member of the Management Board or Supervisory Board or any employee of the Society is now engaged in any legal proceedings (including litigation, arbitration or any hearing before any tribunal or official body), no such proceeding are pending or to Pioneer's knowledge are in prospect. 9.2 There is no matter or fact in existence to Pioneer's knowledge which might give rise to any legal proceedings involving the Society including any which might form the basis of any criminal prosecution against the Society or lead to the termination of any licence held by the Society. 9.3 The Society is not subject to any order or judgment given by any court, tribunal or governmental agency (other than in respect of the licenses, permits and consents referred to in paragraph 10.1.) which is still in force and has not given any undertaking to any court or tribunal or to any third party arising out of any legal proceedings. 33 35 10. LICENCES AND APPLICABLE LEGISLATION 10.1 The Society has all necessary licences (including statutory licences), permits, consents and authorities (public and private) for the proper and effective carrying on of its Business in the manner in which its Business is now carried on and all such licences, permits, consents and authorities are valid and subsisting and Pioneer has no knowledge of any reason why any of them is likely to be suspended, cancelled or revoked whether in connection with the subscription of Subscription Shares by Nationwide or otherwise. 10.2 In carrying on its business, the Society, and, to Pioneer's knowledge, its officers and employees (in connection with the Business) have complied with all applicable legislation (including the Pension Law), have not received any notice or allegation and are not subject to any investigation relating to any breach or alleged breach of the requirements of any legislation which is applicable to it (in connection with the Business) and Pioneer has no knowledge of any allegation of any circumstances which may give rise to any such notice, allegation or investigation. 11. TRADING 11.1 Neither the subscription of Subscription Shares by Nationwide hereunder or any change in the composition of the Management Board or Supervisory Board will: 11.1.1 to Pioneer's knowledge cause the Society to lose the benefit of any right, privilege or licence it presently enjoys; 11.1.2 relieve any person of any obligation to the Society (whether contractual or otherwise) or entitle any person to determine or terminate any contract or arrangement with the Society or to exercise any right whether under an agreement or arrangement with the Society; 11.1.3 conflict with or result in the breach on the part of the Society under any of the terms, conditions or provisions of any agreement or instrument to which the Society is now a party or any loan to the Society. 11.2 No offer, tender or the like is outstanding (the value of which to the Society could exceed US$ 100,000 in any year) which is capable of being converted 34 36 into an obligation of the Society by an acceptance or other act of some other person. 11.3 The Society is not and has not been a party to any agreement, arrangement, understanding or practice restricting the freedom of the Society to provide and take goods and services by such means and from and to such persons and into or from such place as it may from time to time think fit. 11.4 To Pioneer's knowledge no officer or employee of the Society has made or received any Sensitive Payment in connection with the Business or on any permission, confirmation or registration held by the Society. For the purposes of this paragraph the expression "SENSITIVE PAYMENTS" (whether or not illegal) shall include (i) bribes or kickbacks paid to any person, firm or company including central or local government officials or employees or (ii) amounts received with an understanding that rebates or refunds will be made in contravention of the laws of any jurisdiction either directly or through a third party or (iii) any political contributions which world be unlawful in Poland or (iv) payments or commitments (whether made in the form of commissions, payments or fees for goods received or otherwise) made with the understanding or under circumstances that would indicate that all or part of the payment is to be paid by the recipient to central or local government officials or as a commercial bribe, influence payment or kickback. 12. CONTRACTS 12.1 Complete and accurate copies of all contracts to which the Society is a party with a value in excess of US$100,000 (or its equivalent) have been disclosed in the Disclosure Letter and the Society is not a party to or subject to any other agreement, transaction, obligation, commitment, understanding, arrangement or liability which is inconsistent with the Initial Budget or the Initial Business Plan. 12.2 The terms of all contracts of the Society have been complied with by the Society and to Pioneer's knowledge by the other parties to the contracts in all material respects and there are no circumstances likely to give rise to a default by the Society or, to Pioneer's knowledge, by the other parties under any such contract. 12.3 Pioneer has no knowledge of the invalidity of or grounds for, avoidance or repudiation of any agreement or other transaction to which the Society is a party and has received no notice of any intention to terminate, repudiate or disclaim any such agreement or other transaction. 13. EMPLOYEES 13.1 The Disclosure Letter incorporates a complete and accurate schedule of all employees of the Society including details of their dates of birth, the date on 35 37 which they commenced continuous employment with the Society and all remuneration payable and other benefits provided or which the Society is bound to provide to each such person. In addition, the Disclosure Letter contains complete copies of all standard terms of employment, staff handbooks and other statements or documents containing the terms of employee emoluments and benefits. 13.2 There are no consultancy or management services agreements in existence between the Society and any other person, firm or company, and there are no agreements (including collection bargaining agreements) or other arrangements (binding or otherwise) between the Society or any employers' or trade association of which the Society is a member and any trade union, staff association or other body representing employees or a substantial number of them. 13.3 Save to the extent (if any) to which provision or allowance has been made in the Initial Budget or the Initial Business Plan: 13.3.1 no liability has been incurred or to Pioneer's knowledge is anticipated by the Society for breach of any contract of employment or for services or for severance payments or redundancy payments or for compensation or damages for unfair or wrongful dismissal or for any other liability accruing from the termination or variation of any contract of employment or for services; 13.3.2 no gratuitous payment has been made or to Pioneer's knowledge promised by the Society in connection with the actual or proposed termination, suspension or variation of any contract of employment or for services of any present or former director, officer or any dependant of any present or former director, officer or employee of the Society. 13.4 The Society has complied with all material obligations imposed on it by all relevant statutes, regulations and codes of conduct and practice relating to its employees. 13.5 No present member of the Management Board or Supervisory Board, officer or employee of the Society has given or received notice terminating his employment except as expressly contemplated under this Agreement. 13.6 Save as disclosed in the Disclosure Letter, the Society does not have in existence nor is it proposing to introduce, and none of the members of the Management Board or Supervisory Board or employees participates in, any employee share trust, share incentive scheme, share option scheme or profit sharing scheme established by the Society for the benefit of all or any of its present or former members of the Management Board or Supervisory Board or employees or the dependants of any of such persons or any scheme under which any present or former member of the Management Board or 36 38 Supervisory Board or employee of the Society is entitled to a commission or remuneration of any other sort calculated by reference to the whole or part of the turnover, profits or sales of the Society or any other person, firm or company. 13.7 Neither the Society nor any of its employees is involved in any industrial dispute, no dispute exists or, to Pioneer's knowledge, can reasonably be anticipated between the Society and a material number or category of its employees or any trade union or staff association or other body representing employees or a substantial number of them and, to Pioneer's knowledge, there are no wage or other claims outstanding against the Society by any person who is now or has been a member of the Management Board or Supervisory Board or employee of the Society. 14. PENSION SCHEMES The Society is not and has not been a party to any agreement or arrangement for the provision of pensions, allowances, lump sums or other like benefits on retirement, death or long term ill health for the benefit of any current or former employee of the Society or their dependants nor has the Society provided or promised to provide any ex-gratia pensions, lump sums or like benefits for any current or former employees of the Society or dependants thereof. In particular, there is no obligation to pay contributions to any personal pension scheme in respect of any employee. 15. INTELLECTUAL PROPERTY AND INFORMATION TECHNOLOGY The Society is the sole owner of all Intellectual Property used in its business or otherwise has a valid and subsisting legally enforceable right to use Intellectual Property belonging to a third party which it uses in its business. The Society is not in breach of any such right in respect of Intellectual Property to which it is a party. 16. PROPERTIES 16.1 The Society does not own any real property. 16.2 The Disclosure Letter contains a description of the terms of all leases to which the Society is a party. The leases described in the Disclosure Letter are in full force and effect; all rents and additional rents owing on each such lease have been paid; the lessee has been in peaceable possession since the commencement of the original term of such lease and is not in default thereunder and no waiver, indulgence or postponement of the lessee's obligations thereunder has been granted by the lessor; and there exist no event of default or to Pioneer's knowledge event, occurrence, condition or act (including the subscription of the Subscription Share) which, with the giving of notice, the lapse of time or the occurrence of any further event or condition, would become a and, to Pioneer's knowledge, all of the covenants 37 39 to be performed by any other party under its lease have been fully performed. 17. CAPACITY Pioneer and the Society each have full power to enter into this Agreement and the Share Subscription Agreement and the other documents to be entered into pursuant to this Agreement and the Share Subscription Agreement, each of which constitutes (or will when executed constitute) binding obligations on Pioneer and the Society in accordance with their respective terms. 18. INSOLVENCY 18.1 The Society has not stopped payment of its debts, has not entered into any scheme of arrangement or voluntary arrangement with any of its creditors, is not insolvent and no order has ever been made or petition presented or resolution passed for the winding up of the Society. 18.2 There are no circumstances which would entitle any person to present a petition for the winding up of the Society or to appoint a receiver or administrator over the whole or any part of the Society's undertaking or assets. PART 2 TAXATION REPRESENTATIONS AND WARRANTIES To Pioneer's knowledge: 1. All notices, returns, computations and registrations of the Society for the purpose of taxation have been made punctually on a proper basis and are correct and none of them is, or is likely to be, the subject of any dispute with any taxation authority. 2. All information supplied by the Society for the purpose of taxation was when supplied and remains complete and accurate in all material respects or, to the extent it was not so complete and accurate in all material respects, it has been corrected. 3. All taxation which Society is liable to pay prior to Completion has been or will be so paid prior to Completion. 4. The Society has not received and is not aware of any circumstances in which it might receive any notice or complaint from the tax authorities in relation to the organisation of the Society. 38 40 SCHEDULE 4 LIMITATION OF LIABILITY 1. A Party shall not be liable under the Warranties if and to the extent that: 1.1 the facts or circumstances which might result in a claim or possible claim under the Warranties have been fairly disclosed in the Disclosure Letter; 1.2 the subject of the claim is specifically provided for or noted in the Accounts; 1.3 a claim under the Warranties arises or is increased:- 1.3.1 as a result of an act or omission occurring at the request of or with the written consent of the Nationwide after Completion; 1.3.2 as a result of an act or omission compelled by law; 1.3.3 as a result of any increase in rates of taxation since Completion; 1.3.4 as a result of the passing or coming into force of or any change in any enactment, law, regulation, directive, requirement or any published practice of any government, government department or agency or regulatory body after Completion, whether or not having retrospective effect. 2. The liability of any party in respect of any claim under the Warranties: 2.1 shall not arise unless and until the amount of such claim when aggregated with other claims based on substantially the same facts or circumstances exceeds US$ 50,000 (or its equivalent) in respect of any single item; 2.2 shall not arise unless and until the amount of such claim when aggregated with the amount of any other claim made against that party under this Agreement exceeds US$ 100,000 (or its equivalent) in which event all of such claim or claims (and not just the excess) shall be recoverable and no minimum shall apply to any subsequent claims; 2.3 shall not (when aggregated with the amount of all other claims under the Warranties) exceed US$ 20,000,000 or, if higher, the amount subscribed by Nationwide and other members of the Nationwide Group for Shares as at the date a claim under the Warranties is made. 3. The liability of the parties in respect of any claim under the Warranties shall cease on first anniversary of Completion. 39 41 SCHEDULE 5 DEED OF ADHERENCE THIS DEED OF ADHERENCE is made on [ - ] BETWEEN (1) [ - ] of [ - ]; and [ - ] of [ - ] (together the "CONTINUING PARTIES") (2) [ - ] of [ - ] (the "TRANSFEROR"); (3) [ - ] of [ - ] (the "TRANSFEREE") WHEREAS: (A) The Continuing Parties and the Transferor are parties to a Shareholders' Agreement dated [ - ] 1999 in relation to the affairs of Pioneer Powszechne Towarzystwo Emerytalne S.A. (the "SOCIETY") (such Agreement, as amended herein called the "SHAREHOLDERS' AGREEMENT"). (B) The Transferor intends to transfer [ - ] Shares in the capital of the Society to the Transferee subject to the Transferee and all other parties hereto entering into this Deed. (C) The Transferee wishes to accept such Shares subject to such condition and to enter into this Deed. IT IS AGREED as follows: 1. INTERPRETATION 1.1 Clause 1 of in the Shareholders' Agreement shall, unless the context otherwise requires, have effect (as to interpretation and other matters) also as to this agreement. 1.2 In this deed the "Effective Date" shall mean -. 2. TRANSFER 2.1 With effect from the Effective Date, the Continuing Parties hereby release and discharge the Transferor from all its obligations under the Shareholders' Agreement and the Transferor shall cease to be a party to the Shareholders' Agreement. 2.2 The Continuing Parties agree that, with effect from the Effective Date the following shall apply: 40 42 2.2.1 the Transferee shall assume all the rights of the Transferor pursuant to the Shareholders' Agreement; and 2.2.2 the Transferee shall be subject to and shall perform the obligations from which the Transferor is released and discharged pursuant to clause 2.1 and shall be bound by and entitled to the benefit all other provisions of the Shareholders' Agreement except as hereby provided as if the Transferee had at all times been a party to the Shareholders' Agreement in place of the Transferor. 3. TRANSFEROR PROVISIONS With effect from the Effective Date, the Transferor, in consideration of the other parties entering into this Deed, hereby agrees (as a separate, independent and collateral contract with all the other parties to this Deed) to be bound by the provisions of CLAUSES 11 (COMPETITION RESTRICTIONS AND REGULATORY ACTIONS), CLAUSE 18 (PROTECTION AND USE OF NAME) AND 21 (CONFIDENTIAL INFORMATION) of the Shareholders' Agreement, as if it had remained a party to the Shareholders' Agreement]. 4. NOTICES 4.1 For the purposes of the Shareholders' Agreement, the Transferee's address for service shall be as follows: Address: [ - ] Facsimile No: [ - ] Attention of: [ - ] The Transferee may change its address, fax number or the name of the person for whose attention the notice is to be addressed by serving notice on the other parties pursuant to the Shareholders' Agreement. 4.2 CLAUSES 20 (COSTS) to 30 (COUNTERPARTS) inclusive of the Shareholders' Agreement shall apply to this deed mutatis mutandis as if set out herein except as otherwise provided. 41 43 SIGNATURES: /s/ Alicja Malecka - -------------------------------------------------------------------------------- For THE PIONEER GROUP, INC. /s/ David M. Martin - -------------------------------------------------------------------------------- For NATIONWIDE GLOBAL HOLDINGS, INC. 42 44 TABLE OF CONTENTS 1. Definitions and interpretation..............................................1 2. Object of the Society.......................................................2 3. Members of the Supervisory Board............................................3 4. Conduct of the Society's affairs............................................3 5. Matters requiring consent of the Shareholders...............................4 6. Matters requiring consent of the Supervisory Board..........................5 7. Representations, Warranties and undertakings................................7 8. Capital and Further Finance................................................10 9. Guarantees, etc. given by the Shareholders.................................10 10. Exercise of rights and powers.............................................10 11. Competition Restrictions and Regulatory Action............................11 12. Dividend and distribution policy..........................................12 13. Share transfers : pre-emption provisions..................................12 14. Procedure in the event of Deadlock........................................13 15. Default Event Option......................................................15 16. Share Transfer Mechanics..................................................16 17. Assignment................................................................18 18. Protection and use of name................................................18 19. This Agreement not to constitute a partnership............................19 20. Costs.....................................................................19 21. Confidential Information..................................................19 22. Duration..................................................................20 23. Announcements.............................................................21 24. Waiver, forbearance and variation.........................................21 25. Governing Law, Language and Jurisdiction..................................21 26. Severability..............................................................22 27. Entire agreement..........................................................22 28. The terms of this Agreement to prevail....................................23 29. Notices...................................................................23 30. Counterparts..............................................................25 45 Schedule 1 Words and Expressions..............................................26 Schedule 2 Details of the Society.............................................29 Schedule 3 Representations and Warranties.....................................30 1. Information................................................................30 2. The Society................................................................30 3. Financial Statements.......................................................31 4. Post incorporation events..................................................31 5. Transactions with members of the Pioneer Group and Connected Persons.......31 6. Finance....................................................................32 7. Assets of the Society......................................................33 8. Insurance..................................................................33 9. Litigation.................................................................33 10. Licences and applicable legislation.......................................34 11. Trading...................................................................34 12. Contracts.................................................................35 13. Employees.................................................................35 14. Pension Schemes...........................................................37 15. Intellectual Property and Information Technology..........................37 16. Properties................................................................37 17. Capacity..................................................................38 18. Insolvency................................................................38 Schedule 4 Limitation of liability............................................39 1. A Party shall not be liable under the Warranties if and to the extent that:......................................................................39 2. The liability of any party in respect of any claim under the Warranties:...39 3. The liability of the parties in respect of any claim under the Warranties shall cease on first anniversary of Completion..................39 Schedule 5 Deed of Adherence..................................................40 1. Interpretation.............................................................40 2. Transfer...................................................................40 3. Transferor Provisions......................................................41 4. Notices....................................................................41 The following documents are in the agreed terms: 46 1. The amendments to the by-laws of the Supervisory Board referred to in CLAUSE 3.3, 2. The Initial Budget, 3. The Initial Business Plan EX-10.2 3 SHARE SUBSCRIPTION AGREEMENT 1 EXHIBIT 10.2 DATED 8 APRIL 1999 ---------------------------------------- (1) THE PIONEER GROUP, INC. (2) NATIONWIDE GLOBAL HOLDINGS, INC. (3) PIONEER POWSZECHNE TOWARZYSTWO EMERYTALNE S.A. ---------------------------------------- SHARE SUBSCRIPTION AGREEMENT ---------------------------------------- 2 TABLE OF CONTENTS 1. Definitions and interpretation..............................................1 2. Conditions..................................................................2 3. Conduct prior to Completion.................................................3 4. Actions following execution of this Agreement...............................4 5. Warranties..................................................................7 6. Costs.......................................................................7 7. Confidential Information....................................................8 8. Announcements...............................................................8 9. Waiver, forbearance and variation...........................................9 10. Governing Law, Language and Jurisdiction...................................9 11. Protection of name.......................................................10 12. Severability..............................................................10 13. Entire agreement..........................................................10 14. Notices...................................................................10 15. Counterparts..............................................................12 Schedule 1 Words and Expressions..............................................13 Schedule 2. Events at Completion..............................................15 1. Pioneer's and the Society's Completion obligations.........................15 2. Nationwide's Completion obligations........................................15 DOCUMENTS IN THE AGREED TERMS:- 1. The amendments to the Articles, 2. The amendments to the by-laws of the Supervisory Board, 3. The Initial Budget, 4. The Initial Business Plan. 3 THIS AGREEMENT is made on 8 April 1999 BETWEEN:- (1) THE PIONEER GROUP, INC., a company duly established under Delaware law whose principal place of business is at 60 State Street, Boston, Massachusetts 02109, United States of America ("PIONEER"); (2) NATIONWIDE GLOBAL HOLDINGS, INC., a company duly established under Ohio law whose principal place of business is at One Nationwide Plaza, Columbus, Ohio 43215, United States of America ("NATIONWIDE"); and (3) PIONEER POWSZECHNE TOWARZYSTWO EMERYTALNE S.A., a joint stock company duly established under Polish law whose registered office is at INTRACO, 29TH Floor, 2 Stawki Street, 00-193 Warsaw, Poland (the "SOCIETY"). WHEREAS:- (A) The Society was registered with the Registration Court on 29th October 1998 with a share capital of PLN 34,000,000 divided into 340,000 shares of PLN 100 each. At the date of this Agreement, all of the shares of the Society have been issued and are owned by Pioneer. (B) The Society's sole activity is the establishment and management of the Pioneer Open Pension Fund, an open pension fund in Poland established in accordance with the Pension Law. (C) The parties have agreed that Nationwide will subscribe for 145,714 Subscription Shares for, in aggregate, the PLN equivalent of US$20,000,000 and otherwise on the terms set out in this Agreement, such Subscription Shares representing approximately 30% (thirty per cent.) of the share capital of the Society, as enlarged by the subscription of the Subscription Shares. IT IS AGREED as follows: 1. DEFINITIONS AND INTERPRETATION 1.1 In this Agreement the words and expressions set out in SCHEDULE 1 (WORDS AND EXPRESSIONS) have, unless the context otherwise requires, the meanings there provided for them. 1.2 The recitals and schedules form part of this Agreement and shall have the same force and effect as if set out in the body of this Agreement. -1- 4 1.3 Headings in this Agreement are inserted for convenience only and shall not affect its construction or interpretation. 1.4 Where appropriate, words denoting the singular shall include the plural and vice versa and words denoting any gender shall include the other genders. 1.5 References to recitals, schedules and clauses are to recitals and schedules to and clauses of this Agreement, unless otherwise stated. 1.6 References to any document or agreement (including this Agreement) include a reference to that document or agreement as varied, amended, supplemented, substituted, novated or assigned from time to time. 2. CONDITIONS 2.1 Completion of the subscription of the Subscription Shares shall be conditional upon each of the following conditions having first been satisfied or waived:- 2.1.1 a resolution or resolutions in terms to be agreed between the parties being passed at a general meeting of the Society or at a meeting of Supervisory Board, as appropriate, to (i) increase the share capital of the Society to allow for the subscription of the Subscription Shares, (ii) waive the pre-emption rights of Pioneer in respect of the subscription of the Subscription Shares, (iii) make amendments to the Articles in the agreed terms, (iv) (conditional on the agreed amendments to the Articles being registered by the Registration Court as referred to in CLAUSE 2.1.3 below) make amendments to the by laws of the Supervisory Board in the agreed terms, (v) (conditional on the agreed amendments to the Articles being registered by the Registration Court as referred to in CLAUSE 2.1.3 below) appoint David Martin as a member of the Supervisory Board and (vi) amend the statutes of the Fund in terms to be agreed to reflect the changes in shareholders of the Society and the amendments to Articles, all as provided herein and in the Shareholders' Agreement; 2.1.2 Confirmation being received from the Office for Protection of Consumers and Competition that it does not object to the subscription by Nationwide of the Subscription Shares; 2.1.3 UNFE granting permission for (i) Nationwide to subscribe for the Subscription Shares , (ii) David Martin to be appointed a member of the Supervisory Board and (iii) the Articles and the statutes of the Fund to be amended as referred to in CLAUSE 2.1.1.; and 2.1.4 registration by the Registration Court of (i) the increase in the share capital of the Society referred to in CLAUSE 2.1.1 and (ii) the amendments to the Articles in the agreed terms and notification to the Registration Court of (i) the appointment of David Martin as a Member of the Supervisory Board and (ii) the amendments to the statutes of the Fund in the agreed terms. -2- 5 2.2 Each party shall use all reasonable endeavours to procure (so far as it lies within its powers so to do) that each of the conditions set out in CLAUSE 2.1 (to the extent that such conditions are not waived) are fulfilled as soon as possible but in any event prior to 30 September 1999. Without prejudice to the generality of the above, each party will promptly provide all information reasonably requested by any court or governmental or regulatory agency so that such court or agency can give an approval to the transactions contemplated by this Agreement. 2.3 If each of the conditions set out in CLAUSE 2.1 shall not have been fulfilled (or waived) by 30 September 1999, this Agreement (other than the provisions of CLAUSES 7 (CONFIDENTIAL INFORMATION), 8 (ANNOUNCEMENTS), 10 (GOVERNING LAW, LANGUAGE AND JURISDICTION) and 11 (PROTECTION OF NAME) shall, unless the parties otherwise agree, thereupon automatically cease and terminate and none of the parties shall have any claim of any nature whatsoever against the other parties, save in respect of (i) any breach of the provisions of this Agreement or the Shareholders' Agreement or (ii) the return of the monies paid by Nationwide for the Subscription Shares pursuant to CLAUSE 4 (ACTIONS FOLLOWING EXECUTION OF THIS AGREEMENT). 3. CONDUCT PRIOR TO COMPLETION 3.1 Prior to Completion and save for such steps as may be taken in anticipation of CLAUSE 4 (ACTIONS FOLLOWING EXECUTION OF THIS AGREEMENT), the Society shall, and Pioneer shall cause, so far as it is able, the Society to carry on business in the ordinary and normal course of business as a going concern and in accordance with the Initial Business Plan and the Initial Budget. 3.2 Without prejudice to the generality of CLAUSE 3.1, the Society shall not and Pioneer shall cause, so far as it is able, that the Society shall not prior to Completion without the prior written consent of Nationwide or except as expressly contemplated in this Agreement, the Shareholders' Agreement, the Initial Budget or the Initial Business Plan: 3.2.1 declare or pay any dividend or make any other form of distribution to its shareholders; 3.2.2 acquire or dispose of any shares, debentures or other securities in any other company or all of any Shares (other than the allotment of the Subscription Shares to Nationwide) or grant or acquire any option over any shares, debentures or other securities of the Society or make any commitment to do so; 3.2.3 (except in the ordinary course of business) dispose of any assets; 3.2.4 embark on a programme, submit any bid or tender or making any contract or commitment which is likely to involve more than US$ 100,000 (or its equivalent) by reference to (i) value, (ii) capital expenditure or non-recurring costs or (iii) liabilities or otherwise result in any material change in the nature of the operations and activities of the Society's business; -3- 6 3.2.5 borrow any sum which would result in the aggregate borrowings of the Society increasing by more than US$ 100,000 (or its equivalent); 3.2.6 enter into any new contract or vary any existing contract with Pioneer any other member of the Pioneer Group except as provided for in the Shareholders' Agreement, the Initial Business Plan or the Initial Budget; 3.2.7 make, terminate or vary any employment agreement or employment-related arrangement with any member of the Management Board or Supervisory Board; 3.2.8 amend the fee rates or structure, charging rates or structure or commission rates or structure of the Society or the Fund from those in the Initial Budget and Initial Business Plan; 3.2.9 alter the Articles, the statutes of the Fund or the by laws of the Management Board or the Supervisory Board except as expressly contemplated in CLAUSE 2.1.1.; or 3.2.10 (to the extent permitted by law) lend any sum to any third party. 3.3 In the period prior to Completion or, if earlier, the date on which the parties agree that the conditions set out in CLAUSE 2.2 will not be satisfied, the Society shall provide to Nationwide and Pioneer shall cause the Society to provide a copy of all information that:- 3.3.1 Pioneer receives from the Society; and 3.3.2 a copy of all information in whatever format provided by the Society to any governmental or other regulatory authority. 4. ACTIONS FOLLOWING EXECUTION OF THIS AGREEMENT 4.1 As soon as practicable following the execution of this Agreement, the Society shall, and Pioneer shall cause that the Society shall, convene a Shareholders' Meeting of the Society at which Pioneer shall pass the resolution referred to in CLAUSE 2.1.1. 4.2 As soon as practicable following the passing at a general meeting of the Society or the Supervisory Board, as appropriate, of the resolution referred to in CLAUSE 2.1.1 to increase the share capital of the Society to allow for the subscription of the Subscription Shares and to amend the Articles in the agreed terms, Nationwide will execute a notarial statement if required pursuant to Polish law, in a form to be agreed between the parties and shall make a payment of US $20,000,000 to an account (the "ESCROW ACCOUNT") in name of the Society at Citibank Poland S.A. in Warsaw ("CITIBANK") in respect of the subscription monies payable for the Subscription Shares. The terms on which the Escrow Account will be operated will be agreed between the parties and Citibank as soon as practicable following the signing of this Agreement but such terms shall be consistent, so far as is practicable with the following principles:- -4- 7 4.2.1 the Escrow Account will be a US$ account in the sole name of the Society; 4.2.2 funds received into the Escrow Account will be held in US$; 4.2.3 no payments will be made from the Escrow Account except on the joint written instructions of Nationwide and the Society; 4.2.4 if the conditions in CLAUSE 2.1.2 AND 2.1.3 are satisfied or waived then Nationwide and the Society will give written instructions to Citibank to transfer the monies payable for the Subscriptions Shares to the Society; 4.2.5 in the event that (i) the applications for the permissions and confirmations referred to in CLAUSES 2.1.2 AND 2.1.3 are rejected; or (ii) the applications for such permissions and confirmations are withdrawn; and if Pioneer and Nationwide agree in writing not to proceed further with the applications for such permissions, confirmations or registrations, the Society and Nationwide shall as soon as practicable, and in any event within 2 Business Days of the happening of such agreement, give written instructions to Citibank to return to Nationwide all the subscription monies paid for the Subscription Shares pursuant to CLAUSE 4.2 together with any other sum properly payable to Nationwide. Notwithstanding the above the parties agree that if the conditions in CLAUSE 2.1.2 and 2.1.3 are not satisfied or waived by 30th September 1999, the written instructions to Citibank to return the subscription monies and the other sums to Nationwide referred to above shall be given to Citibank by no later than the close of business (Warsaw Time) on 1st October 1999; 4.2.6 all interest which accrues on any sum in the Escrow Account will be paid to Nationwide; 4.2.7 all costs charged by Citibank to administer the Escrow Account shall be paid by Nationwide. 4.3 As soon as practicable following the payment by Nationwide to the Escrow Account for the Subscription Shares in accordance with CLAUSE 4.2, the parties will make applications for the permissions and confirmations referred to in CLAUSES 2.1.2 and 2.1.3 (to the extent such permissions and confirmation have not already been applied for). Nationwide hereby confirms that it has already applied for the confirmation referred to in CLAUSE 2.1.2. 4.4 As soon as practicable following: -5- 8 4.4.1 confirmation being received from the Office for the Protection of Consumers and UNFE that they have given the confirmations and permissions referred to in CLAUSES 2.1.2 and 2.1.3; and 4.4.2 the Society receiving payment for the Subscription Shares from the Escrow Account, the Society shall make the appropriate application to the Court for the registrations referred to in CLAUSE 2.1.4. 4.5 Completion shall take place at the Offices of Cameron McKenna Sp. z o.o. Warsaw Financial Centre, ul. Emilii Plater 53, Warsaw (or wherever else the Parties agree in writing) on the 5th Business Day following satisfaction of all of the conditions in CLAUSE 2.1. or such earlier date on which the parties agree in writing. At Completion, the Parties shall perform their respective Completion obligations set out in SCHEDULE 2 (COMPLETION OBLIGATIONS). 4.6 In the event that: 4.6.1 (following the payment of the subscription monies to the Society out of the Escrow Account) the resolutions referred to in CLAUSE 2.1 are not passed; 4.6.2 the application for the registration referred to in CLAUSE 2.1.4 is rejected; or 4.6.3 Pioneer and/or the Society fail to perform the obligations to be performed by them at Completion as set out in CLAUSE 4.5 and SCHEDULE 2 (COMPLETION OBLIGATIONS) the Society shall, and Pioneer shall cause that the Society shall, as soon as practicable and in any event within 2 Business Days of the happening of such event pay to Nationwide the sum of US$ 20,000,000. If the conditions in CLAUSE 2.1 are not satisfied by 30th September 1999 such payment shall be made by no later than the close of business (Warsaw Time) on 1st October 1999. 4.7 Notwithstanding Completion: 4.7.1 each provision of this Agreement (and any other document referred to in it) not performed at or before Completion but which remains capable of performance; 4.7.2 the Warranties; and 4.7.3 all covenants and other undertakings contained in or entered into pursuant to this Agreement will remain in full force and effect and (except as otherwise expressly provided) without limit in time. -6- 9 4.8 Pioneer hereby confirms that it waives all and any rights of pre-emption it has in respect of the subscription of the Subscription Shares by Nationwide. 5. WARRANTIES 5.1 The Society hereby warrants to Nationwide as at the date of this Agreement and as at Completion that: 5.1.1 it has full power to enter into this Agreement and the other agreements to be entered into by it pursuant to this Agreement each of which constitutes (or will when executed constitute) binding obligations on the Society in accordance with their respective terms. 5.1.2 Pioneer is the sole owner of 340,000 Shares free from Encumbrances created by the Society and such Shares represent the entire issued share capital of the Society. There is no Encumbrance on, over or affecting any unissued shares of the Society and no person (other than Nationwide) has the right (exercisable now or in the future of whether contingent or not) to call for the issue of any share capital of the Society; 5.1.3 the Subscription Shares will, when issued, be free from Encumbrances and no person (other than Nationwide) will have any right to call for their delivery. 5.2 The Society hereby warrants as at Completion that it has obtained all necessary corporate and other consents and approvals in relation to the performance of this Agreement and the other documents to be executed by it at Completion and accordingly it has full power to perform this Agreement and such other agreements. 5.3 Nationwide hereby warrants to the Society as at the date of this Agreement and as at Completion that it has full power to enter into this Agreement and the other agreements to be entered into by it pursuant to this Agreement each of which constitutes (or will when executed constitute) binding obligations on Nationwide in accordance with their respective terms. 5.4 Nationwide hereby warrants as at Completion that it has obtained all necessary corporate and other consents and approvals in relation to the performance of this Agreement and the other documents to be executed by it at Completion and accordingly it has full power to perform this Agreement and such other agreements. 6. COSTS 6.1 Any stamp duty payable on the subscription by Nationwide of the Subscription Shares shall be paid as to 50% by Nationwide and 50% by Pioneer. All notarial fees and court fees payable in respect of any action required in connection with this Agreement, including but not limited to the passing of the resolution referred to in CLAUSE 2.1.1 or the registration referred to in CLAUSE 2.1.4 shall be payable the Society. All fees payable to Citibank in connection with the operation of the account referred to in CLAUSE 4.2 and all notarial fees payable in respect of the agreement referred to in CLAUSE 4.2 shall be payable by Nationwide. -7- 10 6.2 All other costs, legal fees and other expenses incurred in the negotiation, preparation and execution of this Agreement shall be borne and paid by the party which incurred them. 7. CONFIDENTIAL INFORMATION 7.1 Each of the parties undertakes to the others that it shall not (and shall procure that none of its Associates shall) disclose to any person (other than those persons (including that party's professional advisers) whose province it is to know the same on a "need-to-know" basis for the proper implementation of this Agreement) or use or exploit for any purpose whatever any of the trade secrets or confidential knowledge or information or any financial or trading information ("CONFIDENTIAL INFORMATION") relating to the business or affairs of the other parties (or their Associates) which the relevant parties may receive or obtain as a result of negotiating or entering into this Agreement, and shall use its reasonable endeavours to prevent its (and their) employees and agents from so acting. 7.2 Each party shall (and shall procure their Associates shall) (i) procure that anyone coming into receipt of Confidential Information shall be informed upon receipt that such information is Confidential Information and (ii) use their reasonable endeavours to procure that any person to whom disclosure is made under (i) of this clause shall comply with the provisions of this CLAUSE 7 in respect of such Confidential Information as if they were a party to this Agreement. 7.3 The restrictions in this clause shall continue to apply for a period of three years after the expiration or sooner termination of this Agreement but shall cease to apply to information or knowledge which:- 7.3.1 may properly come into the public domain through no fault of or breach of this Agreement by the party so restricted; or 7.3.2 a party (or other person properly receiving the information consistent with CLAUSE 7.1) is required to disclose by law or by order of any court or by any competent governmental or other regulatory authority provided that any information disclosable pursuant to this CLAUSE 7.3.2 shall be disclosed only to the extent required by such law, order, governmental or other authority and only after prior consultation (if practicable) with the other parties; 7.3.3 information which is independently developed by the relevant party or acquired from a third party to the extent that it is acquired with the right to use or exploit or disclose the same; 7.3.4 any announcement made in accordance with the terms of CLAUSE 8. 8. ANNOUNCEMENTS 8.1 Save, and insofar as required by the rules of any stock exchange or other governmental or regulatory authority (whether or not having the force of law) to which a party may be subject, no announcement shall be made by any party either -8- 11 before or after Completion in relation to any of the transactions provided for in this Agreement without the prior written consent of both Pioneer and Nationwide, which prior written consent shall not be unreasonably withheld or delayed. 8.2 Each of the parties undertakes to provide all such information known to it or which, on reasonable enquiry, ought to be known to it as may reasonably be required by the other parties for the purpose of complying with the requirements of any stock exchange or other governmental or regulatory authority to which one of the parties to this Agreement is subject. 9. WAIVER, FORBEARANCE AND VARIATION 9.1 The rights of any party shall not be prejudiced or restricted by any indulgence or forbearance extended to any other party and no waiver by any party in respect of any breach shall operate as a waiver in respect of any subsequent breach. 9.2 This Agreement shall not be amended, varied or cancelled, unless such amendment, variation or cancellation shall be expressly agreed in writing by each party but so that an amendment, variation or cancellation which only affects the rights of particular parties shall only require the agreement of those parties. 10. GOVERNING LAW, LANGUAGE AND JURISDICTION 10.1 The construction, validity and performance of this Agreement shall be governed in all respects by Polish law. 10.2 All notices or formal communications under or in connection with this Agreement shall be in the English language or in any other language accompanied by a translation into English. In the event of any conflict between the English text and the text in any other language, the English text shall prevail. 10.3 10.3.1 All disputes arising out of or in connection with this Agreement shall be finally settled by the Arbitration Court at the Polish Chamber of Commerce in Warsaw (Sad Arbitrazowy przy Krajowej Izbie Gospodarczej w Warszawie) in accordance with the Rules of that Court as in force at the date of the filing of the statement of claim. 10.3.2 Performance under this Agreement shall continue if and so far as reasonably possible during any disagreement or arbitration proceedings. 10.3.3 The place and seat of the arbitration shall be Warsaw. The language of the arbitration shall be English. -9- 12 11. PROTECTION OF NAME For the avoidance of doubt nothing in this Agreement permits or will permit the Society to use the name "Nationwide" or any derivative thereof in any business conducted by the Society without Nationwide's prior written consent to such use. 12. SEVERABILITY If any of the provisions of this Agreement is found by an arbitrator or other competent authority to be void or unenforceable, such provision shall be deemed to be deleted from this Agreement and the remaining provisions of this Agreement shall continue in full force and effect. Notwithstanding the foregoing the parties shall thereupon negotiate in good faith in order to agree the terms of a mutually satisfactory provision to be substituted for the provision so found to be void or unenforceable. 13. ENTIRE AGREEMENT This Agreement and any other agreement to be entered into on or prior to Completion in accordance with its terms supersedes any previous agreement between the parties in relation to the matters dealt with herein and represents the entire understanding between the parties in relation thereto. 14. NOTICES 14.1 Any notice to be given under this Agreement shall be in writing and delivered by hand or internationally recognised courier service and/or sent by post (registered delivery if inland and airmail if overseas) or facsimile (in the case of facsimile to be confirmed in writing within 48 hours of being sent by such notice being delivered by hand or sent by registered delivery as aforesaid). The address for service of each party shall by as follows:- Party: THE PIONEER GROUP, INC. Address: 60 State Street, Boston MA USA Facsimile No: 001 617 422 4286 Attention of: Alicja Malecka Copy to: Robert P Nault General Counsel The Pioneer Group, Inc. 60 State Street Boston MA USA -10- 13 Facsimile No: 001 617 422 4293 Party: NATIONWIDE GLOBAL HOLDINGS, INC. Address: One Nationwide Plaza Columbus Ohio 43215 United States of America Facsimile No: 001 614 677 62 54 Attention of: David Martin Copy to: Toni Ness Nationwide Global Holdings, Inc. One Nationwide Plaza Columbus, Ohio 43215 United States of America Facsimile No: 001 614 249 72 54 Party: PIONEER POWSZECHNE TOWARZYSTWO EMERYTALNE Address: INTRACO, 29th floor 2 Stawki Street 00-193 Warsaw Poland Facsimile No: 00 48 22 635 8145 Attention of: The President of the Management Board Any party may change any of its address, fax number or the name of the person for whose attention the notice is to be addressed by serving a notice on the other parties pursuant to this clause. 14.2 A notice shall be deemed to have been served as follows:- 14.2.1 if delivered by hand or by internationally recognised courier service, at the time of delivery; 14.2.2 if posted, at the expiration of 48 hours or (in the case of airmail) seven days after the envelope containing the same was delivered into the custody of the postal authorities; and 14.2.3 if sent by facsimile or telemessage, at the expiration of 12 hours after the same was despatched except that if a notice or other communication would be deemed to be delivered under the above provisions after 5.30pm on any Business Day or on any day which is -11- 14 not a Business Day, then it shall be deemed instead to have been delivered at 9.30am on the next day which is a Business Day. 14.3 In proving such service it shall be sufficient to prove that the envelope was properly addressed and personal delivery was made, or that the envelope containing such notice was delivered into the custody of the postal authorities as a prepaid first class recorded delivery or airmail letter (as appropriate) or that the telex, facsimile or telemessage was properly addressed and transmitted as the case may be. 15. COUNTERPARTS This Agreement may be executed in one or more counterparts each signed by each of the parties and such counterparts shall together constitute one document. -12- 15 SCHEDULE 1 WORDS AND EXPRESSIONS "ARTICLES": the articles of association of the Society; "ASSOCIATE": in relation to Pioneer or Nationwide any subsidiary or holding company of the party or subsidiary of such holding company from time to time (other than the Society); "BUSINESS": has the meaning set out in the Shareholders' Agreement; "BUSINESS DAY": any day other than a Saturday, Sunday or any bank or other public holiday in Poland; "COMPLETION": completion of the Subscription of Subscription Shares in the Society in accordance with CLAUSE 4.5; "CONFIDENTIAL INFORMATION": has the meaning set out in CLAUSE 7.1; "ENCUMBRANCE" means any interest or equity of any person (including any right to acquire, option or right of pre-emption or conversion) or any mortgage, charge, pledge, lien, assignment, security interest, title retention or any other security agreement or arrangement, or any agreement to create any of the above; "FUND": the Pioneer Open Pension Fund; "GROUP": either or both of the Pioneer Group or the Nationwide Group and references to "its Group" shall be to the Pioneer Group or the Nationwide Group as the context shall require; "INITIAL BUDGET": the first budget for the Society in the agreed terms; "INITIAL BUSINESS PLAN": the first business plan for the Society in the agreed terms; "IN THE AGREED TERMS": in the form of the draft agreed by or on behalf of the parties attached to this Agreement and initialled for identification by or on behalf of Pioneer and Nationwide; and "MANAGEMENT BOARD": the management board of the Society; "NATIONWIDE GROUP": Nationwide and its Associates from time to time; "PENSION LAW": the Law of 28 August 1997 on the Organisation and Operation of Pension Funds, as amended; "PIONEER GROUP": Pioneer and its Associates from time to time; -13- 16 "SHARES": shares in the share capital of the Society; "SHAREHOLDERS' AGREEMENT": the shareholders' agreement entered into by Pioneer and Nationwide on the date of this Agreement; "SUBSCRIPTION SHARES": the 145,714 shares of PLN 100 each to be subscribed for by Nationwide pursuant to this Agreement; "SUPERVISORY BOARD": the supervisory board of the Society; -14- 17 SCHEDULE 2. EVENTS AT COMPLETION 1. PIONEER'S AND THE SOCIETY'S COMPLETION OBLIGATIONS Pioneer and the Society will be obliged to deliver to Nationwide (or otherwise make available to the satisfaction of Nationwide): 1.1 A copy of the resolution of the board of directors of Pioneer ratifying the execution by Pioneer of this Agreement, the Shareholders' Agreement and the other documents to be executed by it of Completion; 1.2 a share certificate in respect of the Subscription Shares subscribed by Nationwide, such share certificate to be in the name of Nationwide; 1.3 a copy of the resolution referred to in CLAUSE 2.1.1; 1.4 a copy of the Permission from UNFE referred to in cLAUSE 2.1.3; and 1.5 an extract from the register maintained by Registration Court evidencing the increase in the share capital of the Society, the allotment of the Subscription Share to Nationwide and the amendments in the agreed terms to the Articles. 2. NATIONWIDE'S COMPLETION OBLIGATIONS Nationwide's obligations are to deliver to Pioneer and the Society: 2.1 a copy of the resolution of the board of directors of Nationwide authorising or ratifying the execution by Nationwide of this Agreement, the Shareholders' Agreement and the other documents to be executed by it at Completion. 2.2 a copy of the confirmation referred to in CLAUSE 2.1.2. -15- 18 SIGNATURES: /s/ Alicja Malecka - -------------------------------------------------------------------------------- For THE PIONEER GROUP, INC. /s/ David M. Martin - -------------------------------------------------------------------------------- For NATIONWIDE GLOBAL HOLDINGS, INC. /s/ Tomasz Orlik - -------------------------------------------------------------------------------- For PIONEER POWSZECHNE TOWARZYSTWO EMERYTALNE S.A. -16- EX-27.99 4 FINANCIAL DATA SCHEDULE 3MOS ENDED 31-MAR-1999
5 1,000 U.S. DOLLARS 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 1.00000 28,499 2,400 50,582 0 24,920 127,885 268,647 (122,024) 390,573 95,760 94,966 0 0 2,632 130,414 390,573 0 78,295 0 78,225 3,871 0 3,528 (7,972) 476 (8,448) 0 0 (12,112) (20,560) (0.800) (0.800)
EX-27.98 5 FINANCIAL DATA SCHEDULE 3MOS ENDED 31-MAR-1998
5 1,000 U.S. DOLLARS 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 1.00000 36,644 17,852 108,677 0 30,763 212,533 248,998 (93,880) 606,025 140,704 168,390 0 0 2,539 179,245 606,025 0 77,892 0 71,231 (5,988) 0 3,836 8,724 3,387 5,337 10 0 0 5,347 0.210 0.210
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