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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_]Preliminary Proxy Statement
[_]Confidential, for Use of the
[X]Definitive Proxy Statement Commission Only (as Permitted by
Rule 14a-6(e)(2))
[_]Definitive Additional Materials
[_]Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
CONSOLIDATED PAPERS, INC.
-----------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--Enter Company Name Here--
-----------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_]No fee required.
[_]Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange ActRule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_]Fee paid previously with preliminary materials.
[X]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: $496,449.15
(2) Form, Schedule or Registration Statement No.: F-4
(3) Filing Party: Stora Enso Oyj
(4) Date Filed: July 26, 2000
Notes:
<PAGE>
[LOGO OF CONSOLIDATED] [LOGO OF STORAENSO]
MERGER PROPOSAL--YOUR VOTE IS VERY IMPORTANT
Dear Consolidated Shareholder:
Consolidated's board of directors has unanimously approved a merger between
Consolidated Papers, Inc. and a Wisconsin subsidiary of Stora Enso Oyj.
Following the merger, Consolidated will be a wholly owned subsidiary of Stora
Enso. Your vote, as a shareholder of Consolidated, is now needed to approve the
merger agreement.
In the merger, each Consolidated share you own will be exchanged, at your
election, for either:
. $44.00 in cash;
or
. a number, ranging from 2.678 to 3.621, of American depositary shares
evidencing Stora Enso Series R shares intended to provide a value of
$44.00. However, the 3.621 Stora Enso American depositary shares you
may receive would have a value of less than $44.00 per Consolidated
share if the average price of Stora Enso's Series R shares as
determined under the merger agreement is less than the equivalent of
$12.15. The closing price per Stora Enso Series R share on the
Helenski Stock Exchange on July 25, 2000 was the equivalent of $10.91
using the applicable euro/dollar exchange rate on that day.
After careful consideration, your board of directors has unanimously
determined the merger to be fair to you and in your best interests, and
declared the merger advisable. Consolidated's board has adopted and approved
the merger agreement and unanimously recommends that you vote FOR approval of
the merger agreement.
The accompanying proxy statement/prospectus provides detailed information
about the proposed merger and the Consolidated shareholder meeting to vote on
it. This document is also a prospectus for the Stora Enso ADSs that will be
issued in the merger. We encourage you to read this material carefully. Please
pay particular attention to the discussion of "Risk Factors" beginning on page
11 for a discussion of the risks related to the merger and ownership of Stora
Enso ADSs.
Holders of two-thirds of the outstanding Consolidated shares must approve the
merger agreement. Failure to vote is equivalent to a vote against the merger.
Whether or not you plan to attend the meeting, please take the time to vote by
completing and mailing the enclosed proxy card to us. Voting instructions are
inside.
We have also enclosed a blue election and transmittal form for your use in
choosing to receive cash, ADSs or a combination of cash and ADSs in exchange
for your Consolidated shares. Except as described in the proxy
statement/prospectus, one-half of Consolidated's outstanding shares will be
converted into the right to receive cash and the other half into the right to
receive ADSs. Any election you make will be subject to proration as described
in the proxy statement/prospectus. The ADSs will be listed on the New York
Stock Exchange under the symbol "SEO" following the merger. As described in
this document, if you do not submit an election and transmittal form by the
election deadline, the consideration you receive will be determined after the
preferences of Consolidated shareholders who did submit the form have been
taken into account. You may submit an election and transmittal form whether or
not you vote in favor of the merger.
Stora Enso's board of directors has also unanimously approved the merger
agreement and has unanimously recommended that its shareholders vote to approve
the issuance of Stora Enso Series R shares that will allow for the creation and
issuance of ADSs in the merger.
This document incorporates by reference important business and financial
information that is not included in this document. You may obtain this
information without charge from the appropriate company by written or oral
request as described under "Where You Can Find More Information" on page 169.
To obtain timely delivery of the information, please request documents no later
than August 23, 2000.
The date, time and place of the Consolidated meeting are as follows:
August 30, 2000 at 9:00 a.m.
Hotel Mead
451 East Grand Avenue
Wisconsin Rapids, Wisconsin
[SIGNATURE OF GORTON M. EVANS] [SIGNATURE OF GEORGE W. MEAD]
------------------------------- -------------------------------
Gorton M. Evans George W. Mead
President and Chief Executive Chairman of the Board
Officer
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the securities to be issued in
the merger, nor have they passed upon the adequacy or accuracy of the
disclosure in this document. Any representation to the contrary is a
criminal offense.
This proxy statement/prospectus is dated July 26, 2000 and is being first
mailed to Consolidated shareholders on or about July 28, 2000.
<PAGE>
CONSOLIDATED PAPERS, INC.
510 HIGH STREET
WISCONSIN RAPIDS, WI 54495-8050
NOTICE OF MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 30, 2000
TO THE SHAREHOLDERS OF CONSOLIDATED PAPERS, INC.:
A meeting of shareholders of Consolidated Papers, Inc. will be held on August
30, 2000 at the Hotel Mead, 451 East Grand Avenue, Wisconsin Rapids, Wisconsin,
at 9:00 A.M., local time, for the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger, dated as of February 22, 2000, providing for the merger of
Consolidated into a wholly owned subsidiary of Stora Enso Oyj. In the
merger, each outstanding Consolidated share will be converted, at the
election of the holder, into either:
. $44.00 in cash;
or
. a number, ranging from 2.678 to 3.621, of American depositary
shares evidencing Stora Enso Series R shares intended to provide a
value of $44.00; and
2. To transact any other business which may properly come before the
meeting or any adjournments or postponements of the meeting.
If the average price of Stora Enso Series R shares on the Helsinki Stock
Exchange as determined under the merger agreement is less than the equivalent
of $12.15, then Consolidated shareholders who receive Stora Enso ADSs will
receive 3.621 ADSs that would have a value less than $44.00 per Consolidated
share. The closing price per Stora Enso Series R share on the Helsinki Stock
Exchange on July 25, 2000 was the equivalent of $10.91 using the applicable
euro/dollar exchange rate on that day. Shareholders' elections are subject to
proration as described in the proxy statement/prospectus.
Only shareholders of record at the close of business on July 25, 2000 are
entitled to notice of and to vote at the meeting and any adjournments or
postponements of the meeting.
Your board of directors believes that the merger is in the best interests of
Consolidated and its shareholders. Your board has unanimously adopted and
approved the merger agreement and recommends that you vote FOR its approval. We
encourage you to read the accompanying proxy statement/prospectus, which
provides detailed information concerning the merger.
Your vote is very important. The affirmative vote of the holders of two-
thirds of all the votes entitled to be cast is required to approve the merger
agreement. Please complete, date and sign the accompanying proxy and return it
promptly in the enclosed envelope. If you sign and return your proxy card
without indicating how you want to vote, your proxy will be counted as a vote
in favor of the merger agreement.
Returning a proxy will not prevent you from attending the meeting or voting
in person. You may revoke your proxy at any time by filing a written notice of
revocation with, or by delivering a duly executed proxy bearing a later date
to, the Secretary of Consolidated at the address above prior to the meeting or
by attending the meeting and voting in person.
We have also enclosed a blue election and transmittal form for your use in
choosing to receive cash, ADSs or a combination of cash and ADSs in exchange
for your Consolidated shares. One-half of Consolidated's outstanding shares
will be converted into the right to receive cash and the other half into the
right to receive ADSs. Elections will be subject to proration as described in
the proxy statement/prospectus. You may submit an election and transmittal form
whether or not you vote in favor of the merger.
[SIGNATURE OF CARL H. WARTMAN]
_____________________________________
Carl H. Wartman
Secretary
July 26, 2000
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q.What is the proposed transaction?
A.Consolidated and Stora Enso have agreed to a merger in which Consolidated
will become a wholly owned subsidiary of Stora Enso.
Q.Why is Stora Enso proposing to acquire Consolidated?
A.Stora Enso believes that the acquisition of Consolidated will position
Stora Enso as a leader in the global consolidation of the paper industry,
provide Stora Enso with a strong entry into the world's largest paper market,
and create a powerful platform for future growth. Stora Enso believes that
Consolidated is an excellent match for Stora Enso, given Consolidated's
strengths in Stora Enso's core product areas.
Q.Why is Consolidated proposing to merge with Stora Enso?
A.Consolidated believes that the future success of its business and the
ability to serve its customer base will be enhanced by being a central part of
the global Stora Enso strategy.
Q.What will Consolidated shareholders receive in the merger?
A.For each Consolidated share you own, you will receive, at your election,
either:
. $44.00 in cash;
or
. a number, ranging from 2.678 to 3.621, of Stora Enso ADSs.
Q.Will Consolidated shareholders receive the specific amount of cash and
Stora Enso ADSs that they elect to receive?
A.Not necessarily. One-half of the total outstanding Consolidated shares will
be converted into cash and the other half will be converted into Stora Enso
ADSs. If total elections for cash or Stora Enso ADSs exceed these limits, the
number of Consolidated shares to be converted into cash or Stora Enso ADSs will
be cut back proportionately.
In addition, if either of our tax advisors is unable to deliver its opinion
that no gain or loss will be recognized by a Consolidated shareholder in
respect of receipt of Stora Enso ADSs in the merger, then the number of
Consolidated shares to be converted into cash would be reduced, and the number
of Consolidated shares to be converted into Stora Enso ADSs would be
correspondingly increased, to the extent necessary so that an opinion can be
delivered. The amount of cash to be received per Consolidated share converted
into cash, and the maximum 3.621 Stora Enso ADSs to be received per
Consolidated share converted into ADSs, will not be increased.
Q.What is a Stora Enso ADS?
A.A Stora Enso ADS is an American depositary share which represents one Stora
Enso Series R share. The ADSs will be issued under the terms of a deposit
agreement to allow U.S. shareholders to more easily hold and trade interests in
Stora Enso after the merger. Citibank, N.A. will be the depositary bank. As
depositary bank, Citibank will issue the Stora Enso ADSs to you and hold the
Stora Enso Series R shares represented by the ADSs on your behalf in a
safekeeping account in Finland. American depositary shares are represented by
American depositary receipts, or ADRs. American depositary receipts are like
stock certificates which represent your Consolidated shares. For a description
of the Stora Enso ADSs, see "Description of Stora Enso American Depositary
Shares."
Q.Are Stora Enso Series R shares traded on any stock exchange?
A.Yes. Stora Enso Series R shares are traded under the symbol "STERV" on the
Helsinki Stock Exchange and under the symbol "STER" on the OM Stockholm
Exchange.
Q.Will the Stora Enso ADSs be traded on any stock exchange?
A.Yes. Stora Enso has applied for listing of the ADSs on the New York Stock
Exchange and
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anticipates that the ADSs will trade on that exchange under the symbol "SEO."
If Stora Enso is unable to list the ADSs on the New York Stock Exchange, it
intends to seek approval for the ADSs to trade on NASDAQ. If the ADSs are not
approved for trading on the New York Stock Exchange or NASDAQ by October 31,
2000, Stora Enso will proceed with the merger on an all cash basis and your
Consolidated shares will all be converted into $44.00 in cash.
Q.How do I vote my Consolidated shares?
A.To vote by mail, just complete and send your signed proxy card in the
enclosed, postage-paid envelope and your shares will be voted at the
Consolidated meeting. You may also vote in person at the Consolidated meeting.
If your shares are held in "street name" by your broker or bank, you should
instruct your broker or bank as to how to vote your shares at the meeting.
Please read this document carefully before you vote.
If your shares are held in the Consolidated Employees' Stock Ownership Plan,
either of the Consolidated 401(k) Plans, or the Consolidated Payroll Common
Stock Purchase Plan, you will receive information from the trustee or
administrator requesting instructions on how to vote your shares at the
meeting. You should instruct the trustee or administrator how to vote your
shares at the meeting.
Q.May I change my vote?
A.Yes. You may withdraw your proxy or change your vote by delivering a later-
dated signed written notice of revocation or proxy card before the Consolidated
meeting or by voting in person at the Consolidated meeting.
Q.What will happen if I abstain from voting or fail to vote?
A.An abstention or failure to vote, including by failing to instruct your
broker on how to vote your shares, will have the same effect as a vote against
the merger.
Q.How do I make an election to receive Stora Enso ADSs or cash?
A.We have included a blue election and transmittal form with this document.
You may submit an election and transmittal form, together with your
Consolidated stock certificates, to Citibank, N.A., in its capacity as exchange
agent for the merger, now or at any time until 5:00 p.m., New York City time,
on the fifth business day after the closing date of the merger. The election
and transmittal form includes detailed instructions on how to elect Stora Enso
ADSs and/or cash. As described in this document, any election you make will be
subject to potential proration. You may submit an election and transmittal form
whether or not you vote in favor of the merger.
Q.Do I have to submit an election and transmittal form right away?
A.No. Although we recommend that you submit an election and transmittal form
as soon as possible, your election will be valid if the exchange agent receives
your properly completed election and transmittal form and Consolidated stock
certificates on or before 5:00 p.m., New York City time, on the fifth business
day following the closing date of the merger. We will announce the closing date
by press release at least three days in advance.
Q.Can I revoke or change an election to receive cash or Stora Enso ADSs?
A.Yes. You can revoke or change your election for any or all of your
Consolidated shares by withdrawing your election by written notice and
submitting a new election and transmittal form together with the applicable
Consolidated stock certificates to the exchange agent prior to 5:00 p.m., New
York City time, on the fifth business day following the closing date of the
merger.
If your Consolidated shares are held in the Consolidated Employees' Stock
Ownership Plan, either of the Consolidated 401(k) Plans, or the Consolidated
Payroll Common Stock Purchase Plan, you must follow the instructions sent to
you by the trustee or administrator and submit the documents required by those
instructions within the specified time periods in order to revoke or change
your election.
Q.Should I send in my Consolidated stock certificates now?
A.You should submit your Consolidated stock certificates with your blue
election and
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transmittal form. If you do not submit an election and transmittal form by 5:00
p.m., New York City time, on the fifth business day following the closing of
the merger, we will send you instructions explaining how to exchange your
Consolidated stock certificates for the merger consideration you are entitled
to receive under the terms of the merger agreement.
Q.What do I do if my broker or Plan administrator holds my shares in "street
name" and I cannot mail them in?
A.In the event your Consolidated shares are held in "street name," your
broker or bank will provide you with instructions for making an election to
receive cash and/or Stora Enso ADSs.
In the event your shares are held in the Consolidated Employees' Stock
Ownership Plan, either of the Consolidated 401(k) Plans, or the Consolidated
Payroll Common Stock Purchase Plan, the trustee or administrator will provide
you with instructions for making an election to receive cash and/or Stora Enso
ADSs.
Q.Can I make partial elections?
A.Yes. The election and transmittal form provides for an election to be made
for cash and/or Stora Enso ADSs with respect to all or any portion of your
Consolidated shares. You may make an election to receive Stora Enso ADSs for
some of your Consolidated shares and cash for the balance.
Q.What happens to my Consolidated stock certificates if the merger does not
take place?
A.The exchange agent will promptly return your Consolidated stock
certificates.
Q.What if I held shares in Consolidated's Dividend Reinvestment and Stock
Purchase Plan?
A.The Dividend Reinvestment and Stock Purchase Plan was terminated in
February 2000 and the Consolidated shares held in the plan were distributed to
participants, together with checks for any fractional shares. If you were a
participant in Consolidated's Dividend Reinvestment and Stock Purchase Plan and
have not yet received your Consolidated shares, please call Joyce A. Clauson at
(715) 422-3778.
Q.When is the merger expected to be completed?
A.We are working as quickly as possible and expect to complete the merger by
early September 2000. Since the merger is subject to other approvals, including
from state and federal regulatory agencies, we cannot predict the exact timing
of the merger.
Q.Is the merger taxable?
A.The merger will be tax free to U.S. holders of Consolidated shares to the
extent they receive Stora Enso ADSs in exchange for their Consolidated shares.
Cash received in the merger will be taxable. We urge you to consult your own
tax advisor about your personal tax situation to be certain about the U.S.
federal income tax consequences to you.
Q.Where can I find more information about the companies?
A.You can find more information about Consolidated and Stora Enso from
various sources described under "Where You Can Find More Information" on page
169 of this document.
Q.Who can answer my questions?
A.If you have more questions about the merger, you should contact:
Georgeson Shareholder Communications Inc.
17 State Street
10th Floor
New York, NY 10004
Banks and Brokers call Collect:
(212) 440-9800
All Others Call Toll-Free:
(800) 223-2064
Q.How important is my vote?
A.Since the merger cannot be completed without the affirmative vote of
holders of two-thirds of all outstanding Consolidated shares, every shareholder
vote is very important. Remember that an abstention or failure to vote will
have the same effect as a vote against the merger.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY..................................................................... 1
The Companies............................................................. 1
The Merger................................................................ 1
Unanimous Recommendation of the Consolidated Board........................ 2
Opinion of Goldman, Sachs & Co............................................ 2
Source and Amount of Funds and Other Consideration........................ 2
Directors and Management Following the Merger............................. 2
Interests of Members of Consolidated's Board and Management............... 3
Conditions to the Merger.................................................. 3
Regulatory Approvals...................................................... 3
Termination of the Merger Agreement....................................... 4
Termination Payments...................................................... 4
No Appraisal Rights....................................................... 5
Accounting Treatment...................................................... 5
Meeting of Consolidated's Shareholders.................................... 5
Extraordinary General Meeting of Stora Enso's Shareholders................ 5
Comparative Rights of Shareholders of Stora Enso and Consolidated......... 5
Comparative Market Price Information...................................... 6
Currencies and Exchange Rates............................................. 6
Comparative Historical and Pro Forma Per Share Data....................... 7
Selected Historical Financial Data........................................ 8
Unaudited Pro Forma Combined Financial Information........................ 10
RISK FACTORS................................................................ 11
Risk Factors Relating to the Merger....................................... 11
Risk Factors Relating to Ownership of Stora Enso ADSs..................... 12
Forward-Looking Statements in this Document May Prove Inaccurate.......... 16
MEETING OF CONSOLIDATED SHAREHOLDERS........................................ 18
Purpose................................................................... 18
Record Date............................................................... 18
Required Vote............................................................. 18
Proxies................................................................... 18
Solicitation of Proxies................................................... 19
Share Ownership of Management............................................. 19
Mead Voting Trust......................................................... 19
Elections as to Form of Consideration..................................... 20
EXTRAORDINARY GENERAL MEETING OF STORA ENSO'S SHAREHOLDERS.................. 20
THE MERGER.................................................................. 22
Background of the Merger.................................................. 22
Consolidated's Reasons for the Merger and Board Recommendation............ 25
Stora Enso's Reasons for the Merger....................................... 26
Opinion of Consolidated's Financial Advisor............................... 27
Interests of Members of Consolidated's Board and Management............... 32
Accounting Treatment...................................................... 33
Resales of ADSs........................................................... 33
Regulatory Approvals...................................................... 34
Stock Exchange Listing.................................................... 35
Source and Amount of Funds................................................ 35
Other Effects of the Merger............................................... 35
No Appraisal or Dissenters' Rights........................................ 36
</TABLE>
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<TABLE>
<S> <C>
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER.......................... 37
General................................................................... 37
Exchange Solely for Cash.................................................. 38
Exchange Solely for Stora Enso ADSs....................................... 38
Exchange for Stora Enso ADSs and Cash..................................... 38
Cash Received in Lieu of a Fractional Stora Enso ADS...................... 38
Five Percent Holders...................................................... 38
Backup Withholding........................................................ 39
SUMMARY OF THE MERGER AGREEMENT............................................. 40
Form of the Merger........................................................ 40
Consideration to be Received in the Merger................................ 40
Effective Time of the Merger.............................................. 41
Share Election and Exchange Procedures.................................... 41
Consolidated Stock Options................................................ 43
Management................................................................ 43
Representations and Warranties............................................ 43
Covenants................................................................. 44
Conditions to the Consummation of the Merger.............................. 48
Termination............................................................... 50
Termination Fees.......................................................... 50
Expenses.................................................................. 51
Amendments................................................................ 51
MARKET PRICE AND DIVIDEND INFORMATION....................................... 52
Market Prices............................................................. 52
Dividends................................................................. 53
CURRENCY AND EXCHANGE RATE INFORMATION...................................... 55
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION.......................... 57
Unaudited Pro Forma Combined Income Statement............................. 58
Unaudited Pro Forma Combined Balance Sheet................................ 60
INFORMATION ABOUT CONSOLIDATED PAPERS....................................... 66
INFORMATION ABOUT STORA ENSO................................................ 66
General................................................................... 66
Stora Enso Acquisition, Inc............................................... 67
Strategy.................................................................. 67
Company History........................................................... 68
Recent Developments....................................................... 69
Business Overview......................................................... 70
Magazine Paper............................................................ 72
Newsprint................................................................. 74
Fine Paper................................................................ 76
Packaging Boards.......................................................... 78
Timber Products........................................................... 81
Market Pulp............................................................... 82
Paper Merchants........................................................... 84
Forest Operations......................................................... 85
Discontinued Operations................................................... 87
Marketing................................................................. 88
Research and Development.................................................. 88
Intellectual Property..................................................... 89
Transportation and Logistics.............................................. 89
Environmental Matters..................................................... 90
Employees................................................................. 91
</TABLE>
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<TABLE>
<S> <C>
Transactions with Related Parties....................................... 93
Property................................................................ 94
Legal Proceedings....................................................... 98
Management of Stora Enso................................................ 99
Management Biographies.................................................. 101
Compensation of Directors and Executive Management Group................ 105
Employment Agreements................................................... 105
Equity-based Programs................................................... 105
Interest of Management in Transactions with Stora Enso.................. 108
STORA ENSO MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.................................................... 109
General................................................................. 109
Industry Overview....................................................... 109
Currency Fluctuations................................................... 111
Results of Operations................................................... 113
The Three Months Ended March 31, 2000 Compared to the Three Months Ended
March 31, 1999......................................................... 114
The Year Ended December 31, 1999 Compared to the Year Ended December 31,
1998................................................................... 117
The Year Ended December 31, 1998 Compared to the Year Ended December 31,
1997................................................................... 120
Liquidity and Capital Resources......................................... 123
Capital Expenditure..................................................... 124
Inflation............................................................... 125
Introduction of the Euro................................................ 125
Year 2000............................................................... 126
Quantitative and Qualitative Disclosures about Market Risk.............. 126
TAXATION ON STORA ENSO SERIES R SHARES AND AMERICAN DEPOSITARY SHARES..... 129
Finnish Taxation........................................................ 129
U.S. Federal Income Taxation............................................ 130
OWNERSHIP OF SECURITIES................................................... 134
Ownership of Consolidated Shares by Management and Significant
Shareholders........................................................... 134
Ownership of Stora Enso's Securities by Management and Significant
Shareholders........................................................... 136
DESCRIPTION OF STORA ENSO SERIES R SHARES................................. 138
General................................................................. 138
Dividends and Other Distributions....................................... 138
Voting Rights........................................................... 139
Issuance of New Shares and Preemptive Rights............................ 140
Transfers............................................................... 140
DESCRIPTION OF STORA ENSO AMERICAN DEPOSITARY SHARES...................... 141
General................................................................. 141
Dividends and Distributions............................................. 141
Changes Affecting Series R Shares....................................... 144
Issuance of ADSs Upon Deposit of Series R Shares........................ 144
Withdrawal of Shares Upon Cancellation of ADSs.......................... 145
Voting Rights........................................................... 145
Fees and Charges........................................................ 146
Amendments and Termination.............................................. 147
Books of Depositary..................................................... 147
Limitations on Obligations and Liabilities.............................. 147
Pre-Release Transactions................................................ 148
Taxes................................................................... 148
Foreign Currency Conversion............................................. 149
</TABLE>
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THE FINNISH SECURITIES MARKET............................................. 149
General................................................................. 149
The Finnish Book-Entry Securities System................................ 150
Trading and Settlement.................................................. 150
Custody of the Shares and Nominees...................................... 151
THE SWEDISH SECURITIES MARKET............................................. 152
COMPARISON OF RIGHTS OF STORA ENSO SHAREHOLDERS AND CONSOLIDATED
SHAREHOLDERS............................................................. 154
Shareholder's Meetings.................................................. 154
Amendment of Constituent Documents...................................... 158
Shareholders' Inspection Rights......................................... 159
Dividends............................................................... 160
Issuance of New Shares.................................................. 161
Assessability........................................................... 161
Preemptive Rights....................................................... 162
Takeover Protections.................................................... 162
Dissenters' or Appraisal Rights......................................... 164
Size, Qualifications and Classification of the Board of Directors....... 165
Removal of Directors and Filling of Vacancies........................... 165
Limitations on a Director's Liability................................... 166
Indemnification of Officers and Directors............................... 166
Shareholder Derivative Lawsuits......................................... 168
ENFORCEMENT OF LIABILITIES AND SERVICE OF PROCESS......................... 169
WHERE YOU CAN FIND MORE INFORMATION....................................... 169
EXPERTS................................................................... 171
LEGAL MATTERS............................................................. 171
INDICES TO FINANCIAL STATEMENTS........................................... F-1
</TABLE>
Annex A--Agreement and Plan of Merger
Annex B--Opinion of Goldman, Sachs & Co.
Annex C--Articles of Association of Stora Enso Oyj
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SUMMARY
This summary highlights selected information described in greater detail
elsewhere in this document. It does not contain all of the information that may
be important to you. You should read carefully this entire document and the
additional documents referred to in this document to fully understand the
merger.
The Companies (see page 66)
Consolidated Papers, Inc.
510 High Street
P.O. Box 8050
Wisconsin Rapids, Wisconsin 54495-8050
Telephone: (715) 422-3111
Consolidated is one of North America's largest producers of printing papers
as well as a leading North American manufacturer of specialty papers.
Consolidated employs about 6,800 people and operates manufacturing facilities
in Biron, Kimberly, Niagara, Stevens Point, Whiting and Wisconsin Rapids,
Wisconsin, as well as in Duluth, Minnesota. Consolidated owns and manages
nearly 700,000 acres of forestland in Wisconsin, Michigan, Minnesota and
Ontario, Canada.
Stora Enso Oyj
Kanavaranta 1
P.O. Box 309
FIN-00101 Helsinki
Finland
Telephone: 011-358-2046-131
Stora Enso is the largest paper and board manufacturer in Europe and the
second largest in the world based on production capacity. Stora Enso was formed
through the merger of the Finnish company Enso Oyj and the Swedish company
Stora Kopparbergs Bergslags Aktiebolag (publ) at the end of 1998. Stora Enso is
an integrated forest products company that manufactures magazine paper,
newsprint, fine paper and packaging boards, and owns 2.6 million hectares
(approximately 6.4 million acres) of productive forestland. Stora Enso employs
approximately 40,000 people and maintains operations in Europe, Asia and North
America. Additionally, Stora Enso has sales and marketing organizations
throughout the world.
The Merger (see page 22)
In the merger, Consolidated will merge into a wholly owned subsidiary of
Stora Enso. The surviving corporation will be called Stora Enso Consolidated
Papers, Inc. and will be a wholly owned subsidiary of Stora Enso.
In the merger, for each Consolidated share you own, you will receive, at your
election, either:
.$44.00 in cash;
or
. a number, ranging from 2.678 to 3.621, of Stora Enso ADSs.
If the average trading price of Stora Enso Series R shares during a specified
period ending shortly before the merger is a U.S. dollar equivalent of $12.15
or more, up to $16.43, for each Consolidated share converted into ADSs, you
will receive a number of Stora Enso ADSs, ranging from 2.678 to 3.621, having a
value, based on the average trading price, of $44.00.
If the average trading price is above $16.43, then you will receive 2.678
Stora Enso ADSs, which would have a value, based on the average trading price,
of more than $44.00, for each Consolidated share converted into ADSs.
If the average trading price is below $12.15, then you will receive 3.621
Stora Enso ADSs, which would have a value, based on the average trading price,
of less than $44.00, for each Consolidated share converted into ADSs.
This information is summarized in the table below:
<TABLE>
<CAPTION>
Average Number of
trading Stora Enso Value of Stora
price of ADSs you Enso ADSs you
Stora will receive will receive
Enso for each for each
Series R Consolidated Consolidated
shares share share
-------- ------------ ----------------
<S> <C> <C>
Less than 3.621 Less than $44.00
$12.15..
$12.15 to $ 44.00 $44.00
$16.43.. divided by
the average
trading
price
More than 2.678 More than $44.00
$16.43..
</TABLE>
1
<PAGE>
On July 25, 2000, the latest practicable trading day prior to the printing of
this document, the closing price per Stora Enso Series R share on the Helsinki
Stock Exchange was (Euro)11.59, and the exchange rate for July 25, 2000
published in the U.S. edition of the Financial Times was $0.9413 per
(Euro)1.00, resulting in a U.S. dollar equivalent trading price of $10.91. If
that closing price, converted at that exchange rate, were the applicable
average trading price, then you would receive 3.621 ADSs, which would have a
value, based on that average trading price, of $39.51, for each Consolidated
share converted into ADSs.
Stora Enso will not issue fractional shares in the merger. As a result, the
total number of Stora Enso ADSs that you receive in the merger will be rounded
down to the nearest whole number. You will receive a cash payment, based on the
average trading price, for the value of the remaining fraction of a Stora Enso
ADS that you would otherwise receive.
One-half of the total outstanding Consolidated shares will be converted into
cash and the other half will be converted into Stora Enso ADSs. If total
shareholder elections for cash or Stora Enso ADSs exceed these limits, the
number of Consolidated shares to be converted into cash or Stora Enso ADSs will
be cut back proportionately. As a result, depending on the elections made by
all Consolidated shareholders, you may receive more or less cash or more or
fewer Stora Enso ADSs than you have elected to receive.
Under some circumstances, the number of Consolidated shares to be converted
into cash would be reduced, and the number of Consolidated shares to be
converted into Stora Enso ADSs would be correspondingly increased, as described
under "Summary of the Merger Agreement--Consideration to be Received in the
Merger."
No interest will be paid with respect to either the cash consideration to be
paid in the merger or any dividends or distributions declared or paid on the
Stora Enso ADSs issued in the merger.
Unanimous Recommendation of the Consolidated Board (see page 18)
After careful consideration, Consolidated's board of directors unanimously
determined the merger to be fair to you and in your best interests, and
declared the merger advisable. Consolidated's board of directors unanimously
adopted and approved the merger agreement and recommends that you vote "FOR"
approval of the merger agreement.
Opinion of Goldman, Sachs & Co. (see page 27)
On February 22, 2000, Goldman, Sachs & Co. delivered its written opinion to
the board of directors of Consolidated that, as of the date of the opinion, the
merger consideration to be received by the holders of Consolidated shares was
fair from a financial point of view to those holders.
The full text of the written opinion of Goldman Sachs, which sets forth
assumptions made, matters considered and limitations on the review undertaken
in connection with the opinion, is contained in Annex B. Goldman Sachs provided
its opinion for the information and assistance of Consolidated's board of
directors in connection with its consideration of the merger. It is not a
recommendation as to how any Consolidated shareholder should vote at the
meeting. We urge you to read the opinion in its entirety.
Source and Amount of Funds and Other Consideration (see page 35)
Stora Enso expects to pay approximately $2.0 billion in cash to Consolidated
shareholders in the merger. Stora Enso currently intends to obtain the funds
necessary to make this payment, as well as to pay expenses related to the
merger, from borrowings, some or all of which will come from Stora Enso's
currently available credit facilities. Stora Enso may also use the proceeds of
the recent sale of off-mill site energy assets for net proceeds before tax of
approximately (Euro)600 million.
Directors and Management Following the Merger (see page 43)
Following the merger, the current officers of Consolidated will remain
officers of Stora Enso
2
<PAGE>
Consolidated Papers, Inc. in the United States. Stora Enso has agreed that
George W. Mead, the chairman of the board of Consolidated, will serve on Stora
Enso's board of directors for at least two years following the merger.
Interests of Members of Consolidated's Board and Management (see page 32)
When considering the recommendation of Consolidated's board of directors, you
should be aware that Consolidated's directors and officers may have interests
in the merger that are different from, or are in addition to, yours. In
particular:
. George W. Mead, chairman of the board of Consolidated and a director,
will become a director of Stora Enso;
. all Consolidated stock options, including options granted to the
executive officers, will be converted into options to purchase Stora Enso
ADSs and assumed by Stora Enso in accordance with existing plan
provisions;
. Consolidated's directors and officers will be entitled to insurance
coverage and indemnification with respect to acts and omissions in their
capacities as directors and officers of Consolidated; and
. sixteen Consolidated officers have change in control contracts that
entitle them to specified payments and benefits if they are terminated
without cause or leave for good reason within two years of the merger.
On the record date, directors and executive officers of Consolidated and
their affiliates beneficially owned approximately 11.4% of the outstanding
Consolidated shares, excluding shares held in the Mead Voting Trust over which
George W. Mead will not exercise voting control in connection with the merger.
Each of Consolidated's directors and executive officers has informed
Consolidated that, as of the date of this document, he or she intends to vote
in favor of the merger.
Conditions to the Merger (see page 48)
Consolidated and Stora Enso will not complete the merger unless a number of
conditions are satisfied or waived by them. These include:
. approval by Consolidated and Stora Enso shareholders;
. clearance under applicable antitrust laws and regulations;
. approval or exemption of the transfer of Consolidated's power assets by
the SEC, the Federal Energy Regulatory Commission and the Public Service
Commission of Wisconsin; and
. receipt of opinions of tax counsel to Consolidated and Stora Enso
regarding the U.S. federal income tax treatment of the merger.
Regulatory Approvals (see page 34)
Antitrust. We were required to satisfy applicable requirements of U.S.
antitrust law known as the Hart-Scott-Rodino Act, which required us to furnish
materials and information to the Antitrust Division of the Department of
Justice and to the Federal Trade Commission and to wait until a specified
waiting period had ended. Early termination of the applicable waiting period
was granted on April 24, 2000.
Stora Enso also has made antitrust filings in Brazil and Germany. We received
approval from the German Cartel Office on April 28, 2000 and we do not
anticipate any governmental action in Brazil that would delay or prevent
consummation of the merger.
Power Regulation. Consolidated has two subsidiaries engaged in the generation
of electric power for use at Consolidated's manufacturing facilities. One of
these subsidiaries also sells electric power to a small number of retail
customers in Wisconsin and occasionally sells excess power to a single
wholesale customer; the other one is jointly owned with two Wisconsin utilities
and sells power to all three owners. Stora Enso's obligation to consummate the
merger is subject to receipt, or claiming, of regulatory exemptions and
favorable rulings by the SEC under the Public Utility Holding Company Act, by
the Federal Energy Regulatory Commission under the Federal Power Act and by the
Wisconsin Public Service Commission under the Wisconsin Public Utility Holding
Company Act relating to the change in control over Consolidated's power
generation assets. We received approval from the Federal Energy Regulatory
Commission on June 15, 2000. On July 20, 2000, we received confirmation from
the Wisconsin Public Service Commission that no approval would be required for
the Merger under the Wisconsin Public Utility Holding Company Act.
3
<PAGE>
We have agreed to use our reasonable best efforts, including divesting
assets, to resolve any regulatory objections related to the merger. However,
Stora Enso will not be required to agree to any divestiture or the imposition
of any conditions that would be reasonably likely to have a material adverse
effect on Stora Enso or Consolidated or that would materially and adversely
impact the economic, strategic or business benefits of the merger.
Termination of the Merger Agreement (see page 50)
We can jointly agree to terminate the merger agreement at any time before
completing the merger. In addition, either of us can terminate the merger
agreement if:
. the merger is not completed by December 31, 2000;
. any legal prohibition against completion of the merger becomes permanent
and final;
. Stora Enso's shareholders fail to approve the issuance of Stora Enso
Series R shares that will allow for the creation and issuance of ADSs in
the merger;
. Consolidated's shareholders fail to approve the merger; or
. the other party breaches any representations, warranties, covenants or
agreements in the merger agreement and the breach:
. gives rise to a failure to satisfy a condition to the merger; and
. is not or cannot be cured by December 31, 2000.
Consolidated also can terminate the merger agreement if, after complying with
the notice and other provisions of the merger agreement, Consolidated's board
of directors determines to:
. approve or recommend a third-party acquisition proposal after concluding
that it constitutes a superior proposal; and
. enter into a binding agreement concerning that acquisition proposal.
Consolidated does not have the right to terminate the merger agreement based
on a decline in the price of Stora Enso's Series R shares below any specified
level. However, a significant decline in the price of Stora Enso's Series R
shares could be related to other factors that might permit Consolidated to
terminate the merger agreement, for example, if Stora Enso suffers a material
adverse effect. We are not aware of any circumstance that would entitle
Consolidated to terminate the merger agreement and the Consolidated board of
directors continues to recommend that you vote in favor of the merger.
Stora Enso also can terminate the merger agreement if Consolidated's board of
directors:
. withdraws or adversely modifies its recommendation of the merger;
. recommends any third-party acquisition proposal to Consolidated's
shareholders; or
. determines to approve or recommend a third-party acquisition proposal
after concluding that it constitutes a superior proposal and to enter
into a binding agreement concerning that acquisition proposal.
The merger agreement defines a superior proposal as any third-party
acquisition proposal for Consolidated that:
. is for at least a majority of the outstanding Consolidated shares; and
. Consolidated's board of directors determines, after consulting with its
financial and legal advisors, to be more favorable to Consolidated's
shareholders than the merger.
Termination Payments (see page 50)
Consolidated could be required to pay Stora Enso a termination fee of up to
$120 million, plus reimbursable expenses of up to $1 million, if the merger
agreement is terminated under specified circumstances.
Stora Enso could be required to pay Consolidated a termination fee of $40
million, plus reimbursable expenses of up to $1 million, if the merger
agreement is terminated under specified circumstances.
4
<PAGE>
No Appraisal Rights (see page 36)
Consolidated shareholders do not have the right to receive an appraisal of
the value of their shares in connection with the merger.
Accounting Treatment (see page 33)
Stora Enso will account for the merger as an acquisition under International
Accounting Standards and as a purchase for purposes of generally accepted
accounting principles in the United States.
Meeting of Consolidated's Shareholders (see page 18)
The merger agreement must be approved by Consolidated's shareholders.
Consolidated has called a meeting of shareholders to vote on whether to approve
the merger agreement. The shareholders meeting will be held on August 30, 2000
at 9:00 a.m. local time at the Hotel Mead, 451 East Grand Avenue, Wisconsin
Rapids, Wisconsin.
Only holders of record of Consolidated shares at the close of business on
July 25, 2000 are entitled to receive notice of, and to vote at, the
Consolidated meeting. At the close of business on that day, there were
91,811,601 Consolidated shares outstanding.
Extraordinary General Meeting of Stora Enso's Shareholders (see page 20)
In connection with the merger, Stora Enso's board of directors has convened
an extraordinary general meeting of Stora Enso's shareholders for August 18,
2000. At the meeting, Stora Enso's shareholders will be asked to approve:
. a resolution to approve the merger agreement;
. a resolution to issue Stora Enso Series R shares that will allow for the
creation and issuance of ADSs in the merger;
. an authorization to the board of directors to issue Stora Enso options in
place of currently outstanding Consolidated options;
. a resolution to amend Stora Enso's articles of association to increase
the maximum number of directors from 10 to 11;
. a resolution to confirm the number of directors as 11; and
. a resolution to elect George W. Mead to Stora Enso's board of directors.
Stora Enso's board of directors has unanimously recommended that Stora Enso's
shareholders approve these resolutions. The affirmative vote of holders of two-
thirds by number and voting power of the Stora Enso Series A shares and Series
R shares represented and voting as a single class at the extraordinary general
meeting is required to approve the issuance of Stora Enso Series R shares in
the merger, the authorization to issue stock options in place of currently
outstanding Consolidated options and the amendment to the articles of
association described above.
As of June 30, 2000, directors and executive officers held 25,301 Stora Enso
Series A shares and 1,028,776 Stora Enso Series R shares (excluding 81,430,392
Series A shares and 16,467,836 Series R shares as to which the directors and
executive officers may be deemed to have beneficially shared voting power),
representing less than 0.1% and 0.2% of the outstanding Series A and Series R
shares, respectively, and less than 0.1% of the votes entitled to be cast at
the Stora Enso extraordinary general meeting.
Each of Stora Enso's directors and officers has informed Stora Enso that, as
of the date of this document, he intends to vote his shares in favor of the
resolutions presented at the extraordinary general meeting.
Comparative Rights of Shareholders of Stora Enso and Consolidated (see page
154)
As a result of the merger, some or all of your Consolidated shares may be
converted into Stora Enso ADSs. Because Consolidated is a corporation organized
under the laws of Wisconsin and Stora Enso is a corporation organized under the
laws of the Republic of Finland, there are differences between the rights of
Consolidated shareholders and the rights of holders of Stora Enso ADSs and
underlying Stora Enso Series R shares. For a discussion of some of these
differences, see "Comparison of Rights of Stora Enso Shareholders and
Consolidated Shareholders," "Description of Stora Enso Series R Shares" and
"Description of Stora Enso American Depositary Shares."
5
<PAGE>
Comparative Market Price Information
The following table presents per share closing market prices as reported on
the NYSE for the Consolidated shares and the closing price for the Stora Enso
Series R shares on the Helsinki Stock Exchange on February 18, 2000, the last
trading day on both the NYSE and the Helsinki Stock Exchange prior to any
public announcement of the signing of the merger agreement, and on July 25,
2000, the latest practicable date prior to the printing of this document. The
table also presents implied equivalent per share values for the Consolidated
shares on each date by multiplying the price per Stora Enso Series R share by
the exchange ratio that would have been applicable if the average trading price
used in determining the exchange ratio were equal to the closing price of the
Stora Enso Series R shares on that day, converted into U.S. dollars at the
currency exchange rate for that day published in the U.S. edition of the
Financial Times.
We urge you to obtain current market quotations for the Consolidated shares
and the Stora Enso Series R shares before making a decision with respect to the
merger.
<TABLE>
<CAPTION>
Stora Enso Consolidated Implied value per
Series R share price share price Consolidated share
-------------------- ------------ ------------------
<S> <C> <C> <C>
February 18, 2000.......... (Euro)13.30 $ 26.00 $44.00
July 25, 2000.............. (Euro)11.59 $40.875 $39.51
</TABLE>
Currencies and Exchange Rates
References in this document to "dollars," "USD" or "$" are to the currency of
the United States and references to "euros," "EUR" or "(Euro)" are to the
currency of the European Union's Economic and Monetary Union. References to
"Finnish markka" or "FIM," when used with respect to any time or period before
January 1, 1999, are to the currency of the Republic of Finland and, when used
with respect to any time or period after January 1, 1999, are to the sub-unit
of the euro. References to "Swedish krona," "Swedish kronor" and "SEK" are to
the currency of the Kingdom of Sweden.
Solely for your convenience, this document contains translations of selected
euro amounts into U.S. dollars at specified rates. You should not take these
translations as assurances that the euro amounts currently represent U.S.
dollar amounts or could be converted into U.S. dollars at the rate indicated or
any other rate, at any time.
In this document, unless otherwise stated, euros have been translated into
U.S. dollars at the noon buying rate in New York City for cable transfers in
foreign currencies as certified for customs purposes by the Federal Reserve
Bank of New York on March 31, 2000, which was $0.9574 per (Euro)1.00
($1.00=(Euro)1.0445). On July 25, 2000, the latest practicable date for which
exchange rate information was available prior to the printing of this document,
the noon buying rate was $0.9391 per (Euro)1.00 ($1.00=(Euro)1.065).
The period end, average and range of high and low U.S. dollar/euro exchange
rates for the five-year period ended December 31, 1999 and the six months ended
June 30, 2000 are presented in the section entitled "Currency and Exchange Rate
Information."
6
<PAGE>
Comparative Historical and Pro Forma Per Share Data
The following tables present unaudited historical and pro forma per share
data that reflect the completion of the merger based upon the historical
financial statements of Consolidated and Stora Enso. The pro forma data is not
indicative of the results of future operations or the actual results that would
have occurred had the merger been consummated at the beginning of the periods
presented. You should read the data presented below together with the
historical consolidated financial statements, including applicable Notes, of
Consolidated Papers, which are incorporated by reference into this document,
and of Stora Enso, which are included in this document beginning on page F-1,
and the Unaudited Pro Forma Combined Financial Information and Notes appearing
in this document.
The first and second columns on the left in the tables present historical per
share amounts for Stora Enso and Consolidated. Historical figures are for the
year ended December 31, 1999 and three month period ended March 31, 2000. The
third columns set forth pro forma equivalent data based on 139,848,037 Stora
Enso Series R shares assumed to be issued in the merger based upon an assumed
exchange ratio of 3.079 Series R shares per Consolidated share. The assumed
exchange ratio was based upon $44.00 divided by $14.29, the midpoint in the
range of U.S. dollar equivalent prices for the Stora Enso Series R shares used
to calculate the merger consideration. Solely for your convenience, Stora Enso
pro forma and pro forma equivalent amounts in the third columns have been
translated into U.S. dollars at the exchange rate of (Euro)1.00=$0.9574, the
noon buying rate at March 31, 2000.
The tables include historical and pro forma dividend information. For a
description of Stora Enso's ability to declare future dividends, see
"Description of Stora Enso Series R Shares--Dividends and Other Distributions."
<TABLE>
<CAPTION>
As of and for the year ended December 31, 1999
---------------------------------------------------------------
Stora Enso Consolidated Stora Enso pro forma
historical per share historical per share per share/ADS(/1/)
-------------------- -------------------- ---------------------
(Euro) $ (Euro) $
<S> <C> <C> <C> <C>
Amounts under U.S. GAAP
Earnings
Basic................. 0.72 0.73 0.38 0.36
Diluted............... 0.72 0.73 0.37 0.36
Dividends............... 0.40 0.88
Book value.............. 8.16 14.91
<CAPTION>
As of and for the three month period ended March 31, 2000
---------------------------------------------------------------
Stora Enso Consolidated Stora Enso pro forma
Historical per share Historical per share per share/ADS(/1/)
-------------------- -------------------- ---------------------
(Euro) $ (Euro) $
<S> <C> <C> <C> <C>
Amounts under U.S. GAAP
Earnings
Basic................. 0.37 0.28 0.26 0.25
Diluted............... 0.36 0.28 0.26 0.25
Dividends............... -- 0.22
Book value.............. 8.23 14.99 10.31 9.87
</TABLE>
--------
(1) The Stora Enso pro forma amounts do not include the results or assets of
the energy operations that were sold on May 31 and June 5, 2000 as
described under "Information About Stora Enso--Recent Developments--Sale of
Energy Assets."
7
<PAGE>
Selected Historical Financial Data
The following tables set forth selected historical financial data for Stora
Enso and Consolidated for each of the last five fiscal years ended December 31,
1999 and the three month periods ended March 31, 1999 and 2000. The selected
historical annual financial data has been derived from, and should be read in
conjunction with, Consolidated's annual audited consolidated financial
statements, including the related notes, incorporated by reference into this
document and Stora Enso's audited consolidated financial statements, including
the related notes, included in this document beginning on page F-1. All
balances prior to January 1, 1999 have been restated from Finnish markka into
euros using the conversion rate as of January 1, 1999. See Note 1 to the Stora
Enso consolidated financial statements.
The selected historical financial data for the three months ended March 31,
1999 and 2000 is unaudited and has been derived from, and should be read in
conjunction with, Consolidated's unaudited quarterly consolidated financial
statements, including the related notes, incorporated by reference into this
document and Stora Enso's unaudited quarterly consolidated financial
statements, including the related notes included in this document beginning on
page F-65.
Per share amounts for Stora Enso have been restated to reflect the shares
issued to STORA shareholders in 1998. Per share amounts for Consolidated for
1998 and prior years have been restated to reflect Consolidated's two-for-one
stock split in May 1998.
Stora Enso reports in accordance with International Accounting Standards,
called IAS, and Consolidated reports in accordance with U.S. GAAP. The main
differences between International Accounting Standards and U.S. GAAP that are
relevant to Stora Enso's consolidated financial statements are discussed in
Note 28 to Stora Enso's historical consolidated financial statements.
Stora Enso
<TABLE>
<CAPTION>
Three months
ended and at
Year ended and at December 31, March 31,
--------------------------------------- -------------
1995 1996 1997 1998 1999 1999 2000
------ ------ ------ ------ ------ ------ ------
((Euro) in millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
IAS
Sales................... 10,583 9,510 9,998 10,490 10,636 2,615 2,992
Net profit for the
period................. 1,007 369 409 191(/1/) 752 155 294
Earnings per share-
diluted................ 1.32 0.48 0.54 0.25(/1/) 0.99 0.20 0.39
Total assets............ 14,664 14,569 15,554 15,413 16,034 16,142 16,331
Long-term debt.......... 4,910 3,783 4,209 4,294 3,846 4,360 3,830
Dividends per share..... 0.32 0.30 0.33 0.35 0.40 -- --
U.S. GAAP
Net income for the
period................. -- -- -- 14 550 -- --
Basic earnings per
share.................. -- -- -- 0.02 0.72 -- --
Diluted earnings per
share.................. -- -- -- 0.02 0.72 -- --
Total assets............ -- -- -- 16,511 16,814 -- --
</TABLE>
--------
(1) Includes non-recurring items totaling (Euro)471 million.
8
<PAGE>
Consolidated Papers
<TABLE>
<CAPTION>
Three
months
ended and
at March
Year ended and at December 31, 31,
------------------------------------------ -----------
1995(/1/) 1996 1997(/2/) 1998 1999 1999 2000
--------- ----- --------- ----- ----- ----- -----
(U.S.$ in millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. GAAP
Net sales............... 1,579 1,545 1,679 1,989 1,839 459 483
Net earnings............ 229 179 118 102(/3/) 66 14 25
Earnings per share-
diluted................ 2.57 2.00 1.31 1.13(/3/) 0.73 0.15 0.28
Total assets............ 1,933 2,532 3,348 3,627 3,526 3,641 3,529
Long-term debt and lease
obligations............ 197 735 1,325 1,520 1,270 1,507 1,234
Dividends per share..... 0.72 0.84 0.84 0.87 0.88 0.22 0.22
</TABLE>
--------
(1) 1995 amounts reflect the acquisition, effective July 1, 1995, of Niagara of
Wisconsin Paper Corporation, Lake Superior Paper Industries and Superior
Recycled Fiber Industries.
(2) 1997 amounts reflect the acquisition, effective October 1, 1997, of Repap
USA, Inc.
(3) Includes a $4.6 million after-tax extraordinary loss on debt
extinguishment.
9
<PAGE>
Unaudited Pro Forma Combined Financial Information
We are providing the following pro forma combined financial information to
give you a better understanding of what the results of operations and financial
position of Stora Enso might have looked like had the merger occurred on an
earlier date. This information is provided for illustrative purposes only and
does not show what the results of operations or financial position of Stora
Enso would have been if the merger had actually occurred on the dates assumed.
This information also does not indicate what Stora Enso's future operating
results or combined financial position will be.
Please see "Unaudited Pro Forma Combined Financial Information" for a more
detailed explanation of this analysis.
Basis of Presentation
The unaudited pro forma combined financial information gives pro forma effect
to the merger, after giving effect to the sale of the energy assets and the pro
forma adjustments described in the notes to the unaudited pro forma combined
financial information. Stora Enso will account for the merger as a purchase of
Consolidated. The unaudited pro forma combined balance sheet at March 31, 2000
gives effect to the merger and the sale of the energy assets as if the
transactions had occurred on March 31, 2000. The unaudited pro forma combined
income statement for the year ended December 31, 1999 and for the three month
period ended March 31, 2000 gives effect to the merger and the sale of the
energy assets as if the transactions had occurred on January 1, 1999.
The unaudited pro forma combined financial information is based on the
historical consolidated financial statements of Stora Enso and Consolidated
Papers, which are prepared in accordance with IAS and U.S. GAAP, respectively.
The historical income statements of Stora Enso and Consolidated Papers for the
year ended December 31, 1999 are from the audited financial statements of the
respective companies. The consolidated historical balance sheets of Stora Enso
and Consolidated Papers as of March 31, 2000 and the consolidated income
statements for the three months ended March 31, 2000 are from the unaudited
consolidated financial statements of the respective companies which are
included in this document and incorporated by reference. IAS differs in several
respects from U.S. GAAP. The unaudited pro forma financial information for
Stora Enso has been adjusted to U.S. GAAP for all periods presented. Note 28 to
Stora Enso's 1999 audited historical consolidated financial statements provides
a description of the principal differences between IAS and U.S. GAAP as applied
to Stora Enso.
Unaudited Pro Forma Combined Financial Statement Data
<TABLE>
<CAPTION>
Three month
Year ended period ended
December 31, 1999 March 31, 2000
----------------- ---------------
(Euro) $ (Euro) $
(in millions, except per share
data)
<S> <C> <C> <C> <C>
Sales...................................... 11,966.2 11,456.5 3,392.9 3,248.3
Net income for the period.................. 341.0 326.4 236.1 226.0
Earnings per share--Basic.................. 0.38 0.36 0.26 0.25
Earnings per share--Diluted................ 0.37 0.36 0.26 0.25
</TABLE>
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RISK FACTORS
In addition to the other information contained, or incorporated by reference,
in this document, holders of Consolidated shares should consider carefully the
following factors in evaluating the merger agreement and Stora Enso and its
business.
Risk Factors Relating to the Merger
If we do not achieve the expected cost savings and other financial and
operating benefits from the merger, Stora Enso's earnings will suffer and the
value of Stora Enso's ADSs may be adversely effected.
The merger involves the integration of two large companies that have
previously operated independently and have geographically dispersed operations.
As a result, the merger will present challenges to management, including the
integration of the operations, technologies and personnel of Consolidated and
Stora Enso, and special risks, including possible unanticipated liabilities,
unanticipated costs, diversion of management attention and loss of personnel.
Stora Enso may not be able to successfully integrate or profitably manage
Consolidated's businesses. Following the merger, Consolidated's businesses may
not achieve sales levels, profitability or cost savings that justify the
investment made and the merger may not be accretive to earnings in any future
periods. In addition, there can be no assurance as to whether, when or the
extent to which the combined company will be able to realize approximately $110
million of annual cost savings and other financial and operating benefits
anticipated to result from the merger. If the expected benefits are not
realized, it could have a material adverse effect on the combined company's
earnings and the value of Stora Enso ADSs.
Regulatory authorities may impose conditions that jeopardize orderly
completion of the merger or reduce the anticipated benefits of the merger.
Completion of the merger requires notification to, or approval of, different
regulatory agencies, federal and state regulators of utility companies, and
antitrust and competition authorities. These regulatory authorities may impose
conditions that jeopardize or delay the merger or reduce the anticipated
benefits of the merger. The merger agreement provides that Stora Enso may
refrain from proceeding with the merger rather than agree to burdensome
requirements imposed by regulatory authorities as a condition to approving the
merger or otherwise permitting it to proceed.
You cannot be certain of the value of the Stora Enso ADSs to be issued in the
merger.
The value of the Stora Enso ADSs and the underlying Series R shares to be
issued in the merger will fluctuate and will depend on, among other things, the
market price of the Stora Enso Series R shares, currency exchange rates and the
actual exchange ratio for the merger. The market price of the Stora Enso ADSs
and the underlying Series R shares to be issued in the merger may vary as a
result of, among other things, changes in the business, operations or prospects
of Stora Enso or Consolidated or market assessments of the impact of the
merger. In addition, the stock markets have recently experienced significant
price and volume fluctuations, which could have an adverse effect on the
trading price of Stora Enso Series R shares prior to the merger. The exchange
ratio may vary from 2.678 to 3.621 ADSs issuable in the merger per Consolidated
share.
So long as the average trading price per Stora Enso Series R share is within
the exchange ratio collar of $12.15 to $16.43, the ADSs to be issued in the
merger are generally intended to have a value close to $44.00 per Consolidated
share at the effective time of the merger. However, because the calculated
average Stora Enso Series R share price and the actual Stora Enso Series R
share price at the effective time of the merger are likely to be different,
even if the average Stora Enso Series R share price is between $12.15 and
$16.43, the exchange ratio is unlikely to yield a number of ADSs worth exactly
$44.00 either at the time of the merger or at the time you receive Stora Enso
ADSs.
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If the average trading price of Stora Enso Series R shares is below $12.15,
then you will receive 3.621 Stora Enso ADSs which would have a value, based on
the average trading price, of less than $44.00, for each Consolidated share you
own. The trading price of Stora Enso's Series R shares has declined since we
executed the merger agreement and has not returned to the levels prevailing
prior to announcement of the merger. Recent trading prices for the Series R
shares have been below a $12.15 equivalent. If this continues, the value of the
3.621 Stora Enso ADSs you would receive in the merger per Consolidated share
would be less than $44.00.
Furthermore, because the actual trading price of Stora Enso Series R shares
at the time of the merger may be lower or higher than the calculated average
trading price, the value of the ADSs to be issued in the merger, at the time of
the merger and at the time you receive Stora Enso ADSs, may be lower or higher
than the value of those ADSs based on the calculated average trading price.
In addition, the exchange of certificates representing your Consolidated
shares for Stora Enso ADSs will not take place immediately upon completion of
the merger. The value of the Stora Enso ADSs you receive in the merger may be
lower or higher at the time you actually receive them, and so become able to
sell them, than at the time of the merger.
We refer you to the information found under the heading "Summary of the
Merger Agreement--Consideration to be Received in the Merger" for a description
of the exchange ratio formula. We urge you to review the information found in
that section carefully.
The termination fee may discourage other companies from trying to acquire
Consolidated.
In the merger agreement, Consolidated agreed to pay a termination fee of up
to $120 million, plus expenses of up to $1 million, to Stora Enso in specified
circumstances, including where a third party acquires or seeks to acquire
Consolidated. This could discourage other companies from trying to acquire
Consolidated even though those other companies might be willing to offer
greater value to Consolidated shareholders than Stora Enso has offered in the
merger agreement. In addition, payment of the termination fee may have a
material adverse effect on Consolidated.
Risk Factors Relating to Ownership of Stora Enso ADSs
Continued competition in the paper and forest products market may negatively
impact Stora Enso's profitability and require Stora Enso to make significant
capital expenditures.
The paper and forest products markets in which Stora Enso operates are mature
and highly competitive. Stora Enso has from time to time experienced pricing
pressure from competitors in many of its product lines and geographic markets.
Stora Enso competes principally with a number of large international paper and
forest product companies, as well as numerous regional and more specialized
competitors. This competitive environment has been a principal factor behind
the large fluctuations in profitability Stora Enso has experienced in recent
years. In addition, competitive pressures have required Stora Enso to make
significant investments in its manufacturing facilities and for product
development. There can be no assurance that Stora Enso will have sufficient
resources to maintain similar levels of capital investment in the future. For a
discussion of the various factors that cause fluctuations in profitability, see
"Stora Enso Management's Discussion and Analysis of Financial Condition and
Results of Operations--Industry Overview--Introduction."
Significant capital investments may be necessary to achieve Stora Enso's
growth plans, which may reduce earnings and negatively impact the value of your
Stora Enso ADSs.
Stora Enso's growth plans may require significant capital investments, in
particular, in relation to any major acquisitions that Stora Enso may undertake
in the future. Stora Enso's ability to meet these capital requirements depends
on numerous factors such as the availability of funds from operations and
access to
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additional debt and equity financing. No assurance can be given that the
necessary funds will be available. Moreover, incurrence of additional debt
financing may involve restrictive covenants that could negatively impact Stora
Enso's ability to operate the combined business in the desired manner and
raising additional equity may be dilutive to shareholders. The failure to
obtain funds necessary for the realization of Stora Enso's growth plans could
prevent Stora Enso from realizing its growth strategy and, in particular, could
force Stora Enso to forgo acquisition opportunities that may arise in the
future. This could, in turn, have a negative impact on Stora Enso's competitive
position.
Stora Enso's growth strategy depends in part on making successful acquisitions
or mergers and the failure to make successful acquisitions or mergers could
have a negative impact on its competitiveness. Additional acquisitions may
expose Stora Enso to new liabilities.
The paper and forest products industry has been experiencing a wave of
consolidation driven in part by a desire to achieve economies of scale and
synergies. As part of its strategy, Stora Enso will seek further growth through
acquisitions of, or mergers with, other paper and/or forest products companies
to stay competitive with its increasingly larger competitors or to enhance its
position in its core areas of operation. This strategy entails risks that could
negatively impact Stora Enso's results of operations or financial condition.
These risks include unidentified liabilities of the companies Stora Enso may
acquire or merge with, the possible inability to successfully integrate and
manage acquired operations and personnel, the potential failure to achieve the
economies of scale or synergies sought and the diversion of management's
attention away from other ongoing business concerns. In addition, Stora Enso
may not be able to identify attractive acquisition or merger opportunities and
might not be able to make acquisitions or mergers on attractive terms.
Regulation of merger and acquisition activity by the European Union or the
United States might also limit Stora Enso's ability to make future acquisitions
or mergers. Stora Enso might also be required to record significant
amortization expenses related to goodwill or other intangible assets in
connection with possible future acquisitions.
The impact of electronic media on the way paper is bought and sold may have a
negative effect upon Stora Enso's profitability.
The increasing use of computers and electronic media is expected to have a
significant impact on the way many types of goods, including paper, are
marketed, bought and sold. For example, advances in electronic media have made
possible the growth of electronic paper exchanges and Internet-based paper
auction sites. The continued growth of an electronic market for paper may
result in a shift in paper buying patterns, which may conflict with traditional
distribution methods, and may negatively affect Stora Enso's profit margins.
If Stora Enso is unable to continue importing wood from Russia and the Baltic
states, it may be forced to pay higher prices for this key raw material or
alter its manufacturing operations.
Stora Enso depends on suppliers in Russia and the Baltic states for
approximately 24% of its annual wood requirements in Finland and Sweden. To the
extent these suppliers are subject to economic, political, legal or other
difficulties or restrictions, the supply of raw material to Stora Enso may be
interrupted. In the event of a significant interruption in the supply of raw
materials from Russia and the Baltic states, Stora Enso would seek to obtain
raw materials from alternative sources, but there can be no assurance that it
would be able to do so without any adverse impact on its manufacturing
operations, such as interruption or downscaling of production or change in the
product mix, or increased costs which could, in turn, have a material adverse
effect on Stora Enso's financial condition and results of operations.
Exchange rate fluctuations may have a significant adverse impact on Stora
Enso's financial results.
As a consequence of the global nature of its business, Stora Enso from time
to time will be exposed to risks associated with changes in foreign currency
exchange rates which may have an adverse effect upon Stora Enso's financial
condition and operating results. Currency risk exposure will primarily affect
Stora Enso's export operations to the extent its sales are denominated in
currencies other than those in which Stora Enso
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incurs manufacturing costs. A significant portion of Stora Enso's sales are
denominated in currencies, consisting primarily of the British pound sterling,
U.S. dollar and Swedish krona, other than the euro. In addition, Stora Enso's
reported earnings may be affected by fluctuations between the euro, its
reporting currency from the beginning of 1999, and the non-euro currencies in
which Stora Enso's various subsidiaries, including all of its Swedish
subsidiaries, report their results of operations when results of operations are
translated back into euros. In addition, appreciation of the euro compared with
the U.S. dollar would reduce the competitiveness of the products Stora Enso
produces in Europe against imports from the United States. The increased
competition could lead to lower sales and earnings. Furthermore, the euro value
of Stora Enso's sales and earnings in U.S. dollars would be reduced. As a
result, currency exchange rate fluctuations between the euro and other
currencies, such as the British pound sterling or U.S. dollar, may have a
material adverse effect upon Stora Enso's financial condition or results of
operations in the future.
Stora Enso may face high costs for compliance with and clean-up under
environmental laws and regulations, which would reduce profit margins and
earnings.
Stora Enso is subject to various environmental laws and regulations in the
jurisdictions in which it operates, governing, among other things, wood
procurement, use of recycled material and different forms of production
discharges and emissions. Stora Enso has been the subject of a variety of
complaints relating to, among other things, odors emitted from its mills, soil
contamination, high levels of organic matter and mercury near its mills, and
the failure of some of its mills to execute their environmental plans. The risk
of substantial environmental costs and liabilities is inherent in industrial
operations, including the paper and forest products industry, and there can be
no assurance that Stora Enso will not incur significant costs and liabilities
in the future or that the adoption of increasingly strict environmental laws,
regulations and enforcement policies will not result in substantially increased
costs and liabilities in the future. Higher regulatory, environmental and
similar costs would reduce Stora Enso's profit margins and earnings.
The value of Stora Enso's investments in countries outside of Western Europe
and North America may be adversely affected by political, economic and legal
developments in these countries.
Stora Enso has manufacturing operations in countries outside of Western
Europe and North America, including Brazil, the Czech Republic, Poland, Russia,
Thailand and the People's Republic of China. The political, economic and legal
systems in these countries are less predictable than in countries with more
developed institutional structures. Political or economic upheaval, changes in
laws and other factors may have a material effect upon Stora Enso's operations
in these countries and, in turn, the amount of income from, and the value of,
the investments Stora Enso has made in relation to its operations in such
countries. The more significant risks of operating in emerging market countries
arise from the establishment or enforcement of foreign exchange restrictions,
which could effectively prevent Stora Enso from receiving profits from, or from
selling its investments in, these countries. While none of the countries in
which Stora Enso's operations are located currently has foreign exchange
controls that have a significant effect on Stora Enso, most of these countries
have imposed foreign exchange controls in the recent past and no assurance can
be given that they will not reinstitute these controls in the future.
Stora Enso's divestiture of a substantial portion of its energy generation
assets may render it more susceptible to higher energy prices in the future.
In May and June 2000, as part of its plan to divest non-core businesses,
Stora Enso sold virtually all of its off-mill site energy generation
operations, regional power distribution networks and other energy generation
assets to Fortum Oyj. Stora Enso also plans to sell its minority interest in
Pohjolan Voima Oy, a closely held Finnish power generator. After the second
sale, Stora Enso's capacity to satisfy its own electrical energy consumption
needs in Finland and Sweden will drop from approximately 90% to approximately
40%. As a result, increases in energy prices may have a greater impact on Stora
Enso in the future than in the past. Because electricity is a significant
component of Stora Enso's production costs, higher energy prices may have a
material adverse effect on Stora Enso's financial condition and results of
operations.
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U.S. owners of Stora Enso ADSs may not be able to exercise any preemptive or
preferential rights or participate in future rights offerings.
Due to various Finnish and U.S. laws and regulations, U.S. owners of Stora
Enso ADSs may not be entitled to all of the rights possessed by Finnish or
other non-U.S. holders of Stora Enso Series R shares. For instance, U.S. owners
of Stora Enso ADSs may not be able to exercise any preemptive or preferential
rights in respect of their shares, unless a registration statement under the
Securities Act is effective with respect to such rights or an exemption from
the Securities Act registration requirements is available. Stora Enso's
management is under no legal obligation to file a registration statement under
the Securities Act in order to facilitate the participation of U.S. owners of
Stora Enso's ADSs and ordinary shares in any rights offerings.
U.S. owners of Stora Enso ADSs may find it more difficult to exercise their
voting rights than other Stora Enso shareholders.
Due to Finnish legal restrictions on exercising voting rights attaching to
shares held through a nominee, U.S. shareholders who choose to hold their Stora
Enso Series R shares in the form of ADSs may find it more difficult to exercise
their voting rights than shareholders who hold their shares in an individual
account in the Finnish book-entry system. However, these owners of ADSs will
have the ability to instruct Citibank, N.A., as depositary bank for the ADSs,
as to the voting of the Series R shares underlying their ADSs. For a discussion
of voting procedures, see "Description of Stora Enso American Depositary
Shares--Voting Rights."
U.S. holders of Stora Enso ADSs or Stora Enso Series R shares may be subject
to additional tax liability.
Under the double taxation treaty between Finland and the United States, U.S.
holders may be subject to Finnish withholding tax, which they may credit
against their U.S. federal income tax liability only if they meet complex
requirements regarding U.S. foreign tax credits. For a discussion of this
treaty and other tax aspects of owning Stora Enso ADSs, see "Taxation on Stora
Enso Series R Shares and American Depositary Shares."
The voting power of Stora Enso Series R shareholders, including holders of
ADSs, is disproportionately low compared with their economic interest in the
company.
Stora Enso has two series of shares, Series A shares and Series R shares,
which are identical in all respects except with respect to voting rights. Each
Series A share carries one vote, while each Series R share carries one-tenth of
a vote. The Stora Enso ADSs that shareholders of Consolidated are eligible to
receive in the merger represent Series R shares. As a result, the holders of
Stora Enso ADSs will have lower voting rights relative to the number of shares
they hold in Stora Enso. Currently, Stora Enso Series R shares represent
approximately 72% of the total outstanding shares of Stora Enso, but entitle
the holders of Series R shares to only approximately 21% of the votes. After
the merger, the Series R shares, including Series R shares represented by the
ADSs, will represent approximately 77% of the total outstanding shares of Stora
Enso, but will entitle the holders of Series R shares to only approximately 25%
of the votes. This means that holders of Series R shares, including Series R
shares represented by the ADSs, will have little power relative to their share
ownership to determine matters submitted to a vote of shareholders, including
the declaration of dividends, investments and the election and removal of
members of Stora Enso's board of directors.
Finnish legal restraints on the payment of dividends may adversely affect the
amounts of dividends Stora Enso may pay in the future.
Under Finnish law, dividends on the shares of a Finnish company are generally
only paid annually after shareholder approval of both the company's results and
the amount of the dividend proposed by the board of directors. The amount of
any dividend is limited to the amount of distributable funds, which generally
includes the profit from the preceding financial year, retained earnings from
previous years and other unrestricted equity less the reported losses,
capitalized incorporation costs, research and specified development costs, the
acquisition costs of a company's own shares, and the amount that the articles
of association may require be
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transferred to a reserve fund or otherwise be left undistributed. For a
description of Stora Enso's ability to declare and pay dividends, see
"Description of Stora Enso Series R Shares--Dividends and Other Distributions."
Thus, Finnish law, the governing law of Stora Enso's domicile, is more
restrictive than Wisconsin law, the governing law of Consolidated's domicile,
with respect to funds available to pay dividends, which may negatively affect
the amount of dividends Stora Enso may pay in the future.
The trading markets for the Stora Enso ADSs and Series R shares may be less
liquid than the market for Consolidated shares.
Stora Enso ADSs have not previously been listed on the New York Stock
Exchange and there can be no assurance that an active market will emerge for
the ADSs. In addition, the main trading markets for Stora Enso's Series R
shares, the Helsinki Stock Exchange and the OM Stockholm Exchange, have
historically been less liquid than the New York Stock Exchange. No assurance
can be given that, following the merger, the liquidity of the trading markets
for Stora Enso ADSs and Series R shares will equal the historical liquidity for
Consolidated shares on the New York Stock Exchange.
A few significant shareholders may influence or control the direction of Stora
Enso's business.
The Finnish State holds 18.0% of Stora Enso's issued and outstanding shares,
representing 24.1% of the company's voting rights, and Investor AB, a Swedish
industrial investment company, holds 10.3% of the issued and outstanding shares
representing 24.1% of its voting rights. Following the merger, the Finnish
State and Investor AB will each control approximately 22.9% of Stora Enso's
voting rights, respectively. Accordingly, the Finnish State and Investor AB
will have significant power to influence matters submitted to vote of
shareholders, such as the approval of the annual financial statements,
declarations of annual reserves and dividends, capital increases, amendments to
Stora Enso's articles of association and the election of the members of the
board of Stora Enso. To the extent matters presented to Stora Enso's
shareholders require approval of a percentage of shares represented at a
meeting or of a super majority of outstanding shares, these investors may be
able to significantly influence the outcome of the vote. For a description of
significant holdings in Stora Enso, see "Ownership of Securities--Ownership of
Stora Enso's Securities by Management and Significant Shareholders."
Forward-looking Statements in this Document May Prove Inaccurate
This document contains forward-looking statements about Stora Enso,
Consolidated and the combined company that are not historical facts but,
rather, are statements about future expectations. When used in this document,
the words "anticipates," "believes," "expects," "intends," "should" and similar
expressions as they relate to Stora Enso, Consolidated or the combined company
or the management of Stora Enso, Consolidated or the combined company are
intended to identify forward-looking statements. We believe that our
expectations are based on reasonable assumptions. However, forward-looking
statements in this document are based on management's current views and
assumptions and may be influenced by factors that could cause actual results,
performance or events to be materially different from those projected. These
forward-looking statements are subject to numerous risks and uncertainties.
Important factors could cause actual results, performance or events to differ
materially from those in the forward-looking statements, some of which are
beyond the control of Stora Enso, Consolidated or the combined company. These
factors include those described above under "Risk Factors" and:
. the impact of general economic conditions in Europe, North America and
Asia, and in other regions in which Stora Enso and Consolidated currently
do business;
. industry conditions, including competition and fluctuation in prices for
the products of Stora Enso and Consolidated and the raw materials used to
make them;
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. changes in laws and regulations, including monetary convergence and the
further implementation of the European Union's Economic and Monetary
Union;
. fluctuation in interest rates; and
. access to capital markets.
The actual results or performance of Stora Enso, Consolidated or the combined
company could differ materially from those expressed in, or implied by, these
forward-looking statements and, accordingly, no assurances can be given that
any of the events anticipated by the forward-looking statements will transpire
or occur, or if any of them do, what impact they will have on the results of
operations and financial condition of Stora Enso, Consolidated or the combined
company.
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MEETING OF CONSOLIDATED SHAREHOLDERS
The meeting of Consolidated shareholders will be held on August 30, 2000, at
the Hotel Mead, 451 East Grand Avenue, Wisconsin Rapids, Wisconsin, at 9:00
a.m., local time.
Purpose
The meeting is being held so that Consolidated shareholders may consider and
vote upon a proposal to approve the merger agreement with Stora Enso, and to
transact any other business that properly comes before the meeting or any
adjournment. Approval of the merger agreement will also constitute approval of
the merger and the other transactions contemplated by the merger agreement. A
copy of the merger agreement is contained in Annex A.
Consolidated's board believes that the merger is fair to and in the best
interests of Consolidated and its shareholders and has unanimously adopted and
approved the merger agreement and approved the merger. Consolidated's board
unanimously recommends that the Consolidated shareholders vote FOR approval of
the merger agreement.
Record Date
Only holders of record of Consolidated shares at the close of business on
July 25, 2000, are entitled to receive notice of and to vote at the
Consolidated meeting. At the close of business on that day, there were
91,811,601 Consolidated shares outstanding, held by approximately 5,300 record
holders.
Required Vote
The affirmative vote of the holders of two-thirds of all votes entitled to
vote at the Consolidated meeting is required to approve the merger agreement.
For each Consolidated share you held on the record date, you are entitled to
one vote on each proposal to be presented to shareholders at the meeting.
Proxies
The persons named on the enclosed proxy card will vote all Consolidated
shares represented by properly executed proxies which have not been validly and
timely revoked. If no instructions are indicated, the persons named will vote
the shares FOR approval of the merger agreement. Proxies which are marked
abstain will have the effect of a vote against approval of the merger
agreement.
If your shares are held in "street name" in an account at a brokerage firm or
bank, you must instruct it on how to vote your shares. Your broker or bank will
vote your shares only if you provide instructions on how to vote by following
the information provided to you by your broker or bank.
If your shares are held in the Consolidated Employees' Stock Ownership Plan
or either of the Consolidated 401(k) Plans, Fidelity Investments, as the
trustee, will vote your shares in the manner in which you direct it by
following the instructions provided to you by the trustee. However, if you fail
to instruct the trustee on how to vote your shares, they will be counted along
with other shares for which no voting instructions are received, and will be
voted in proportion to the votes for which instructions are received.
If your shares are held in the Consolidated Payroll Common Stock Purchase
Plan, U.S. Bancorp Piper Jaffray, as administrator of the Plan, will vote your
shares only if you provide directions on how to vote by following the
instructions provided to you by U.S. Bancorp Piper Jaffray.
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Since approval of the merger agreement requires the affirmative vote of at
least two-thirds of all votes entitled to be cast, abstentions, failures to
vote and broker non-votes will have the same effect as a vote against approval
of the merger agreement.
Consolidated does not know of any matter not described in the notice of
meeting that is expected to come before the meeting. If, however, any other
matters are properly presented for action at the meeting, the persons named as
proxies will vote the proxies in their discretion, unless authority is
withheld. However, no proxy that is voted against the approval of the merger
agreement will be voted in favor of any adjournment or postponement for the
purpose of soliciting additional proxies.
A shareholder may revoke a proxy at any time prior to its exercise by giving
written notice to the secretary of Consolidated at Consolidated's principal
executive offices, by signing and returning a later dated proxy or by voting in
person at the meeting. Attendance at the meeting will not itself revoke a
proxy.
Do not send in any stock certificates with your proxy.
Solicitation of Proxies
Consolidated's board is soliciting proxies on behalf of Consolidated.
Consolidated will bear the entire cost of its proxy solicitation for the
meeting.
Consolidated has retained Georgeson Shareholder Communications Inc. for a fee
of $8,500, plus expenses, to aid in the solicitation of proxies and to verify
records related to solicitation of proxies. Upon request, Consolidated will
reimburse brokers, dealers, commercial banks and trust companies for reasonable
and necessary costs and expenses incurred by them in forwarding materials to
their customers.
Consolidated's directors, officers and regular employees may solicit proxies
by telephone or otherwise, as well as through the mail. Consolidated's
directors, officers and regular employees will not receive any additional
compensation for any solicitation, but may be reimbursed for out-of-pocket
expenses incurred. Consolidated expects the internal expenses of solicitation
will be nominal.
Share Ownership of Management
At the close of business on July 25, 2000, Consolidated's directors and
executive officers beneficially owned and had the right to vote 10,514,704
shares or approximately 11.4% of the outstanding Consolidated shares, excluding
shares over which George W. Mead, the chairman of the board of Consolidated,
may be deemed to have beneficial ownership because of his position as a voting
trustee of the Mead Voting Trust but as to which he has no economic interest.
Consolidated's directors and executive officers have informed Consolidated
that, as of the date of this document, they intend to vote for approval of the
merger agreement.
Mead Voting Trust
George W. Mead, Robert McKay and Sally M. Hands are voting trustees of the
Mead Voting Trust, which holds 32,145,154 shares or 35.6% of the outstanding
Consolidated shares. George W. Mead is a director and chairman of the board of
Consolidated. The three voting trustees each individually own units of
beneficial interest in the Mead Voting Trust. George W. Mead owns 1,386,020
units, Robert McKay owns 28,380 units and Sally M. Hands owns 2,629,274 units.
Each unit of beneficial interest represents one Consolidated share. George W.
Mead's individually owned units are included in the percentage of shares owned
by Consolidated's directors and executive officers, as described above.
Each unitholder will instruct the voting trustees how to vote the
Consolidated shares represented by his or her units with respect to the merger.
Concurrent with closing of the merger, the voting trust will be dissolved and
the Consolidated shares in the voting trust will be distributed to the
unitholders. Each unitholder will then
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make an election as to the type of consideration to be received. Each of the
voting trustees has informed Consolidated that, as of the date of this
document, he or she intends to vote the Consolidated shares represented by his
or her units for approval of the merger agreement.
For a more detailed discussion of the Mead Voting Trust, see "Ownership of
Securities--Ownership of Consolidated Shares by Management and Significant
Shareholders."
Elections as to Form of Consideration
We have enclosed a blue election and transmittal form for your use in
choosing to receive cash, ADSs or a combination of cash and ADSs in exchange
for your Consolidated shares. If the exchange agent has not received your
election and transmittal form by 5:00 p.m., New York City time, on the fifth
business day after closing of the merger, the exchange agent will mail to you
instructions and a letter of transmittal for your use in exchanging your
Consolidated stock certificates for the merger consideration. You will not be
able to choose to receive cash, ADSs or a combination of cash and ADSs in
exchange for your Consolidated shares after 5:00 p.m., New York City time, on
the fifth business day after the closing of the merger. The merger agreement
specifies the merger consideration you will receive if you fail to timely
transmit your election and transmittal form to the exchange agent. You may
submit an election and transmittal form whether or not you vote in favor of the
merger.
In the event your shares are held in the Consolidated Employees' Stock
Ownership Plan, either of the Consolidated 401(k) Plans, or the Consolidated
Payroll Common Stock Purchase Plan, the trustee or administrator will provide
you with instructions for making an election to receive cash and/or Stora Enso
ADSs.
If you hold your Consolidated shares in "street name" and your broker or bank
has not delivered to the exchange agent your Consolidated shares and elected to
receive cash, ADSs or a combination of cash and ADSs by 5:00 p.m., New York
City time, on the fifth business day after closing of the merger, your
Consolidated shares will be exchanged for the merger consideration specified in
the merger agreement. For a more detailed description of the election
procedures, see "Summary of the Merger Agreement--Share Election and Exchange
Procedures."
EXTRAORDINARY GENERAL MEETING OF STORA ENSO'S SHAREHOLDERS
In connection with the merger, Stora Enso's board of directors has convened
an extraordinary general meeting of Stora Enso's shareholders for August 18,
2000. At the meeting, Stora Enso's shareholders will be asked to approve:
. a resolution to approve the merger agreement;
. a resolution to issue Stora Enso Series R shares that will allow for the
creation and issuance of ADSs in the merger;
. an authorization to the board of directors to issue Stora Enso options in
place of currently outstanding Consolidated options;
. a resolution to amend Stora Enso's articles of association to increase
the maximum number of directors from 10 to 11;
. a resolution to confirm the number of directors as 11; and
. a resolution to elect George W. Mead to Stora Enso's board of directors.
Stora Enso's board of directors has unanimously recommended that Stora Enso
shareholders approve these resolutions. The affirmative vote of holders of two-
thirds by number and voting power of the Stora Enso Series A shares and Series
R shares present and voting as a single class at the extraordinary general
meeting is required to approve the issuance of Stora Enso Series R shares in
the merger, the authorization to issue stock options in place of currently
outstanding Consolidated options and the amendment to the articles of
association described above.
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<PAGE>
As of June 30, 2000, 208,951,188 Stora Enso Series A shares and 550,904,501
Stora Enso Series R shares were outstanding. Each Series A share and every ten
Series R shares are entitled to one vote at the Stora Enso meeting.
For a description of Stora Enso's significant shareholders, see "Ownership of
Securities--Ownership of Stora Enso's Securities by Management and Significant
Shareholders."
21
<PAGE>
THE MERGER
Background of the Merger
In pursuing strategies for enhancing shareholder value, Consolidated
regularly considered opportunities for acquisitions, dispositions and other
strategic alliances. Consolidated's management was aware of changes occurring
in the paper and forest products industry, including consolidation and
globalization.
In late October and November 1999, Consolidated's board met with
representatives of Goldman, Sachs & Co. to discuss trends in the global paper
industry and possible alternatives for enhancing shareholder value. The board
considered a number of global paper industry trends, including the development
of new low cost capacity, increased price volatility and customer and supplier
consolidation. The board also reviewed the paper industry's financial and stock
market performance in recent years and the recent trend of consolidation in the
industry. The board decided to review a wide range of options, focusing
particularly on whether the company should be an acquiror or should seek to be
acquired by a larger company.
At a meeting on October 23, 1999, the board discussed the possibility of a
significant acquisition program. In the board's view, the Consolidated shares
were undervalued by the market, making the issuance of additional common stock
less attractive. An acquisition program financed by preferred stock or debt,
which would add to the investment risk of current shareholders or might imperil
the dividend, would need to offer significant future returns. The board also
concluded that even those shareholders with a long history of ownership in
Consolidated would be willing to consider an acquisition by a larger company,
if a review of the alternatives indicated a sale of Consolidated to be the best
course of action.
The board then instructed management to retain Goldman Sachs to assist
management in reviewing the options available to Consolidated, including a sale
of the company, global or domestic mergers or acquisitions, a recapitalization
of the company or continuing the company's current direction. Goldman, Sachs
was retained on November 1, 1999.
At a meeting of the board of directors on November 22, 1999, Consolidated's
board reviewed with its financial and legal advisors a range of strategic
alternatives as a means of realizing the value of Consolidated's business,
including acquiring another company in the industry, financial restructuring
and the merger or sale of Consolidated. Consolidated's outside legal counsel
discussed with the board its fiduciary duties under applicable law.
At the November 22, 1999 meeting, the board determined that some response to
the changes affecting the industry was needed. Consolidated could continue as a
mid-sized producer in a niche-oriented business or seek to become a part of a
global producer with a diversified portfolio. Projections for Consolidated's
current business plan were reviewed to assess likely future valuations for
Consolidated's stock price. Based upon the projections, the view was that
higher market valuations were not likely to be achieved by continuing
operations as currently conducted. Further, the review determined that few
opportunities for add-on acquisitions of quality assets having a good strategic
fit and synergies existed. International growth or a major acquisition had
similar concerns and also involved higher risk and additional management
requirements and did not offer a clear opportunity to realize a premium over
current market values for Consolidated shareholders.
The board also reviewed a possible merger or sale of the company. Recent
combinations in the industry were reviewed, including premiums paid. Ten major
producers in the industry were identified as potentially interested parties.
Each of the companies identified was larger than Consolidated and all but one
had some coated paper operations. The group included companies with primarily
domestic operations, as well as companies with international operations. In the
view of the board, each of these companies had a potentially strong interest in
acquiring a coated paper manufacturer such as Consolidated and most would be
capable of paying a significant premium for Consolidated.
22
<PAGE>
At a meeting on January 4, 2000, Consolidated's board of directors conducted
a further review of companies in the paper industry and authorized Goldman
Sachs to contact the ten major producers described above regarding their
potential interest in Consolidated. Following an initial contact by Goldman
Sachs, six companies expressed interest and Consolidated distributed a
confidential memorandum containing information about Consolidated to them upon
the signing of a confidentiality agreement. The chairman and president of
Consolidated and a representative of Goldman Sachs met with representatives of
the interested companies. An additional company suggested a complex transaction
structure that would not offer an opportunity for a premium to Consolidated
shareholders. The suggested transaction was rejected.
From January 19 through January 28, 2000, Consolidated management held due
diligence meetings with interested parties. At those meetings, representatives
from interested parties and their advisors discussed various matters relating
to their respective businesses and the paper industry with Consolidated's
management. The board was advised of the status of due diligence and
expressions of interest at a meeting held on February 8, 2000. Interested
parties were invited to present bids based upon a proposed form of merger
agreement by February 17, 2000.
On February 17, 2000, Consolidated received two bids, one from Stora Enso and
one from a publicly-traded domestic paper manufacturer. The other
manufacturer's offer was a fifty percent cash, fifty percent stock bid at a
lower dollar value per share.
At a meeting of Consolidated's board of directors on February 18, 2000, the
board of directors, in consultation with Consolidated's senior management and
Goldman Sachs and its other advisors, evaluated the bids received and decided
to continue discussions with the parties that submitted proposals. At this
time, senior management was authorized to make the determination as to the
party with which final negotiations would be conducted, based on the outcome of
these follow-up discussions. On February 18 and 19, Goldman Sachs had
discussions with both bidders to clarify the proposals and discuss potential
changes to the proposals.
In light of the difference in the price per share of the two bids, the
subsequent discussions with the lower bidder focused on the price per share.
The bidder expressed a willingness to consider increasing its bid; however, no
firm offer was ever made. The maximum per share value the bidder discussed was
still below the Stora Enso bid.
In light of the fact that Stora Enso was a foreign company with no securities
publicly traded in the United States, the discussions with Stora Enso included
the timing and process that would be required for the registration and listing
of the ADSs so that a trading market could be established in the United States.
Consolidated also sought to negotiate a higher price from Stora Enso. While
Stora Enso was unwilling to increase the price offered, the parties agreed that
the transaction would convert to an all cash transaction should Stora Enso be
unable to register the Stora Enso ADSs by September 30, 2000 or list them on
the NYSE or NASDAQ by October 31, 2000. Consolidated's board of directors took
comfort from the established public market for Stora Enso's securities in
Europe and believed that the provision described in the prior sentence
satisfactorily eliminated any liquidity advantage that the domestic bidder had.
Consolidated also asked for but did not receive the right to terminate the
merger agreement if the value of Stora Enso Series R shares fell below a
minimum level.
The parties and their respective advisors then held various conference calls
to discuss the possible merger of Consolidated with Stora Enso. On February 19
and 20, 2000, Consolidated and Stora Enso and their respective legal and
financial advisors met in New York to continue to negotiate the detailed terms
of merger agreement, including the items listed below. The chairman and
president of Consolidated directed the negotiations. A team of Stora Enso's
management was present and participated in the negotiations, including the
senior vice president-corporate strategy and investments and the senior vice
president-comptroller, with the telephonic participation of other members of
the executive management, including the chief executive officer and the senior
executive vice president, financial control and legal affairs.
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<PAGE>
The merger agreement that was negotiated and ultimately submitted to the
boards of directors of Consolidated and Stora Enso differed from the form
proposed in the bid materials in a number of material respects, including the
following:
. the merger consideration was set at a value of $44.00 per Consolidated
share;
. a range of 2.678 to 3.621 Stora Enso ADSs was set as a collar for the
number of ADSs to be issued for each Consolidated share that is
converted into ADSs;
. the merger consideration would convert to all cash should Stora Enso be
unable to register the Stora Enso ADSs by September 30, 2000 or list
them on the NYSE or NASDAQ by October 31, 2000;
. a termination fee of up to $120 million payable to Stora Enso or $40
million payable to Consolidated, if the merger agreement were to be
terminated under specified circumstances, was established;
. election of George W. Mead or another member of Consolidated's current
board of directors to serve on the board of Stora Enso for a period of
two years after the merger;
. conversion of outstanding options to purchase Consolidated shares into
options to purchase ADSs instead of converting them into cash;
. the list of actions requiring Stora Enso's prior written consent was
expanded to cover unbudgeted capital expenditures in excess of $10
million, entering into agreements restricting competition, settlement of
material litigation or proceedings, incurring liens outside of the
ordinary course of business, making investments outside of the ordinary
course of business and making tax elections;
. Consolidated agreed to terminate its dividend reinvestment and share
purchase plan;
. Stora Enso's obligation to continue current directors' and officers'
liability insurance policies was limited to the expenditure of no more
than twice the current annual premium;
. Stora Enso's obligation to provide 30 days' advance written notice to
employees prior to termination was limited to 6 months following the
merger and to exclude any termination for cause;
. Stora Enso's obligation to honor Consolidated's severance policy was
reduced from 2 years to 1 year following the merger;
. the covenant to use best efforts to obtain regulatory approvals was
modified so that Stora Enso is not required to agree to divest the
assets of Consolidated Water Power Company, other than the retail sales
assets, or to agree to conditions which in its judgment would be
reasonably likely to have a material adverse effect on the business or
operations of Consolidated or to materially adversely impact the
economic, strategic or business benefits of the merger;
. the proposed provision restricting Stora Enso from taking any action for
2 years following a termination of the merger agreement from acquiring
in excess of 1% of any class of Consolidated securities, soliciting
proxies from holders of Consolidated voting securities, calling a
meeting of Consolidated shareholders or participating in any business
combination proposal involving Consolidated was deleted.
On February 21, 2000, Consolidated's board of directors held a meeting with
Consolidated's senior management and legal and financial advisors to consider
the merger agreement, the terms that had been negotiated with Stora Enso, the
regulatory approvals required and an estimated timetable for closing the
transaction. At the meeting, Consolidated's management reviewed the status of
negotiations, including the resolution of previously open issues, the principal
terms of the proposed transaction, the strategic reasons for the merger and the
material factors for and against the merger. Goldman Sachs reviewed with the
Consolidated board the financial analyses performed in their evaluation of the
consideration to be received by holders of Consolidated shares in the merger.
Consolidated's legal advisors reviewed the terms of the merger agreement, and
how they differed from the form proposed in the bid materials. Based upon the
terms of the definitive merger agreement, Goldman Sachs rendered its oral
opinion, subsequently confirmed by delivery of a written opinion, to the effect
that, based upon and subject to the matters described in its opinion, as of
that date the
24
<PAGE>
consideration to be received by the holders of Consolidated shares in the
merger was fair from a financial point of view to the shareholders.
Consolidated's board of directors unanimously approved the merger agreement and
the merger.
Stora Enso's board of directors also met on February 21, 2000. At this
meeting, members of Stora Enso's senior management advised the board about the
terms of the merger agreement that had been negotiated with Consolidated and
reviewed the strategic and financial reasons for the merger. Stora Enso's board
unanimously approved the merger agreement and the merger.
The merger agreement was signed and a press release was issued on February
22, 2000.
Consolidated's Reasons for the Merger and Board Recommendation
Consolidated's board of directors believes that the merger will allow it to
accomplish a number of important business objectives.
Consolidated's board of directors believes that the merger is fair to you and
in your best interests. At its February 21, 2000 meeting, Consolidated's board
unanimously approved the merger agreement. Set forth below are the material
factors weighing in favor of the merger that Consolidated's board considered in
reaching its decision to approve the merger agreement and to recommend that you
vote to approve the merger agreement:
. the belief that the combined business of Consolidated and Stora Enso will
have a stronger presence in their markets than Consolidated standing
alone;
. the opportunity for shareholders to achieve a premium of 69% from the
cash and ADSs payable as merger consideration by Stora Enso over the
market price of $26 per share at which Consolidated shares traded
immediately prior to announcement of the transaction;
. the ability of Consolidated shareholders to continue to invest in the
paper industry through ownership of Stora Enso ADSs;
. the ability to elect the form of consideration per share which enables
those shareholders who wish to receive more cash to so elect and those
shareholders who prefer to receive more Stora Enso ADSs to so elect;
. the fact that receipt of ADSs in the merger is expected to be tax free to
Consolidated shareholders;
. the possible enhancement of Consolidated's existing businesses as a
result of combining with those of Stora Enso, attributable in part to the
greater size and financial strength of the combined companies;
. the judgment, advice and analysis of Consolidated's management, including
the results of Consolidated's due diligence investigations;
. the board's belief, based upon its review of other strategic alternatives
available to Consolidated, including remaining independent, as described
above, that the merger would generate higher value for Consolidated's
shareholders than those other strategic alternatives;
. the prospects for Consolidated to serve as a platform for Stora Enso's
North American operations;
. the history of Consolidated's discussions with other parties, including
the opportunity provided to other parties to submit proposals to
Consolidated, and the negotiations between Consolidated and Stora Enso
that led the board to conclude that the per share consideration was the
best price available;
. the financial presentation of Consolidated's financial advisor, Goldman
Sachs, and its opinion as to the fairness, from a financial point of
view, of the merger consideration to Consolidated shareholders; and
. the limited overlap in the markets and customer base of Consolidated's
and Stora Enso's respective businesses and the expectation that the
merger would not present complicated regulatory issues or require
significant divestitures.
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<PAGE>
Consolidated's board of directors considered the following material factors
weighing against the merger in reaching its decision to approve the merger
agreement and to recommend that you vote to approve the merger agreement and
the merger:
. the possibility that Consolidated's shareholders might achieve more value
over the long-term from continued operation of Consolidated as an
independent company;
. the possibility that Consolidated shareholders may not receive the type
of consideration that they elect because Stora Enso will pay to
Consolidated's shareholders, in the aggregate, cash for one half of the
outstanding Consolidated shares and Stora Enso ADSs for the other half,
even if more than one half of Consolidated's shareholders choose cash or
ADSs;
. the possibility that Consolidated shareholders may receive Stora Enso
ADSs with a value less than $44.00 if trading prices of Stora Enso's
Series R shares declined below a $12.15 equivalent;
. the fact that Consolidated would not be able to terminate the agreement
for a decline in the trading price of Stora Enso's Series R shares;
. the risk that Consolidated would be required to pay a termination fee of
up to $120 million if the merger agreement were to be terminated under
specified circumstances;
. the risk that synergies anticipated to result from the merger may not be
realized; and
. the fact that there was not a public market for the Stora Enso ADSs in
the United States.
Consolidated's board of directors was also aware of the interests of its
executive officers and directors in the merger, as described under "The
Merger--Interests of Members of Consolidated's Board and Management."
Due to the variety of factors considered in connection with its evaluation of
the merger, Consolidated's board of directors did not find it practicable to,
and did not, quantify or otherwise assign relative weights to the specific
factors it considered in reaching its determination. Individual members of the
board may have assigned different weights to different factors or may have
considered additional factors not listed above.
Consolidated's board of directors weighed both the material factors in favor
of and against the merger and determined that the material factors in favor of
the merger outweighed the material factors against the merger. Consequently, it
was the judgment of the Consolidated board that the merger is in the best
interests of Consolidated and its shareholders.
As a result of the decline in the trading price of Stora Enso's Series R
shares since the merger agreement was signed to a level below the equivalent of
$12.15, it is likely that 3.621 Stora Enso ADSs will be issued in the merger
for each Consolidated share to be converted into ADSs and that those 3.621
Stora Enso ADSs would have a value of less than $44.00. Consolidated's board of
directors was aware of this possibility under the terms of the merger agreement
at the time the merger agreement was approved.
Consolidated's board of directors unanimously recommends that you vote to
approve the merger agreement.
Stora Enso's Reasons for the Merger
Stora Enso's rationale for the transaction includes the opportunity to expand
into the world's largest paper market by acquiring Consolidated, the premier
coated and supercalendered paper producer in the United States, with leading
market positions in Stora Enso's core paper grades. Stora Enso management
believes that the combination will create a powerful North American platform
for future growth and competitiveness.
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<PAGE>
As a result of the decline in the trading price of Stora Enso's Series R
shares since the merger agreement was signed, the aggregate number of Stora
Enso ADSs, and correspondingly Series R shares, to be issued in the merger has
increased since that date. Under the merger agreement, however, Stora Enso is
not required to issue more than 3.621 ADSs per Consolidated share converted
into ADSs. Unless the number of Consolidated shares to be converted into ADSs
is adjusted to enable our tax advisors to deliver the necessary tax opinions
for the transaction, the maximum aggregate number of ADSs and Series R shares
to be issued remains the same as when the merger agreement was approved. Stora
Enso's board and management continue to be in favor of the transaction despite
the increase in the number of Stora Enso ADSs and Series R shares to be issued.
Opinion of Consolidated's Financial Advisor
On February 22, 2000, Goldman Sachs delivered its written opinion, confirming
its oral opinion of February 21, 2000, to Consolidated's board of directors
that, as of the date of the opinion, the merger consideration to be received by
the holders of Consolidated shares was fair from a financial point of view to
those holders.
The full text of the written opinion of Goldman Sachs dated February 22,
2000, which sets forth assumptions made, matters considered and limitations on
the review undertaken in connection with the opinion, is contained in Annex B.
Goldman Sachs provided its opinion for the information and assistance of
Consolidated's board of directors in connection with its consideration of the
merger. The Goldman Sachs opinion is not a recommendation as to how any holder
of Consolidated shares should vote. We urge you to read the opinion in its
entirety.
In connection with its opinion, Goldman Sachs reviewed, among other things:
. the merger agreement;
. Consolidated's annual reports to shareholders and annual reports on Form
10-K for the five years ended December 31, 1998;
. the annual reports to shareholders of Stora Enso and its predecessors for
the five years ended December 31, 1998;
. interim reports to Consolidated's shareholders and quarterly reports on
Form 10-Q;
. interim reports to Stora Enso's shareholders;
. other communications from Consolidated and Stora Enso to their respective
shareholders; and
. internal financial analyses and forecasts for Consolidated and Stora Enso
prepared by their respective managements.
Goldman Sachs also held discussions with members of the senior managements of
Consolidated and Stora Enso regarding their assessment of the strategic
rationale for, and the potential benefits of, the merger and the past and
current business operations, financial condition and future prospects of their
respective companies. In addition, Goldman Sachs reviewed the reported price
and trading activity for the Consolidated shares and Stora Enso ordinary
shares, compared financial and stock market information for Consolidated and
Stora Enso with similar information for other publicly-traded companies, and
reviewed the financial terms of selected recent business combinations in the
paper and forest products industry specifically and in other industries
generally. Goldman Sachs also performed other studies and analyses that it
considered appropriate.
Goldman Sachs relied upon, and assumed for purposes of rendering its opinion,
the accuracy and completeness of all of the financial and other information it
reviewed. Goldman Sachs did not make an independent evaluation or appraisal of
the assets and liabilities of Consolidated or Stora Enso or any of their
subsidiaries. No evaluation or appraisal of the assets and liabilities of
Consolidated or Stora Enso or any of their respective subsidiaries was
furnished to Goldman Sachs.
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The following is a summary of the material financial analyses used by Goldman
Sachs in connection with providing its February 22, 2000 written opinion to
Consolidated's board of directors. Some of the summaries of the financial
analyses include information presented in tabular format. In order to more
fully understand the financial analyses used by Goldman Sachs, the tables must
be read together with the full text of each summary. The tables alone do not
constitute a complete description of Goldman Sachs' financial analyses.
Historical Stock Trading Analysis. Goldman Sachs reviewed the historical
trading prices and volumes for the Consolidated shares. This analysis
indicated, based on the (Euro)14.50 ($14.29) closing price of the Stora Enso
Series R shares on February 11, 2000, that the price per Consolidated share to
be paid under the merger agreement represented a premium of:
. 69% based on the closing market price of $26.00 per Consolidated share on
February 18, 2000, the last trading day prior to the announcement of the
merger; and
. a premium of 56% based on the latest twelve months' average market price
of $28.13 per Consolidated share prior to the submission of Stora Enso's
merger proposal on February 17, 2000.
Comparable Transactions Analysis. Goldman Sachs undertook this analysis to
provide information regarding the fairness of the merger consideration based
upon a comparison of the financial terms of the merger with the financial terms
of other recent business combinations in the paper and forest products
industry. The selected transactions were chosen because they involved companies
with operations that for purposes of analysis may be considered similar to
Consolidated and Stora Enso. Goldman Sachs analyzed information relating to the
following eight transactions in the paper and forest products industry since
1995:
. UPM-Kymmene Corporation's pending acquisition of Champion International
Corporation, which was subsequently terminated;
. Abitibi-Consolidated Inc.'s pending acquisition of Donohue Inc.;
. Weyerhaeuser Company's acquisition of MacMillan Bloedel Limited in
November 1999;
. International Paper Company's acquisition of Union Camp Corporation in
April 1999;
. Jefferson Smurfit Corporation's acquisition of Stone Container
Corporation in November 1998;
. Bowater Incorporated's acquisition of Avenor Inc. in July 1998;
. James River Corporation of Virginia's acquisition of Fort Howard
Corporation in August 1997; and
. International Paper's acquisition of Federal Paper Board Company, Inc. in
March 1996.
Goldman Sachs' review focused on the premium to market price one day prior to
the announcement of each transaction. This analysis indicated that the range of
premium to market price one day prior to the announcement of each transaction
ranged from 13.1-45.1%, compared with 69% for the merger.
In addition to the eight transactions listed above, in order to provide a
broader view of the relevant market, Goldman Sachs also compared the merger
with the following 12 acquisitions:
. Georgia-Pacific Corporation's acquisition of Chesapeake Corporation's
Wisconsin Tissue business in October 1999;
. Madison Dearborn Partners, Inc.'s acquisition of Tenneco Inc.'s
containerboard business in April 1999;
. Weyerhaeuser's acquisition of Bowater's Dryden operations in September
1998;
. Sappi Limited's acquisition of Scott Paper Company's S.D. Warren business
in December 1994;
. UPM-Kymmene's acquisition of Blandin Paper Company in October 1997;
. Consolidated's acquisition of Repap USA, Inc. in September 1997;
. Sappi Limited's acquisition of KNP Leykam in September 1997;
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<PAGE>
. St. Laurent Paperboard Inc.'s acquisition of Chesapeake Corporation-Kraft
Products USA in May 1997;
. Alliance Forest Product Inc.'s acquisition of Kimberly Clark
Corporation's Coosa Pines operations in March 1997;
. The Mead Corporation's acquisition of Boise Cascade Corporation's Rumford
facility in October 1996;
. Clayton, Dubilier & Rice, Inc.'s acquisition of Riverwood International
Corporation in March 1996; and
. Noranda Forest, Inc.'s and Consolidated's acquisition of Pentair, Inc.'s
paper operations in July 1995.
Goldman Sachs calculated and compared for each of these 20 transactions total
enterprise value, calculated as equity value plus net debt, as a multiple of:
. Latest twelve months sales;
. Latest twelve months earnings before interest, taxes, depreciation and
amortization, sometimes referred to as EBITDA;
. five prior year average sales; and
. five prior year average EBITDA.
The following table presents the results of this analysis, each as compared
to the corresponding values indicated for the merger as of February 18, 2000.
<TABLE>
<CAPTION>
Ranges for
Enterprise Value the Selected The
as a Multiple of Transactions Median Mean Merger
---------------- ------------ ------ ---- ------
<S> <C> <C> <C> <C>
Latest 12 months sales......................... 0.9x-- 2.9x 1.5x 1.6x 2.7x
Latest 12 months EBITDA........................ 6.4x--15.6x 8.1x 9.0x 13.9x
Five prior years average sales................. 0.8x-- 3.8x 1.5x 1.6x 2.9x
Five prior years average EBITDA................ 5.6x--25.9x 8.2x 9.5x 12.4x
</TABLE>
Discounted Cash Flow Analysis. Goldman Sachs performed a discounted cash flow
analysis to determine the theoretical (1) enterprise value of Consolidated and
(2) value per Consolidated share using Consolidated's management projections as
of February 16, 2000 and, assuming, based on Stora Enso's estimates, annual
synergies of $110 million with 0% realized in 2000, 50% realized in 2001 and
100% realized in 2002 and forward.
Goldman Sachs applied discount rates ranging from 8.0% to 12.0% and terminal
value multiples of normalized EBITDA, defined as 2004 assumptions using an
average price per ton based upon Consolidated's ten year average price per ton,
ranging from 6.0x to 10.0. The various ranges for discount rates and terminal
value multiples were chosen based upon analyses of cost of capital ranges
appropriate for companies in the paper and forest products industry. Based on
these discount rates and terminal value multiples, Goldman Sachs derived
theoretical enterprise values ranging from approximately $3.34 billion to $5.47
billion.
Goldman Sachs applied the same discount rates and terminal value multiples of
normalized EBITDA to derive theoretical values per share ranging from $26.64 to
$49.37.
Selected Companies Analysis. Goldman Sachs reviewed and compared financial
information for Consolidated to corresponding financial information, ratios and
public market multiples for the following eight paper and forest products
companies:
. Champion International Corporation;
. Georgia-Pacific Corporation;
. International Paper Company;
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<PAGE>
. The Mead Corporation;
. Stora Enso Oyj;
. UPM-Kymmene Corporation;
. Westvaco Corporation; and
. Weyerhaeuser Company.
Goldman Sachs selected these companies for comparison because they are publicly
traded companies with operations that for purposes of analysis may be
considered similar to some of Consolidated's operations.
Goldman Sachs calculated and compared various financial multiples and ratios
for these eight companies based on financial data as of February 18, 2000, the
latest earnings estimates provided by I/B/E/S International, Inc. and
normalized earnings per share, sometimes referred to as EPS, and EBITDA data
based on publicly available Goldman Sachs research. Multiples for the eight
companies were calculated using closing per share prices as of February 18,
2000 and the multiples for Consolidated were calculated using a per share price
of $26.00, the closing market price of the Consolidated shares on the NYSE on
February 18, 2000, and management EPS and EBITDA estimates. With respect to the
selected companies, Goldman Sachs considered:
. closing share price on February 18, 2000 as a percentage of the 52 week
high share price;
. equity market capitalization, which is the market value of common equity;
. levered market capitalization, which is the market value of common equity
plus the book value of debt less the cash;
. the ratio of net debt to capitalization;
. estimated 2000 and 2001 price/earnings ratios based on IBES estimates;
. normalized price/earnings ratios based on Goldman Sachs research; and
. estimated 2000 EBITDA margins and normalized, estimated 2000 and
estimated 2001 EBITDA multiples based on Goldman Sachs research.
The results of these analyses are summarized in the following charts.
<TABLE>
<CAPTION>
Shares Price Net Debt/ 2000E
as % of Capitalization EBITDA
Selected Companies 52 Week High Ratio Margin
------------------ ------------ -------------- ---------
<S> <C> <C> <C>
Mean..................................... 69.9% 45.1% 19.3%
Median................................... 67.2% 42.6% 21.1%
Range.................................... 64.8-80.0% 38.1-62.2% 11.3-23.6%
Consolidated............................. 79.1% 40.1% 26.3%
</TABLE>
<TABLE>
<CAPTION>
Price/Earnings Ratios EBITDA Multiple
-------------------------------- ------------------------------
Selected Companies Normalized 2000E 2001E Normalized 2000E 2001E
------------------ ----------- ---------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Mean.................... 12.4x 11.1x 7.8x 6.6x 5.9x 5.0x
Median.................. 12.5x 11.2x 7.8x 6.6x 5.8x 4.6x
Range................... 10.2x-14.9x 7.1x-13.0x 5.4x-9.6x 5.3x-7.6x 4.6x-7.8x 3.8x-6.2x
Consolidated............ 12.3x 14.3x 11.9x 6.4x 6.1x 5.8x
</TABLE>
Pro Forma Merger Analysis. Goldman Sachs prepared a pro forma analysis of the
financial impact of the merger using IBES estimates for Consolidated and Stora
Enso. For each of the years 2000 and 2001, Goldman Sachs analyzed the accretion
or dilution to GAAP earnings per share and cash earnings per share of the
common stock of the combined company on a pro forma basis. Goldman Sachs
performed this analysis based on the closing prices for Consolidated shares and
Stora Enso Series R shares on February 18, 2000, and
30
<PAGE>
assumed annual synergies of $110 million with 0% realized in 2000, 50% realized
in 2001 and 100% realized in 2002 forward. The analysis indicated that the
proposed transaction would be dilutive to estimated U.S. GAAP earnings per
share and moderately dilutive to cash earnings per share in years 2000 and
2001.
<TABLE>
<CAPTION>
GAAP EPS Accretion/ Cash EPS Accretion/
(Dilution) (Dilution)
------------------- -------------------
<S> <C> <C>
2000E (pro forma analysis with
100% of Synergies)............ (17.3%) (6.4%)
2001E (pro forma analysis with
50% of Synergies)............. (11.9%) (2.8%)
2001E (pro forma analysis with
100% of Synergies)............ (8.9%) (0.2%)
</TABLE>
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of each of these analyses in their
totality. No company or transaction used in the above analyses as a comparison
is directly comparable to Consolidated or Stora Enso or the merger. The
analyses were prepared for purposes of Goldman Sachs' providing its opinion to
Consolidated's board as to the fairness from a financial point of view of the
merger consideration to the holders of Consolidated shares and do not purport
to be appraisals or necessarily reflect the prices at which businesses or
securities actually may be sold. Analyses based upon forecasts of future
results are not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by those analyses. These
analyses are inherently subject to uncertainty, being based upon numerous
factors or events beyond the control of the parties or their advisors. As
described above, Goldman Sachs' opinion to Consolidated's board of directors
was one of many factors taken into consideration by Consolidated's board of
directors in making its determination to approve the merger agreement. The
prior discussion is only a summary of the analyses performed by Goldman Sachs
and is qualified by reference to the written opinion of Goldman Sachs set forth
in Annex B.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. Goldman Sachs is
familiar with Stora Enso, having provided investment banking services to Stora
Enso from time to time, including having acted as financial advisor to Stora
Kopparbergs Bergslags Aktiebolag (publ) in its merger with Enso Oyj in December
1998 and having acted as managing underwriter of a public offering of medium
term notes of Stora Enso in June 2000. The chairman of Stora Enso serves as an
International Advisor to Goldman Sachs. Goldman Sachs may provide investment
banking services to Stora Enso and its affiliates in the future.
Under a letter agreement dated November 22, 1999, Consolidated engaged
Goldman Sachs to act as its financial advisor in connection with the possible
sale of all or a portion of Consolidated. Under the terms of the letter
agreement, Consolidated has agreed to pay Goldman Sachs upon consummation of
the merger a transaction fee of 0.420% of the aggregate consideration, as
described in the letter agreement, in the merger. Consolidated also has agreed
to reimburse Goldman Sachs for its reasonable out-of-pocket expenses, including
attorneys' fees, and to indemnify Goldman Sachs against specified liabilities,
including liabilities under the federal securities laws.
31
<PAGE>
Interests of Members of Consolidated's Board and Management
You should be aware that Consolidated's executive officers who negotiated the
merger agreement and directors who discussed, deliberated over and voted to
adopt and approve the merger agreement may have interests in the merger that
are in addition to or may be different from the interests of Consolidated
shareholders generally.
Board Seat
The merger agreement provides that George W. Mead will be elected to Stora
Enso's board of directors and shall serve as a director of Stora Enso for at
least two years.
Treatment of Stock Options
As of July 25, 2000, executive officers and directors of Consolidated held
options to purchase 518,870 shares of Consolidated stock. Each option to
purchase a Consolidated share will become an option to purchase a number, not
less than 2.678 nor more than 3.621, of Stora Enso ADSs at equivalent prices
and terms.
Change in Control Agreements
Sixteen Consolidated officers, including the president and CEO, the three
senior vice presidents, and the secretary and general counsel, have change in
control contracts. These change in control contracts provide that each of these
officers will receive severance packages if, within two years of a change in
control, they are terminated without cause or leave the company for good
reason.
The president and CEO would receive a lump sum payment equal to the sum of:
. three times his current salary plus his average bonus of the prior three
full years, plus
. a pro rata portion of his target bonus for the year of termination.
Each of the other 15 officers would receive a lump sum payment equal to two
times current salary plus average bonus, plus a pro rata bonus for the year of
termination. In addition, all sixteen officers would be entitled to continued
health, dental, vision, and life insurance benefits and long-term disability
coverage. Furthermore, at the time of termination, any outstanding stock
options would vest and become exercisable in full.
Compensation Payments
In connection with the merger, Consolidated retained an independent
consultant to perform a compensation study designed to promote retention among
Consolidated's executives essential to the growth and profitability of the
combined company after the merger and to compensate Consolidated's executives
essential to the completion of the merger. As recommended by the study,
Consolidated will provide a maximum of approximately $5.4 million in aggregate
transitional compensation to 86 employees, depending on the timing of the
merger and whether the employee continues his or her employment through
February 2001. This group includes the president and CEO, the three senior vice
presidents, the secretary and general counsel and other members of senior
management.
Indemnification and Insurance
Under the merger agreement, Stora Enso's wholly owned subsidiary Stora Enso
Consolidated Papers must adopt in its articles of incorporation and bylaws the
same indemnification obligations as those in Consolidated's articles of
incorporation and bylaws. It may not amend, repeal or otherwise modify these
provisions for six years after the merger in any manner that would adversely
affect the rights of any person who was a director, officer, employee or agent
of Consolidated or any of its subsidiaries at or prior to the time of the
merger.
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<PAGE>
For six years after the merger is completed, Stora Enso Consolidated Papers
must keep in effect directors and officers liability insurance protection of
the same kind and scope as that provided by Consolidated. However, Stora Enso
Consolidated Papers will not be required to spend more than $206,000 in any one
year for this insurance and if the annual premiums would exceed $206,000, Stora
Enso Consolidated Papers will obtain a policy with the greatest coverage
available at that price.
Following the merger, Stora Enso and Stora Enso Consolidated Papers must, to
the fullest extent permitted under applicable law, indemnify, defend and hold
harmless each present and former director or officer of Consolidated and its
subsidiaries against all costs and expenses (including reasonable attorneys'
fees), judgments, fines, losses, claims, damages, liabilities and settlement
amounts paid in connection with any claim, action, suit, proceeding or
investigation, whether arising before or after the merger, arising out of or
pertaining to any action or omission as a director or officer, including in
connection with the merger.
Accounting Treatment
Stora Enso will account for the merger as an acquisition under International
Accounting Standards in accordance with International Accounting Standards No.
22, revised, called IAS 22, and will account for the merger as a purchase for
purposes of U.S. GAAP in accordance with APB Opinion No. 16, "Business
Combinations."
In each case, the excess of the purchase price over the fair value of the net
assets acquired will be recorded as goodwill and amortized over its estimated
economic life. The merger will result in a goodwill amortization charge of
approximately (Euro)112 million per year under IAS and U.S. GAAP for 20 years
after the merger, thereby reducing Stora Enso's reported consolidated profit
under International Accounting Standards and U.S. GAAP. This goodwill
amortization arises as an accounting charge against profit upon the
consolidation of Consolidated and Stora Enso but will not affect Stora Enso's
cash flow. It will, however, impact Stora Enso's distributable reserves and
ability to pay dividends. For more detail about the amount of goodwill Stora
Enso will have to record and the way in which such goodwill will be amortized,
see Note 5 to the unaudited pro forma consolidated financial statements
included in the section of this document entitled "Unaudited Pro Forma Combined
Financial Information."
Resales of ADSs
The Stora Enso ADSs to be issued to Consolidated shareholders in the merger
will be registered under the Securities Act and may be traded freely and
without restriction by those shareholders not deemed affiliates, as that term
is defined under the Securities Act, of Consolidated or Stora Enso. Any
transfer of Stora Enso ADSs by any person who is an affiliate of Consolidated
at the time the merger is submitted for vote of the shareholders of
Consolidated will, under existing law, require:
. the further registration under the Securities Act of the Stora Enso ADSs
to be transferred; or
. compliance with Rule 145 promulgated under the Securities Act, which
permits limited sales under specified circumstances; or
. the availability of another exemption from registration.
You are an "affiliate" of Consolidated if you directly, or indirectly through
one or more intermediaries, control, are controlled by, or are under common
control with Consolidated. The restrictions on affiliates are expected to apply
to the directors and executive officers of Consolidated and the holders of 10%
or more of the Consolidated shares. If you are an affiliate of Consolidated,
the same restrictions apply to your spouse, some of your other relatives and
any trusts, estates, corporations, or other entities in which you, your spouse
or these relatives have a 10% or greater beneficial or equity interest.
Consolidated has agreed that it will use its best efforts to obtain from each
person who may be an affiliate of Consolidated an appropriate agreement
restricting any further sales of ADSs received in the merger, except in
compliance with the restrictions described above. The ADSs to be received by
affiliates of Consolidated in the merger will have a legend describing these
restrictions and will be issued as a separate series of ADSs under the deposit
agreement.
33
<PAGE>
Regulatory Approvals
Other than as described below, we are not aware of any material foreign,
federal or state governmental approvals or actions that may be required for
completion of the merger. Should any other approval or action be required, we
currently contemplate that the approval would be sought or action taken.
Antitrust
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the related rules promulgated by the U.S. Federal Trade Commission, we were
required to make filings with the Antitrust Division of the U.S. Department of
Justice and the U.S. Federal Trade Commission and to wait until specified
waiting periods expired. Early termination of the applicable waiting period was
granted on April 24, 2000.
We are also required to make antitrust filings in Brazil and Germany, and we
have made filings in each of those countries. We received approval from the
German Cartel Office on April 28, 2000 and we do not anticipate any
governmental action in Brazil that would delay or prevent consummation of the
merger.
Energy Regulation
Consolidated Water Power Company is a subsidiary of Consolidated engaged
primarily in the generation of electric power for use at Consolidated's
manufacturing facilities. In addition, Consolidated Water Power Company sells
electric power to a small number of retail customers in Wisconsin and
occasionally sells excess power to a single wholesale customer.
The activities of Consolidated Water Power Company are subject to regulation
by the U.S. Federal Energy Regulatory Commission under the U.S. Federal Power
Act and by the Wisconsin Public Service Commission under the Wisconsin Public
Utility Holding Company Act. In addition, Consolidated Water Power Company
files periodically with the SEC to maintain an exemption from the U.S. Public
Utility Holding Company Act of 1935, as amended. Consolidated Water Power
Company also owns a one-third interest in the Wisconsin River Power Company,
which is itself subject to regulation by the U.S. Federal Energy Regulatory
Commission under the Federal Power Act. Wisconsin River Power Company sells
power to its three owners.
Stora Enso's obligation to consummate the merger is conditioned upon it
having obtained all regulatory approvals or exemptions necessary to acquire
indirect control of Consolidated Water Power Company. We intend to satisfy this
condition by:
. claiming or obtaining an exemption from the Public Utility Holding
Company Act of 1935, as amended. Based on discussions with the SEC, an
application will be filed with the SEC for an exemptive order;
. obtaining an approval by the U.S. Federal Energy Regulatory Commission of
the merger and related transfer of control of the assets of Consolidated
Water Power Company, including its one-third interest in the Wisconsin
River Power Company, to Stora Enso under the Federal Power Act.
Consolidated Water Power Company and Stora Enso received this approval
from the Federal Energy Regulatory Commission on June 15, 2000; and
. obtaining a ruling from the Wisconsin Public Service Commission
confirming that Stora Enso Consolidated Papers, a Wisconsin corporation,
will succeed to an exemption available to Consolidated under the
Wisconsin Public Utility Holding Company Act. The Wisconsin Public
Service Commission granted Consolidated's petition on July 20, 2000.
34
<PAGE>
General
Each party has agreed to use its reasonable best efforts, including divesting
assets, to resolve any regulatory objections related to the merger. However,
Stora Enso will not be required to agree to any divestiture or the imposition
of any conditions that would be reasonably likely to have a material adverse
effect on Stora Enso or Consolidated or that would materially and adversely
impact the economic, strategic or business benefits of the merger.
There can be no assurance that the merger will not be delayed because of the
application of antitrust or other applicable laws or regulations. At any time
before or after completion of the merger, the Federal Trade Commission, the
Antitrust Division, a state or foreign governmental authority or a private
person or entity could seek to enjoin the merger or to cause Stora Enso to
divest, in whole or in part, any of its assets or businesses, including assets
or businesses of Consolidated Papers. We cannot guarantee that a challenge to
the merger will not be made or that, if a challenge is made, we will prevail.
Our obligations to complete the merger are dependent on the condition that
there be no order, decree or injunction of any court of competent jurisdiction
that prohibits the merger. See "Summary of the Merger Agreement--Conditions to
the Consummation of the Merger--Mutual Conditions."
Stock Exchange Listing
Stora Enso has applied for listing on the New York Stock Exchange and
anticipates that the ADSs will trade on that exchange under the symbol "SEO."
If Stora Enso is unable to list the ADSs on the New York Stock Exchange, it
intends to seek approval to trade the ADSs on NASDAQ. If the ADSs are not
approved for trading on the New York Stock Exchange or NASDAQ by October 31,
2000, Stora Enso will proceed with the merger for all cash and your
Consolidated shares will all be converted into $44.00 in cash.
Source and Amount of Funds
Stora Enso expects to pay approximately $2.0 billion in cash to Consolidated
shareholders in the merger. Stora Enso currently intends to obtain the funds
necessary to make this payment, as well as to pay expenses related to the
merger, from borrowings, some or all of which will come from Stora Enso's
currently available credit facilities. Stora Enso may also use the proceeds of
the recent sale of off-mill site energy assets for net proceeds of
approximately (Euro)600 million before taxes.
Other Effects of the Merger
The content and timing of reports and notices that Stora Enso will file with
the SEC differ in several respects from the reports and notices that
Consolidated currently files. Stora Enso is, and following the merger will
remain, a foreign private issuer for the purposes of the reporting rules under
the Exchange Act.
As a U.S. reporting company, Consolidated must file with the SEC, among other
reports and notices:
. an annual report on Form 10-K within 90 days after the end of each
fiscal year;
. quarterly reports on Form 10-Q within 45 days after the end of each of
the first three fiscal quarters of each fiscal year; and
. reports on Form 8-K upon the occurrence of specified corporate events.
As a foreign private issuer, under the requirements of the Exchange Act,
Stora Enso will be obligated to:
. file with the SEC an annual report on Form 20-F within six months after
the end of each fiscal year and
. furnish to the SEC reports on Form 6-K upon the occurrence of
significant corporate events, including publication of its quarterly
reports in respect of the first three quarters of each year and the
announcement of its annual results.
35
<PAGE>
Stora Enso will not be required to file quarterly reports on Form 10-Q after
the end of each financial quarter. In addition, the content and timing of
reports and notices that holders of Stora Enso Series R shares and Stora Enso
ADSs will receive will differ from the reports and notices that are currently
received by Consolidated shareholders.
As a U.S. reporting company, Consolidated must mail to its shareholders in
advance of each annual meeting of shareholders:
. an annual report containing audited financial statements and
. a proxy statement that complies with the requirements of the Exchange
Act.
As a foreign private issuer, Stora Enso will be exempt from the rules under
the Exchange Act prescribing the furnishing and content of annual reports and
proxy statements to its shareholders. However, Stora Enso will cause holders of
Stora Enso ADSs to be furnished with an annual report which contains audited
financial statements prepared in conformity with International Accounting
Standards, including U.S. GAAP reconciliations, and a discussion of Stora
Enso's financial results that is comparable to the management's discussion and
analysis of financial condition and results of operations that is contained in
Consolidated's annual reports on Form 10-K. In addition, under the rules of the
Helsinki Stock Exchange, Stora Enso will publish stock exchange press releases
upon the occurrence of significant corporate events which it will also furnish
to the SEC on Form 6-K. As promptly as practicable after each of those reports
is ready for distribution to shareholders, Stora Enso will furnish the
depositary bank, Citibank, N.A., with sufficient copies of these reports as
well as other communications and notices that Stora Enso generally makes
available to its shareholders. Then, at the request of Stora Enso, the
depositary will then arrange for the mailing of the documents to holders of
Stora Enso ADSs as promptly as possible. Holders of Stora Enso ADSs will also
be able to obtain from the depositary bank a copy of Stora Enso's most recent
annual report on Form 20-F beginning with the annual report for the year ended
December 31, 2000. The depositary bank has also agreed to make these documents
available for inspection at the depositary bank's office. See "Description of
Stora Enso American Depositary Shares" for a more detailed discussion of these
procedures. Stora Enso posts its annual reports and other information on its
internet web site at www.storaenso.com. If the merger is completed, the
Consolidated shares will be delisted from the NYSE and will be deregistered
under the Exchange Act. As a result, Consolidated will no longer be required by
the Exchange Act to be a reporting company. In addition, Stora Enso's officers,
directors and principal shareholders are exempt from the reporting and "short-
swing" profit recovery provisions contained in Section 16 of the Exchange Act
and related rules that currently apply to officers, directors and significant
shareholders of Consolidated.
No Appraisal or Dissenters' Rights
Consolidated shareholders are not entitled to appraisal or dissenters' rights
under Wisconsin law in connection with the merger.
36
<PAGE>
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
General
The following is a discussion of the principal U.S. federal income tax
consequences of the merger to U.S. holders, as defined below, of Consolidated
shares. This discussion addresses only U.S. holders holding Consolidated shares
and Stora Enso ADSs as capital assets and does not address all of the U.S.
federal income tax consequences that may be relevant to particular U.S. holders
in light of their individual circumstances or to U.S. holders who are subject
to special rules under U.S. federal income tax law, including financial
institutions, tax-exempt organizations, insurance companies, dealers or traders
in securities or foreign currencies, pass-through entities, U.S. holders who
hold their shares as a hedge against currency risk, or as a part of a
constructive sale, straddle or conversion transaction, or U.S. holders who
acquired their shares upon the exercise of employee stock options or otherwise
as compensation. The discussion is based upon the Internal Revenue Code of
1986, as amended, Treasury Regulations, administrative rulings and court
decisions, all as in effect as of the date of this document and all of which
are subject to change, possibly with retroactive effect. This discussion
addresses only U.S. federal income tax consequences and does not address any
other federal tax consequences or any state, local or foreign tax consequences.
For a discussion of the U.S. federal and Finnish tax consequences relating to
the ownership and disposition of Stora Enso ADSs, see "Taxation of Stora Enso
Series R Shares and American Depositary Shares."
Consolidated shareholders are strongly encouraged to consult their own tax
advisors as to the specific tax consequences of the merger in light of their
personal tax situation, including the applicability and effects of federal,
state, local and foreign income and other tax laws.
For purposes of this discussion, the term "U.S. holder" means a beneficial
owner of Consolidated stock that is:
. a U.S. citizen or resident, as determined for federal income tax
purposes;
. a corporation created or organized in or under the laws of the United
States; or
. otherwise subject to U.S. federal income tax on a net income basis.
Our obligations to complete the merger are conditioned upon the receipt by
Consolidated of the opinion of McDermott, Will & Emery, its counsel, and the
receipt by Stora Enso of the opinion of Cleary, Gottlieb, Steen & Hamilton, its
counsel, each dated as of the effective date of the merger, that the merger
will constitute a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code; Stora Enso will be treated as a corporation under
Section 367(a)(1) of the Internal Revenue Code with respect to each transfer of
property to Stora Enso in the merger; and accordingly, for U.S. federal income
tax purposes, no gain or loss will be recognized by Stora Enso or Consolidated
as a result of the merger and no gain or loss will be recognized by a
Consolidated shareholder with respect to the receipt of Stora Enso ADSs in the
merger. In rendering their opinions, our counsel may require and rely upon
customary representations from Stora Enso and Consolidated. The opinions will
not address the tax consequences to a Consolidated shareholder who, immediately
after the merger, will own, actually or constructively, five percent or more of
Stora Enso's outstanding shares, including ADSs, measured either by vote or
value.
Assuming that the merger will be treated as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code, and that Stora Enso
will be treated as a corporation under Section 367(a)(1) of the Internal
Revenue Code with respect to each transfer of property to Stora Enso in the
merger, then, as discussed immediately below, the U.S. federal income tax
consequences of the merger to a Consolidated shareholder will depend upon
whether the holder exchanges its Consolidated shares for cash, Stora Enso ADSs,
or a combination of cash and ADSs.
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<PAGE>
Exchange Solely for Cash
A U.S. holder who exchanges Consolidated shares solely for cash will
recognize capital gain or loss equal to the difference between the amount of
cash received and the adjusted tax basis in the Consolidated shares exchanged.
The gain or loss generally will be long-term capital gain or loss, if the
exchanged Consolidated shares were held for more than one year as of the date
of the merger. The maximum U.S. federal income tax rate in respect of long-term
capital gains realized by non-corporate holders is 20%.
Exchange Solely for Stora Enso ADSs
A U.S. holder who exchanges Consolidated shares solely for Stora Enso ADSs
will not recognize any gain or loss, except in respect of cash received in lieu
of a fractional Stora Enso ADS. The aggregate tax basis in the Stora Enso ADSs
received will be equal to the aggregate adjusted tax basis of Consolidated
shares exchanged for the ADSs except to the extent of basis allocable to a
fractional Stora Enso ADS. The holding period of the Stora Enso ADSs will
include the period during which the Consolidated shares were held.
Exchange for Stora Enso ADSs and Cash
A U.S. holder who exchanges Consolidated shares for a combination of Stora
Enso ADSs and cash will recognize gain realized on the exchange to the extent
of cash received, but will not recognize any loss realized on the exchange.
Realized gain or loss must be calculated separately for each identifiable block
of shares exchanged in the merger, and a loss realized on the exchange of one
block of shares cannot be used to offset a gain realized on the exchange of
another block of shares. Gain recognized on the exchange of Consolidated shares
in the merger will be treated as capital gain and generally will be long-term
capital gain with respect to Consolidated shares held for more than one year as
of the date of the merger. However, in some circumstances, the gain could be
treated as dividend income to a U.S. holder who either will exercise some
control with respect to corporate affairs of Stora Enso or will own, actually
or constructively, more than a very small percentage interest in Stora Enso.
The aggregate tax basis of Stora Enso ADSs received by a U.S. holder who
exchanges Consolidated shares for a combination of Stora Enso ADSs and cash in
the merger will be the same as the aggregate tax basis of the Consolidated
shares exchanged decreased by the cash received and increased by any recognized
gain, whether capital gain or dividend income. The holding period of Stora Enso
ADSs will include the holding period of the exchanged Consolidated shares.
If you are a U.S. holder and have differing bases and/or holding periods in
respect of your Consolidated shares, you should consult your tax advisor prior
to the exchange with regard to identifying the particular Consolidated shares
to be sold in the exchange and the particular bases and/or holding periods of
the Stora Enso ADSs you receive in the exchange.
Cash Received in Lieu of a Fractional Stora Enso ADS
Cash received by a U.S. holder in lieu of a fractional Stora Enso ADS will be
treated as though the fractional Stora Enso ADS had been distributed as a part
of the exchange and then redeemed, and, assuming that the redemption of the
fractional Stora Enso ADS is characterized as a sale or exchange of the Stora
Enso ADS and not as a dividend, the U.S. holder will recognize gain or loss in
an amount equal to the difference between the amount of cash received and the
basis of the fractional Stora Enso ADS deemed to be surrendered, which gain or
loss will generally be a capital gain or loss.
Five Percent Holders
A Consolidated shareholder who will own, actually or constructively, five
percent or more of Stora Enso by vote or value immediately after the Merger
will qualify for non-recognition treatment as described above only if the
holder files a "gain recognition agreement" with the IRS. A gain recognition
agreement would
38
<PAGE>
obligate the U.S. holder to recognize gain in respect of the merger if, within
the 60 months following the end of Stora Enso's current taxable year, Stora
Enso were to dispose of stock of Stora Enso Consolidated Papers or were to sell
substantially all of the assets acquired from Consolidated in the merger. Any
such holder is urged to consult with a tax advisor concerning the decision to
file a gain recognition agreement and the procedures to be followed in
connection with that filing.
Backup Withholding
U.S. holders who do not comply with applicable reporting and/or certification
procedures may be subject to withholding tax of 31% with respect to any cash
payments received in the merger. Those procedures do not apply to "exempt
recipients" such as corporations.
The conclusions expressed above, including those expressed in the opinions of
McDermott, Will & Emery and Cleary, Gottlieb, Steen & Hamilton, are based on
current law. Future legislative, administrative or judicial changes or
interpretations, which can apply retroactively, could affect the accuracy of
those conclusions. The opinions of McDermott, Will & Emery and Cleary,
Gottlieb, Steen & Hamilton are not binding on the Internal Revenue Service.
The discussion does not address all of the tax consequences that may be
relevant to particular taxpayers in light of their personal circumstances.
Since the tax laws are complex and tax consequences may be affected by matters
not discussed above, each Consolidated shareholder is urged to consult a tax
advisor with respect to the specific tax consequences of the merger taking into
account his own particular circumstances, including the applicability and
effect of state, local and non-U.S. tax laws, as well as of the U.S. federal
tax laws.
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SUMMARY OF THE MERGER AGREEMENT
We believe this summary describes all material terms of the merger agreement.
However, since the merger agreement is the primary legal document that governs
the merger, we recommend that you read carefully the complete text of the
merger agreement for its precise legal terms and other information that may be
important to you. The merger agreement is included as Annex A to this document
and is incorporated by reference.
Form of the Merger
If all the conditions to the merger are satisfied or waived in accordance
with the merger agreement, Consolidated will merge into a direct, wholly-owned
subsidiary of Stora Enso. The company resulting from this merger will be a
subsidiary of Stora Enso. The merger will have the effects specified in the
Wisconsin Business Corporation Law.
Consideration to be Received in the Merger
On the date the merger becomes effective, each issued and outstanding
Consolidated share will be converted into the right to receive, at the election
of the holder, either (a) $44.00 in cash or (b) a number of Stora Enso ADSs
intended to have a value equal to $44.00. However, if the average price,
calculated as described below, for Stora Enso's Series R shares is less than
the equivalent of $12.15, then 3.621 Stora Enso ADSs will be issued in exchange
for each Consolidated share and if the average price for Stora Enso's Series R
shares is more than the equivalent of $16.43, 2.678 Stora Enso ADSs will be
issued in exchange for each Consolidated share. If the average price of the
Series R shares is less than the equivalent of $12.15, then the 3.621 Stora
Enso ADSs that would be received in the merger upon conversion of Consolidated
shares would have a value less than $44.00.
If the Stora Enso ADSs are not approved for listing on the NYSE or quotation
on NASDAQ by October 31, 2000, then all Consolidated shares will be converted
into the right to receive $44.00 in cash.
The value of a Stora Enso ADS for these purposes will be based on the average
last sales prices of Stora Enso's Series R shares on the Helsinki Stock
Exchange on ten randomly selected days out of the 20 trading days ending on the
fifth trading day prior to the effective time of the merger. In calculating
this average price, euros will be converted into dollars based on the "closing
mid-point" exchange rate published in the United States edition of the
Financial Times for each of the applicable days.
One-half of the outstanding Consolidated shares will be converted into cash
and the other half will be converted into Stora Enso ADSs. If total shareholder
elections for cash or Stora Enso ADSs exceed these limits, the number of
Consolidated shares to be converted into cash or Stora Enso ADSs will be cut
back proportionately. As a result, depending on the elections made by all
Consolidated shareholders, you may receive more or less cash or more or fewer
Stora Enso ADSs than you have elected to receive. In addition, if either of our
tax advisors is unable to deliver its opinion that no gain or loss will be
recognized by a Consolidated shareholder in respect of receipt of Stora Enso
ADSs in the merger, then the number of Consolidated shares to be converted into
cash will be reduced, and the number of Consolidated shares to be converted
into Stora Enso ADSs will be correspondingly increased, to the extent necessary
so that an opinion can be delivered. The amount of cash to be received per
Consolidated share converted into cash, and the 3.621 Stora Enso ADSs to be
received per Consolidated share converted into ADSs, will not be increased.
The closing price of Stora Enso Series R shares on the Helsinki Stock
Exchange has declined since we signed the merger agreement on February 22,
2000. As a result, the aggregate number of Stora Enso ADSs to be issued in the
merger has increased since that date. However, in no event is Stora Enso
required to issue more than 3.621 ADSs per Consolidated share converted into
ADSs. As a result, the aggregate number of ADSs to be issued in the merger will
not increase at price levels below the equivalent of $12.15, unless we are
required to increase the number of Consolidated shares to be converted into the
right to receive Stora Enso ADSs so that the tax opinions may be given.
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All Consolidated shares will be canceled and retired. Each holder of a
certificate representing Consolidated shares will no longer have any rights
with respect to the shares, except for the right to receive the merger
consideration described above. Each Consolidated share held in Consolidated's
treasury or held by Stora Enso or its subsidiaries at the time of the merger
will be canceled and retired without any payment.
Stora Enso will not issue fractional ADSs in the merger. For each fractional
ADS that would otherwise be issued, Stora Enso, through the exchange agent,
will pay a cash amount, without interest, equal to the fractional part of an
ADS multiplied by the average price of Stora Enso's Series R shares calculated
in the manner described above.
No interest will be paid with respect to either the cash consideration to be
paid in the merger or any dividends or distributions declared or paid on the
Stora Enso ADSs issued in the merger.
Effective Time of the Merger
The merger will become effective when we file articles of merger with the
Wisconsin Department of Financial Institutions. However, we may agree to a
later time, and specify that time in the articles of merger. We anticipate
filing the articles of merger on the day all conditions in the merger agreement
have been satisfied or waived. Although the Consolidated meeting is scheduled
for August 30, 2000, we expect that it may take more time to obtain the
regulatory approvals required to consummate the merger. We hope to complete the
merger by early September 2000. However, we cannot assure you when, or if, all
the conditions to consummation of the merger will be satisfied or waived. See
"--Conditions to the Consummation of the Merger" for a more detailed discussion
of these conditions.
Share Election and Exchange Procedures
If you are a registered holder of Consolidated shares, a blue election and
transmittal form has been included with this document. Consolidated
shareholders who wish to specify the form of merger consideration they want to
receive, or who wish to receive the merger consideration as soon as possible
following the effective time of the merger, should mail the blue election and
transmittal form, indicating their preference as to cash, Stora Enso ADSs, or a
combination of cash and ADSs, together with their Consolidated stock
certificates to the exchange agent at the address below:
By Hand: By Mail: By Overnight Courier:
CITIBANK, N.A. CITIBANK, N.A. CITIBANK, N.A.
c/o Securities Transfer Corporate Actions Corporate Actions
and Reporting Services P.O. Box 2544 Suite 4660-525
Inc. Jersey City, N.J. 07303- Washington Blvd.
Attn: Corporate Actions 2544 Jersey City, N.J. 07303
100 William Street-LOWER GALLERIA
New York, N.Y. 10038 For Information
(800) 308-7887
We have retained Georgeson Shareholder Communications Inc., as information
agent to assist you in the merger. You may call them at (800) 223-2064 (toll
free) in the United States or Canada or, for banks, brokers and persons outside
the United States or Canada, at (212) 440-9800 (collect) to request additional
documents and to ask any questions you may have about the merger.
Consolidated's Dividend Reinvestment and Stock Purchase Plan was terminated
in February 2000. If you were a participant in the plan, you should have
received your shares, together with a check for any fractional shares. If you
participated in the plan through a broker or bank, the distribution should have
been reflected in
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your account statement. If you have any questions about the plan, please call
Joyce A. Clauson at (715) 422-3778 or, if you participated through a broker or
bank, your account representative.
Subject to the proration described above which will apply if holders of more
than half of Consolidated's shares elect to receive cash or Stora Enso ADSs,
respectively, each Consolidated shareholder may elect to receive with respect
to each Consolidated share (1) Stora Enso ADSs or (2) $44.00 in cash.
Consolidated shareholders must send in an election and transmittal form
together with their Consolidated stock certificates to the exchange agent.
Election and transmittal forms must be received by the exchange agent by 5:00
p.m. New York time on the fifth business day following the closing date. We
will announce the closing date at least three days in advance. Consolidated
shareholders may change their elections by revoking the prior election and
withdrawing their Consolidated stock certificates by written notice to the
exchange agent and timely submitting a new election and transmittal form and
the applicable Consolidated stock certificates to the exchange agent prior to
the election deadline. The signatures on any revocation must be guaranteed by
an Eligible Guarantor Institution as described in the election and transmittal
form.
If you hold your Consolidated shares in "street name" at a brokerage firm or
bank, you will need to instruct your broker or bank to make the payment
election and surrender the Consolidated shares on your behalf. The exchange
agent will establish procedures that will enable your broker or bank to make
the payment election and deliver your Consolidated shares. A letter explaining
these procedures has been forwarded with this proxy statement/prospectus to all
brokers and banks who hold Consolidated shares. For your convenience, your
broker or bank has enclosed with this proxy statement/prospectus a form to
instruct your broker or bank to make the payment election and to surrender your
Consolidated shares.
Consolidated shareholders who fail to timely make an election and surrender
their Consolidated shares will receive:
. cash, in the event holders of 50% or more of the Consolidated shares
properly elect to receive Stora Enso ADSs;
. Stora Enso ADSs, in the event holders of 50% or more of the Consolidated
shares properly elect to receive cash; or
. a combination of cash and Stora Enso ADSs determined in relation to the
number of Consolidated shares for which cash or ADS elections have been
properly received.
Consolidated shareholders may also follow the guaranteed delivery
instructions included with the election and transmittal form to send in their
stock certificates.
Following the election deadline, the exchange agent will determine the
allocation of the cash and ADS portions of the merger consideration. We will
announce the results in reasonable detail as soon as possible.
Promptly following the election deadline, the exchange agent will send
letters of transmittal to those shareholders who have not properly made a
payment election and surrendered their Consolidated shares by the election
deadline. Consolidated shareholders who did not properly make a payment
election and surrender their Consolidated shares by that time will be required
to complete and return the letter of transmittal to the exchange agent together
with their Consolidated stock certificates in order to receive the
consideration to which they are entitled for their shares. If you hold your
Consolidated shares in a brokerage or custodian account and you have not
validly surrendered your Consolidated shares and made the payment election
before the election deadline, the exchange agent will exchange your
Consolidated shares for the applicable merger consideration and deliver the
merger consideration to the broker or custodian bank who holds the Consolidated
shares on your behalf.
After the merger, there will be no transfers on Consolidated's transfer books
of Consolidated shares that were outstanding immediately before the merger.
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Consolidated shareholders entitled to receive Stora Enso ADSs will receive
any dividends or other distributions on the Stora Enso ADSs that have a record
date after the merger, but only after surrendering their Consolidated stock
certificate(s). Taxes will be withheld as required.
Stora Enso may demand that the exchange agent return to it any portion of the
merger consideration that remains unclaimed one year after the effective time
of the merger. Former Consolidated shareholders who have not complied with the
exchange procedures before Stora Enso has made this demand may look only to
Stora Enso for payment of the merger consideration, including any unpaid
dividends and distributions on Stora Enso ADSs. None of Stora Enso, Stora Enso
Consolidated Papers, Inc. or the exchange agent will be liable to you for any
amount properly delivered to a public official under applicable abandoned
property, escheat or similar laws.
No interest will be paid or accrued on the cash portion of the merger
consideration or on unpaid dividends and distributions on Stora Enso ADSs, if
any, which will be paid on surrender of Consolidated stock certificates.
If any of your Consolidated stock certificates has been lost, stolen or
destroyed, you will be entitled to obtain the merger consideration after you
make an affidavit of that fact and, post a bond in an amount sufficient to
protect Stora Enso against claims related to your lost, stolen or destroyed
Consolidated stock certificates.
Consolidated Stock Options
Each outstanding option to buy a Consolidated share granted under
Consolidated's employee stock option plans shall be assumed by Stora Enso and
deemed to constitute an option to buy, on the same terms and conditions as were
applicable to the Consolidated option, a number of Stora Enso ADSs (but in no
event more than 3.621 or less than 2.678 Stora Enso ADSs per Consolidated share
the option holder is entitled to buy) at an exercise price which is adjusted to
take into account the exchange ratio. However, if the merger consideration
consists of all cash, then option holders will receive cash equal to the
excess, if any, of $44.00 over the option exercise price.
Management
The current officers of Consolidated will serve as officers of Stora Enso
Consolidated Papers, Inc. following the merger.
George W. Mead will serve on Stora Enso's board of directors for at least two
years following the merger.
Representations and Warranties
In the merger agreement, we each make representations and warranties about
our companies with respect to, among other things:
. corporate matters, including due organization, power and standing;
. authorization, execution, delivery and enforceability of the merger
agreement;
. required consents and approvals;
. absence of conflicts under organizational documents and violations of
contracts or law as a result of the contemplated transactions;
. capital structure and securities;
. documents filed with the SEC or the Financial Supervision Authority of
Finland, as applicable, including financial statements, and the accuracy
of the information in those documents;
. the absence of any material adverse effect;
. litigation and liabilities;
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. taxes;
. compliance with applicable laws;
. title to properties;
. intellectual property;
. environmental matters;
. brokers' and finders' fees with respect to the merger; and
. required board of directors and shareholder approvals with respect to the
contemplated transactions.
Consolidated made additional representations and warranties to Stora Enso
with respect to, among other things, Consolidated's ownership of subsidiaries,
employee benefits and employee relations, and the inapplicability of state
anti-takeover laws to the contemplated transactions.
Almost all of these representations and warranties are qualified by a
materiality threshold specified in the merger agreement.
Covenants
We have each agreed to conduct our business in the ordinary course and
consistent with past practice. We have agreed to use commercially reasonable
efforts to:
. preserve our present business organizations;
. maintain all significant licenses, approvals and authorizations; and
. preserve existing relationships with our significant customers, lenders
and suppliers.
We have each agreed to use reasonable best efforts to cause the merger to
qualify as a tax-free reorganization and not to take any action reasonably
likely to cause the merger not to qualify as a tax-free reorganization.
Interim Conduct of Consolidated's Business
Consolidated has also agreed that it will not take specified actions prior to
completion of the merger without Stora Enso's consent. More specifically,
Consolidated has agreed that it will not, and it will not permit any of its
subsidiaries to:
. amend its organizational documents or any material term of any
outstanding security;
. split, combine, subdivide, redeem or reclassify any Consolidated capital
stock other than under the existing terms of any award under an employee
benefit plan;
. declare, set aside or pay any dividend other than regular quarterly cash
dividends on Consolidated shares not in excess of $0.22 per share;
. issue, deliver or sell any shares of capital stock or any securities
convertible into or exercisable for, or any rights, warrants or options
to acquire, any capital stock, other than the issuance of Consolidated
shares under existing employee benefit plans or upon the exercise of
outstanding stock options;
. acquire any assets or business having a fair market value in excess of
$10 million;
. dispose of any assets other than in the ordinary course of business or no
longer used in Consolidated's business;
. incur or guarantee any indebtedness or issue or sell any debt securities
or warrants, except in the ordinary course of business;
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. amend, modify or terminate any material contract, or otherwise waive,
release or assign any material rights, claims or benefits except in the
ordinary course of business;
. increase the compensation of, or grant any severance or termination pay
to, any current or former director, officer or employee or make any
increase in or commitment to increase any employee benefits or vest, fund
or pay any pension or retirement allowance except in the ordinary course
of business consistent with past practice or as required by law or the
current terms of an existing agreement, benefit plan or other
authorization;
. adopt, amend, modify, except as may be required by law, enter into or
commit to any additional employee benefit plan;
. increase the benefits payable under any existing severance or termination
pay policies or employment agreements;
. take any action to accelerate the vesting of any stock-based
compensation;
. change Consolidated's methods of accounting in effect at December 31,
1998, except as required by changes in U.S. GAAP or by Regulation S-X of
the Exchange Act, as concurred in by its independent public accountants;
. make more than $10 million in capital expenditures other than in the
ordinary course of business or as previously disclosed to Stora Enso;
. agree to any material restriction on its ability to engage or compete in
any line of business or in any location;
. except in the ordinary course of business, amend, modify or terminate any
material contract, agreement or arrangement or otherwise waive, release
or assign any material rights, claims or benefits;
. settle, or propose to settle, any material litigation, investigation,
arbitration, proceeding or other material claim other than in the
ordinary course of business;
. create or incur any material lien on any material asset other than in the
ordinary course of business consistent with past practice or other than
in connection with the purchase of such asset; or
. make any material loan, advance or capital contribution to, or investment
in, any person.
Consolidated must use its best efforts to cause each person who may be
considered an affiliate of Consolidated under Rule 145 of the Securities Act to
execute an agreement restricting the disposition of the affiliate's Stora Enso
ADSs received in the merger or underlying Stora Enso Series R shares in
accordance with the Securities Act. Neither Stora Enso nor the depositary bank
will register any transfers of Stora Enso Series R shares or Stora Enso ADSs by
any person who may be considered an affiliate unless the transfer is in
compliance with these restrictions.
Interim Conduct of Stora Enso's Business
Stora Enso has agreed that it will not take specified actions prior to
completion of the merger without Consolidated's consent. More specifically,
Stora Enso has agreed that it will not, and it will not permit any of its
subsidiaries to:
. amend Stora Enso's articles of association in any way that changes any
material term or provision of Stora Enso's Series R shares;
. make any material change to Stora Enso Acquisition, Inc.'s articles of
incorporation;
. engage in any repurchase at a premium, recapitalization, restructuring or
reorganization, or make any extraordinary dividend or distribution with
respect to, Stora Enso's capital stock; or
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. acquire, or agree to acquire, any assets or business, if doing so would
materially delay, or significantly increase the risk of not obtaining,
any governmental authorizations, consents, orders, declarations or
approvals necessary to consummate the merger.
Shareholder Meetings and Board Recommendations
We have each agreed to hold a meeting of our shareholders to vote on the
merger as soon as reasonably practicable and to take all lawful action to
solicit the approval of our shareholders at these meetings.
Consolidated's board has unanimously recommended that Consolidated
shareholders approve the merger agreement. Stora Enso's board has unanimously
recommended that Stora Enso's shareholders approve the issuance of the Series R
shares underlying the Stora Enso ADSs and the election of George W. Mead to
Stora Enso's board of directors. We have agreed that each of our boards of
directors will not withdraw or modify in a manner adverse to the other party
its recommendation of approval; provided, that Consolidated's board of
directors may withdraw or modify its recommendation of the merger if a majority
of the members of the board determine, after consultation with outside legal
counsel, that doing so is required by their fiduciary duties.
Acquisition Proposals
Consolidated has agreed that neither it nor any of its employees,
subsidiaries or advisors, will, directly or indirectly through another person:
. solicit, initiate or knowingly facilitate or encourage the submission of
any acquisition proposal;
. participate in any discussions or negotiations regarding, or furnish to
any person any information with respect to, or take any other action
knowingly to facilitate any inquiries or the making of any proposal that
constitutes, or may be reasonably expected to lead to, any acquisition
proposal;
. grant any waiver or release under any standstill or similar agreement; or
. enter into any agreement with respect to any acquisition proposal.
Under the merger agreement, an acquisition proposal is any offer or proposal
for:
. a merger, consolidation, share exchange, business combination,
reorganization, recapitalization, liquidation, dissolution or other
similar transaction involving Consolidated or any of its significant
subsidiaries; or
. any purchase or other acquisition of 15% or more of the assets or any
class of equity securities of Consolidated or any of its significant
subsidiaries.
However, these prohibitions will not apply if at any time prior to approval
of the merger agreement by Consolidated shareholders, Consolidated receives an
unsolicited bona fide written acquisition proposal that the board of directors
determines, in good faith, after consultation with an investment bank of
nationally recognized reputation, could be reasonably likely to lead to the
delivery of a superior proposal, and the board of directors determines in good
faith, after consultation with its outside legal counsel, that it is obligated
to take these action(s) in order to comply with its fiduciary duties under
applicable law.
Under the merger agreement, a superior proposal is an acquisition proposal
for at least a majority of the outstanding Consolidated shares, which the board
of directors has determined, in good faith, after consultation with an
investment bank of nationally recognized reputation and outside counsel, to be
more favorable to Consolidated's shareholders (taking into account all legal,
financial, regulatory and other aspects of the proposal and identity of the
offeror) than the merger.
Consolidated must notify Stora Enso of any acquisition proposal or request
for nonpublic information or waiver of any standstill or similar agreement
within two business days of the proposal or request and must keep
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Stora Enso informed of the status of any acquisition proposal or request.
Unless Consolidated's board of directors withdraws its recommendation of the
merger in accordance with the terms of the merger agreement, it may not
recommend any acquisition proposal to Consolidated's shareholders. The merger
agreement does not prohibit Consolidated from taking and disclosing to its
shareholders a position with respect to a tender offer required by law or
making any other disclosure required by applicable law.
Either Stora Enso or Consolidated may terminate the merger agreement if
Consolidated's board of directors determines to approve or recommend and to
enter into an agreement concerning a superior proposal. However, Consolidated
may not terminate the merger agreement, and may not enter into an agreement
with respect to a superior proposal, unless:
. it has provided Stora Enso at least five business days' prior written
notice of its intention to terminate the merger agreement, specifying the
material terms and conditions of the relevant acquisition proposal,
including a copy of the current version of any related agreement;
. Stora Enso does not make, within five business days of receiving the
notice, an offer such that a majority of Consolidated's board of
directors determines that the acquisition proposal no longer constitutes
a superior proposal or that its fiduciary duties no longer require the
board to terminate the merger agreement; and
. on or prior to termination, Consolidated pays Stora Enso the termination
fee described below under "--Termination Fees--Payable by Consolidated."
Indemnification and Insurance
Please see "The Merger--Interests of Members of Consolidated's Board and
Management--Indemnification and Insurance" for a description of the material
terms of the merger agreement relating to Stora Enso Consolidated Papers'
obligations to indemnify Consolidated's officers and directors and to maintain
directors and officers liability insurance after the merger.
Benefit Plans
For two years following the merger, Stora Enso or Stora Enso Consolidated
Papers, Inc. will provide employees of Stora Enso Consolidated Papers, Inc. and
its subsidiaries with salary and benefits that are, in the aggregate, no less
favorable than those currently provided by Consolidated and its subsidiaries.
Stora Enso will recognize service with Consolidated and its subsidiaries for
purposes of vesting, eligibility to participate and severance under Stora
Enso's own plans to the extent such service was recognized under a comparable
Consolidated employee benefit plan. In addition, in the case of any Stora Enso
employee health or life insurance plan in which Consolidated employees become
eligible to participate, Stora Enso will waive any pre-existing condition that
was covered under Consolidated's employee benefits plans and recognize any
deductibles or out-of-pocket expenses previously paid.
For one year following the merger, Stora Enso will honor Consolidated's
current severance policies. Stora Enso has also agreed to honor any employment,
change of control, severance, retirement or termination agreement between
Consolidated or any of its subsidiaries and any officer, director or employee
that was in effect and disclosed at the time we signed the merger agreement.
Stock Exchange Listing
Stora Enso must use its best efforts to cause the Stora Enso ADSs to be
approved for listing on the New York Stock Exchange, subject to official notice
of issuance.
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Integration Committee
We have established an integration committee composed of senior executive
officers of both companies who have direct access to Stora Enso's president and
are responsible for proposing alternatives and recommendations to him regarding
the integration of Consolidated with Stora Enso.
Other Covenants
The merger agreement contains other covenants relating to preparation and
distribution of this document, public announcements regarding the merger,
mutual notification of specified matters, access to information, and
cooperation regarding filings with governmental and other agencies and
organizations. In addition, the merger agreement contains a general covenant
requiring each of us to use reasonable best efforts to close the merger,
including obtaining required regulatory approvals. However, Stora Enso will not
be required to agree to the imposition by any regulatory agency of any
conditions or divestitures that would, in Stora Enso's reasonable judgment, be
reasonably likely to have a material adverse effect on Consolidated or Stora
Enso or that would materially adversely impact the economic, strategic or
business benefits of the merger.
Conditions to the Consummation of the Merger
Mutual Conditions
Our respective obligations to consummate the merger are subject to the
satisfaction of the following conditions:
. the holders of two-thirds of the outstanding Consolidated shares shall
have approved the merger agreement;
. the holders of two-thirds by number and voting power of Stora Enso's
Series A shares and Series R shares present and voting as a single class
shall have voted in favor of the issuance of Stora Enso Series R shares
underlying the ADSs in the merger;
. the registration statement on Form F-4 of which this document is a part
is effective under the Securities Act and no stop order shall have been
issued or sought;
. the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 or any other applicable comparable non-U.S. merger control
authority relating to the merger shall have expired or been terminated;
and
. no governmental entity shall have taken any action, that permanently
restrains, enjoins or otherwise prohibits the merger.
Additional Conditions to Obligations of Stora Enso
Stora Enso's obligation to consummate the merger is subject to the
satisfaction of the following additional conditions:
. Consolidated shall have performed in all material respects all of its
obligations under the merger agreement required to be performed by it at
or prior to the effective time of the merger;
. the representations and warranties of Consolidated in the merger
agreement that are qualified as to a material adverse effect shall have
been true and correct when made and at and as of the time of the filing
of articles of merger, as if made at and as of such time, and all other
representations and warranties of Consolidated shall have been true and
correct, disregarding for these purposes any qualification or exception
for materiality, when made and at and as of the time of filing of
articles of merger, as if made as of such time, except for such
inaccuracies as are not reasonably likely, individually or in the
aggregate, to have a material adverse effect on Consolidated;
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. Stora Enso shall have received an opinion of Cleary, Gottlieb, Steen &
Hamilton, counsel to Stora Enso, with respect to the tax-free nature of
the merger;
. Stora Enso shall have obtained all consents, or been granted all
exemptions, that it, in its reasonable judgment, determines are necessary
in connection with the transactions contemplated by the merger agreement,
including the indirect acquisition of Consolidated Water Power Company,
(i) from or by the SEC under or with respect to the U.S. Public Utility
Holding Company Act of 1935 and (ii) from or by the Wisconsin Public
Service Commission under or with respect to the Wisconsin Public Utility
Holding Company Act; and
. we shall have obtained or made all other consents, approvals, actions,
orders, authorizations, registrations, declarations, announcements and
filings contemplated by the merger agreement which if not obtained or
made (i) would render consummation of the merger illegal or (ii) assuming
the merger had taken place, would be reasonably likely to have a material
adverse effect on Stora Enso or on Consolidated.
Additional Conditions to Obligations of Consolidated
Consolidated's obligation to consummate the merger is subject to the
satisfaction of the following additional conditions:
. Stora Enso and the merger subsidiary shall have performed in all material
respects all of their obligations under the merger agreement required to
be performed prior to the time of the filing of articles of merger;
. the representations and warranties of Stora Enso contained in the merger
agreement that are qualified by reference to a material adverse effect
shall have been true and correct when made and at and as of the time of
filing articles of merger, as if made at and as of such time, and all
other representations and warranties of Stora Enso shall have been true
and correct, disregarding for these purposes any qualification or
exception for materiality, when made and at and as of the time of the
filing of articles of merger, as if made at and as of such time, except
for such inaccuracies as are not reasonably likely, individually or in
the aggregate, to have a material adverse effect on Stora Enso;
. Consolidated shall have received an opinion of McDermott, Will & Emery,
counsel to Consolidated, with respect to the tax-free nature of the
merger; and
. we shall have obtained or made all consents, approvals, actions, orders,
authorizations, registrations, declarations, announcements and filings
contemplated by the merger agreement, which if not obtained or made (i)
would render consummation of the merger illegal or (ii) assuming the
merger had taken place, would be reasonably likely to have a material
adverse effect on Stora Enso.
For purposes of the merger agreement, "material adverse effect" generally
means a material adverse effect on the properties, assets, liabilities,
financial condition, business or results of operations of the applicable
company and its subsidiaries, taken as a whole, but excludes any material
adverse effect arising out of any change or development relating to (a) U.S. or
global economic or industry conditions; (b) U.S. or global financial markets or
conditions; or (c) any generally applicable change in law, rule or regulation
or U.S. GAAP or in interpretation of any law, rule, regulation or U.S. GAAP.
Assuming we receive the necessary shareholder approvals at the Consolidated
meeting and the Stora Enso extraordinary general meeting, as of the date of
this document, we are not aware of any material uncertainty with respect to
satisfaction of the conditions to the merger. However, we cannot be sure of the
timing of receipt of the remaining regulatory approvals necessary to complete
the merger, which is beyond our control. Furthermore, at any time prior to
consummation of the merger, events may occur that are not currently foreseen
and that are beyond our control that would prevent one or more of the
conditions to the merger from being satisfied.
49
<PAGE>
Termination
The merger agreement may be terminated at any time before the effective time
of the merger, in any of the following circumstances:
. by mutual written agreement of Stora Enso and Consolidated;
. by either Stora Enso or Consolidated, if:
(1) the merger is not completed by December 31, 2000. However, this
termination right is not available to any party whose breach of any
provision of the merger agreement has resulted in the failure of any
condition to be satisfied;
(2) any law or regulation makes the merger illegal or if the merger is
otherwise prohibited by any final and nonappealable judgment,
injunction, order or decree of any governmental entity having
competent jurisdiction and the parties have used reasonable best
efforts to resist, resolve or lift, as applicable, the law,
regulation, judgment, injunction, order or decree;
(3) Stora Enso's shareholders do not approve the issuance of Stora Enso
Series R shares underlying the ADSs at the Stora Enso extraordinary
general meeting;
(4) Consolidated's shareholders do not approve the merger agreement at
the Consolidated meeting; or
(5) if the other party breaches or fails to perform any representation,
warranty, covenant or agreement in the merger agreement which would
render a condition to the merger incapable of being satisfied and
such condition is incapable of being satisfied by December 31, 2000;
. by Consolidated, if, after complying with the notice and other provisions
of the merger agreement, Consolidated has determined to (1) approve or
recommend an acquisition proposal after concluding that it constitutes a
superior proposal and (2) enter into a binding agreement concerning such
acquisition proposal; or
. by Stora Enso, if Consolidated's board of directors shall have (1)
amended, modified, withdrawn, conditioned or qualified its recommendation
of the merger in a manner adverse to Stora Enso; (2) recommended any
acquisition proposal to Consolidated's shareholders; or (3) determined to
(a) approve or recommend an acquisition proposal after concluding that it
constitutes a superior proposal and (b) enter into a binding agreement
concerning such acquisition proposal.
Termination Fees
Payable by Consolidated
Consolidated must pay Stora Enso a termination fee of $120 million, plus up
to $1 million in documented out-of-pocket expenses incurred to third parties in
connection with the merger, if the merger agreement:
. is terminated by Consolidated in order to recommend or approve an
acquisition proposal and to enter into a definitive agreement with
respect to an acquisition proposal;
. is terminated by Stora Enso because Consolidated has recommended an
acquisition proposal to its shareholders;
. is terminated by Stora Enso because Consolidated has willfully and
materially breached the "no solicitation" provisions of the merger
agreement described under "--Covenants--Acquisition Proposals" above; or
. is terminated by either of us because the merger has not occurred by
December 31, 2000 or if the shareholders of Consolidated shall not have
approved and adopted the merger agreement at the Consolidated meeting and
(1) any third party shall have publicly announced an intention to make an
acquisition proposal prior to such termination and (2) within 12 months
of such termination,
50
<PAGE>
Consolidated enters into an agreement with respect to or consummates an
acquisition event. For purposes of the merger agreement, an acquisition
event means the consummation of an acquisition proposal involving the
purchase of a majority of Consolidated's equity securities or consolidated
assets or any transaction that, if it had been proposed prior to the
termination of the merger agreement, would have constituted an acquisition
proposal.
If the merger agreement is terminated by Stora Enso because Consolidated's
board of directors has amended, modified, withdrawn, conditioned or qualified
its recommendation of the merger agreement, then Consolidated must pay Stora
Enso a termination fee of $60 million and reimburse Stora Enso for up to $1
million in documented out-of-pocket expenses incurred to third parties in
connection with the merger. If Consolidated enters into an agreement with
respect to, or consummates, an acquisition event within 12 months of such
termination, then Consolidated must pay Stora Enso an additional $60 million.
Payable by Stora Enso
Stora Enso must pay Consolidated a termination fee of $40 million, plus up to
$1 million in documented out-of-pocket expenses incurred to third parties in
connection with the merger, if the merger agreement is terminated because Stora
Enso's shareholders do not approve the issuance of the Stora Enso Series R
shares underlying the ADSs to be issued in the merger at the Stora Enso
extraordinary general meeting and (1) prior to that termination, any third
party shall have publicly announced an intention to make a proposal for a
merger, consolidation, share exchange, business combination, reorganization,
recapitalization, liquidation, dissolution or similar transaction involving
Stora Enso, or for any purchase or other acquisition of 15% or more of the
assets or any class of equity securities of Stora Enso and (2) within 12 months
of termination, Stora Enso enters into an agreement with respect to, or any
third party consummates, a purchase of a majority of Stora Enso's equity
securities or consolidated assets.
Expenses
All fees and expenses incurred in connection with the merger agreement and
the transactions contemplated by the merger agreement, other than termination
fees described above, will be paid by the party incurring such expenses,
whether or not the merger is consummated.
Amendments
We may amend the merger agreement at any time. Once Consolidated's
shareholders have approved the merger agreement, or Stora Enso's shareholders
have approved the issuance of Series R shares underlying the ADSs in the
merger, respectively, we may amend the merger agreement only with the further
approval of those shareholders unless permitted by applicable law.
51
<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
Market Prices
Stora Enso
Stora Enso's Series R shares are registered for trading on the Helsinki Stock
Exchange under the symbol "STERV" and on the OM Stockholm Exchange under the
symbol "STER." After the merger, Stora Enso ADSs, each representing an interest
in one Series R share, will be issued by the depositary bank and listed on the
NYSE. We expect that the Stora Enso ADSs will trade on the NYSE under the
symbol "SEO."
The table below shows, for the periods indicated, the high and low sales
prices of the Series R shares on the Helsinki Stock Exchange, as reported in
euros by the Helsinki Stock Exchange, and on the OM Stockholm Stock Exchange,
as reported in Swedish kronor by the OM Stockholm Exchange.
When you review the following table, please note that the merger of STORA and
Enso became effective on December 23, 1998, and trading in Stora Enso Series R
shares on the Helsinki Stock Exchange and OM Stockholm Exchange did not
commence until December 29, 1998. In connection with that merger, each issued
and outstanding STORA B share was converted into the right to receive 1.45
Stora Enso Series R shares. Thus, for periods prior to December 29, 1998, the
sales prices for the Helsinki Stock Exchange relate to Enso's Series R shares
and the sales prices for the OM Stockholm Exchange relate to STORA's B shares
multiplied by 1.45. For periods prior to January 1, 1999, amounts on the
Helsinki Stock Exchange are translated at the rate of (Euro)1.00=FIM 5.94573,
the irrevocable conversion rate between the Finnish markka and the euro
effective as from January 1, 1999.
Price per Stora Enso Series R Share
<TABLE>
<CAPTION>
Helsinki
Stock OM Stockholm
Exchange Exchange
----------- -------------
Calendar Period High Low High Low
--------------- ----- ----- ------ ------
(EUR) (SEK)
<S> <C> <C> <C> <C>
1997
First Quarter....................................... 7.87 6.17 110.00 88.50
Second Quarter...................................... 8.39 6.73 132.00 95.00
Third Quarter....................................... 9.12 7.74 144.00 118.50
Fourth Quarter...................................... 10.01 6.78 132.00 89.50
1998
First Quarter....................................... 9.59 6.66 130.50 91.50
Second Quarter...................................... 11.86 8.68 148.00 121.50
Third Quarter....................................... 10.18 5.89 128.00 74.50
Fourth Quarter...................................... 8.98 5.30 107.00 68.00
1999
First Quarter....................................... 9.65 6.60 86.50 58.50
Second Quarter...................................... 11.50 8.65 103.00 76.50
Third Quarter....................................... 14.15 10.40 124.50 90.00
Fourth Quarter...................................... 17.70 12.10 152.00 106.00
2000
First Quarter....................................... 19.00 9.24 160.0 78.5
Second Quarter...................................... 12.73 8.70 104.50 72.00
Third Quarter (through July 25)..................... 11.65 9.50 98.00 79.00
</TABLE>
The last sale price of a Stora Enso Series R share on the Helsinki Stock
Exchange on Monday, February 21, 2000, the last trading day in Helsinki prior
to any public announcement of the signing of the merger agreement, was
(Euro)13.10 per share. On July 25, 2000, the last trading day for which
information was available prior to the printing of this document, the last sale
price of a Series R share on the Helsinki Stock Exchange was (Euro)11.59 per
share.
52
<PAGE>
We urge you to obtain current market quotations for the Stora Enso Series R
shares before making a decision with respect to the merger.
Consolidated
Consolidated shares are traded on the NYSE under the ticker symbol "CDP." The
table below shows the high and low sale prices of a Consolidated share on the
NYSE for the periods presented.
Price per Consolidated Share on the NYSE
<TABLE>
<CAPTION>
Calendar Period High Low
--------------- ----- -----
(USD)
<S> <C> <C>
1997
First Quarter..................................................... 26.50 23.50
Second Quarter.................................................... 28.56 25.31
Third Quarter..................................................... 30.28 27.13
Fourth Quarter.................................................... 29.56 24.56
1998
First Quarter..................................................... 32.56 25.12
Second Quarter.................................................... 35.06 26.63
Third Quarter..................................................... 29.50 24.13
Fourth Quarter.................................................... 27.50 21.75
1999
First Quarter..................................................... 27.13 20.06
Second Quarter.................................................... 32.88 23.50
Third Quarter..................................................... 31.13 25.26
Fourth Quarter.................................................... 32.44 26.00
2000
First Quarter..................................................... 38.88 24.44
Second Quarter.................................................... 39.75 35.25
Third Quarter (through July 25)................................... 41.13 36.81
</TABLE>
The last sale price of a Consolidated share on the NYSE on Friday, February
18, 2000, the last trading day on the NYSE prior to any public announcement of
the signing of the merger agreement, was $26.00 per share. On July 25, 2000,
the last trading day for which information was available prior to the printing
of this document, the last sale price of a Consolidated share was $40.875 per
share.
We urge you to obtain current market quotations for the Consolidated shares
before making a decision with respect to the merger.
Dividends
The following table sets forth dividends declared and paid in respect of
Stora Enso's Series R shares and Consolidated shares, respectively, for the
periods indicated. As discussed above, each Consolidated share converted into
ADSs will be converted into a number of ADSs in the range from 2.678 to 3.621
Stora Enso ADSs. Holders of Stora Enso Series R shares received dividends for
1999 amounting to (Euro)1.07 to (Euro)1.45 for that range of shares.
Dividends paid on the Stora Enso Series R shares for the fiscal years 1995,
1996 and 1997 were paid by Stora Enso's predecessor companies STORA and Enso
prior to their merger on December 23, 1998. Dividends per share for these years
have been calculated based on the dividends paid by the two companies and the
exchange ratio used in the merger of STORA and Enso. Dividends paid on the
Stora Enso Series R shares for fiscal 1998 were paid by Stora Enso in 1999 in
respect of the results of STORA and Enso.
53
<PAGE>
Dividend amounts paid by STORA in Swedish kronor prior to the merger of STORA
and Enso on December 23, 1998, have been translated into Finnish markka at the
fixing rate set by the Bank of Finland on the last day of the year during which
the payment of the dividend was made and then into euros. For periods prior to
January 1, 1999, amounts are translated at the rate of (Euro)1.00=FIM 5.94573,
the irrevocable conversion rate between the Finnish markka and the euro
effective as from January 1, 1999. Euro amounts have been translated into
dollars at the noon buying rate for the dividend payment date of Stora Enso or,
prior to the combination of STORA and Enso on December 23, 1998, the dividend
payment date of Enso.
<TABLE>
<CAPTION>
Dividends on
Consolidated
Year Ended Dividends on Stora Enso Series R Shares Quarter Ended Shares
---------- ---------------------------------------------------------- ------------
(Euro) $ $
<S> <C> <C> <C> <C>
March 31, 1995 0.16
June 30, 1995 0.185
September 30, 1995 0.185
December 31, 1995....... 0.32 0.41 December 31, 1995 0.185
March 31, 1996 0.21
June 30, 1996 0.21
September 30, 1996 0.21
December 31, 1996....... 0.30 0.35 December 31, 1996 0.21
March 31, 1997 0.21
June 30, 1997 0.21
September 30, 1997 0.21
December 31, 1997....... 0.33 0.36 December 31, 1997 0.21
March 31, 1998 0.21
June 30, 1998 0.22
September 30, 1998 0.22
December 31, 1998....... 0.35 0.38 December 31, 1998 0.22
March 31, 1999 0.22
June 30, 1999 0.22
September 30, 1999 0.22
December 31, 1999....... 0.40 0.39 December 31, 1999 0.22
March 31, 2000 0.22
June 30, 2000 0.22
</TABLE>
Stora Enso's annual dividend is paid each year in respect of the prior year
shortly after its annual shareholders meeting, which generally is held in March
or April. Dividends for shares of Stora Enso with respect to the fiscal year
ended December 31, 1999, were paid on April 15, 2000.
For companies domiciled in Finland and incorporated under Finnish law,
dividends on shares are generally paid annually only after shareholder approval
of both the company's results and the amount of the dividend proposed by the
board of directors. Under Finnish law, the amount of any dividend is limited to
the amount of profits and distributable equity available at the end of the
preceding fiscal year for the parent company or for the consolidated group,
whichever is lower, and may be subject to further limitations.
After the merger, Stora Enso expects to declare and pay dividends annually,
although we cannot assure you as to Stora Enso's ability to pay, or the
particular amounts that would be paid, from year to year. The determination to
pay dividends, and the amount of the dividends, will depend upon, among other
things, Stora Enso's earnings, financial condition and capital requirements, as
well as applicable restrictions on the payment of dividends under Finnish law
and other factors as Stora Enso's board of directors may deem relevant.
54
<PAGE>
CURRENCY AND EXCHANGE RATE INFORMATION
Under the provisions of the Treaty on European Union negotiated at Maastricht
in 1991 and signed by the then 12 member states of the European Union, known as
the EU, in early 1992, a European Economic and Monetary Union, known as EMU,
was implemented on January 1, 1999 and a single European currency, known as the
euro, was introduced. The following 11 member states participate in the EMU and
have adopted the euro as their national currency: Austria, Belgium, Finland,
France, Germany, Ireland, Italy, Luxembourg, The Netherlands, Portugal and
Spain. While a member state of the European Union, Sweden is not currently
participating in the EMU. The irrevocable conversion rate between the Finnish
markka and the euro was fixed on January 1, 1999 at (Euro)1.00=FIM 5.94573.
Since January 1, 1999, the euro has been the lawful currency of the 11 EMU
states, although euro banknotes and coins are not expected to enter circulation
until January 1, 2002. Outstanding obligations denominated in national
currencies will be converted at the legal rates established on January 1, 1999,
unless specific contracts provide for an alternative conversion rate. During a
transitional phase, which is planned to begin on January 1, 2002 and end by
July 1, 2002, national currencies, including banknotes and coins, will subsist
as non-decimal denominations of the euro. We cannot assure you that these
events will take place on time or otherwise as currently expected.
Stora Enso ADSs will trade in dollars. As the principal trading markets for
the Series R shares underlying the ADSs are the Helsinki Stock Exchange, where
the ordinary shares trade in euros, and the OM Stockholm Exchange, where the
ordinary shares trade in euros and Swedish kronor, the value of the ADSs in
dollars will fluctuate as the dollar/euro and dollar/kronor exchange rates
fluctuate. Additionally, since any dividends Stora Enso may declare are
expected to be denominated in euros, exchange rate fluctuations will affect the
dollar value of dividends received by holders of ADSs.
The first table below sets forth, for the periods and dates indicated, the
average, high, low and period-end noon buying rates for the euro expressed in
euros per U.S. dollar. The second table below sets forth, for the periods and
dates indicated, the average, high, low and period-end noon buying rates for
the U.S. dollar expressed in U.S. dollars per euro. The third table below sets
forth, for the dates indicated, the average, high, low and period-end noon
buying rates for the Swedish kronor expressed in Swedish kronor per U.S.
dollar. For any time or period before January 1, 1999, the noon buying rates
for euros have been derived from the noon buying rates for the Finnish markka
converted into euros at the irrevocable conversion rate between the Finnish
markka and the euro. The average noon buying rates have been calculated based
on the noon buying rate for the last business day of each month or portion of a
month during the relevant period. These rates are provided solely for the
convenience of the reader and are not necessarily the rates Stora Enso used in
the preparation of its financial statements. Stora Enso makes no representation
that Finnish markka, euros or Swedish kronor could have been converted into
dollars at the rates shown or at any other rate for such periods or at such
dates.
Euros per U.S. Dollar
<TABLE>
<CAPTION>
Period
Year Average High Low End
---- ------- ------ ------ ------
<S> <C> <C> <C> <C>
1995.............................................. 0.7339 0.8101 0.7030 0.7309
1996.............................................. 0.7738 0.8162 0.7296 0.7742
1997.............................................. 0.8774 0.9419 0.7759 0.9171
1998.............................................. 0.8989 0.9466 0.8240 0.8518
1999.............................................. 0.9455 0.9984 0.8466 0.9930
2000 (through July 25)............................ 1.0551 1.1247 0.9676 1.0648
</TABLE>
55
<PAGE>
U.S. Dollars per Euro
<TABLE>
<CAPTION>
Period
Year Average High Low End
---- ------- ------ ------ ------
<S> <C> <C> <C> <C>
1995.............................................. 1.3626 1.4225 1.2344 1.3682
1996.............................................. 1.2923 1.3706 1.2252 1.2917
1997.............................................. 1.1397 1.2888 1.0617 1.0904
1998.............................................. 1.1125 1.2136 1.0564 1.1740
1999.............................................. 1.0576 1.1812 1.0016 1.0070
2000 (through July 25)............................ 0.9478 1.0335 0.8891 0.9391
</TABLE>
Swedish Kronor per U.S. Dollar
<TABLE>
<CAPTION>
Period
Year Average High Low End
---- ------- ------ ------ ------
<S> <C> <C> <C> <C>
1995.............................................. 7.1072 7.5510 6.5045 6.6290
1996.............................................. 6.7129 7.0300 6.5455 6.8250
1997.............................................. 7.6843 8.0825 6.8749 7.9400
1998.............................................. 7.9658 8.3350 7.5800 8.1030
1999.............................................. 8.3007 8.6500 7.7060 8.5050
2000 (through July 25)............................ 8.8447 9.2220 8.3550 8.9440
</TABLE>
We also refer to several other currencies in this document. References to
"British pound sterling" or "GBP" are to the lawful currency of the United
Kingdom of Great Britain and Northern Ireland; references to "CAD" are to the
lawful currency of the Republic of Canada; references to "DKK" are to the
lawful currency of the Kingdom of Denmark; references to "GRD" are to the
lawful currency of the Republic of Greece; and references to "LVL" are to the
lawful currency of the Republic of Lithuania. In addition, references to "DEM,"
"NLG," "BEF," when used with respect to any time or period before January 1,
1999, are to the lawful currencies of the Federal Republic of Germany, The
Netherlands and the Kingdom of Belgium, respectively, and, when used with
respect to any time or period after January 1, 1999, are to the sub-unit of the
euro.
56
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial information gives pro
forma effect to the merger, after giving effect to the sale of the energy
assets and the pro forma adjustments described in the accompanying notes. For
accounting purposes, Stora Enso will account for the merger as a purchase of
Consolidated. Accordingly, the net assets of Consolidated have been adjusted to
their estimated fair values based upon a preliminary purchase price allocation.
The unaudited pro forma combined balance sheet at March 31, 2000 gives effect
to the merger and the sale of the energy assets as if the transactions had
occurred on March 31, 2000. The unaudited pro forma combined income statements
for the year ended December 31, 1999 and for the three month period ended March
31, 2000 give effect to the merger and the sale of energy assets as if the
transactions had occurred on January 1, 1999. The following pro forma financial
information, except per share amounts, is presented in millions.
The unaudited pro forma combined financial information are not necessarily
indicative of the actual results of operations or financial position that would
have occurred had the merger of Stora Enso and Consolidated and the sale of the
energy assets occurred on the dates indicated nor are they necessarily
indicative of future operating results or financial position. No account has
been taken within the unaudited pro forma combined financial information of any
synergy or any severance and restructuring costs which may, or are expected to,
occur following the merger.
The unaudited pro forma combined financial information of Stora Enso is based
on the historical consolidated financial statements of Stora Enso and
Consolidated Papers, which are prepared in accordance with IAS and U.S. GAAP,
respectively. IAS differs in some respects from U.S. GAAP. Accordingly, the
unaudited pro forma financial information for Stora Enso has been adjusted to
U.S. GAAP for all periods presented. Note 28 to Stora Enso's 1999 audited
historical consolidated financial statements provides a description of the
principal differences between IAS and U.S. GAAP as applied to Stora Enso.
We have prepared the unaudited pro forma combined financial information in
accordance with U.S. GAAP to fulfill regulatory requirements in the United
States. This presentation, however, should not be taken to mean that Stora
Enso's primary basis of accounting in future periods will be U.S. GAAP.
The unaudited pro forma combined financial information should be read in
conjunction with the historical consolidated financial statements of Stora Enso
and Consolidated Papers as well as "Stora Enso Management's Discussion and
Analysis of Financial Condition and Results of Operations" that are included
elsewhere or incorporated by reference in this document.
57
<PAGE>
Unaudited Pro Forma Combined Income Statement
For the year ended December 31, 1999
<TABLE>
<CAPTION>
Consolidated
Stora Enso Papers Pro Forma
------------------------------------------- ---------------- --------------------------------------------
Discontinued U.S. GAAP U.S. U.S. U.S. Combined Combined
IAS operations adjustments GAAP GAAP GAAP Adjustments U.S. GAAP U.S. GAAP
-------- ------------ ----------- -------- ------- ------- ----------- ----------- -----------
(Euro) (Euro) (Euro) (Euro) $ (Euro) (Euro) (Euro) $
(in millions)
(1) (2) (3) (4) (5) (6)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales............. 10,635.7 (506.0) -- 10,129.7 1,942.3 1,836.5 -- 11,966.2 11,456.5
Operating Costs
Changes in
inventories and
work in
progress........ (119.4) (0.5) (66.5) (186.4) (12.1) (11.4) -- (197.8) (189.4)
Materials and
services........ (4,843.3) 260.9 (12.9) (4,595.3) (978.9) (925.9) -- (5,520.9) (5,285.7)
Freight and sales
commissions..... (993.5) -- -- (993.5) (103.5) (97.9) -- (1,091.4) (1,044.9)
Personnel
expenses........ (1,754.3) 10.4 (4.2) (1,748.1) (444.9) (420.7) (2,168.8) (2,076.4)
Depreciation,
amortization and
impairment
charges.......... (885.4) 15.2 (73.5) (943.7) (189.1) (178.8) (158.9)(m)(n)(o) (1,281.4) (1,226.8)
Other operating
income.......... 126.1 (48.7) (24.5) 52.9 5.2 4.9 (1.0)(p) 56.9 54.5
Other operating
expenses........ (757.6) 117.9 (1.8) (641.5) (51.6) (48.8) -- (690.3) (660.9)
-------- ------ ------ -------- ------- ------- ------ ----------- -----------
Operating profit.. 1,408.4 (150.8) (183.4) 1,074.2 167.4 158.3 (159.9) 1,072.6 1,026.9
Net financial
items............ (266.6) 55.5 (63.4) (274.5) (57.3) (54.2) (137.2)(q) (465.8) (446.0)
Share of results
of associated
companies....... 9.7 (0.1) -- 9.6 -- -- -- 9.6 9.2
-------- ------ ------ -------- ------- ------- ------ ----------- -----------
Profit before tax
and minority
interests........ 1,151.5 (95.4) (246.8) 809.3 110.1 104.1 (297.1) 616.4 590.1
Income tax
expenses......... (394.5) 26.8 74.5 (293.2) (44.0) (41.6) 63.5(r) (271.3) (259.7)
-------- ------ ------ -------- ------- ------- ------ ----------- -----------
Profit after
taxes............ 757.0 (68.5) (172.3) 516.2 66.1 62.5 (233.6) 345.5 330.7
Minority
interests........ (4.5) -- -- (4.5) -- -- -- (4.5) (4.3)
-------- ------ ------ -------- ------- ------- ------ ----------- -----------
Net profit for the
period........... 752.5 (68.5) (172.3) 511.7 66.1 62.5 (233.6) 341.0 326.4
======== ====== ====== ======== ======= ======= ====== =========== ===========
Basic earnings per
share(/7/) ...... 0.38 0.36
Diluted earnings
per share(/7/) .. 0.37 0.36
Weighted average
shares
outstanding...... 900,025,920 900,025,920
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial information.
58
<PAGE>
Unaudited Pro Forma Combined Income Statement
For the three month period ended March 31, 2000
<TABLE>
<CAPTION>
Consolidated
Stora Enso Papers Pro Forma
------------------------------------------- -------------- -------------------------------------------
Discontinued U.S. GAAP U.S. U.S. U.S. Combined Combined
IAS operations adjustments GAAP GAAP GAAP Adjustments U.S. GAAP U.S. GAAP
-------- ------------ ----------- -------- ------ ------ ----------- ----------- -----------
(Euro) (Euro) (Euro) (Euro) $ (Euro) (Euro) (Euro) $
(in millions)
(1) (2) (3) (4) (5) (6)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales.............. 2,991.7 (116.4) -- 2,875.3 510.8 517.6 -- 3,392.9 3,248.3
Operating Costs
Changes in
inventories and
work in
progress......... 75.7 0.3 -- 76.0 9.4 9.5 -- 85.5 81.9
Materials and
services......... (1,410.5) 71.4 0.7 (1,338.4) (268.8) (272.4) -- (1,610.8) (1,542.1)
Freight and sales
commissions...... (288.1) -- -- (288.1) (27.3) (27.7) -- (315.8) (302.3)
Personnel
expenses......... (445.5) 2.8 5.1 (437.6) (106.4) (107.8) (545.4) (522.2)
Depreciation,
amortization and
impairment
charges........... (225.5) 3.9 (22.5) (244.1) (50.4) (51.1) (37.3)(m)(n)(o) (332.5) (318.3)
Other operating
income........... 64.5 -- -- 64.5 1.2 1.2 (0.3)(p) 65.4 62.6
Other operating
expenses......... (248.0) 11.4 -- (236.6) (14.0) (14.2) -- (250.8) (240.1)
-------- ------ ----- -------- ------ ------ ----- ----------- -----------
Operating profit... 514.3 (26.6) (16.7) 471.0 54.5 55.2 (37.6) 488.6 467.8
Net financial
items............. (68.7) 13.9 (7.9) (62.7) (13.0) (13.2) (34.3)(q) (110.2) (105.5)
Share of results
of associated
companies........ 5.8 -- -- 5.8 -- -- -- 5.8 5.6
-------- ------ ----- -------- ------ ------ ----- ----------- -----------
Profit before tax
and minority
interests......... 451.4 (12.7) (24.6) 414.1 41.5 42.0 (71.9) 384.3 367.9
Income tax
expenses.......... (149.7) 3.7 6.8 (139.2) (16.2) (16.4) 14.9 (r) (140.7) (134.7)
-------- ------ ----- -------- ------ ------ ----- ----------- -----------
Profit after
taxes............. 301.7 (9.0) (17.8) 274.9 25.3 25.6 (57.0) 243.6 233.2
Minority
interests......... (7.5) -- -- (7.5) -- -- -- (7.5) (7.2)
-------- ------ ----- -------- ------ ------ ----- ----------- -----------
Net profit for the
period............ 294.2 (9.0) (17.8) 267.4 25.3 25.6 (57.0) 236.1 226.0
======== ====== ===== ======== ====== ====== ===== =========== ===========
Basic earnings per
share(/7/)........ 0.26 0.25
Diluted earnings
per share(/7/) ... 0.26 0.25
Weighted average
shares
outstanding....... 900,025,920 900,025,920
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial information.
59
<PAGE>
Unaudited Pro Forma Combined Balance Sheet
As at March 31, 2000
<TABLE>
<CAPTION>
Consolidated
Stora Enso Papers Pro Forma
----------------------------------------------- --------------- -------------------------------------
Discontinued U.S. GAAP U.S. U.S. U.S. Combined Combined
IAS operations adjustments GAAP GAAP GAAP Adjustments U.S. GAAP U.S. GAAP
-------- ------------ ----------- -------- ------- ------- ----------- --------- ---------
(Euro) (Euro) (Euro) (Euro) $ (Euro) (Euro) (Euro) $
(in millions)
(1) (2) (3) (4) (5) (6)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed assets and other
long-term investments
Property, plant and
equipment............ 10,783.4 (1,305.2) 1,339.3 10,817.5 2,548.7 2,662.1 683.7 (e) 14,163.3 13, 560.0
Other non-current
assets
Intangible assets..... 69.0 -- -- 69.0 8.1 8.5 6.5 (i) 83.9 80.4
Goodwill.............. 468.9 -- (39.9) 429.0 128.3 134.0 2,240.5 (g) 2,803.5 2,684.1
Investment in
associated
companies............ 166.6 (6.1) 16.2 176.7 41.4 43.2 12.3 (f) 232.3 222.4
Investment in other
companies............ 280.1 (184.5) (27.7) 67.9 -- -- -- 67.9 65.0
Capital investments... 50.0 -- 90.8 140.8 -- -- -- 140.8 134.8
Long-term loan
receivables.......... 67.7 (51.1) -- 16.6 438.9 458.4 -- 475.0 454.8
Deferred tax assets... 5.9 -- -- 5.9 -- -- -- 5.9 5.7
Other non-current
assets............... 87.4 (4.0) -- 83.4 -- -- -- 83.4 79.9
-------- -------- ------- -------- ------- ------- -------- --------- ---------
11,979.0 (1,550.9) 1,378.7 11,806.8 3,165.4 3,306.3 2,943.1 18,056.1 17,286.9
Current assets
Inventories........... 1,343.4 (0.4) -- 1,343.0 183.4 191.6 37.4 (a) 1,572.0 1,505.0
Short-term
receivables.......... 2,227.6 (51.2) -- 2,176.4 140.9 147.2 -- 2,323.6 2,224.6
Other current assets
Tax receivables....... 97.1 (1.3) -- 95.8 16.0 16.7 -- 112.5 107.7
Short-term investments
and receivables...... 256.7 -- 52.7 309.4 13.8 14.4 -- 323.8 310.0
Cash and cash
equivalents........... 427.3 470.7 (/1/a) -- 898.0 9.5 9.9 -- 888.2 850.4
-------- -------- ------- -------- ------- ------- -------- --------- ---------
4,352.1 417.8 52.7 4,822.6 363.6 379.8 37.4 5,220.1 4,997.7
-------- -------- ------- -------- ------- ------- -------- --------- ---------
Total assets.......... 16,331.1 (1,133.1) 1,431.4 16,629.4 3,529.0 3,686.0 2,980.5 23,295.9 22,303.5
======== ======== ======= ======== ======= ======= ======== ========= =========
Shareholders' equity
Share capital......... 1,278.0 -- -- 1,278.0 91.3 95.4 1,996.9 (g)(k) 3,370.2 3,226.6
Restricted equity..... 722.7 -- -- 722.7 74.6 77.9 (6.8)(g) 793.8 760.0
Retained earnings..... 3,776.8 78.4 (/1/b) 961.9 4,817.1 1,173.8 1,226.0 (1,226.0)(g) 4,817.1 4,611.9
Profit for the
period............... 294.2 -- -- 294.2 25.3 26.4 (26.4)(g) 294.2 281.7
-------- -------- ------- -------- ------- ------- -------- --------- ---------
6,071.7 78.4 961.9 7,112.0 1,365.0 1,425.7 737.6 9,275.4 8,880.2
Minority interests..... 206.6 (6.1) -- 200.5 -- -- -- 200.5 192.0
Long-term liabilites
Pension provisions.... 578.9 (7.8) 36.5 607.6 181.5 189.6 (253.3)(c) 543.9 520.7
Other provisions...... 200.4 -- -- 200.4 6.2 6.5 -- 206.9 198.1
Other long-term
liabilities.......... 88.0 -- -- 88.0 12.8 13.4 (15.2)(b) 86.2 82.6
-------- -------- ------- -------- ------- ------- -------- --------- ---------
867.3 (7.8) 36.5 896.0 200.5 209.4 (268.4) 837.0 801.3
Deferred tax
liabilities........... 1,521.3 16.0 378.8 1,916.1 397.0 414.7 404.9 (j) 2,735.6 2,619.1
Long-term debt......... 3,829.7 (1,146.9) -- 2,682.8 1,234.2 1,289.1 2,085.0 (d)(h) 6,059.9 5,798.9
Current liabilities
Current borrowings
Current portion of
long-term debt....... 305.0 (4.9) -- 300.1 85.0 88.8 -- 388.9 372.3
Short-term
borrowings........... 1,347.7 (65.0) -- 1,282.7 28.4 29.7 (0.3)(d) 1,312.1 1,256.2
Current liabilities
Other current
liabilities.......... 1,888.3 (11.1) 54.2 1,931.4 213.1 222.6 21.7 (/1/) 2,175.7 2,082.9
Tax liability......... 293.5 14.3 -- 307.8 5.8 6.1 -- 313.9 300.5
-------- -------- ------- -------- ------- ------- -------- --------- ---------
3,834.5 (66.7) 54.2 3,822.0 332.3 347.1 21.4 4,190.5 4,011.9
-------- -------- ------- -------- ------- ------- -------- --------- ---------
Total shareholders'
equity and
liabilities.......... 16,331.1 (1,133.1) 1,431.4 16,629.4 3,529.0 3,686.0 2,980.5 23,295. 9 22,303.5
======== ======== ======= ======== ======= ======= ======== ========= =========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial information.
60
<PAGE>
Notes to the Unaudited Pro Forma Combined Financial Information
(1) Discontinued operations--Sale of Stora Enso energy assets
The discontinued energy operations represent both the off-mill site energy
generation operations, which were sold in May and June 2000, and the remaining
shares in Pohjolan Voima Oy that are held for disposal. For purposes of this
pro forma presentation, the net assets of the discontinued energy operations
represent book values at March 31, 2000, and the gain from the sale of the off-
mill site energy generation operations was calculated based on the book values
of the assets on the dates of disposal.
On April 17, 2000, Stora Enso entered into an agreement to sell its off-mill
site energy generation operations, including its shares in affiliated hydro
power and nuclear power generators, its regional power distribution networks
and power sales agreements to Fortum Oyj, a Finnish energy and petrochemical
company, for a purchase price of approximately (Euro)1.8 billion, including the
assumption of approximately (Euro)1.2 billion in debt. The sale was completed
in May and June 2000. Pre-tax cash proceeds from the sale are estimated to
approximate (Euro)600 million, net of approximately (Euro)250 million of
obligations not assumed by Fortum.
(1a) To record the pre-tax cash proceeds estimated to be realized from the sale
of the off-mill site energy generation operations of (Euro)607 million and
to eliminate cash and cash equivalents of the discontinued operations of
(Euro)136.3 million.
(1b) To eliminate the net assets of discontinued energy operations of
(Euro)401.6 million and to record the gain on sale of the off-mill site
energy generation operations, net of taxes, of (Euro)513.0 million and to
record additional liabilities of (Euro)33.1 million relating to resulting
additional energy purchases due to the sale of energy assets. The gain was
calculated as the difference between the consideration received and the
net assets sold as follows:
<TABLE>
<CAPTION>
((Euro) in millions)
--------------------
<S> <C>
Consideration:
Assumption of debt.................................... 1,222
Cash proceeds, net of cash paid to exercise options to
acquire partly-owned assets.......................... 607
------
Total consideration received.......................... 1,829
Less:
Fixed assets and long-term investments................ (1,425)
Current liabilities................................... 125
------
Gain on sale before tax............................... 529
Tax on gain........................................... (16)
------
Gain on sale after tax................................ 513
======
</TABLE>
(2) Stora Enso U.S. GAAP Adjustments
Stora Enso prepares its consolidated financial statements in accordance with
IAS, which differs in several material respects from U.S. GAAP. For the
purposes of preparing the unaudited pro forma combined financial information,
Stora Enso's financial information has been restated to conform with U.S. GAAP
by giving effect to the adjustments described in Note 28 to the Stora Enso
Consolidated Financial Statements beginning on page F-1 of this document.
(3) Reclassification of the Consolidated Papers Financial Information
Amounts in the Consolidated Papers financial information have been
reclassified to conform with Stora Enso's presentation.
(4) Consolidated Papers Currency Translation
The historical financial statements of Consolidated Papers are presented in
U.S. dollars. The historical balance sheet of Consolidated Papers at March 31,
2000 is presented in U.S. dollars and has been translated, for the purpose of
preparing the pro forma financial information, into euros at the March 31, 2000
closing exchange rate of 0.9574 U.S. dollars to one euro. The historical income
statement of Consolidated Papers for
61
<PAGE>
Notes to the Unaudited Pro Forma Combined Financial Information--(Continued)
the year ended December 31, 1999 has been translated, for the purpose of
preparing pro forma financial information, into euros at the average exchange
rate for the year of 1.0576 U.S. dollars to one euro. The historical income
statement of Consolidated Papers for the three month period ended March 31,
2000 has been translated, for the purpose of preparing pro forma financial
information, into euros at the average exchange rate for the three month period
of 0.98693 U.S. dollars to one euro.
(5) Pro Forma Adjustments
Stora Enso will account for the acquisition of Consolidated using the
purchase method of accounting. Accordingly, Consolidated's assets and
liabilities have been adjusted, on a preliminary basis, to reflect their fair
values in the pro forma combined financial information as of March 31, 2000.
The estimated effects resulting from these adjustments have been reflected in
the pro forma combined financial information for the year ended December 31,
1999 and for the three month period ended March 31, 2000. The allocation of the
estimated purchase price and the estimated transaction fees and expenses
included in the pro forma combined financial information are preliminary; final
amounts may differ from those set forth in this document and such differences
may be material.
The acquisition has been structured to qualify as a Section 386 restructuring
under the U.S. Internal Revenue Code whereby neither Stora Enso nor
Consolidated will incur a U.S. tax liability on the exchange of shares to
consummate the transaction. As such, no adjustment has been reflected for U.S.
taxation on the transaction.
Acquisition Financing
All of the issued and outstanding shares of Consolidated Papers will be
converted, at the election of the holder, into cash or Stora Enso ADSs
(American depositary shares representing an interest in underlying Series R
shares of Stora Enso), or a combination of cash and ADSs, with a value of
$44.00 per Consolidated Papers share. However, if the average price of the
Stora Enso Series R shares is less than the equivalent of $12.15, then each
Consolidated share converted into the right to receive Stora Enso ADSs will be
converted into the right to receive ADSs with a value less than $44.00 per
Consolidated share. Each ADS will represent one Series R share of Stora Enso.
Consolidated Papers shareholders' elections of cash or ADSs will be pro rated,
to the extent necessary, so as to maintain a 50% cash and 50% ADS aggregate
consideration mix unless an adjustment to this proportion is required for us to
obtain opinions relating to the tax-free nature of the merger, in which case
the number of Consolidated shares to be converted into the right to receive
Stora Enso ADS will be increased. The exchange ratio for Consolidated Papers
shares converted into ADSs will be between 2.678 and 3.621 ADSs per
Consolidated Papers share, based on the average trading price of Stora Enso
Series R shares over a period just prior to the closing, as necessary to
provide $44.00 in value per share. The exchange ratio will be fixed at 2.678
ADSs for each Consolidated Papers share if Stora Enso Series R shares are then
trading at a euro trading price higher than a $16.43 equivalent and will be
fixed at 3.621 ADSs if the Series R shares are then trading below a $12.15
equivalent.
Stora Enso Series R shares are currently trading below the $12.15 equivalent.
However, for the purpose of the pro forma combined financial information and in
order to determine the purchase price for Consolidated shares, a share price of
$44.00 per Consolidated share has been used. The purchase price has been
translated into euros at the March 31, 2000 noon buying rate, as announced by
the New York Federal Reserve Bank, of $1.00=1.0445 euro.
All Consolidated stock options will be converted into options to purchase
Stora Enso ADSs and assumed by Stora Enso in accordance with existing plan
provisions. For the purpose of the pro forma combined financial information and
in order to determine the purchase consideration, the fair value of
Consolidated's options is estimated on the date of acquisition using the Black-
Scholes option pricing model with the following weighted average assumptions:
62
<PAGE>
Notes to the Unaudited Pro Forma Combined Financial Information--(Continued)
.risk-free interest rate of 5.07%;
.expected dividend yield of 2.82%;
.expected lives of seven years; and
.expected volatility of 35%.
Stora Enso currently intends to obtain the funds necessary to make the cash
payment, as well as to pay expenses related to the merger, from borrowings,
some or all of which will come from Stora Enso's currently available credit
facilities. Stora Enso may also use the proceeds of the recent sale of its off-
mill site energy assets for net proceeds before tax of approximately (Euro)600
million.
Purchase Consideration
<TABLE>
<CAPTION>
$ (Euro)
------- -------
(in millions)
<S> <C> <C>
Conversion of 45,524,597 Consolidated shares.................... 2,003.1 2,092.2
Cash purchase of 45,524,597 Consolidated shares................. 2,003.1 2,092.2
Conversion of Consolidated stock options........................ 68.1 71.2
Acquisition related expenses.................................... 21.0 21.9
------- -------
Total purchase price............................................ 4,095.3 4,277.5
------- -------
Less:
Fair value of the net assets acquired......................... 1,821.9 1,903.0
------- -------
Goodwill........................................................ 2,273.4 2,374.5
======= =======
</TABLE>
Cancellation of Treasury Shares
Effective with the merger, Consolidated will cancel all common shares held in
treasury. There were 213,977 shares held in treasury as of March 31, 2000 with
a cost basis value of $4,800,000 and a par value of $213,977, the difference
between which will be charged to paid-in capital upon cancellation.
Balance Sheet Adjustments
(a) To record inventories at fair market value.
(b) To eliminate deferred revenue on sale and leaseback of machinery and
equipment.
(c) To restate pension and other post retirement liabilities to the excess of
fair value of plan assets over accumulated benefit obligation.
(d) To record debt at fair market value.
(e) To record property, plant and equipment at fair market value based upon
valuation.
(f) To record equity investment at fair market value based upon valuation.
(g) To record acquisition cost over the fair value of net assets acquired as
goodwill, eliminate Consolidated Papers shareholders' equity balance, and
record the fair value of options to be issued to holders of Consolidated
Papers stock options in accordance with the merger agreement.
(h) To reflect the Stora Enso borrowings to finance the cash purchase of
45,524,597 Consolidated shares at an assumed purchase price of $44.00 per
share and the costs of acquiring Consolidated.
(i) To record identifiable intangible assets at fair market value based upon
appraised valuations.
63
<PAGE>
Notes to the Unaudited Pro Forma Combined Financial Information--(Continued)
(j) To reflect deferred taxes related to book/tax differences resulting from
the allocation of the purchase price to the fair value of assets and
liabilities. Tax rate of 39% has been used.
(k) To record shares to be issued by Stora Enso to shareholders of Consolidated
to convert 45,524,597 Consolidated shares into ADSs.
(l) To record the transaction fee that will be paid to Goldman Sachs by
Consolidated Papers upon consummation of the merger.
Income Statement Adjustments
(m) To reflect amortization of the additional goodwill related to the merger as
follows:
<TABLE>
<CAPTION>
Year Ended Three month period
December 31, 1999 ended March 31, 2000
----------------- --------------------
((Euro) in millions, except number of
years
and quarters)
<S> <C> <C>
Goodwill resulting from the merger.. 2,374.5 2,374.5
Divided by: Amortization period
(years and quarters,
respectively)...................... 20 80
------- -------
Goodwill amortization per year...... 118.7 29.7
Less: historical amortization....... (9.1) (2.3)
------- -------
Incremental amortization............ 109.6 27.4
======= =======
</TABLE>
(n) To reflect amortization of incremental identifiable intangible assets over
the estimated useful lives. The amortization period for identifiable
intangible assets is 20 years. Annual and quarterly amortization for the
incremental identifiable intangible assets is (Euro)0.3 million and
(Euro)0.1 million, respectively.
(o) To reflect increased depreciation expense resulting from the write-up of
the property, plant and equipment as a result of the fair value allocation
as follows:
<TABLE>
<CAPTION>
Year Ended Three month period
December 31, 1999 ended March 31, 2000
----------------- --------------------
((Euro) in millions)
<S> <C> <C>
Buildings............................. 8.5 2.2
Machinery and equipment............... 209.8 55.2
Timberlands........................... -- --
Land.................................. -- --
Construction in progress.............. -- --
------ -----
Total................................. 218.3 57.4
Less: historical depreciation......... (169.3) (47.6)
------ -----
Incremental depreciation.............. 49.0 9.8
====== =====
</TABLE>
(p) To reflect the elimination of deferred revenue historically recognized by
Consolidated as a result of the sale and leaseback of machinery and
equipment.
(q) To reflect interest expense on the borrowings used to finance the purchase
of 45,524,597 Consolidated shares. The estimated amount including estimated
acquisition costs for the borrowing is (Euro)2,114 million. Interest
expense is estimated to be (Euro)137 million annually and (Euro)34.3
million quarterly with 6.5% interest cost. A 0.125 percent point variance
in the interest rate would increase or decrease the annual and quarterly
interest expense by (Euro)2.6 million and (Euro)0.7 million, respectively.
The fair market value adjustment on Consolidated historical debt is a
decrease of (Euro)28 million.
64
<PAGE>
Notes to the Unaudited Pro Forma Combined Financial Information--(Continued)
(r) To reflect the tax effect of above items excluding goodwill amortization.
(6) Convenience Translation
The unaudited pro forma combined euro amounts have been converted into U.S.
dollars solely for the convenience of the reader at the March 31, 2000 closing
exchange rate of 0.9574 U.S. dollars to one euro.
(7) Pro Forma Combined Earnings Per Share
Pro forma combined basic earnings per share has been calculated by dividing
pro forma combined net profit for the period by the number of shares
outstanding after giving effect to the merger. There are 139,848,037 Stora Enso
Series R shares assumed to be issued in the merger based upon an assumed
exchange ratio of 3.079 Series R shares per Consolidated share. The assumed
exchange ratio was based on $44.00 divided by $14.29, the midpoint of the U.S.
dollar equivalent prices for the Stora Enso Series R shares used to calculate
the merger consideration.
Pro forma combined diluted earnings per share includes the assumption of
2,971,032 Consolidated stock options outstanding at March 31, 2000.
65
<PAGE>
INFORMATION ABOUT CONSOLIDATED PAPERS
Consolidated Papers, Inc. was incorporated in Wisconsin in 1894. The
corporation and its subsidiaries operate primarily in the pulp and paper
industry. Pulp and paper operations involve the manufacture and sale of coated
and supercalendered printing paper for the printed communications industry,
coated specialty papers used largely in the packaging and labeling of food and
consumer products, and the manufacture of pulp and recycled pulp for use in the
manufacture of these papers. Supercalendered paper is uncoated paper
manufactured by using a process resulting in a glossy printing surface.
Consolidated also manufactures paperboard and paperboard products. Integrated
into the business are electrical power operations, which have nominal third
party sales. Additional information about Consolidated is contained in its
filings with the SEC referred to in "Where You Can Find More Information" on
page 169.
INFORMATION ABOUT STORA ENSO
General
Stora Enso is the largest paper and board manufacturer in Europe and the
second largest paper and board manufacturer in the world based on production
capacity, with 13.3 million metric tons of annual paper and board production
capacity and leading market positions in many of its core businesses. Domiciled
in Finland, Stora Enso has production facilities in 20 countries on three
continents. Stora Enso's core product areas are magazine paper, newsprint, fine
paper and packaging boards. Stora Enso's supporting product areas are timber
products, market pulp, paper merchants and forest operations. The principal
markets for Stora Enso's products are the member states of the European Union.
Stora Enso distributes its products through its own global marketing network,
which has an established presence on six continents with more than 30 sales
companies and an additional 15 local branch offices, as well as a number of
independent agents.
At December 31, 1999, Stora Enso had total assets of (Euro)16,034 million and
39,053 employees. In 1999, Stora Enso had sales of (Euro)10,636 million,
approximately 86% of which were outside Finland and Sweden. As of June 30,
2000, Stora Enso's total equity market capitalization based on trading prices
on the Helsinki Stock Exchange was (Euro)7.3 billion.
Stora Enso was created as a result of the 1998 merger of the Swedish company
Stora Kopparbergs Bergslags Aktiebolag (publ) and the Finnish company Enso Oyj,
which created a leader in the global forest products industry. Since then,
Stora Enso's management team has concentrated on integrating the two companies
and has significantly reduced operating costs and improved the combined
company's financial performance. This has been accomplished by focusing on
Stora Enso's core businesses, divesting non-core businesses, improving
operating efficiencies and reducing administrative costs.
Stora Enso is an integrated forest products company that is able to satisfy
internally a significant portion of its raw material needs, thus helping to
ensure continuity in its production. The principal raw material required in the
manufacture of paper and board products is pulp, which is produced both from
logs cut for that purpose and from sawmill residues, as well as from recycled
fiber. In addition, manufacturing of pulp requires the use of various chemicals
and minerals. Different types of paper and board products are in turn produced
with the appropriate type of pulp and chemicals as their principal raw
materials. In addition, manufacturing of pulp, paper and board products
requires significant amounts of energy. Stora Enso owns a total of
approximately 2.6 million hectares (approximately 6.4 million acres) of forest
land in Finland and Sweden, making it one of the largest private forest owners
in both countries. Stora Enso also has significant forest holdings in Canada
and Portugal. In 1999, Stora Enso produced 4,440,000 metric tons of chemical
pulp, of which 3,189,000 metric tons were consumed internally for the
production of paper and the remainder was sold to third parties. Approximately
13% of the wood used in the production of pulp by Stora Enso in 1999 was
harvested from Stora Enso's own forest lands. As Stora Enso is also a buyer of
pulp, net sales of pulp amounted to 501,000 metric tons. Power plants at Stora
Enso's own mills provide approximately 40% of Stora Enso's power requirements
in Finland and Sweden. Other raw materials, including various chemicals and
minerals, are purchased by Stora Enso on the world market from multiple sources
of supply.
66
<PAGE>
Stora Enso Acquisition, Inc.
Stora Enso Acquisition, Inc. is a newly formed Wisconsin corporation and
wholly owned subsidiary of Stora Enso that conducted no business prior to
entering into the merger agreement. We sometimes refer to this company as the
merger subsidiary.
Strategy
Stora Enso's principal objective is to be the world's leading forest products
company while generating shareholder value. Stora Enso intends to pursue the
following principal operating and marketing strategies to enable it to achieve
this objective.
Focus on Core Product Areas
Stora Enso will continue to focus its resources and investments on its core
product areas: magazine paper, newsprint, fine paper and packaging boards.
Management believes that Stora Enso's production facilities in these core
product areas are among the best in the industry globally in terms of both
asset and product quality, providing Stora Enso with a competitive advantage.
Consistent with this approach, Stora Enso intends to continue to maintain high
technical standards for its core assets and to evaluate its portfolio of assets
for the purpose of divesting non-core assets as appropriate. Stora Enso has
recently divested, or agreed to divest, some of its non-core assets, such as
its off-mill site energy generation operations, as well as its Finnish and
German specialty paper operations. Stora Enso intends to use the proceeds of
these divestitures to reduce its aggregate debt, to finance a portion of the
cash to be paid in the merger with Consolidated and for other investments and
acquisitions in its core product areas.
Improve Cost and Production Efficiencies
Stora Enso intends to continue to reduce production costs and improve the
efficiency of its operations and the utilization of production facilities.
Improvement in production efficiencies is expected to result from a combination
of additional synergies resulting from the merger of STORA and Enso, ongoing
investments in existing operations and the discontinuation of under-performing
operations. In 1999, Stora Enso realized synergies of (Euro)113 million,
exceeding by 126% the (Euro)50 million target developed at the time of the
merger of STORA and Enso. Stora Enso is implementing productivity programs in
some of its mills and expects additional cost savings from the elimination of
production bottlenecks, modernization of equipment, and rebuilding of paper
machines.
Grow Through Selected Acquisitions in Core Product Areas on a Global Scale
Stora Enso's target is to grow faster than the industry average. In order to
achieve this target, Stora Enso will continue to evaluate and pursue potential
acquisitions globally. Management believes that consolidation in the paper and
forest products industry will continue and will eventually result in a few
global producers leading the industry. Due to the benefits of economies of
scale and the increasing desire of large customers to be supplied globally,
management believes it is strategically imperative for Stora Enso to be one of
these leading global producers. By making acquisitions in businesses focused on
Stora Enso's core product areas, like the merger with Consolidated, management
aims to increase shareholder value by realizing acquisition synergies,
enhancing Stora Enso's global market position in its core products and securing
its role as a preferred supplier for its global customers. Europe is currently
Stora Enso's principal geographic area both in terms of production and sales.
However, with fewer acquisition opportunities expected in Europe, Stora Enso
will also continue to seek out and evaluate growth opportunities outside of
Europe in order to strengthen its presence in these markets, with an emphasis
on the North American market for magazine paper and newsprint grades, and the
Asian market. Stora Enso intends to be selective with its acquisitions and
expects to evaluate each opportunity against internal targets for return on
capital. Stora Enso intends to finance future acquisitions with a
67
<PAGE>
combination of internally generated funds, proceeds from divestitures of non-
core assets, further borrowings and the issuance of additional equity
securities, if appropriate.
Maximize Return on Invested Capital
Management is committed to maximizing Stora Enso's return on capital
employed. This requires management not only to maximize operating earnings, but
also to manage Stora Enso's capital base. In order to increase profitability,
cash flow generation and capital utilization, Stora Enso has established clear
operational performance and financial targets. Stora Enso has set an average
return on capital employed target of 13% and intends to keep annual capital
expenditures below the level of annual depreciation expense. Stora Enso will
also continuously seek to minimize its cost of capital by reviewing its capital
structure. By establishing an ADS program in the U.S. as part of the
acquisition of Consolidated, Stora Enso intends to expand its investor base and
enhance its access to the U.S. capital markets.
Company History
Stora Enso was created as a result of the merger of STORA and Enso. That
merger was approved by the respective boards of directors of STORA and Enso on
June 2, 1998 and became effective on December 23, 1998, at which time Enso's
name was changed to Stora Enso and the shares of STORA were exchanged for
shares of Stora Enso.
STORA
STORA's history dates back one thousand years to the time when copper mining
started in Falun, Sweden. In its early years, STORA's principal businesses were
copper mining and steel production. STORA commenced activities in the forest
products industry in the late nineteenth century with the 1885 acquisition of
the Skutskar sawmill, which was at the time the largest sawmill in the world.
The business operations of STORA were incorporated in 1888 and its shares were
initially listed on the Stockholm Stock Exchange in 1901. In the early 1900s,
STORA built a paper and pulp mill with an annual production capacity of 30,000
metric tons in Kvarnsveden, Sweden. Production at STORA's Swedish paper mills
increased gradually during the period from the 1920s through the 1940s, as it
built new paper machines and developed new production technologies, including
bleaching of pulp and faster paper machines.
In 1962, STORA began expanding outside Sweden by building a pulp mill in Nova
Scotia, Canada. In 1966, STORA acquired a majority of the shares of Grycksbo
Pappersbruk AB, the largest fine paper mill in Sweden, and Vikmanshytte Bruk
AB. In the late 1970s the global economy went through a deep recession, which
had a serious effect on the forest products and metal industries. In response,
STORA restructured its operations, selling its steel operations to SSAB
Oxelosund AB, a newly established Swedish steel company, and focusing entirely
on its forest products operations. In the 1980s and 1990s, STORA actively
participated in the consolidation of the forest products industry by acquiring
several forest products companies and units including: Billerud, a Swedish
paper and board manufacturer, in 1984; Swedish paper manufacturers Papyrus and
Kopparfors in 1987; and Feldmuhle Nobel, a German industrial group with paper
and board operations, in 1990. Through these acquisitions, STORA also acquired
significant non-forest products industry operations, most of which it divested
prior to the merger with Enso.
Enso
Enso started operations in the 1870s when Hans Gutzeit, a Norwegian
entrepreneur, opened a sawmilling company in southern Finland with the support
of Norwegian investors. The business was incorporated in 1896. In the early
1900s, Enso expanded the sawmilling business by opening a pulp mill to use
sawdust and waste wood generated by the sawmilling. Enso also began to acquire
forestlands and, in 1907, purchased its first paper mill. In 1916, Enso became
the first company listed on the Helsinki Stock Exchange. In 1918, a group of
Norwegian investors sold 61% of Enso's outstanding share capital to the Finnish
State. During the 1930s, Enso
68
<PAGE>
acquired several forest products companies and built new facilities. By the end
of the 1930s, Enso had become the third largest pulp producer in Europe. Enso's
operations suffered considerably as a result of World War II but, in the late
1940s and early 1950s, it invested heavily in new pulp mills and paper
machines.
In the 1960s, Enso began to expand outside Finland and participated, from the
early 1970s to 1993, in a paper and pulp production joint venture in British
Columbia, Canada. In 1994, Enso started production in Sachsen, Germany with the
construction of a paper mill which produces newsprint using 100% recycled fiber
as its fiber raw material. In the 1980s and 1990s, Enso was active in the
consolidation of the forest products industry, acquiring several forest
products companies and units including: the fine paper operations of the
Ahlstrom Varkaus Mills in 1986; the Berghuizer fine paper mill in The
Netherlands in 1989/1994; Tampella Forest Oy's newsprint, publication papers
and packaging boards businesses in 1993; Veitsiluoto, a Finnish forest products
company, in May 1996; and E. Holtzmann & Cie, a German producer of newsprint
and supercalendered paper, in 1997. Throughout its history, Enso has been
involved in various businesses outside of the forest products industry,
including the shipping, engineering and chemicals industries, but had divested
substantially all of its interests in these non-core industries prior to the
merger with STORA.
Recent Developments
Sale of Energy Assets
On April 17, 2000, Stora Enso entered into an agreement to sell a significant
portion of its off-mill site energy generation operations, including its shares
in affiliated hydro power and nuclear power generators entitling Stora Enso to
energy generation capacity, its regional power distribution networks and power
sales agreements to Fortum Oyj, a Finnish energy and petro-chemical company,
for a purchase price of approximately (Euro)1.8 billion, including the
assumption of approximately (Euro)1.2 billion in debt. The sale of the assets
located in Finland was completed on May 31, 2000 and the sale of the assets
located in Sweden was completed on June 5, 2000. As a result of the sale, Stora
Enso expects to record a gain on disposition of approximately (Euro)530 million
before tax and approximately (Euro)513 million after tax. The assets divested
included 1,511 MW of energy generation capacity, of which 1,096 MW was hydro
power, 301 MW was nuclear power and the remaining 114 MW was oil and coal
power. Approximately 200 employees were affected by the transaction.
Arbitrator's Decision Regarding Purchase of Remaining STORA Shares
Following the combination of STORA and Enso in 1998, an arbitration
proceeding was initiated to determine the price at which Stora Enso could
complete a compulsory acquisition of the STORA shares not exchanged at that
time. Although Stora Enso has acquired additional STORA shares since the
combination, approximately 4.3 million STORA shares remained outstanding.
During the first quarter of 2000, the arbitrator determined that Stora Enso was
entitled to acquire the remaining STORA shares it did not already own at a
price of SEK 95 per share, plus annual interest at a rate of 8.15% until the
date of payment. Payments for these shares were made in June 2000.
69
<PAGE>
Business Overview
Stora Enso organizes its businesses into core product areas and supporting
product areas. The core product areas are magazine paper, newsprint, fine paper
and packaging boards. The supporting product areas are timber products, market
pulp, paper merchants and forest operations. The following chart illustrates
the principal products or services produced or provided by each of these
product areas as well as the principal uses for the various products produced:
MAGAZINE PAPER NEWSPRINT FINE PAPER PACKAGING BOARDS
------------------ ------------------ ------------------ ------------------
Products Products Products Products
Uncoated papers Standard Graphic (coated) Consumer
(supercalendered newsprint papers packaging boards
and machine
finished) Newsprint Office Corrugated board
specialties (uncoated) raw material
Coated papers papers
(light-weight Uses Coreboard
coated, medium- Uses
weight coated, Newspapers, Kraft paper
heavy-weight newspaper High quality
coated and supplements, books, document Laminating
machine finished advertising printing papers papers
coated) leaflets and and advertising
telephone materials Uses
Uses directories
Consumer and
Magazines, industrial
printed products packaging
for advertising,
catalogs and
direct marketing
products
TIMBER PRODUCTS MARKET PULP PAPER MERCHANTS FOREST
OPERATIONS
------------------ ------------------ ------------------
------------------
Products Products Services
Services
Nordic whitewood Northern Distribution of
bleached fine paper and Wood procurement
Nordic redwood softwood kraft paper products
for Stora Enso Forest holdings
Central European Northern and third
timber bleached parties Felling rights
hardwood kraft
Uses
Bleached
Joinery, eucalyptus kraft
furniture and
construction Deinked pulp and
industry fluff pulp
Uses
Various kinds of
papers and
boards, fluff
pulp for
hygienic
products
70
<PAGE>
The following tables present Stora Enso's annual sales and operating profit
by product area for the periods indicated:
Sales by product area
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
1997 1998 1999
-------- -------- --------
((Euro) in millions)
<S> <C> <C> <C>
Magazine paper.................................. 1,475.8 1,851.8 1,950.4
Newsprint....................................... 1,534.1 1,693.7 1,641.8
Fine paper...................................... 1,813.5 2,003.8 2,163.2
Packaging boards................................ 2,485.5 2,396.9 2,341.5
Timber products................................. 722.2 733.9 1,140.0
Market pulp..................................... 958.7 846.6 957.8
Paper merchants................................. 800.4 830.3 787.2
Forest operations............................... 1,616.8 1,645.9 1,630.3
Elimination of internal sales; other
operations(/1/)................................ (2,081.6) (2,104.7) (2,153.9)
-------- -------- --------
Continuing operations total..................... 9,325.4 9,898.2 10,458.3
Divested paper units............................ 415.8 399.3 24.7
Discontinued operations, energy................. 530.3 481.2 506.0
Internal sales, energy.......................... (273.4) (289.1) (353.3)
-------- -------- --------
Total......................................... 9,998.1 10,489.6 10,635.7
======== ======== ========
</TABLE>
--------
(1) Other operations include the results of units that are not within Stora
Enso's product areas, such as separate transportation and sales and
distribution companies.
Operating profit (loss) by product area
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------------------------
1997 1998 1999
-------------------- --------------------- ----------------------
((Euro) in millions)
Excluding Excluding Excluding
non-recurring non-recurring non-recurring
items items items
<S> <C> <C> <C> <C> <C> <C>
Magazine paper.......... 76.8 85.9 238.8 276.3 287.6 287.6
Newsprint............... 164.2 192.0 292.3 302.9 299.1 299.1
Fine paper.............. 143.1 143.1 106.9 190.4 204.3 193.8
Packaging boards........ 208.4 234.8 61.8 209.1 193.1 188.0
Timber products......... 50.3 50.3 3.2 10.4 41.0 37.9
Market pulp............. 29.4 29.4 (18.0) 9.7 106.1 94.9
Paper merchants......... 5.4 5.4 (22.9) 2.0 0.5 0.5
Forest operations....... 111.2 111.2 108.8 111.0 141.1 141.1
Other operations(/1/)... (17.3) (28.6) (117.7) (40.2) (38.2) (38.2)
----- ----- ------ ------- ------- -------
Continuing operations
total.................. 771.5 823.5 653.2 1,071.6 1,234.6 1,204.7
Divested paper units.... 4.7 4.7 (59.0) (6.4) 22.9 (1.6)
Discontinuing
operations, Energy..... 123.7 123.7 114.5 114.5 150.9 102.7
Non-recurring items..... -- (52.0)(/2/) -- (471.0)(/3/) -- 102.6(/4/)
----- ----- ------ ------- ------- -------
Total................. 899.9 899.9 708.7 708.7 1,408.4 1,408.4
===== ===== ====== ======= ======= =======
</TABLE>
--------
(1) Includes non-allocated corporate overhead items and elimination of group
internal margin in consolidation.
(2) The non-recurring items for 1997 consist mainly of a gain on sale of Stora
Reinsurance SA, loss on sale of Arnsberg, write-downs of assets in
connection with the shutdown of the paper machine at Stora Langerbrugge, a
provision made in connection with the shutdown of the sulfite pulp
production plant at Stora Port Hawkesbury and provisions made for
additional pension obligations.
71
<PAGE>
(3) The non-recurring items for 1998 consist mainly of losses on sale of
business operations in Stora Carbonless, Stora Spezialpapiere and shares in
Svenska Dagbladet, a write-down of inventories in Skoghall, a reimbursement
of capital tax, effects of shortening the remaining useful lives of some
long-lived assets, impairment losses on long-lived assets, provisions for
early retirement pension obligations and termination benefits, provisions
made in connection with termination of agency and lease agreements,
environmental liabilities and direct merger costs.
(4) The non-recurring items for 1999 consist mainly of gains on sale of shares
and business operations.
The following table presents Stora Enso's annual sales in the indicated
geographic markets for the periods indicated:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------
1997 1998 1999
------- -------- --------
((Euro) in millions)
<S> <C> <C> <C>
Sales by country
Germany............................................. 1,611.2 1,827.0 1,825.7
U.K................................................. 1,405.4 1,436.9 1,321.7
France.............................................. 893.9 1,003.6 974.0
Sweden.............................................. 919.9 881.0 810.5
Finland............................................. 741.3 726.0 730.2
The Netherlands..................................... 525.7 555.0 538.8
Italy............................................... 384.9 432.6 450.7
Spain............................................... 371.9 400.4 440.0
Belgium............................................. 341.3 373.9 349.4
Denmark............................................. 307.7 329.6 286.8
Other EU............................................ 317.9 321.0 423.0
------- -------- --------
Total EU............................................ 7,821.0 8,287.0 8,150.8
Other Europe........................................ 620.6 733.9 635.3
North America....................................... 318.3 445.5 607.4
Asia-Pacific........................................ 623.9 406.2 773.6
Others.............................................. 614.3 617.0 468.6
------- -------- --------
Total............................................. 9,998.1 10,489.6 10,635.7
======= ======== ========
</TABLE>
Magazine Paper
Stora Enso is the world's second largest producer of magazine paper, with
annual production capacity of 3.175 million metric tons and a share of global
production capacity of approximately 14%. Europe is the principal market for
Stora Enso's magazine paper. Stora Enso holds approximately 19% of the European
production capacity for magazine paper and approximately 14% of the global
production capacity for magazine paper. Magazine paper accounted for 18.1% of
Stora Enso's sales and 20.4% of its operating profit in 1999.
Stora Enso's magazine paper strategy is to focus on its present paper grades
and to develop value-added products, such as high quality coated and
supercalendered printing papers, for its main markets in Europe and North
America. Stora Enso seeks to be the preferred supplier for its customers by
offering the best product quality and a high level of customer service. Stora
Enso's strategy is to enhance cost competitiveness and to further optimize its
asset structure in this product area as it seeks growth opportunities
principally in Europe and North America.
72
<PAGE>
The following table presents financial and statistical data regarding the
magazine paper product area:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
1997 1998 1999
------- ------- -------
((Euro) in millions,
except for percentages
and personnel data)
<S> <C> <C> <C>
Total sales.................................. 1,475.8 1,851.8(/1/) 1,950.4(/1/)
Operating profit(/2/)........................ 85.9 276.3 287.6
Operating margin, %.......................... 5.8 14.9 14.7
Operating capital,(/3/)...................... 1,863.0 2,025.2 2,125.5
Return on operating capital, %............... 4.6 14.2 13.9
Capital expenditure.......................... 322.5 219.9 102.2
Average number of employees.................. 4,575 4,887 4,745
Operating profit(/4/)........................ 76.8 238.8 287.6
Operating margin, %.......................... 5.2 12.9 14.7
Return on operating capital, %............... 4.1 12.3 13.9
</TABLE>
--------
(1) Includes internal sales of (Euro)4.7 million and (Euro)29.7 million for the
years ended December 31, 1998 and 1999, respectively.
(2) Excludes non-recurring items.
(3) Operating capital represents the sum of fixed assets and other long-term
investments (excluding investments, loan receivables and deferred tax
assets), inventories, short-term receivables, other provisions, other long-
term liabilities and other current liabilities.
(4)Includes non-recurring items.
Management believes that the key strengths of Stora Enso's magazine paper
product area are the proximity of most of its production units to important
customers and the wide range of paper grades that it can supply to large
printing companies. However, compared to the most modern and ideally located
magazine paper mills, some of Stora Enso's production units in Finland and
Sweden are further away from their key customers and certain production units
are too small to fully benefit from the economies of scale that can be reached
in modern paper production.
Products
Magazine paper grades are divided into uncoated magazine paper and coated
magazine paper.
Uncoated Magazine Paper. Uncoated magazine paper grades include machine
finished paper produced in Stora Enso's mill at Summa, Finland and
supercalendered paper. Stora Enso produces supercalendered paper in Sweden,
Belgium, Germany and Canada. Uncoated magazine paper is used primarily in
magazines and catalogs with broad circulation.
Coated Magazine Paper. Coated magazine paper grades include machine finished
coated paper, light-weight coated paper, medium-weight coated paper and heavy-
weight coated paper. Stora Enso produces machine finished coated paper in
Finland; light-weight coated paper in France, Germany and Finland; medium-
weight coated paper in Germany and Finland and heavy-weight coated paper in
Germany. Coated magazine paper is used for magazines, catalogs, brochures and
other printed advertising purposes. Niche products produced by the magazine
paper product area include wall paper base, which is produced in Germany.
Capital Expenditures
Major capital expenditure items for the magazine paper product area in 1999
included the rebuild of paper machine no. 8 at the Maxau mill in Germany and
the rebuild of production line no. 5 at the Kabel mill in Germany.
73
<PAGE>
Sales
The following table describes deliveries of magazine paper by paper grade for
the years indicated:
<TABLE>
<CAPTION>
Year ended
December 31,
-----------------
1997 1998 1999
----- ----- -----
(in thousands of
metric tons)
<S> <C> <C> <C>
Uncoated magazine paper................................... 665 919 1,116
Coated magazine paper..................................... 1,532 1,594 1,593
Wall paper base........................................... 33 47 48
----- ----- -----
Total................................................... 2,230 2,560 2,756
===== ===== =====
</TABLE>
The following table presents sales of magazine paper by geographic area for
the year ended December 31, 1999:
<TABLE>
<CAPTION>
1999
----
(%)
<S> <C>
Northern Europe......................... 16
Continental Europe...................... 65
North America........................... 14
Other................................... 5
---
Total................................. 100
===
</TABLE>
Competition
Like all sectors of the forest products industry, the market for magazine
paper is highly competitive. Stora Enso's principal competitors in uncoated
magazine paper grades in the European market are UPM-Kymmene, Sappi Limited,
Svenska Cellulosa Aktiebolaget, Myllykoski Paper Oy and Norske Skog Industrier
ASA and, in the North American market, Abitibi-Consolidated Inc., Consolidated,
Champion International Corporation and UPM-Kymmene. Stora Enso's principal
competitors in coated magazine paper are UPM-Kymmene, Myllykoski, Haindel
Papier GmbH & Co., Norske Skog, Sappi Limited, Svenska Cellulosa and, in the
North American market, Consolidated, Champion, UPM-Kymmene, Repap Enterprises
Inc. and Bowater Incorporated.
Newsprint
Stora Enso is currently the world's second largest producer of newsprint,
with annual production capacity of approximately three million metric tons and
a share of global production capacity of approximately 7% in 1999. The
principal market for Stora Enso's newsprint is in Europe, where Stora Enso has
approximately 25% of the production capacity for newsprint. Newsprint accounted
for 15.0% of Stora Enso's sales and 21.2% of its operating profit in 1999.
Stora Enso's newsprint strategy is to utilize the natural characteristics of
its fiber raw materials. Virgin fiber, fiber obtained from wood and being used
for the first time in the production of pulp, is used for more value-added
products while recovered fiber is used for standard newsprint. Stora Enso
believes that the market trend is towards more customized and varied specialty
grades of newsprint. Stora Enso sees growth opportunities for this product area
in Europe and North America.
74
<PAGE>
The following table presents financial and statistical data regarding the
newsprint product area:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
1997 1998 1999
------- ------- -------
((Euro) in millions,
except for percentages
and personnel data)
<S> <C> <C> <C>
Total sales............................... 1,534.1 1,693.7(/1/) 1,641.8(/1/)
Operating profit(/2/)..................... 192.0 302.9 299.1
Operating margin, %....................... 12.5 17.9 18.2
Operating capital(/3/).................... 1,537.9 1,547.2 1,454.8
Return on operating capital, %............ 12.2 19.4 19.9
Capital expenditure....................... 98.2 103.8 72.3
Average number of employees............... 5,215 5,651 5,564
Operating profit(/4/)..................... 164.2 292.3 299.1
Operating margin, %....................... 10.7 17.3 18.2
Return on operating capital, %............ 10.7 18.9 19.9
</TABLE>
--------
(1) Includes internal sales of (Euro)35.5 million and (Euro)42.8 million for
the years ended December 31, 1998 and 1999, respectively.
(2) Excludes non-recurring items.
(3) Operating capital represents the sum of fixed assets and other long-term
investments (excluding investments, loan receivables and deferred tax
assets), inventories, short-term receivables, other provisions, other long-
term liabilities and other current liabilities.
(4) Includes non-recurring items.
Stora Enso believes that the convenient location of its mills, its wide
product offering and its ability to use available fiber resources are the key
success factors assisting Stora Enso in its competition against other major
producers of newsprint. Although some of Stora Enso's mills are located further
away from major customers and sources of some raw materials than those of
competitors of Stora Enso, management believes that these negative factors are
more than outweighed by the above mentioned positive factors.
Products
Stora Enso's newsprint products include standard newsprint and newsprint
specialties. Various newsprint grades are used in newspapers, newspaper
supplements, advertising leaflets, telephone directories and paperback books.
Newsprint specialties include improved newsprint, book and directory papers.
Raw materials used in producing newsprint include mechanical pulp, recycled
fiber and, to a minor extent, kraft pulp. Standard newsprint is produced in
Finland, Sweden, Belgium, Canada and Germany. Newsprint specialties are
produced at Stora Enso's Finnish and Swedish mills.
Capital Expenditures
Stora Enso's recent major capital expenditures for the newsprint product area
included installation of a new soft calender at Varkaus paper machine no. 2,
which improved directory paper quality; investments at the Hylte and
Kvarnsveden mills to enable the use of more efficient transportation logistics;
a mechanical pulp bleaching project at the Anjala mill and projects to modify
machinery and processes to reduce bottlenecks in the production flows at the
Anjala paper machine no. 1 and the Langerbrugge paper machine no. 3.
75
<PAGE>
Sales
The following table presents the total deliveries of the newsprint for the
years ended December 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
Year ended
December 31,
-----------------
1997 1998 1999
----- ----- -----
(in thousands of
metric tons)
<S> <C> <C> <C>
Newsprint.................................................. 3,022 3,086 3,122
</TABLE>
The following table presents sales of newsprint by geographic area for the
year ended December 31, 1999:
<TABLE>
<CAPTION>
1999
----
(%)
<S> <C>
Northern Europe......................... 37
Continental Europe...................... 51
North America........................... 5
Other................................... 7
---
Total................................. 100
===
</TABLE>
Competition
The market for newsprint is highly competitive and, because newsprint is
commodity-like in nature, driven mainly by price. Stora Enso's principal
competitors in the European newsprint market include Norske Skog, UPM-Kymmene,
Haindl, Holmen AB and Svenska Cellulosa. Stora Enso's principal competitors in
the North American newsprint market are Abitibi and Bowater. The recently
announced combination of Norske Skog and Fletcher Challenge Paper would result
in that combined group becoming the second largest newsprint manufacturer in
the world behind Abitibi and ahead of Stora Enso in production capacity.
Fine Paper
Stora Enso is the third largest manufacturer of fine paper in the world with
a 14% share of production capacity in Europe and a 4% share of global
production capacity. The main market for Stora Enso's fine papers is in Europe.
In 1999, fine paper accounted for 18.1% of Stora Enso's sales and 14.5% of its
operating profit. Stora Enso manufactures both graphic fine paper and office
fine paper. All fine paper contains a high proportion of chemical pulp,
chemicals and fillers. The total annual capacity of Stora Enso's fine paper
production facilities is approximately 3.2 million metric tons, representing
approximately 4% of global production capacity of fine paper, which is
estimated to be approximately 75 million metric tons.
Stora Enso's fine paper strategy is to focus on the profitable manufacture of
fine paper for the graphic industry and office product distribution chains,
using environmentally accepted primary fiber as a raw material. Stora Enso sees
growth opportunities for this product area principally in Europe and in Asia,
where Stora Enso is already operating in the People's Republic of China and in
Thailand.
76
<PAGE>
The following table presents financial and statistical data regarding the
fine paper product area:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
1997 1998 1999
------- ------- -------
((Euro) in millions,
except for percentages
and personnel data)
<S> <C> <C> <C>
Total sales............................... 1,813.5 2,003.8(/1/) 2,163.2(/1/)
Operating profit(/2/)..................... 143.1 190.4 193.8
Operating margin, %....................... 7.9 9.5 9.0
Operating capital(/3/).................... 2,214.9 2,260.0 2,301.0
Return on operating capital, %............ 6.5 8.5 8.5
Capital expenditure....................... 277.9 127.0 112.9
Average number of employees............... 7,057 7,310 7,565
Operating profit(/4/)..................... 143.1 106.9 204.3
Operating margin, %....................... 7.9 5.3 9.4
Return on operating capital, %............ 6.5 4.8 9.0
</TABLE>
--------
(1) Includes internal sales of (Euro)161.8 million and (Euro)235.3 million for
the years ended December 31, 1998 and 1999, respectively.
(2) Excludes non-recurring items.
(3) Operating capital represents the sum of fixed assets and other long-term
investments (excluding investments, loan receivables and deferred tax
assets), inventories, short-term receivables, other provisions, other long-
term liabilities and other current liabilities.
(4) Includes non-recurring items.
Management believes that one of Stora Enso's strengths in fine paper
production is its integrated mills, which combine pulp manufacturing with paper
production. Many of the mills that produce fine paper are equipped with sheet
cutting facilities, which allow the mills to cut the fine paper to the
specifications of the local market. However, compared to the most modern and
ideally located fine paper mills, some of Stora Enso's production units are
further away from their key customers and too small to fully benefit from the
economies of scale available to larger, modern mills.
Products
Graphic (Coated) Fine Paper. Coated fine paper has a pigmented surface layer
which increases the uniformity of the printing surface and provides improved
printing properties, particularly for the reproduction of illustrations. Coated
fine paper is used in the production of advertising materials, brochures and
high quality books and magazines. Stora Enso produces coated fine paper in
Finland, Sweden, Germany and China.
Office (Uncoated) Fine Paper. Stora Enso's primary uncoated fine paper
products are copy and offset papers, envelope and writing papers and continuous
stationery papers. Stora Enso produces uncoated fine paper in Finland, Sweden
and The Netherlands.
Capital Expenditures
Major capital expenditures in the fine papers product area in 1999 included
the rebuilding of paper machine no. 2 at the Veitsiluoto mill and paper machine
no. 10 at the Grycksbo mill. These projects were designed to improve product
quality and increase efficiency.
77
<PAGE>
Sales
The following table describes the deliveries of fine paper by paper grade for
the periods indicated:
<TABLE>
<CAPTION>
Year ended
December 31,
-----------------
1997 1998 1999
----- ----- -----
(in thousands of
metric tons)
<S> <C> <C> <C>
Graphic (coated) fine paper................................ 1,299 1,493 1,560
Office (uncoated) fine paper............................... 1,225 1,250 1,352
----- ----- -----
Total.................................................... 2,524 2,743 2,912
===== ===== =====
</TABLE>
The following table presents sales of fine paper by geographic area for the
year ended December 31, 1999:
<TABLE>
<CAPTION>
1999
----
(%)
<S> <C>
Northern Europe......................... 27
Continental Europe...................... 53
North America........................... 4
Other................................... 16
---
Total................................. 100
===
</TABLE>
Competition
Stora Enso's principal competitors in the European coated fine paper market
are Sappi Limited, Metsa-Serla and UPM-Kymmene. Asian Pulp & Paper Inc. is
Stora Enso's principal competitor in Asia. Stora Enso's principal competitors
in the European uncoated fine paper market are UPM-Kymmene, Modo Paper AB
(publ), International Paper and Metsa-Serla.
Packaging Boards
Packaging boards is Stora Enso's largest product area, with an annual
production capacity of approximately 3.6 million metric tons. It is made up of
the following principal product units: consumer packaging boards, corrugated
board, corrugated board raw materials, coreboard, kraft paper and laminating
papers. In 1999, packaging boards accounted for 21.3% of Stora Enso's sales and
13.7% of its operating profit.
Stora Enso's goal in the packaging boards product area is to achieve a market
share in excess of 30% in its selected markets and product segments. Stora
Enso's strategy is to reduce the real price of its packaging board products for
customers by concentrating purchases of raw materials with a limited number of
suppliers and improving productivity. Stora Enso expects growth within this
product area to take place mainly within its existing product portfolio.
78
<PAGE>
The following table presents financial and statistical data regarding the
packaging boards product area:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
1997 1998 1999
------- ------- -------
((Euro) in millions,
except for percentages
and personnel data)
<S> <C> <C> <C>
Total sales............................... 2,485.5 2,396.9(/1/) 2,341.5(/1/)
Operating profit(/2/)..................... 234.8 209.1 188.0
Operating margin, %....................... 9.4 8.7 8.0
Operating capital(/3/).................... 2,508.9 2,272.7 2,438.9
Return on operating capital, %............ 9.4 8.7 8.0
Capital expenditure....................... 215.5 211.7 232.7
Average number of employees............... 10,478 10,189 10,114
Operating profit(/4/)..................... 208.4 61.8 193.1
Operating margin, %....................... 8.4 2.6 8.2
Return on operating capital, %............ 8.3 2.6 8.2
</TABLE>
--------
(1) Includes internal sales of (Euro)49.1 million and (Euro)74.6 million for
the years ended December 31, 1998 and 1999, respectively.
(2) Excludes non-recurring items.
(3) Operating capital represents the sum of fixed assets and other long-term
investments (excluding investments, loan receivables and deferred tax
assets), inventories, short-term receivables, other provisions, other long-
term liabilities and other current liabilities.
(4) Includes non-recurring items.
The main market for Stora Enso's packaging products is in Europe but products
are sold worldwide, although higher transportation costs in relation to
deliveries to customers outside of Europe impede Stora Enso's ability to fully
compete in those markets. Management believes that Stora Enso's strength in
packaging boards is based on the broad variety of different pulp fibers used in
its products, the recyclability of its products and the high level of vertical
integration of Stora Enso's production, especially the proximity to Stora Enso
pulp resources, which enables cost-efficient production.
Products
Consumer Packaging Boards. Consumer packaging boards include food and liquid
packaging boards and other cartonboards. Cartonboard is used in a variety of
packaging solutions for the food, pharmaceutical and cosmetics industries.
Cartonboard products include folding boxboard made of virgin fiber and white
lined chipboard, which is paperboard made of recycled fiber. Stora Enso's
liquid packaging boards are used for packaging of products such as milk,
juices, soups and spices as well as in the manufacture of plastic coated
drinking cups and processed food packaging for the fast food industry. Stora
Enso has an estimated 33% share of the global production capacity for liquid
packaging board. It is one of the world's leading manufacturers of consumer
packaging board overall and Europe's largest manufacturer of paper cupstock due
in part to its proprietary plastic coating technology and its ability to
manufacture board suitable for the different packaging and filling systems of
its customers. Stora Enso's consumer packaging board production facilities are
located in Finland, Sweden, Germany, Spain and the United Kingdom.
Corrugated Boards. Corrugated board is the forest products industry's largest
single product sector with an annual global consumption rate of 87 million
metric tons. Corrugated board is used primarily in transportation packaging and
can also be used in consumer packaging. Corrugated board is produced by
combining layers of linerboard and fluting in a corrugated conversion process.
Linerboard is paperboard used as the top and bottom layer, around the pleated
paperboard fluting, in corrugated board. Stora Enso both manufactures the raw
materials, linerboard and fluting, and has converting operations. Stora Enso's
industrial packaging boards group currently produces corrugated board at its
converting plants in Finland, Sweden,
79
<PAGE>
Estonia, Latvia, Russia and Poland. Stora Enso's goal is to maintain its
position as a leading producer of corrugated board in the Baltic Rim area,
which is its main market for corrugated board.
Corrugated Board Raw Materials. Corrugated board raw materials are produced
in Sweden and Finland. Principal products include semi-chemical fluting, which
is the wave forming material for corrugated board, and white top liner, which
is the white outer layer in corrugated board. Corrugated board raw materials
are sold worldwide.
Sack and Kraftpapers. Sack and kraftpapers, strong papers made from sulfate
pulp, are papers used for different packaging purposes like sacks and paper
bags. Stora Enso produces approximately 160,00 metric tons of sack and
kraftpapers per year.
Coreboard. Coreboard, which is produced from recovered papers, sometimes
combined with a small portion of primary wood pulp, is used to produce
paperboard tubes for the paper and textile and plastic-film industries. Global
coreboard consumption is estimated at approximately 3.5 million metric tons per
annum. Stora Enso produces 270,000 metric tons of coreboard per year, making it
one of the leading coreboard producers in Europe. Stora Enso's production of
coreboard is carried out through Corenso United Oy Ltd., a joint venture with
UPM-Kymmene, in which Stora Enso holds a 71% interest. Corenso has production
facilities in Finland, Germany, France and the United Kingdom. Coreboard is an
essential part of Stora Enso's recycling strategy because waste generated from
the consumption of liquid packaging board can be converted into coreboard. In
March 2000, Corenso announced an agreement to acquire the tube plants of
Huhtamaki Van Leer Oyj in The Netherlands and Sweden.
Laminating Papers. Stora Enso's laminating paper products include brown
saturated base kraft paper used for decorative high-pressure laminates in the
manufacture of table tops and as surface covering for wood-based panels and
floors; white saturated base kraft paper used for electrical applications
including the manufacture of printed circuit boards; and phenolic resin
impregnant paper, which is paper manufactured with strong resins infused into
the paper to make it resistant to liquids and electricity, that is used in
decorative high-pressure laminates and some electrical applications. Stora
Enso's production facilities for laminating papers are located in Finland and
in Malaysia.
Sales
The following table describes Stora Enso's deliveries of packaging boards by
board or paper grade for the years ended December 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
Year ended
December 31,
-----------------
1997 1998 1999
----- ----- -----
(thousands of
metric tons,
except as
otherwise
indicated)
<S> <C> <C> <C>
Consumer packaging boards.................................. 2,085 1,876 1,904
Corrugated board raw material.............................. 597 611 712
Coreboard.................................................. 237 234 247
Kraft paper................................................ 226 229 161
Laminating papers.......................................... 136 160 172
----- ----- -----
Total.................................................... 3,281 3,130 3,196
===== ===== =====
Corrugated board, millions of square meters................ 343 339 355
Cores...................................................... 32 53 62
</TABLE>
80
<PAGE>
Set forth below are sales of packaging boards by geographic area for the year
ended December 31, 1999:
<TABLE>
<CAPTION>
1999
----
(%)
<S> <C>
Northern Europe......................... 33
Continental Europe...................... 46
North America........................... 1
Others.................................. 20
---
Total................................. 100
===
</TABLE>
Competition
Stora Enso competes with International Paper in a number of product markets
in the packaging board area. In addition, Stora Enso's principal competitors in
the consumer packaging board market are Metsa-Serla, Iggesund, Mayr Melnhof and
Saffa Sarrio. Stora Enso's principal competitors in the corrugated board market
are AssiDoman AB and Metsa-Serla. Stora Enso's principal competitor in the
coreboard area is Sonoco Products Company, and its principal competitor in
laminating papers is Westvaco Corporation.
Timber Products
Stora Enso is the second largest sawmilling enterprise in the world,
operating 19 sawmills and ten further processing sites in five countries, and
is the leading European supplier of sawn timber to North America and Asia.
Stora Enso's aggregate annual sawmilling capacity is 5.3 million cubic meters
of sawn timber consisting primarily of redwood, whitewood and central European
timber. In 1999, timber products accounted for 9.8% of Stora Enso's sales and
2.9% of its operating profit. Approximately 20% of Stora Enso's timber products
are sold through Stora Enso's own distributors.
Stora Enso's European production capacity for timber products represents
approximately 4% and 1% of the total European and global production capacity
for timber products, respectively.
Stora Enso's timber products strategy is to profitably support Stora Enso's
fiber requirements and to serve customers in selected construction and interior
decoration market segments worldwide. Stora Enso will focus on achieving
economies of scale and mill specialization. Stora Enso sees growth
opportunities within this business area principally in product specialization
and a higher level of service to chosen market segments. Geographically, growth
opportunities are expected to arise in relation to the operations of Stora
Enso's core product areas and wood procurement.
The following table sets forth selected financial and statistical data
regarding Stora Enso's timber products group:
<TABLE>
<CAPTION>
Year ended December
31,
------------------------
1997 1998 1999
----- ----- -------
((Euro) in
millions, except
for percentages and
personnel data)
<S> <C> <C> <C>
Total sales................................... 722.2 733.9(/1/) 1,140.0(/1/)
Operating profit(/2/)......................... 50.3 10.4 37.9
Operating margin, %........................... 7.0 1.4 3.3
Operating capital(/3/)........................ 274.8 401.1 460.6
Return on operating capital, %................ 18.3 3.1 8.8
Capital expenditure........................... 20.1 33.8 51.3
Average number of employees................... 2,050 2,188 3,605
Operating profit(/4/)......................... 50.3 3.2 41.0
Operating margin, %........................... 7.0 0.4 3.6
Return on operating capital, %................ 18.3 0.9 9.5
</TABLE>
--------
(1) Includes internal sales of (Euro)97.7 million and (Euro)95.9 million for
the years ended December 31, 1998 and 1999, respectively.
(2) Excludes non-recurring items.
81
<PAGE>
(3) Operating capital represents the sum of fixed assets and other long-term
investments (excluding investments, loan receivables and deferred tax
assets), inventories, short-term receivables, other provisions, other long-
term liabilities and other current liabilities.
(4) Includes non-recurring items.
In December 1998, Stora Enso acquired Holzindustrie Schweighofer AG's
sawmills which account for substantially all of Stora Enso's central European
timber production.
Management believes that the key strengths of Stora Enso's timber product
area include the specialization of its sawmills, each of which concentrates on
either spruce or pine milling, and the proximity of its sawmills to its paper
and board mills, both of which improve efficiency.
Products
Stora Enso's Nordic sawmills produce timber products used for the joinery and
construction industries worldwide. Stora Enso's sawmills are located in close
proximity to its paper and board mills. The production of timber products
complements Stora Enso's paper and board manufacturing operations as by-
products of the sawmill operations are used by other divisions to manufacture
paper or as an energy source for manufacturing processes.
Sales
The following table describes Stora Enso's timber products deliveries by
timber grade for the years ended December 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
Year ended
December 31,
-----------------
1997 1998 1999
----- ----- -----
(thousands of
cubic meters)
<S> <C> <C> <C>
Nordic whitewood........................................... 1,273 1,392 1,451
Nordic redwood............................................. 1,283 1,292 1,386
Central European timber.................................... -- 81 1,800
----- ----- -----
Total.................................................... 2,520 2,765 4,637
===== ===== =====
</TABLE>
Set forth below are sales of timber products by geographic area for the year
ended December 31, 1999:
<TABLE>
<CAPTION>
1999
----
(%)
<S> <C>
Northern Europe......................... 28
Continental Europe...................... 39
North America........................... 6
Others.................................. 27
---
Total................................. 100
===
</TABLE>
Competition
Stora Enso's main competitors in the European sawmilling sector are UPM-
Kymmene, Metsaliitto, AssiDoman and Svenska Cellulosa. In Japan, Stora Enso
competes with all major forest products groups in timber products.
Market Pulp
Stora Enso's market pulp product area produces dried chemical pulp, called
market pulp. Chemical pulp is one of the most important raw materials for
papers and boards. As of the beginning of the year 2000, Stora
82
<PAGE>
Enso's annual capacity for the production of short-fiber pulp amounted to
880,000 metric tons, long-fiber pulp 1,215,000 metric tons and fluff pulp
180,000 metric tons. In 1999, market pulp accounted for 5.9% of Stora Enso's
sales and 7.5% of its operating profit.
In 1999, Stora Enso's market share in the European and worldwide market pulp
markets was approximately 13% and 3%, respectively.
Stora Enso's strategy for the market pulp product area is for it to provide a
reliable and high quality source of fiber to Stora Enso's own paper mills and
to third party customers on a cost efficient basis.
The following table presents financial and statistical data regarding Stora
Enso's market pulp operations:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
1997 1998 1999
------- ------- -------
((Euro) in millions,
except for percentages
and personnel data)
<S> <C> <C> <C>
Total sales............................... 958.7 846.6(/1/) 957.8(/1/)
Operating profit(/2/)..................... 29.4 9.7 94.9
Operating margin, %....................... 3.1 1.1 9.9
Operating capital(/3/).................... 1,313.7 1,153.3 1,178.0
Return on operating capital, %............ 2.2 0.8 8.1
Capital expenditure....................... 107.6 96.3 103.3
Average number of employees............... 2,707 2,474 2,383
Operating profit(/4/)..................... 29.4 (18.0) 106.1
Operating margin, %....................... 3.1 (2.1) 11.1
Return on operating capital, %............ 2.2 (1.5) 9.1
</TABLE>
--------
(1) Includes internal sales of (Euro)376.2 million and (Euro)333.6 million for
the years ended December 31, 1998 and 1999, respectively.
(2) Excludes non-recurring items.
(3) Operating capital represents the sum of fixed assets and other long-term
investments (excluding investments, loan receivables and deferred tax
assets), inventories, short-term receivables, other provisions, other long-
term liabilities and other current liabilities.
(4) Includes non-recurring items.
Management believes that one of the key strengths of Stora Enso's market pulp
product area is the wide range of high quality pulp grades it produces at many
of its production facilities. Management believes that the Enocell pulp unit is
currently one of the most efficient pulp production units in the world measured
by time efficiency, operating stability, personnel productivity and level of
maintenance costs. However, some of Stora Enso's other pulp mills are too small
or not sufficiently upgraded to obtain the full benefits of the potential
economies of scale and efficient pulp manufacturing.
Long-fiber chemical pulp, made of spruce or pine, is used to manufacture
paper requiring superior strength, like magazine paper. Short-fiber chemical
pulp, made of birch, beech or eucalyptus, is used primarily in fine papers and
boards. Fluff pulp, which is produced by dry defibration and takes on a cotton-
like appearance, is used in absorbent materials such as feminine hygiene
products and diapers.
83
<PAGE>
The following table describes Stora Enso's market pulp deliveries by grade of
pulp for the years ended December 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
Year ended
December 31,
-----------------
1997 1998 1999
----- ----- -----
(in thousands of
metric tons)
<S> <C> <C> <C>
Short-fiber chemical pulp................................... 811 791 826
Long-fiber chemical pulp.................................... 1,129 999 983
Fluff pulp.................................................. 187 174 191
----- ----- -----
Total (including deliveries to external parties).......... 2,127 1,964 2,001
===== ===== =====
Pulp delivered to external parties.......................... 1,326 1,107 1,251
</TABLE>
In addition to selling market pulp, Stora Enso trades pulp between third
parties on an agency basis. These trading activities have concentrated on the
South American and Southeast Asian markets. Stora Enso trades approximately
250,000 - 350,000 metric tons of pulp per year.
Stora Enso's major competitors in the area of paper grade market pulp are
Sodra Skogsagarna Ekonomisk Forening, Aracruz and Weyerhauser.
In addition, Stora Enso's production units produce slush pulp which is not
sold to third parties. The following table presents Stora Enso's total
production of pulp, including slush and market pulp, purchases of market pulp
and the resulting balance in relation to the operations of the market pulp
product area in 1999:
<TABLE>
<CAPTION>
Long-fiber Short-fiber Fluff Total
pulp pulp pulp pulp
---------- ----------- ----- ------
(in thousands of metric tons)
<S> <C> <C> <C> <C>
Production
Own mills............................ 2,227 1,900 191 4,318
Associated mills (Sunila)............ 122 0 0 122
------ ------ ---- ------
Total.............................. 2,349 1,900 191 4,440
Deliveries to own mills.............. (1,722) (1,467) (0) (3,189)
Deliveries externally................ (627) (433) (191) (1,251)
Purchases.............................. 490 260 0 750
------ ------ ---- ------
Pulp balance........................... 137 173 191 501
====== ====== ==== ======
</TABLE>
Paper Merchants
Stora Enso's paper merchants act as an important link in the distribution of
Stora Enso's fine paper products to the graphic industry. The Stora Enso paper
merchant operation was renamed Papyrus in the first quarter of 2000. Papyrus is
the seventh largest paper merchant in Europe. In 1999, paper merchants
accounted for 7.1% of Stora Enso's sales and less than 1% of its operating
profit.
Papyrus' primary objective is to establish a market leader position in the
Nordic countries and to leverage that position to become a leading paper
merchant in Europe through e-commerce and exploitation of the Papyrus brand.
84
<PAGE>
The following table presents financial and statistical data regarding Stora
Enso's paper merchants product area:
<TABLE>
<CAPTION>
Year ended
December 31,
----------------------
1997 1998 1999
----- ----- -----
((Euro) in
millions, except
for percentages
and personnel
data)
<S> <C> <C> <C>
Total sales..................................... 800.4 830.3(/1/) 787.2(/1/)
Operating profit(/2/)........................... 5.4 2.0 0.5
Operating margin, %............................. 0.7 0.2 0.1
Operating capital(/3/).......................... 207.4 212.4 187.3
Return on operating capital, %.................. 2.6 0.9 0.3
Capital expenditure............................. 9.7 12.0 6.6
Average number of employees..................... 1,636 1,680 1,577
Operating profit(/4/)........................... 5.4 (22.9) 0.5
Operating margin, %............................. 0.7 (2.8) 0.1
Return on operating capital, %.................. 2.6 (10.9) 0.3
</TABLE>
--------
(1) Includes internal sales of (Euro)1.0 million and (Euro)33.3 million for the
years ended December 31, 1998 and 1999, respectively.
(2) Excludes non-recurring items.
(3) Operating capital represents the sum of fixed assets and other long-term
investments (excluding investments, loan receivables and deferred tax
assets), inventories, short-term receivables, other provisions, other long-
term liabilities and other current liabilities.
(4) Includes non-recurring items.
The principal market for Stora Enso's paper merchant operations is Europe,
where its customer base is primarily comprised of approximately 80,000
printers. Other customers include offices and agencies in the public and
private sectors. Stora Enso's products account for approximately 38% of the
product range distributed. Stora Enso's principal competitors in the geographic
areas where Stora Enso competes include Buhrmann, Antalis, Modo Paper, Metsa-
Serla and Papir Union. Stora Enso's strength in paper merchant operations is
based on the synergistic gains generated from coordination between the sales
people and the personnel at the mills.
At the end of January 2000, Stora Enso signed an agreement to acquire the
Finnish paper merchant Paperi-Dahlberg Oy and the Norwegian paper merchant Carl
Emil A/S. With these acquisitions, Stora Enso became the leading paper merchant
in the Nordic countries.
Forest Operations
Stora Enso's forest operations department procures and supplies wood for the
company's own mills in Finland and in Sweden. Wood is procured from Stora
Enso's own forest holdings, which are located primarily in Finland and Sweden,
and from the Baltic countries and Russia, where Stora Enso purchases wood and
has felling rights, contracts permitting it to harvest wood on land owned by
another. Stora Enso's forest land in Finland and Sweden currently accounts for
approximately 13% of Stora Enso's wood raw material requirements and imported
wood for 24%. In 1999, Stora Enso's wood consumption in Finland and Sweden
amounted to 35.7 million solid cubic meters, of which 27.2 million cubic meters
was Nordic wood and 8.5 million cubic meters was imported. A total of 4.8
million solid cubic meters of wood with a stumpage value of (Euro)126 million
was obtained from Stora Enso's own forests. For a discussion of Stora Enso's
guidelines regarding its wood procurement activities see "--Environmental
Matters." In 1999, forest operations accounted for 2.1% of Stora Enso's sales
and 10.0% of its operating profit.
85
<PAGE>
The goal of Stora Enso's forest operations is to secure an undisturbed supply
of wood raw materials for Stora Enso's operations using environmentally
sustainable methods. As part of this goal, the forest operations department
seeks to develop greater coordination between its Nordic and continental
European wood procurement operations.
The following table presents financial and statistical data regarding Stora
Enso's forest operations:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
1997 1998 1999
------- ------- -------
(in (Euro) millions,
except for percentages
and personnel data)
<S> <C> <C> <C>
Total sales............................... 1,616.8 1,645.9(/1/) 1,630.3(/1/)
Operating profit(/2/)..................... 111.2 111.0 141.1
Operating margin, %....................... 6.9 6.7 8.7
Operating capital(/3/).................... 1,386.9 1,408.1 1,346.2
Return on operating capital, %............ 8.0 7.9 10.2
Capital expenditure....................... 21.4 22.3 13.8
Average number of employees............... 2,484 2,212 2,134
Operating profit(/4/)..................... 111.2 108.8 141.1
Operating margin, %....................... 6.9 6.6 8.7
Return on operating capital, %............ 8.0 7.8 10.2
</TABLE>
--------
(1) Includes internal sales of (Euro)1,422.7 million and (Euro)1,403.8 million
for the years ended December 31, 1998 and 1999, respectively.
(2) Excludes non-recurring items.
(3) Operating capital represents the sum of fixed assets and other long-term
investments (excluding investments, loan receivables and deferred tax
assets), inventories, short-term receivables, other provisions, other long-
term liabilities and other current liabilities.
(4) Includes non-recurring items.
Stora Enso owns approximately 2.6 million hectares (approximately 6.4 million
acres) of forest, of which approximately 1.9 million hectares (approximately
4.7 million acres) are in Sweden. Stora Enso also leases 0.8 million hectares
(approximately 2 million acres) of forestland, mostly in Nova Scotia, Canada.
Stora Enso has established plantations in South America and in South-East
Asia. Stora Enso Celbi, Stora Enso's Portuguese forest operations, comprises
45,000 hectares (approximately 110,000 acres) of eucalyptus.
The following table describes the growth of Stora Enso's Nordic forests and
the harvesting conducted in the periods indicated:
<TABLE>
<CAPTION>
Year ended
December 31,
-------------------
1997 1998 1999
----- ----- -----
(in millions of
forest cubic
meters)(/1/)
<S> <C> <C> <C>
Opening growing stock................................... 225.8 231.0 236.0
Net growth.............................................. 9.0 9.7 9.5
Final felling........................................... (4.2) (4.3) (4.3)
Thinning................................................ (1.2) (1.5) (1.5)
Reassessment/new land holdings.......................... 1.6 1.1 (0.8)
Closing growing stock................................... 231.0 236.0 238.9
</TABLE>
--------
(1) Forest cubic meters refer to total tree volume, including bark and top.
86
<PAGE>
Discontinued Operations
Divested Paper Units
The following table presents financial and statistical data regarding Stora
Enso's paper units, which were divested in early 1999:
<TABLE>
<CAPTION>
Year ended
December 31,
---------------------
1997 1998 1999
----- ----- ----
((Euro) in
millions, except
for percentages
and personnel
data)
<S> <C> <C> <C>
Total sales............. 415.8 399.3(/1/) 24.7
Operating profit(/2/)... 4.7 (6.4) (1.6)
Operating margin, %..... 1.1 (1.6) (6.5)
Operating capital....... 415.5 91.7 --
Capital expenditure..... 19.3 20.5 0.4
Average number of
employees.............. 1,807 1,800 115
</TABLE>
--------
(1) Includes internal sales of (Euro)18.4 million for the year ended December
31, 1998.
(2) Excludes non-recurring items.
Stora Enso's specialty papers business operations and material assets
included three principal product areas: Tervakoski specialty papers, Dalum fine
papers and technical office papers. Stora Enso's Tervakoski specialty papers
unit in Finland was sold to Trierenberg AG, an Austrian paper manufacturer, in
February 1999; the assets and business operations of the Dalum mill in Denmark
were sold to a group of Danish investors in February 1999; and the technical
office papers unit, which included carbonless paper and thermal paper mills in
Germany, was sold to Mitsubishi Paper Mills Ltd. on January 1, 1999. Stora Enso
retained a minority interest in the technical office papers operations. In
1998, the last fiscal year the specialty papers units were included in Stora
Enso's results of operations for the entire fiscal year, specialty papers
accounted for 3.8% of Stora Enso's annual sales.
The divested paper units delivered a total of 234,000 metric tons of paper
during the year ended December 31, 1997, a total of 239,000 metric tons of
paper during the year ended December 31, 1998 and 10,000 metric tons of paper
during the year ended December 31, 1999.
Energy
The following table presents financial and statistical data regarding Stora
Enso's energy operations, the off-mill site portion of which is in the process
of being divested:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
1997 1998 1999
------- ------- -------
((Euro) in millions,
except for percentages
and personnel data)
<S> <C> <C> <C>
Total sales............................... 530.3 481.2(/1/) 506.0(/1/)
Operating profit(/2/)..................... 123.7 114.5 102.7
Operating margin, %....................... 23.3 23.8 20.3
Operating capital......................... 1,443.6 1,367.6 1,473.3
Capital expenditure....................... 19.6 19.6 11.4
Average number of employees............... 218 209 208
</TABLE>
--------
(1) Includes internal sales of (Euro)289.1 million and (Euro)353.3 million for
the years ended December 31, 1998 and 1999, respectively.
(2) Excludes non-recurring items.
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<PAGE>
Electricity is a significant component of the paper industry's production
costs, especially in the production of mechanical pulp where electricity
accounts for up to 20% of variable costs. As a result, Stora Enso traditionally
has owned power plants and held substantial interests in affiliated power
generators to secure sufficient supply of low-cost electricity for its
manufacturing operations. In 1999, the electricity supplied by Stora Enso's own
power plants and obtained as a result of ownership interests in power companies
covered approximately 90% of Stora Enso's power requirements. In 1999, Stora
Enso's annual electricity production amounted to 17.3 Twh, of which 14.7 Twh
was used in Stora Enso's own plants in Finland and Sweden. Outside Finland and
Sweden, Stora Enso purchases most of the electricity used in its mills. In
1999, Stora Enso had external energy sales of 5.3 million Twh, which generated
sales of (Euro)152.7 million.
In April 2000, Stora Enso signed an agreement concerning the sale of the
major part of Stora Enso's power assets outside its mills in Sweden and Finland
to Fortum Oyj or its designees for total consideration of approximately
(Euro)1.8 billion. These power assets include Stora Enso's direct and indirect
ownership interests in its wholly and partly owned power generation assets and
regional networks. The capacity of the assets to be sold is 1,511 MW. Stora
Enso expects to realize a gain on disposition of approximately (Euro)530
million before tax. The sale of assets located in Finland was completed on May
31, 2000 and the sale of assets located in Sweden was completed on June 5,
2000.
Stora Enso also intends to divest its minority holding in Pohjolan Voima Oy,
a closely held Finnish power generator. Stora Enso will continue to own power
plants located at its mill sites. Stora Enso's remaining power assets will
supply approximately 40% of Stora Enso's energy consumption needs in Finland
and Sweden.
Marketing
Stora Enso distributes its products through its own global marketing network
with representatives in Europe, North and South America, Asia, Australia and
Africa. Stora Enso's marketing network is made up of more than 30 sales
companies and 15 branch offices as well as a number of third party sales agents
throughout the world.
Stora Enso's marketing network markets all of Stora Enso's products,
providing customers with "one-stop-shopping." The fine paper, market pulp and
sawn timber product areas also distribute a portion of their products through
their own sales channels. Stora Enso's marketing and sales network consists of
customer representatives, who are stationed in the sales companies and are
responsible for day-to-day service contacts with customers, and product
specialists, who are stationed at the mills and provide support services to the
customer representatives and facilitate client contacts. Papyrus, Stora Enso's
fine paper merchant chain, distributes Stora Enso's fine paper products for use
in graphic printing. In addition, wholly owned subsidiaries, including
Puumerkki Oy and Stora Enso Timber, sell timber products on both a wholesale
and retail basis. Stora Enso sells market pulp through its wholly owned
subsidiaries.
The merger of STORA and Enso in 1998 resulted in the creation of a sales
force of approximately 1,250 people initially. Stora Enso has succeeded in
retaining market share in the retail and wholesales markets for paper and
board. Management believes that maintaining an internal marketing organization
is fundamental to Stora Enso's success, providing direct contact with customers
and improving Stora Enso's ability to respond to customer needs.
Research and Development
General
Stora Enso conducts research and development in order to respond to evolving
customer preferences and the demand for higher quality and more economical
paper and board grades and packagings. Recently, Stora Enso's research and
development efforts focused on improving the functionality, performance and
consistency
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<PAGE>
in paper and board grades. In 1999, Stora Enso invested (Euro)84 million, or
0.8% of sales, in research and development. This represents an increase of 5%
from (Euro)80 million in 1998.
Stora Enso outsources to research institutes and universities a substantial
part of its basic research requirements. In addition, Stora Enso conducts its
technology development research in partnership with equipment and chemical
suppliers. Stora Enso also conducts studies in cooperation with other forest
products companies, primarily within the Finnish Pulp and Paper Research
Institute, which is owned by Stora Enso, UPM-Kymmene, Metsaliitto Group and
Myllykoski.
Stora Enso has four principal research centers located in Imatra, Finland,
Falun and Karlstad, Sweden, and Dusseldorf, Germany. In 1999, approximately 600
Stora Enso employees were engaged full time in research and development, of
whom approximately 400 were employed in its research centers. Stora Enso's
research centers have been of central importance in realizing Stora Enso's goal
of using different types of raw materials and modern and innovative technology
to produce high quality products.
Product Area Specific Research and Development
One principal function of research and development work is the application of
new technologies to Stora Enso's production and enhancement of existing and
newly introduced production processes. At Stora Enso this type of work is done
primarily at the company's manufacturing facilities.
In the magazine paper product area, research and development work has focused
on the further improvement of the quality of deinked pulp. The newsprint
product area has concentrated on further improving the printability of paper
grades designed to permit printing using heatset and rotogravure printing
processes and developing paper grades suitable for new printing applications in
the book-printing industry. In the fine paper product area, new products are
being developed for high resolution copying, color copying and digital
printing. Recent research and development efforts of the packaging board
product area include the development of dry food packaging products with multi-
layer extrusion coating structure and heat sealable and peelable carton lids
made for board that may be put in the oven. The new dry food packaging products
are expected to replace cardboard packages with an inner bag. In the market
pulp product area and, in particular, at the Enocell mill in Finland and
Norrsundet mill in Sweden, product development has focused on softwood kraft
paper pulps. Stora Enso has succeeded in improving the quality of its soft wood
kraft pulp through measures taken in wood material selection and process
modifications. Introduction of new pulp grades has resulted in lower costs and
improved runnability on the paper machines.
Intellectual Property
Stora Enso holds a number of patents in Finland, Sweden and other countries,
mostly in the areas of bio-bleaching, forestation and liquid and food
packaging. Stora Enso intends to maintain its patents and to file applications
for any inventions which it deems important to its business operations.
Consistent with the industry in which it operates, Stora Enso's operations are
not dependent to a significant extent on its patents.
Transportation and Logistics
Stora Enso is one of Europe's largest consumers of transportation services by
volume. While Stora Enso manages the transport and distribution of its products
internally, it utilizes services of various suppliers in the transport field.
Transportation, a significant portion of which is outsourced, was approximately
9%, stated as a percentage of Stora Enso's 1999 sales. Stora Enso selects
transportation service providers based on long-term cost efficiency, quality,
customer requirements, flexibility and environmental awareness.
Transport from the Nordic region is handled through various means, including
by sea, truck and rail. Goods from Stora Enso's Central European mills are
transported and distributed on the European continent primarily by truck. In
1999, Stora Enso introduced BasePort, a new transport system for its Swedish
exports.
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<PAGE>
Key components in the system include a new intermodal carrier for use in
shipments by rail and sea, as well as seaborne transports with new Roll-
on/Roll-off vessels, ships that permit direct vehicle loading, on the
Gothenburg-Zeebrugge route. The system will be implemented gradually over a
five-year period and is expected to result in annual cost-savings of
approximately 20% in transport efficiency, a reduction in emissions and energy
consumption per unit weight of goods by about half, and improved customer
service.
Environmental Matters
Environmental Regulation
Operation of Production Facilities. Stora Enso operates in an industry which
is subject to comprehensive environmental regulation and governmental
supervision. Environmental standards are established by regulatory and
administrative norms and environmental permits and licenses. Violations of
these regulations and permits could result in fines, injunctions, including
orders to cease the violating operations and to improve, or pay for the
improvement of, the condition of the environment in the affected area, or other
penalties. Environmental permits are subject to modification and revocation by
the issuing authorities at their discretion and must be periodically updated.
Management believes that Stora Enso is in compliance with the environmental
laws and regulations applicable to it and that its discharges and emissions are
within or well below levels established by regulation or permits. Stora Enso
invests substantial capital resources on environmental compliance and
monitoring of the environment. Management estimates that Stora Enso's future
liabilities relating to past practices by Stora Enso and its predecessors total
approximately (Euro)62 million.
Forestry and Wood Procurement. Forest and environmental protection
legislation in Finland and Sweden places equal importance on both the
ecological and social sustainability of forests and sustainability for
commercial utilization. Much of the environmental legislation to which Stora
Enso is subject is intended to preserve natural biodiversity. Stora Enso
strives to gain acceptance and recognition for its forest managements practices
through certification by independent parties. In 1999, Stora Enso's forestry
operations in Finland and Russia were awarded EMAS-trial certification (the
European Union Eco Management and Audit Scheme). Parts of Stora Enso's forestry
operations in Sweden have received ISO 14001 certification and the whole wood
supply system is expected to be certified during the year 2000. Stora Enso does
not accept wood from protected areas, from areas designated by the forest or
environmental authorities as being of special ecological importance or areas
where the biological diversity is threatened. All domestic and foreign
suppliers of wood are required to provide proof of the origin of the wood.
Content of Recycled Fiber. In recent years, forest products companies have
been subject to increasing pressure to use renewable resources in the
manufacture of their products and to manufacture products that are recyclable.
In some jurisdictions where Stora Enso operates, legislation has been enacted
to require minimum levels of recycled fiber in forest industry products. In
1999, Stora Enso used approximately 1.88 million metric tons of recycled paper
in the manufacture of its products. This was almost as much as Stora Enso used
in 1998, even though Stora Enso sold its Dalum mill in Denmark, a significant
user of recycled paper, in 1999.
Environmental Management
In 1999, total emissions at Stora Enso's pulp and paper mills continued to
decrease as compared to the previous year despite an increase in production
volumes. The chemical oxygen demand of discharges from Stora Enso's mills in
receiving waters declined 7% in 1999 compared to 1998. Sulfur dioxide emissions
declined 7% in absolute terms and solid wastes declined 14%. Management
believes that these trends are a result of growing awareness of environmental
issues, increased environmental training, introduction of environmental
management systems and investment in modern technology, which is more efficient
and, therefore, saves natural resources and causes lower emissions.
Environmental matters are an integrated part of Stora Enso's operations and
corporate planning. Stora Enso has adopted a policy regarding environmental and
social responsibility in which it commits itself to
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<PAGE>
developing its business in accordance with the principles of ecological, social
and economic sustainability. The policy stresses the importance of renewable
and recycled raw materials in production. Stora Enso has committed to increased
transparency and strict adherence with environmental legislation, as well as
other standards and customs in each country where it operates, with an aim to
go beyond these norms when possible.
Stora Enso's Total Quality Management system serves as a link between Stora
Enso's environmental policies and environmental protection and acts as an
umbrella for a wide range of management areas, including environmental
management systems such as EMAS-registered or ISO 14001 certifications. By the
end of 1999, 76% of Stora Enso's paper, pulp and board production capacity and
all the company's sawmills in Finland and Sweden were covered by these systems.
Stora Enso has set a target to introduce similar environmental management
systems in all of its production units. In its production units, Stora Enso has
adopted and is in the process of implementing an energy efficiency program with
annual uniform energy audits at all units. By the end of 1999, 80% of Finnish
mills and approximately half of the Swedish mills had been audited. In 2000,
audits will commence at mills located in other countries such as France.
Management believes that attention to environmental issues and introduction of
environmental management systems will enhance Stora Enso's interaction with
various interest groups, increase employee participation and generally promote
environmental awareness within Stora Enso.
Employees
In 1999, Stora Enso had an average of 40,226 employees. At December 31, 1999
Stora Enso had 39,053 employees, a decrease of 1,522 from December 31, 1998.
The decline was due primarily to the divestiture of Stora Enso's specialty
papers subsidiary, Tervakoski Oy, its fine paper mill in Dalum, Denmark, its
technical office paper subsidiaries, Stora Carbonless Paper GmbH and Stora
Spezial Papiere GmbH, during the first quarter of 1999 and other measures
implemented to improve efficiency. The average number of employees by product
area and by region for the years ended December 31, 1997, 1998 and 1999 were as
follows:
<TABLE>
<CAPTION>
Year ended December
31,
--------------------
1997 1998 1999
------ ------ ------
(average number of
employees)
<S> <C> <C> <C>
Magazine paper............................................. 4,575 4,887 4,745
Newsprint.................................................. 5,215 5,651 5,564
Fine paper................................................. 7,057 7,310 7,565
Packaging boards........................................... 10,478 10,189 10,114
Merchants.................................................. 1,636 1,680 1,577
Timber products............................................ 2,050 2,188 3,605
Market pulp................................................ 2,707 2,474 2,383
Forest operations.......................................... 2,484 2,212 2,134
Other...................................................... 2,074 2,387 2,216
------ ------ ------
Continuing operations total................................ 38,276 38,978 39,903
Divested paper units....................................... 1,807 1,800 115
Discontinuing operations, Energy........................... 218 209 208
------ ------ ------
Total.................................................... 40,301 40,987 40,226
====== ====== ======
</TABLE>
91
<PAGE>
<TABLE>
<CAPTION>
Year ended December
31,
-------------------- Percent of
1997 1998 1999 1999 total
------ ------ ------ ----------
(average number of
employees) (%)
<S> <C> <C> <C> <C>
Finland......................................... 15,852 15,798 15,116 38
Sweden.......................................... 11,507 11,513 11,285 28
Germany......................................... 5,523 5,640 4,817 12
France.......................................... 1,595 1,438 1,398 3
Canada.......................................... 894 869 712 2
UK.............................................. 1,021 903 859 2
Belgium......................................... 807 688 694 2
Portugal........................................ 487 461 476 1
Spain........................................... 415 382 412 1
Other countries................................. 2,200 3,295 4,457 11
------ ------ ------ ---
Total......................................... 40,301 40,987 40,226 100
====== ====== ====== ===
</TABLE>
Stora Enso employed an average of 39,029 persons during the first quarter of
2000.
The forest products industry is highly unionized, particularly in Finland and
Sweden, the two primary jurisdictions where Stora Enso operates. Most of Stora
Enso's employees who are directly involved in production, and approximately
half of the employees in lower to mid-level management belong to labor unions.
Customarily, collective agreements are negotiated between the unions and the
forest products industry. The forest products industry in Finland has
collective bargaining agreements with the two main groups of labor unions, one
comprising paper, mechanical pulp and forestry employees, and one comprising
office and technical employees. In April of 2000, Stora Enso entered into a
collective bargaining agreement for the three-year period ending in January
2003 with the first of these two unions. The new agreement includes an average
4% salary increase in the first year; however, it was agreed that the increase
will be partly related to machine capacity utilization. The term of the
collective bargaining agreement pertaining to the second union expired on
January 15, 2000. Provisions of the expired collective bargaining agreement
will, however, remain in place until a new agreement has been reached.
Negotiations between the second union and employer organizations are currently
taking place.
In Sweden, the forest products industry has collective bargaining agreements
with two main groups of labor unions. In Sweden, a collective bargaining
agreement pertaining to both groups of unions will expire in 2001.
Management believes that it has good relations with employees and their
representatives. However, prior to reaching the new collective bargaining
agreement in Finland, the paper, mechanical pulp and forestry employees union
struck against all Finnish paper manufacturers, including Stora Enso, for eight
days in April 2000. Stora Enso estimates that the strike resulted in
approximately (Euro)100 million in lost sales and approximately (Euro)40
million in lost operating profits. Stora Enso also has experienced a few minor
labor disruptions in its French and Belgian operations over the last three
years, which have not had a material impact on Stora Enso as a whole.
Stora Enso's employees participate in various incentive bonus programs
established by STORA and Enso prior to the 1998 combination. The incentive
bonus system at former STORA units was based on targets tied to return on
capital employed. The incentive bonus system at former Enso units was
performance oriented, based on, among other factors, profitability and
achievement of key business targets set by management. Starting in 2000, Stora
Enso will continue only the performance-oriented incentive bonus system.
Bonuses under the new incentive plan will be calculated as a percentage of each
employee's annual base salary, capped in the case of non-management employees
at 7%. All bonuses are discretionary and will not be partially triggered unless
Stora Enso's results exceed specified levels. Initially, the system will cover
Stora Enso's business units in
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<PAGE>
Finland, Sweden and some other countries, and will later be implemented in the
remaining units depending on local practice and legislation.
Stora Enso's middle and top management participate in an annual bonus
arrangement calculated on the basis of Stora Enso's target return on capital
employed ratio and the achievement of personal targets. The maximum bonus under
the management bonus plan is 20% to 50% of annual base salary, depending on the
person's position with Stora Enso. In addition, some key employees participate
in Stora Enso's warrant and synthetic option programs. See "--Management of
Stora Enso" and "--Equity-based Programs."
Transactions with Related Parties
Stora Enso and its subsidiaries engage in ordinary course transactions on
commercial terms and conditions with affiliated companies and other related
parties that are on no less favorable terms than would be available to
unaffiliated third parties. Stora Enso intends to continue to engage in
transactions on a similar basis with affiliated businesses. For additional
discussion, see Notes 11 and 12 to the Stora Enso Consolidated Financial
Statements beginning on page F-1.
Chemical Pulp
Although most of Stora Enso's chemical pulp is produced and sold internally,
Stora Enso purchases chemical pulp from the Sunila Oy pulp mill, a 50%-owned
joint venture corporation with Myllykoski. Pulp produced by Sunila is sold to
Stora Enso at market prices. In 1999, Stora Enso purchased 121,495 metric tons
of chemical pulp from Sunila for a total purchase price of (Euro)57.6 million.
Energy
In the past, Stora Enso obtained most of the energy for its production units
in Finland and Sweden from owned and leased power plants and through ownership
interests in power companies which entitled it to receive electricity and heat
from those companies. Of the total electricity supply produced, approximately
79% was sold internally to Stora Enso's own mills. Internal sales were priced
at prevailing market prices. In 1999, Stora Enso obtained 12% of its total
electricity procurement through electricity entitlements from associated
companies for an aggregate of (Euro)196 million. Prices paid by Stora Enso for
electricity from these associated companies were based on production costs.
Stora Enso had previously entered into a sale-leaseback arrangement for two
of its power plants with Varma-Sampo Mutual Pension Insurance Company. The
chief executive officer of Stora Enso is the vice chairman of Varma-Sampo's
supervisory board and another member of Stora Enso's board is the president and
chief executive officer of Varma-Sampo. The sale-leaseback arrangement was on
arm's-length terms. In April, 2000, Stora Enso entered into an agreement to
sell most of its interests in associated energy producers, subsidiaries and
power plants to Fortum Oyj for a purchase price of approximately (Euro)1.8
billion, including the assumption of approximately (Euro)1.2 billion in debt.
The vice chairman of Fortum is also the vice chairman of Stora Enso's board.
The sale to Fortum was negotiated on arm's-length terms. In connection with the
consummation of the sale to Fortum, the Varma-Sampo sale-leaseback arrangements
will be terminated.
Stora Enso also holds a 16.5% interest in Pohjolan Voima Oy, a power producer
and a majority shareholder in Teollisuuden Voima Oy, one of Finland's two
nuclear power companies. Prices paid by Stora Enso to Pohjolan Voima are based
on production costs, which are generally lower than market prices. Pohjolan
Voima Oy is one of the holdings that Stora Enso intends to divest. The chief
executive officer of Stora Enso is the vice chairman of the board of Pohjolan
Voima Oy. See "--Discontinued Operations--Energy."
Financial Arrangements
Stora Enso has borrowings from, or financial arrangements with, several
financial institutions. Some of the members of the board or executive
management group of Stora Enso are also members of the board or
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<PAGE>
executive management of one or more of those financial institutions, including
Skandinaviska Enskilda Banken AB in the case of Claes Dahlback and Marcus
Wallenberg, Merita Nordbanken in the case of Krister Ahlstrom and Jukka
Harmala, Deutsche Bank in the case of Josef Ackermann, Varma-Sampo Mutual
Pension Insurance Company in the case of Jukka Harmala and Paavo Pitkanen, and
Sampo Life Insurance Company Limited, Leonia plc and Garantia Insurance Company
Ltd in the case of Esko Makelainen. All borrowings and financial arrangements
have been negotiated on arm's-length terms and several have existed for a
number of years and prior to the current overlap in board membership.
Research and Development
Stora Enso conducts research and development activities through the Finnish
Pulp and Paper Research Institute, in which Stora Enso has a 30% interest.
Stora Enso sources part of its basic research requirements from the Institute.
The Institute also performs contract research. The Finnish Pulp and Paper
Research Institute provides these contract research services to Stora Enso at
cost. In 1999, Stora Enso's total payments to the Finnish Pulp and Paper
Research Institute amounted to (Euro)5.3 million. Discoveries made in the
process of its research activities are the property of the Institute, which
makes a decision whether or not to apply for a patent for each discovery on a
case-by-case basis. If a patent is granted, the four corporate owners have a
right to practice the patent. If, however, the Institute decides not to apply
for a patent, the discovery is auctioned to the corporate owners or, if they
are not interested, to unrelated third parties.
Recycled Paper
Stora Enso has a minority interest in several paper recyclers from whom it
purchases recycled paper at market prices. Purchases of recycled paper from
these companies totalled approximately (Euro)25 million in 1999.
Stevedoring
Stora Enso owns 36.7% of the shares of Steveco Oy, a Finnish company engaged
in loading and unloading oceangoing vessels. Steveco's other shareholders are
UPM-Kymmene, Finnlines, Ahlstrom and Myllykoski Paper. Stevedoring services
provided by Steveco to Stora Enso and the other shareholders are priced at
market prices and, in 1999, Stora Enso's total payments to Steveco Oy amounted
to (Euro)16.2 million. Stora Enso also owns 50% interests in Kemi Shipping Oy
and Herman Andersson Oy.
Property
Stora Enso's principal executive offices are located at Kanavaranta 1,
Helsinki, Finland, which is owned by a pension fund for Stora Enso's personnel.
Stora Enso generally owns its manufacturing facilities. In addition to
manufacturing facilities, Stora Enso owns a number of other facilities,
including warehouses, distribution centers and shipping terminals.
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<PAGE>
The following table lists Stora Enso's principal manufacturing facilities:
<TABLE>
<CAPTION>
Capacity (metric tons)
Mill Location Grade/Product in 2000
----------------- ----------- ------------------- ----------------------
<S> <C> <C> <C>
Magazine Paper 3,175,000
Anjalankoski Finland Machine finished 145,000
coated
Corbehem France Light-weight coated 515,000
Kabel Germany Light-weight 595,000
coated, medium-
weight coated,
heavy-weight coated
Kotka Finland Machine finished 145,000
coated
Kvarnsveden Sweden Supercalendered 110,000
Langerbrugge Belgium Supercalendered 115,000
Maxau Germany Supercalendered 365,000
Port Hawkesbury Canada Supercalendered 350,000
Reisholz Germany Supercalendered 210,000
Summa Finland Machine finished 80,000
magazine
Veitsiluoto Finland Light-weight 405,000
coated, medium-
weight coated
Wolfsheck Germany Supercalendered 90,000
Wolfsheck Germany Wallpaper base 50,000
Newsprint 3,295,000
Anjalankoski Finland Newsprint, book 355,000
Hylte Sweden Newsprint 805,000
Kvarnsveden Sweden Newsprint 580,000
Langerbrugge Belgium Newsprint 130,000
Maxau Germany Newsprint 225,000
Port Hawkesbury Canada Newsprint 185,000
Sachsen Germany Newsprint, 310,000
Directory
Summa Finland Newsprint 420,000
Varkaus Finland Newsprint, 270,000
Directory
Wolfsheck Germany Newsprint 15,000
Fine Paper 3,220,000
Berghuizer Netherlands Uncoated 175,000
Grycksbo Sweden Coated 240,000
Imatra Finland Uncoated 200,000
Imatra Finland Coated 90,000
Molndal Sweden Uncoated 35,000
Molndal Sweden Coated 65,000
Nymolla Sweden Uncoated 300,000
Nymolla Sweden Coated 150,000
Oulu Finland Coated 810,000
Suzhou China Coated 140,000
Uetersen Germany Coated 245,000
Varkaus Finland Uncoated 220,000
Varkaus Finland Coated 80,000
Veitsiluoto Finland Uncoated 470,000
</TABLE>
95
<PAGE>
<TABLE>
<CAPTION>
Capacity (metric tons)
Mill Location Grade/Product in 2000
-------------- --------------- ------------------- ----------------------
<S> <C> <C> <C> <C>
Packaging 3,585,000
Boards
Baienfurt Germany Folding boxboard 175,000
Barcelona Spain White line 145,000
chipboard
Fors Sweden Folding boxboard 320,000
Gruvon Sweden Supercalendered, 535,000
packaging paper,
fluting, kraft
papers
Heinola Finland Fluting 260,000
Imatra Finland Liquid packaging 815,000
boards, solid
bleached sulfate
board, folding
boxboard
Imatra Finland Laminating papers 25,000
Inkeroinen Finland Folding boxboard 185,000
Kotka Finland Laminating papers 140,000
Molndal Sweden Folding boxboard 45,000
Newton Kyme United Kingdom Folding boxboard 35,000
Pankakoski Finland Folding boxboard, 95,000
coreboard, liner
Pori Finland Coreboard 100,000
Skoghall Sweden Liquid packaging 550,000
boards, white top
linerboard, folding
boxboard
St. Seurin- France Coreboard 75,000
sur-l'Isle
Varkaus Finland Coreboard 85,000
Total Paper 13,275,000
and Board
Core Tube 109,000
Factories
Edam The Netherlands Core tubes 8,000
Imatra Finland Core tubes 5,000
Krefeld Germany Core tubes 25,000
Loviisa Finland Core tubes 25,000
Mandriladora Spain Core tubes 15,000
Tolosana
Milton- United Kingdom Core tubes 10,000
Keynes
Pori Finland Core tubes 15,000
Saffle Sweden Core tubes 6,000
Converting 293,000
Plants
Balabanovo Russia Corrugated board 45,000
and boxes
Grudiadz Poland Corrugated board 10,000
and boxes
Heinola Finland Corrugated board 30,000
and boxes
Jonkoping Sweden Corrugated board 35,000
and boxes
Kaunas Lithuania Corrugated board 10,000
and boxes
Lahti Finland Corrugated board 60,000
and boxes
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Capacity (metric tons)
Mill Location Grade/Product in 2000
----------------------- -------------- ----------------------- ----------------------
<S> <C> <C> <C> <C>
Riga Latvia Corrugated board and 20,000
boxes
Ruovesi Finland Corrugated board and 10,000
boxes
Skene Sweden Corrugated board and 35,000
boxes
Tallin Estonia Corrugated board and 5,000
boxes
Tiukka Finland Corrugated board and 10,000
boxes
Vikingstad Sweden Corrugated board and 20,000
boxes
Ensopack Ltd Barbados Liquid packaging 3,000
Market Pulp 2,410,000
Celbi Portugal Short fiber 280,000
Enocell Finland Short and long fiber 630,000
Gruvon Sweden Long fiber 70,000
Kemijarvi Finland Long fiber 215,000
Kerayskuitu Finland Deinked pulp 70,000
Norrsundet Sweden Long fiber 295,000
Nymolla Sweden Long fiber 45,000
Oulu Finland Long fiber 60,000
Sachsen Germany Deinked pulp 65,000
Skutskar Sweden Short and long fiber 520,000
and fluff pulp
Sunila (50% interest) Finland Long fiber 160,000
<CAPTION>
Further
processing
Capacity (cubic capacity (cubic
Mill Location Grade/Product meters) in 2000 meters) in 2000
----------------------- -------------- ----------------------- --------------- ---------------
<S> <C> <C> <C> <C>
Timber Products 5,055,000 1,280,000
Ala Sweden Redwood 355,000 10,000
Amsterdam Netherlands -- -- 110,000
Bad St. Leonhard Austria Central European Timber 260,000 --
Brand Austria Central European Timber 255,000 180,000
Gruvon Sweden Whitewood, Redwood 300,000 --
Honkalahti Finland Whitewood, Redwood 420,000 110,000
Kitee Finland Whitewood 360,000 --
Kopparfors Sweden Whitewood 245,000 --
Koski Finland Redwood 80,000 --
Kotka Finland Whitewood 240,000 60,000
Lamco Austria -- -- 100,000
Linghed Sweden Redwood 45,000 --
Plana Czech Republic Central European Timber 240,000 130,000
Sollenau Austria Central European Timber 305,000 180,000
Tolkkinen Finland Whitewood 270,000 --
Uimaharju Finland Redwood 270,000 --
Varkaus Finland Whitewood 310,000 --
Veitsiluoto Finland Redwood 210,000 --
Ybbs Austria Central European Timber 565,000 345,000
Zdirec Czech Republic Central European Timber 325,000 55,000
</TABLE>
97
<PAGE>
Stora Enso also owns 33% of a sawmill in Imavere, Estonia with a 260,000 cubic
meter capacity for whitewood and redwood. In addition to the facilities
presented in the table above, Stora Enso has 11 fine paper sheeting plants with
total annual capacity of 2,176,000 metric tons and ten board sheeting plants
with total annual capacity of 733,000 metric tons. Stora Enso also has four
research and development centers located in Finland, Sweden and Germany.
Legal Proceedings
From time to time, Stora Enso is a party to legal proceedings that arise in
the ordinary course of business. These lawsuits primarily involve claims
arising out of commercial law issues. Stora Enso is also involved in
administrative proceedings relating primarily to competition law.
Competition Law Proceedings
Newsprint Case. For the past five years, the Directorate-General IV of the
European Commission has been conducting an EU-wide investigation pertaining to
an alleged price cartel in the European newsprint market. On March 19, 1999,
the Directorate-General issued a statement of objections to Stora Enso and
Stora Enso Maxau GmbH & Co. KG, as successor to E. Holtzmann & Cie AG, and
informed the companies that it intended to pursue those producers of newsprint
which its analysis most strongly indicated were part of a suspected price
cartel from 1989 through 1995. On July 23, 1999, the companies replied to the
Directorate-General denying all allegations. Should the companies be found to
have participated in prohibited pricing behavior, they would likely be
subjected to a substantial fine. Management is not currently in a position to
predict the final outcome of this investigation or the timing of such outcome.
The Directorate-General has not specified any amount of fines or other relief,
if any, sought against the alleged participants and Stora Enso has not made any
provision for any potential liability.
Cooperation in Raw Wood Procurement. On June 4, 1999, the Finnish Competition
Authority issued a statement of objections regarding alleged cooperation in raw
wood procurement to some Finnish forest companies, including Stora Enso. The
statement of objections was based on complaints submitted to the Finnish
Competition Authority and subsequent investigations undertaken by the Finnish
Competition Authority at selected forest companies. According to the statement
of objections, the largest forest companies in Finland and the associations for
forest owners have exchanged company-specific information about their raw wood
procurement, including information about pricing. The Finnish Competition
Authority found that the forest companies may have agreed upon the price levels
for raw wood and divided sources of supply. Stora Enso's response is due in
September 2000.
Other Proceedings
Pollution of Soil in Amsterdam. Stora Timber Finance B.V. has been found
responsible for pollution of soil in part of the harbor of Amsterdam. Stora
Timber Finance B.V. has appealed the decision to the Court of Appeal of
Amsterdam. Management estimates that, in the event of an adverse decision by
the appeals court, the clean-up costs could amount to approximately NLG 5.4 to
NLG 13.3 million (approximately $2.4 million to $5.8 million). As of December
31, 1999, a total provision amounting to (Euro)2.5 million had been booked.
Except for the proceedings described above, Stora Enso has not been involved
in any legal, administrative or arbitration proceedings which management would
expect to have a material adverse effect on the financial condition or results
of operations of Stora Enso, nor, so far as management is aware, are any such
legal, administrative or arbitration proceedings pending or threatened.
However, the possibility of additional claims by competitors or other
proceedings, particularly in reliance on competition law, cannot be ruled out
and such claims or proceedings could have a material adverse effect on Stora
Enso's results of operations and financial condition.
98
<PAGE>
Management of Stora Enso
Pursuant to the provisions of the Finnish Companies Act and Stora Enso's
articles of association, the control and management of Stora Enso is divided
between the shareholders, through actions taken at general meetings of
shareholders, the board of directors and the chief executive officer. In
addition, Stora Enso's executive management group and management group assist
the chief executive officer in day-to-day management of Stora Enso. The
management group includes the members of the executive management group,
division heads and heads of staff functions.
Stora Enso's board of directors is responsible for the management of Stora
Enso and for the proper organization of Stora Enso's activities. The board of
directors establishes Stora Enso's strategy and organization, and accounting
and financial policies. The board also appoints the chairman of the board of
directors and the chief executive officer as well as other senior managers. The
chief executive officer, assisted by the executive management group, is
responsible for the day-to-day management of Stora Enso's affairs in accordance
with instructions and directives given by the board of directors. Measures
which are not within the ordinary course of Stora Enso's business may be taken
by the chief executive officer only if approved by the board of directors,
unless the delay required to obtain board approval would result in a
substantial disadvantage. In the latter case, the board of directors must be
informed as soon as practicable of the measures which have been taken.
Board of Directors
Stora Enso's board of directors consists of at least six and no more than ten
members. Currently there are ten board members, each of whom was elected by the
2000 annual general meeting of shareholders for a one year period ending with
the following annual general meeting of shareholders. Board members may be
appointed, or removed, only by a resolution of the general meeting of
shareholders. In connection with the merger, Stora Enso's shareholders will be
asked to approve a resolution to increase the maximum size of the board to 11
members and to elect George W. Mead to the board.
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<PAGE>
The following table lists the names of the members of Stora Enso's board of
directors, their principal occupation or employment and their year of birth:
<TABLE>
<CAPTION>
Year
Name Principal Occupation or Employment of Birth
---- ---------------------------------- --------
<S> <C> <C>
Claes Dahlback........................ Chairman of the Board of Stora Enso, 1947
Executive Vice Chairman of Investor AB
Krister Ahlstrom...................... Chairman of MNB Maizels Oy and Vice 1940
Chairman of Fortum Oyj
Vice Chairman of the Board of Stora
Enso
Josef Ackermann....................... Member Group Board of Deutsche Bank AG 1948
Harald Einsmann....................... Member of the boards of Stora Enso, E M 1934
I Group plc, British American Tobacco
p.l.c. and Tesco plc
Bjorn Hagglund........................ Deputy Chief Executive Officer of Stora 1945
Enso
Jukka Harmala......................... Chief Executive Officer of Stora Enso 1946
Raimo Luoma........................... Partner of Asianajotoimisto Krogerus & 1959
Pirila Oy
Paavo Pitkanen........................ Managing Director of Varma-Sampo Mutual 1942
Pension Insurance Company
Jan Sjoqvist.......................... President and Chief Executive Officer of 1948
NCC AB
Marcus Wallenberg..................... President and Chief Executive Officer of 1956
Investor AB
</TABLE>
All of Stora Enso's directors have served on the board since the combination
of STORA and Enso in 1998. As described under "--Management Biographies" below,
most of the directors had served as members of either the STORA board or the
Enso board prior to the 1998 combination.
Management Group
The following table lists the names of the members of Stora Enso's executive
management group, their current responsibilities with Stora Enso and their year
of birth:
<TABLE>
<CAPTION>
Year
Name Responsibility of Birth
---- -------------- --------
<S> <C> <C>
Jukka Harmala......................... Chief Executive Officer 1946
Bjorn Hagglund........................ Deputy Chief Executive Officer 1945
Kimmo Kalela.......................... Senior Executive Vice President, 1941
Strategy and Business Development
Esko Makelainen....................... Senior Executive Vice President, 1946
Financial Control and Legal Affairs
Ingvar Petersson...................... Senior Executive Vice President, 1941
Finance, IT and Base Resources
Yngve Stade........................... Senior Executive Vice President, 1947
Corporate Support
Bernd Rettig.......................... Senior Executive Vice President, 1956
Magazine Paper
Kai Korhonen.......................... Senior Executive Vice President, 1951
Newsprint
Jouko Taukojarvi...................... Senior Executive Vice President, Fine 1941
Paper
Pekka Laaksonen....................... Senior Executive Vice President, 1956
Packaging Board
</TABLE>
100
<PAGE>
The following table lists the names of other senior executives who are
members of Stora Enso's management group, their current responsibilities with
Stora Enso and their year of birth:
<TABLE>
<CAPTION>
Year
Name Responsibility of Birth
---- -------------- --------
<S> <C> <C>
Sten Holmberg......................... Executive Vice President, Continuous 1948
Productivity Improvement
Kari Vainio........................... Executive Vice President, Communications 1946
and Investor Relations
Lars Bengtsson........................ Executive Vice President, Fine Paper 1945
Christer Agren........................ Executive Vice President, Human 1954
Resources
Arno Pelkonen......................... Executive Vice President, Timber 1954
Products
Bert Ostlund.......................... Executive Vice President, Pulp 1948
Sven Rosman........................... Executive Vice President, Merchants 1945
Seppo Hietanen........................ Executive Vice President, Asia Pacific 1945
Jyrki Kurkinen........................ Senior Vice President, Legal Affairs 1948
Magnus Diesen......................... Senior Vice President, Corporate 1944
Strategy and Investments
Sten von Holst........................ Senior Vice President, Corporate 1948
Marketing and Sales
</TABLE>
All of the members of Stora Enso's management group have served in their
capacities since the combination of STORA and Enso in 1998. As described under
"--Management Biographies" below, most of the members of the management group
had served as members of either STORA management or Enso management prior to
the 1998 combination.
Management Biographies
Board of Directors
Claes Dahlback has acted as the chairman of Stora Enso's board of directors
since December 1998. He is the executive vice chairman of Investor AB. Mr.
Dahlback is also the chairman of Vin & Sprit AB, Gambro AB and EQT Partners AB
and vice chairman of Skandinaviska Enskilda Banken AB. Prior to the 1998
combination of STORA and Enso, Mr. Dahlback served as a member of the STORA
board of directors beginning in May 1990. Mr. Dahlback holds a Master of
Science degree in Economics as well as an honorary doctorate degree.
Krister Ahlstrom has acted as the vice chairman of Stora Enso's board of
directors since December 1998. He was formerly chairman of the board and
president and chief executive officer of A. Ahlstrom Corporation. Mr. Ahlstrom
is also chairman of the board of MNB Maizels Oy, vice chairman of Fortum Oyj, a
member of the supervisory board of Merita Bank PLC and a member of the board of
directors of NKT Holding A/S, as well as of the boards of several other
industrial companies, academic institutions and foundations. Prior to the 1998
combination of STORA and Enso, Mr. Ahlstrom served as a member of Enso's
supervisory board beginning in May 1993. Mr. Ahlstrom holds a Master of Science
degree in Engineering as well as an honorary doctorate degree.
Josef Ackermann has been a member of the Group Board of Deutsche Bank AG
since October 1996. Mr. Ackermann is also a member of the supervisory boards of
Linde AG, SAairGroup AG, Eurex Frankfurt AG, Eurex Zurich AG and Mannesmann AG.
He has been a member of Stora Enso's board of directors since December 1998.
Dr. Ackermann holds a Doctorate degree in Economics.
Harald Einsmann is a member of the boards of EMI Group plc, British American
Tobacco p.l.c. and Tesco plc as well as a member of the advisory board of
Boston University in Brussels. Prior to the 1998
101
<PAGE>
combination of STORA and Enso, he was a member of the STORA board of directors
beginning in March 1998. Mr. Einsmann holds a Doctor of Philosophy degree in
Business Administration.
Bjorn Hagglund has acted as the deputy chief executive officer of Stora Enso
since December 1998. Previously, he was the chief executive officer of STORA
from March 1998 until December 1998 and the president of STORA Forest Timber
from January 1991 until March 1998. Mr. Hagglund is also chairman of the board
of the Employers' Federation of Swedish Forest Industries and a member of the
boards of the Federation of Swedish Industries, the Swedish Employers'
Confederation and the Swedish University of Agricultural Sciences. In addition,
he is a member of the Royal Swedish Academy of Engineering Sciences and the
Royal Swedish Academy of Agriculture and Forestry. Mr. Hagglund holds a Doctor
of Philosophy degree in Forestry.
Jukka Harmala has acted as the chief executive officer of Stora Enso since
December 1998. Mr. Harmala is the chairman of the board of Sampo Insurance
Company plc, vice chairman of the supervisory board of Varma-Sampo Mutual
Pension Insurance Company, a member of the supervisory board of Merita Bank PLC
and vice chairman of the boards of directors of Finnlines Plc and Pohjolan
Voima Oy. He is also the chairman of the Confederation of Finnish Industry and
Employers and a member of the board of directors of the Finnish Forest Industry
Federation. He was employed by Enso from April 1970 to February 1984, and
rejoined Enso in September 1988, having been in the interim the senior vice
president and a member of the board of management of Kansallis-Osake-Pankki, a
predecessor of Merita Bank PLC. Prior to the 1998 combination of STORA and
Enso, he was the president and chief operating officer of Enso from September
1988 through December 1991 and the chief executive officer from January 1992
through December 1998. Mr. Harmala holds a Bachelor of Science degree in
Economics and Business Administration as well as an honorary doctorate degree
in engineering.
Raimo Luoma is a partner in Asianajotoimisto Krogerus & Pirila Oy. He has
been a member of the board of directors of Stora Enso since December 1998. Mr.
Luoma holds a Master of Laws degree.
Paavo Pitkanen is the president and chief executive officer of Varma-Sampo
Mutual Pension Insurance Company and has been a member of the board of
directors of Stora Enso since December 1998. In addition, he is a member of the
supervisory boards of Instrumentarium Oyj and Kesko Oyj, the vice chairman of
the supervisory board of Alma Media Corporation and a member of the boards of
directors of Metra Corporation, Partek Corporation and Sampo Insurance Company
plc, as well as a member of the boards of directors of several other insurance
companies and institutions. Prior to the 1998 combination of STORA and Enso,
Mr. Pitkanen was a member of Enso's board of directors beginning in October
1994. Mr. Pitkanen holds a Master of Science degree in Mathematics.
Jan Sjoqvist is the president and chief executive officer of NCC AB, a
Swedish construction company. In addition, Mr. Sjoqvist is a member of the
boards of directors of NCC AB and SSAB Oxelosund AB. Prior to the 1998
combination of STORA and Enso, he served as a member of the STORA board of
directors from March 1997 until December 1998. Mr. Sjoqvist holds a Master's
degree in Business Administration.
Marcus Wallenberg is the chief executive officer and the president of
Investor AB. Mr. Wallenberg is the vice chairman of Telefonaktiebolaget LM
Ericsson and Saab AB. In addition, he is a member of the boards of directors of
AstraZeneca Plc, Scania AB, Skandinaviska Enskilda Banken AB, SAS Assembly of
Representatives and the Knut and Alice Wallenberg Foundation. Prior to the 1998
combination of STORA and Enso, Mr. Wallenberg served as a director of STORA
beginning in March 1998. From August 1990 until June 1993, Mr. Wallenberg
served as a Vice President at Store Feldmuhle AG, a subsidiary of STORA. Mr.
Wallenberg holds a Bachelor of Science degree in Foreign Service.
As described above, Stora Enso's shareholders will be asked to elect George
W. Mead to the Stora Enso board in connection with the merger.
102
<PAGE>
George W. Mead is the chairman of the board of Consolidated and a director of
Snap-on Incorporated, a manufacturer and distributor of hand tools and related
items. He has served as a director of Consolidated since 1963.
Management Group
Kimmo Kalela has acted as the senior executive vice president, strategy and
business development, of Stora Enso since December 1998. Previously he was a
member of the board of directors of Enso from January 1991 until December 1998,
a deputy member of the board from June 1989 until December 1990, the president
of the Publication Paper Division of Enso from September 1987 until December
1998, the managing director of Enso's Summa mill from September 1986 until June
1989 and the deputy managing director of Enso's Kymenlaakso Paper Industry from
March 1986 until August 1986. He is a member of the boards of directors of
Siemens Osakeyhtio and the Finnish Forest Industries Federation. He joined Enso
in 1986 and is a member of the boards of directors of a number of Stora Enso's
subsidiaries and associated companies. He holds a Master of Science degree in
Engineering.
Esko Makelainen has acted as the senior executive vice president, financial
control and legal affairs, of Stora Enso since December 1998. Previously, he
was the executive vice president and a member of the board of directors of Enso
from January 1992 until December 1998, the vice president and the head of the
corporate accounting department of Enso from November 1983 until December 1991,
the head of the budgeting department of Enso from May 1977 until October 1983,
the head of the accounting department from December 1976 until April 1977, and
the head of the accounting department of the Kotka mills of Enso from November
1970 until December 1976. Mr. Makelainen is a member of the supervisory board
of Sampo Life Insurance Company Limited and a member of the board of directors
of Leonia plc and Garantia Insurance Company Ltd. He joined Enso in 1970 and is
a member of the boards of directors of a number of Stora Enso's subsidiaries
and associated companies. He holds a Master of Science degree in Economics and
Business Administration.
Ingvar Petersson has acted as the senior executive vice president, finance,
IT and base resources, of Stora Enso since December 1998. Previously, he was
the executive vice president of STORA from October 1986 until December 1998.
Mr. Petersson is a member of the board of the OM Stockholm Exchange AB and FPG
International LLC. He joined STORA in 1986 and is a member of the boards of
directors of a number of Stora Enso's subsidiaries and associated companies.
Yngve Stade has acted as the senior vice president, corporate support, of
Stora Enso since December 1998. Previously, he was the senior vice president of
STORA and the president of STORA Corporate Research from March 1994 until
December 1998. He is the chairman of the board of Swedish Association of Pulp
and Paper Engineers, vice chairman of Royal Swedish Academy of Engineering
Sciences and a member of the board of the Swedish Forest Industries
Association. He joined STORA in 1994 and is a member of the boards of directors
of a number of Stora Enso's subsidiaries and associated companies. He holds a
Master of Science degree in Engineering.
Bernd Rettig has acted as the senior executive vice president, magazine
paper, of Stora Enso since April 1999. He was the managing director of Stora
Enso Kabel GmbH from June 1996 until March 1999 and the managing director of
Stora Reisholz GmbH from January 1992 until May 1996. He joined STORA in 1982
and is a member of the boards of directors of a number of Stora Enso's
subsidiaries and associated companies. He holds a Master of Science degree in
Engineering.
Kai Korhonen has acted as the senior executive vice president, newsprint, of
Stora Enso since December 1998. Previously, he was the vice president,
marketing, of Enso Publication Papers Oy Ltd from January 1996 until December
1998, managing director of Sachsen Papier Eilenburg GmbH from January 1993
until February 1996 and senior vice president, corporate planning, of Enso from
March 1991 until December 1992. He joined the Vathaus Mill of Enso (previously,
A. Antstrom Osaueyhtio) in May 1977 and served there in various positions until
February 1991. He is a member of the boards of directors of a number of Stora
Enso's subsidiaries and associated companies. He holds a Master of Science
degree in Engineering and a Master
103
<PAGE>
degree in Business Administration. On June 29, 2000, Stora Enso announced that
Mr. Korhonen will have supervisory responsibility for Stora Enso's North
American operations, including all of Consolidated's operations.
Jouko Taukojarvi has acted as the senior executive vice president, fine
paper, of Stora Enso since December 1998. Previously, he was the president of
the Fine Papers division of Enso from January 1989 until December 1998. In
addition, he held the following previous positions in Enso: member of the board
of directors from January 1989 until December 1998, senior vice president from
May 1986 until December 1992, a deputy member of the board of directors from
May 1986 until December 1998, a vice president from January 1980 until April
1986, a general manager from September 1975 until December 1979, a budget
manager from December 1971 until August 1975, a controller from June 1965 until
November 1971 and ADP designer from June 1964 until May 1965. He joined Enso in
1964 and is a member of the boards of directors of a number of Stora Enso's
subsidiaries and associated companies. He holds both a Master of Science and a
Bachelor of Science degree in Economics and Business Administration.
Pekka Laaksonen has acted as the senior executive vice president, packaging
boards, of Stora Enso since December 1998. Previously, he was the executive
vice president of the packaging boards division of Enso from August 1993 until
December 1998, managing director of Enso (Deutschland) GmbH & Co. from January
1989 until August 1993, sales manager at Enso (Deutschland) from January 1986
until December 1988, a vice president of the plywood division of Enso from
September 1984 until December 1985, sales manager at Enso (Deutschland) from
August 1981 until August 1984 and an employee of the plywood division of Enso
from March 1979 until July 1981. He was also a member of the board of directors
of Enso from May 1996 until December 1998 and a deputy member of the board of
directors of Enso from August 1993 until April 1996. He joined Enso in 1979 and
is a member of the boards of directors of a number of Stora Enso's subsidiaries
and associated companies. He holds both a Master's degree and a Bachelor's
degree in Economics and Business Administration.
Sten Holmberg is the executive vice president, continuous productivity
improvement, of Stora Enso. He joined STORA in 1980. He holds a Master's degree
in Business Administration.
Kari Vainio is the executive vice president, communications and investor
relations, of Stora Enso. He joined Enso in 1985. He holds a Bachelor of
Science degree in Economics and Business Administration.
Lars Bengtsson is the executive vice president, fine paper, of Stora Enso. He
joined STORA in 1986. He holds a Master of Science degree in Technology.
Christer Agren is the executive vice president, human resources, of Stora
Enso. He is a member of the board of the Swedish Forest Industries Federation.
He joined STORA in 1993. He holds a Bachelor of Science degree in Economics.
Arno Pelkonen is the executive vice president, timber products, of Stora
Enso. He is a member of the board of directors of the Wood Products Industry of
the Finnish Forest Industries Federation. He joined Enso in 1984 and is a
member of the boards of directors of a number of Stora Enso's subsidiaries and
associated companies. He holds a Master of Science degree in Economics.
Bert Ostlund is the executive vice president, pulp, of Stora Enso. He is a
member of the boards of directors of a number of Stora Enso's subsidiaries and
associated companies. He joined STORA in 1986. He holds a Master's degree in
Business Administration
Sven Rosman is the executive vice president, paper merchants, of Stora Enso.
He joined STORA in 1991. He holds a Bachelor of Science degree in Business
Administration.
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<PAGE>
Seppo Hietanen is the executive vice president, Asia Pacific, of Stora Enso.
He joined Enso in 1976 and is a member of the boards of directors of a number
of Stora Enso's subsidiaries and associated companies. He holds a Bachelor of
Science degree in Economics and Business Administration.
Jyrki Kurkinen is the senior vice president, legal affairs, and the general
counsel of Stora Enso. He joined Enso in 1979 and is a member of the boards of
directors of a number of Stora Enso's subsidiaries and associated companies. He
holds a Master of Laws degree.
Magnus Diesen is the senior vice president, corporate strategy and
investments, of Stora Enso. He joined Enso in 1988 and is a member of the
boards of directors of a number of Stora Enso's subsidiaries and associated
companies. He holds a Master of Science degree in Engineering.
Sven von Holst is the senior vice president, corporate marketing and sales,
of Stora Enso. He was employed by STORA from 1974 to 1979, and joined Enso in
1981. He holds a Master of Science degree in Political Science.
Compensation of Directors and Executive Management Group
For the year ended December 31, 1999, the aggregate remuneration, including
benefits in kind, paid to the members of Stora Enso's board of directors and
executive management group, as a group (18 persons), was approximately
(Euro)4.2 million, which includes bonuses determined by the compensation
committee of the board of directors based on Stora Enso's performance. In the
case of executive officers who are members of the executive management group
this compensation was primarily in the form of salaries. In the case of non-
executive directors this compensation was primarily in the form of directors'
fees. In addition, Stora Enso accrued an aggregate of (Euro)1.3 million in 1999
for pension, retirement and similar benefits for the directors and members of
the executive management group.
Employment Agreements
Members of the executive management group and other executive officers have
entered into employment agreements with Stora Enso, which, among other things,
provide standard employment terms, including compensation and termination
provisions. Under these agreements, executive officers receive a base salary
and are eligible for a performance-based bonus on an annual basis. In addition,
all executive officers receive fringe benefits. Under the employment
agreements, employment can typically be terminated upon six months' notice,
after which each executive remains subject to a non-competition clause. Several
of Stora Enso's executive officers, including Messrs. Harmala and Hagglund, are
parties to employment agreements that provide for a fixed severance payment of
12 months' salary and, under specified circumstances, an additional 12 months'
salary.
Equity-based Programs
On April 7, 1997, the shareholders of Enso, one of the predecessors of Stora
Enso, approved the issuance of bonds, with a maximum value of FIM 1,000,000, to
15 members of Enso's senior management. The bond loan, which was fully
subscribed, carries an annual four percent interest rate. Each FIM 1,000 bond
certificate carries one warrant conferring a right to subscribe for an
aggregate of up to 3,000 of Stora Enso's Series R shares. The warrants are
exercisable from December 1, 1998 through March 31, 2004 at an exercise price
of FIM 45.57 ((Euro)7.66) per Series R share. The maximum number of new Series
R shares that may be issued through the exercise of the warrants represents
less than one percent of Stora Enso's total share capital. At December 31,
1999, 276,000 Series R shares had been issued against the warrants out of the
maximum of 3 million Series R shares issuable pursuant to the warrants.
In 1999, Stora Enso established a synthetic option program which is an
integrated part of the top management compensation structure. Approximately 200
employees, primarily from senior management and
105
<PAGE>
selected specialist areas, participate in the program. Approximately 2.9
million options with a strike price of (Euro)11.75 per share, equal to 110% of
the average share price from May through July 1999, were issued under the 1999
program. In addition, on March 21, 2000, Stora Enso's board approved the
issuance of up to 3,000,000 additional synthetic options with a strike price of
(Euro)12.25 per share, equal to 110% of the average share price over the three-
day period prior to the annual general meeting on March 21, 2000. Each
synthetic option entitles the holder to cash compensation equal to the
difference between the strike price and the share price at the time of
exercise. The options last seven years. Stora Enso has financially hedged its
obligations under the option program against any increases in the share price.
The options are non-transferable and their exercise will not dilute existing
ownership interests.
106
<PAGE>
The following table sets forth the total number of shares, the number of
shares underlying warrants, and synthetic options beneficially held by each of
Stora Enso's directors and members of Stora Enso's executive management group
as of the date of this document:
<TABLE>
<CAPTION>
Number of
Number of Shares Series R shares
--------------------------------------------------------- underlying Number of
Series A shares Series R shares warrants synthetic options
---------------------------- ---------------------------- --------------- -----------------
Sole Voting or Beneficially Sole Voting or Beneficially
Investment Shared Voting Investment Shared Voting
Power Power Power Power
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Directors
Claes Dahlback(/1/).......... 2,541 61,991,786 19,529 15,900,962 -- --
Krister Ahlstrom............. 1,500 -- -- -- -- --
Josef Ackermann.............. -- -- 1,300 -- -- --
Harald Einsmann.............. -- -- -- -- -- --
Bjorn Hagglund............... 7,877 -- 14,618 -- -- 93,750
Jukka Harmala................ -- -- 4,500 -- 399,000 112,500
Raimo Luoma.................. -- -- -- -- -- --
Paavo Pitkanen(/2/).......... 3,800 19,438,606 -- 566,874 -- --
Jan Sjoqvist................. 508 -- 943 -- -- --
Marcus Wallenberg(/3/)(/4/).. 3,049 61,991,786 6,019 15,900,962 -- --
Executive Management
Group(/5/)
Kimmo Kalela................. -- -- -- -- 180,000 46,900
Esko Makelainen.............. 1,900 -- 3,169 -- 180,000 46,900
Ingvar Petersson............. 2,602 -- 9,227 -- -- 46,900
Yngve Stade.................. 254 -- 471 -- -- 46,900
Bernd Rettig................. -- -- -- -- -- 46,900
Kai Korhonen................. -- -- -- -- -- 46,900
Jouko Taukojarvi............. 1,000 -- -- -- 150,000 49,350
Pekka Laaksonen.............. -- -- -- -- 60,000 46,800
</TABLE>
--------
(1) Investor AB beneficially owns 61,991,786 Series A shares and 15,900,962
Series R shares. Mr. Dahlback is the executive vice chairman of Investor AB
and as a result may be deemed to share voting power with respect to the
Series A and Series R shares of Stora Enso beneficially owned by Investor
AB within the meaning of Rule 13d-3 under the Exchange Act. Mr. Dahlback
does not believe that he has the power to direct the voting of shares held
by Investor AB and disclaims beneficial ownership of these shares.
(2) The Sampo-Varma Group beneficially owns 19,438,606 Series A shares and
566,874 Series R shares. Mr. Pitkanen is the managing director of Varma-
Sampo Mutual Pension Insurance Company, an affiliate of the Sampo-Varma
Group, and as a result may be deemed to share voting power with respect to
the Series A shares of Stora Enso beneficially owned by the Sampo-Varma
Group within the meaning of Rule 13d-3 under the Exchange Act. Mr. Pitkanen
does not believe that he has the power to direct the voting of shares held
by the Sampo-Varma Group and disclaims beneficial ownership of these
shares.
(3) Includes 508 Series A shares and 1,304 Series R shares held by Mr.
Wallenberg's children.
(4) Investor AB beneficially owns 61,991,786 Series A shares and 15,900,962
Series R shares. Mr. Wallenberg is the chief executive officer and
president of Investor AB and as a result may be deemed to share voting
power with respect to the Series A and Series R shares of Stora Enso owned
by Investor AB within the
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meaning of Rule 13d-3 under the Exchange Act. Mr. Wallenberg does not
believe that he has the power to direct the voting of shares held by
Investor AB and disclaims beneficial ownership of these shares.
(5) Excludes members of the executive management group who are also directors.
Interest of Management in Transactions with Stora Enso
There have been no material transactions during the last three years to
which any director or executive officer of Stora Enso, or any ten percent
shareholder of Stora Enso, or any relative or spouse of any of these persons,
was a party. There is no significant outstanding indebtedness to Stora Enso by
any director or executive officer or ten percent shareholder.
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STORA ENSO MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The information in this section concerning Stora Enso's financial condition
and results of operations refers to Stora Enso's consolidated financial
statements included in this document. Stora Enso's consolidated financial
statements were prepared in accordance with International Accounting Standards,
called IAS. IAS differs in some respects from U.S. GAAP. A reconciliation of
amounts reported under IAS to the amounts determined under U.S. GAAP and a
discussion of the principal differences between IAS and U.S. GAAP is set out in
Note 28 to the Stora Enso Consolidated Financial Statements beginning on page
F-1 of this document.
Industry Overview
Introduction
The forest products industry is cyclical. Sales prices and capacity
utilization rates are strongly influenced by general business conditions.
Individual suppliers have very little influence on product sales cycles. As a
result, profitability is affected by general business conditions, prevailing
price levels, efficiency of operations, manufacturing costs and prevailing
exchange rates between producer and consumer countries.
In 1995 and 1996 the global paper and board markets were characterized by
volatility and uncertainty. In 1997, 1998 and 1999, the global paper and board
markets were more stable, growing modestly across the line. During the second
half of 1998, the paper market deteriorated slightly but, in general, improved
in the spring of 1999. In 1999, the demand for magazine papers increased by 2%
in Western Europe, and was unchanged in North America, as compared to 1998. In
the first quarter of 2000, European demand was significantly higher for light
weight coated and supercalendered paper grades than in the first quarter of
1999. In 1999, demand for newsprint increased by 4% in Western Europe, and by
2% in North America. The market for pulp improved in 1999 as a result of
increased demand and record low inventories and remained strong throughout the
first quarter of 2000. No new pulp mills were opened during 1999 but major
rebuilds increased long-fiber capacity by 300,000 metric tons. The consumption
of sawn timber and building products remained high for all of 1998. In 1999,
demand for redwood was weak while deliveries of whitewood and central European
timber increased, especially in North America and Japan.
Prices for magazine paper, fine paper and newsprint increased in 1998,
although price levels started to decline during the second half of the year. In
1999, prices remained on a slightly lower level compared to 1998 with the
exception of fine paper for which prices increased modestly towards the end of
the year. Prices for both coated and uncoated fine paper were also increased in
January 2000. In packaging boards, prices fell in 1998. Prices for packaging
board remained weak throughout the beginning of the 1999. Price increases were
introduced after the summer and further increased during the first quarter of
2000.
Market pulp prices increased by approximately 15% during the first half of
1998, but fell below the average 1997 price levels in the second part of the
year. In 1999, market prices for long-fiber pulp rose by 30% in U.S. dollar
terms and for short-fiber pulp by 61% in euro terms. The direct impact of the
fluctuation in market pulp prices on Stora Enso's overall profitability has
been minimal since a large proportion of the pulp requirements for its paper
and board operations are met by internal production.
Despite market trends, prices for timber products were slightly lower in 1998
than in 1997 as a result of increased price competition. In 1999, however,
prices for whitewood and central European timber increased by 13% and 9%,
respectively, over the 1998 prices. Prices for redwood were 5% lower in 1999
compared with 1998. Redwood prices increased in some markets during the first
quarter of 2000, but average prices were still lower than in the earlier
periods. Whitewood prices increased by 2% and central European sawn timber
prices increased by 4% during the three months ended March 31, 2000.
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Higher prices for printing and writing paper in 1998 led to increased
profitability throughout the industry. In 1999, despite modest declines in
market prices for paper products, increased deliveries helped maintain industry
profitability.
Industry participants have recently been more cautious about making
significant capital investments due to lower levels of profitability
experienced in 1996 and 1997, the increased economic uncertainty in Asia and
Russia in 1997 and 1998 and declining prices resulting from over-capacity in
the early 1990s. European and North American paper producers have increased
their capacity through restructuring, acquisitions and rebuilding existing
equipment, rather than through investments in new capacity. Only more recently
has new capacity been introduced in Europe and, to some extent, in Asia in the
areas of newsprint, fine paper, saw milling and pulp.
For some paper grades, European industry participants also face a potential
threat from producers in Asia and South America. Throughout the early 1990s,
Asian producers increased their investments in new capacity and their share of
world paper production rose. However, as a result of economic uncertainty in
the region, investments slowed considerably in 1997 and 1998 as lower demand in
Asia resulted in over-capacity. In 1999 and 2000, several new fine paper and
pulp mills were and are expected to be started up in Asia. New capacity may
temporarily disturb the balance between demand and supply.
Stora Enso's profitability is impacted by changes in sales prices and
delivery volumes of its products. Supply and demand affect competition and
create fluctuations in both prices and volumes. For example, a 5% increase or
decrease in the sales price of magazine paper would have a corresponding
(Euro)100 million effect on sales of Stora Enso and a 5% increase or decrease
in the production volume of magazine paper would have a corresponding (Euro)50
million effect on sales of Stora Enso. The effect of a similar increase or
decrease in the sales price or production volume for newsprint would be
(Euro)80 million and (Euro)40 million, respectively; for fine paper (Euro)120
million and (Euro)50 million, respectively; for packaging board (Euro)130
million and (Euro)60 million, respectively; and for sawn timber, (Euro)60
million and (Euro)10 million, respectively.
Stora Enso's operating profit is also affected by price and volume for its
different cost components. In 1999, Stora Enso's principal variable costs
related to transport and sales commissions, accounting for approximately 10% of
sales; wood and timber, accounting for approximately 12% of sales; chemicals
and filler, accounting for approximately 10% of sales; and energy, accounting
for approximately 7% of sales. Historically, these percentages have remained
relatively stable and have not varied significantly during the periods under
review below. Among fixed-cost components, personnel costs accounted for
approximately 17% of sales and depreciation amounted to approximately 8% of
sales in 1999. A 3% increase in payroll costs would increase Stora Enso's total
costs by approximately (Euro)50 million.
On April 19, 2000, Stora Enso entered into a new collective bargaining
agreement with the Finnish paper, mechanical pulp and forestry workers for the
three year period ending in January 2003. Prior to negotiation of the new
collective bargaining agreement, the Finnish paper, mechanical pulp and
forestry employees initiated a strike against all paper and forest products
companies in Finland, including Stora Enso. The strike lasted from April 11,
2000 to April 19, 2000 and resulted in the shutdown of all of Stora Enso's
production facilities in Finland. Management estimates that the strike resulted
in approximately (Euro)100 million in lost sales and approximately (Euro)40
million in lost operating profit for Stora Enso which will be reflected in
Stora Enso's results for the second quarter of 2000. As part of the new
collective bargaining agreement, Finnish paper, mechanical pulp and forestry
workers were granted a salary increase of 3-4% during the first year of the
term of the agreement and salary increases in line with the general salary
increases in Finland during the second and third year.
Recent Divestitures
Since the merger of STORA and Enso, Stora Enso has been actively streamlining
its operations and, as a part of these efforts, has divested non-core
businesses, such as its specialty papers operations and Pure-Pak processing
unit. Additionally, Stora Enso has agreed to sell its off-mill site energy
operations to Fortum Oyj. With these and other selective divestitures, Stora
Enso has increased its focus on its core businesses.
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<PAGE>
Specialty Papers. Consistent with its strategy of focusing on its core
businesses, in early 1999 Stora Enso sold its Tervakoski specialty papers unit
to Trierenberg AG, an Austrian paper manufacturer, and sold the fixed assets of
its Dalum specialty papers operations to a group of Danish investors. The gain
on the sale of Tervakoski unit was (Euro)24.5 million. No gain was recorded on
the sale of the Dalum assets because they had already been written down to net
realizable value in 1998. Effective December 31, 1998, Stora Enso sold 76% of
Stora Carbonless Paper GmbH and 56% of Stora Spezialpapiere GmbH. These
divestitures resulted in a loss of (Euro)20.6 million and a reduction of
(Euro)146 in Stora Enso's net debt. Upon completion of these transactions,
Stora Enso had effectively divested its specialty paper operations. The total
proceeds received by Stora Enso from these transactions amounted to (Euro)254.3
million.
Energy. On April 17, 2000 Stora Enso entered into an agreement to sell a
significant portion of its energy generation operations, including its shares
in affiliated hydro power and nuclear power generators entitling Stora Enso to
energy generation capacity, its regional power distribution networks and power
sales agreements to Fortum Oyj, a Finnish energy and petro-chemical company,
for a purchase price of approximately (Euro)1.8 billion, including the
assumption of approximately (Euro)1.2 billion in debt. The sale of the assets
located in Finland was completed on May 31, 2000 and the sale of the assets
located in Sweden was completed on June 5, 2000. As a result of the sale, Stora
Enso expects to record a gain on disposition of approximately (Euro)530 million
before tax and approximately (Euro)513 million after tax. The assets sold
include 1,511 MW of energy generation capacity, of which 1,096 MW was hydro
power, 301 MW was nuclear power and the remaining 114 MW was oil and coal
power. Approximately 200 employees were affected by the transaction.
In addition, in the second half of 1999, Stora Enso sold virtually all of its
Pohjolan Voima Oy Series C shares, which entitled Stora Enso to receive thermal
power from Pohjolan Voima, to Teollisuuden Sahkonmyynti as part of the
reorganization of its energy assets. As a result of the transaction, Stora
Enso's shareholding in Pohjolan Voima dropped to 16.5% and Pohjolan Voima is no
longer treated as an associated company. Management intends to divest Stora
Enso's remaining holding in Pohjolan Voima. Stora Enso continues to own power
plants located at its mill sites.
Property. In January 2000, Stora Enso sold its Stockholm office building for
a gain of (Euro)24 million.
Packaging Boards. In 1998, Stora Enso determined to sell or close down its
Molndal board production facility in Sweden. Stora Enso ceased board production
at the Molndal mill in April 2000. The Molndal paperboard manufacturing
machine's capacity was 45,000 metric tons. Approximately 200 employees were
affected by the shutdown.
Recent Acquisitions
In March 2000, Stora Enso's subsidiary Corenso United Oy Ltd entered into an
agreement with Huhtamaki Van Leer Oyj to acquire Huhtamaki's two tube plants in
The Netherlands and Sweden. The tubes are used in the paper industry and also
in household foil, fax paper and cash register applications. The aggregate 1999
annual sales of the two factories were approximately (Euro)8 million. In March
2000, Stora Enso also acquired the Finnish paper merchant, Paperi-Dahlberg Oy,
and the Norwegian paper merchant, Carl Emil A/S. The aggregate purchase price
paid by Stora Enso for the acquisitions of Huhtamaki's tube plants and the two
paper merchants amounted to (Euro)35.5 million.
On February 22, 2000, Stora Enso announced that it reached an agreement to
acquire Consolidated in a transaction valued at $4.9 billion. The transaction
is subject to the approval of the shareholders of both companies and
regulators.
Currency Fluctuations
Until 1999, most of the revenues, debts and receivables, and a significant
portion of the expenditures, of Stora Enso and its predecessors STORA and Enso
were denominated in currencies other than their respective
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accounting currencies, the Swedish krona and the Finnish markka. As a result,
fluctuations in exchange rates had a significant impact on the financial
results and competitiveness of Stora Enso and its predecessors. Until January
1, 1999, the biggest single currency risk related to fluctuations in exchange
rates for the Finnish markka, which was the accounting currency for Stora Enso
in 1998 and the accounting currency for Enso prior to the creation of Stora
Enso.
On January 1, 1999, member states of the European Union participating in
Stage Three of the EMU, including Finland, adopted a single currency, the euro,
and from the same date Stora Enso changed its accounting currency to the euro.
Since its introduction, the euro has increasingly been used as a pricing
currency, although sales also often take place in the customer's own currency.
Additionally, long-fiber chemical pulp is generally priced in U.S. dollars. In
general, the introduction of the euro has reduced Stora Enso's exposure to
exchange rate fluctuations. Stora Enso remains subject to currency exchange
risk on the cost side mainly related to fluctuations in exchange rates for the
Swedish krona, and on the income side, mainly related to fluctuations in
exchange rates for the U.S. dollar and British pound sterling. The distribution
of sales and operating costs, by currency, converted into euros, for the year
ended December 31, 1999 is set forth in the table below.
<TABLE>
<CAPTION>
Sales Operating costs
------------------------ ------------------------
Amount % Amount %
-------------------- --- -------------------- ---
((Euro) in billions) ((Euro) in billions)
<S> <C> <C> <C> <C>
Currency
Euro.................... 5.8 55 5.3 57
Swedish krona........... 0.9 8 1.9 21
British pound sterling.. 1.3 12 0.3 3
U.S. dollar............. 1.7 16 0.9 10
Canadian dollar......... 0.1 1 0.3 3
Other................... 0.8 8 0.5 5
---- --- --- ---
Total................. 10.6 100 9.2 100
==== === === ===
</TABLE>
Transaction risk is the risk that Stora Enso's profit could be affected as a
result of foreign exchange movements. Stora Enso hedges up to six months of its
currency flows outside the euro area, with the exceptions of the British pound
sterling and the U.S. dollar. These exceptions constitute a substantial
exposure for Stora Enso and may accordingly be hedged for a period covering up
to 12 months of currency flows. For a more detailed discussion of Stora Enso's
management of exchange rate risks, see "--Quantitative and Qualitative
Disclosures about Market Risks" below.
The euro was introduced as an account currency on January 1, 1999, when final
conversion rates for the euro and the currencies of the European Union member
states participating in Stage Three of the EMU became effective. For Finnish
markka, the irrevocable conversion rate is FIM 5.94573 to one euro. During
1999, the U.S. dollar increased in value against the euro by 13.9% when
comparing the noon buying rates of January 4, 1999 and December 31, 1999. As a
result of the weakening of the euro against the U.S. dollar, the U.S. dollar
also increased in value against the euro by 13.9%. The British pound sterling
also increased in value against the euro by 11.9% in 1999. See "Currency and
Exchange Rate Information" for information about historical euro/U.S. dollar
and Swedish krona/U.S. dollar exchange rates.
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Results of Operations
The tables below present sales and operating profit of Stora Enso's various
product areas for the three most recent years.
Sales by product area
<TABLE>
<CAPTION>
Three months
Year ended December 31, ended March 31,
---------------------------- ------------------
1997 1998 1999 1999 2000(/1/)
-------- -------- -------- ------- ---------
((Euro) in
((Euro) in millions) millions)
<S> <C> <C> <C> <C> <C>
Magazine paper............... 1,475.8 1,851.8 1,950.4 436.5 500.0
Newsprint.................... 1,534.1 1,693.7 1,641.8 410.6 416.0
Fine paper................... 1,813.5 2,003.8 2,163.2 525.8 637.6
Packaging boards............. 2,485.5 2,396.9 2,341.5 564.8 661.8
Timber products.............. 722.2 733.9 1,140.0 247.8 298.1
Market pulp.................. 958.7 846.6 957.8 208.3 330.7
Paper merchants.............. 800.4 830.3 787.2 205.7 225.4
Forest operations............ 1,616.8 1,645.9 1,630.3 423.1 508.1
Elimination of internal
sales; other
operations(/2/)............. (2,081.6) (2,104.7) (2,153.9) 482.5 (619.2)
-------- -------- -------- ------- -------
Continuing operations total.. 9,325.4 9,898.2 10,458.3 2,540.1 2,958.5
Divested paper units......... 415.8 399.3 24.7 24.7 --
Discontinued operations,
energy...................... 530.3 481.2 506.0 150.5 116.4
Internal sales, energy....... (273.4) (289.1) (353.3) (100.6) (83.2)
-------- -------- -------- ------- -------
Total...................... 9,998.1 10,489.6 10,635.7 2,614.7 2,991.7
======== ======== ======== ======= =======
</TABLE>
--------
(1) The figures for the three months ended March 31, 1999 and 2000 are
unaudited.
(2) Other operations include the results of units that are not within Stora
Enso's product areas, such as separate transportation and sales and
distribution companies.
Operating profit (loss) by product area
<TABLE>
<CAPTION>
Three months
Year ended December 31, ended March 31,
---------------------------------------------------------------------- ---------------
1997 1998 1999 1999 2000(/1/)
-------------------- --------------------- ---------------------- ----- ---------
((Euro) in
((Euro) in millions) millions)
Excluding Excluding Excluding
non-recurring non-recurring non-recurring
items items items
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Magazine paper.......... 76.8 85.9 238.8 276.3 287.6 287.6 59.3 67.2
Newsprint............... 164.2 192.0 292.3 302.9 299.1 299.1 73.6 61.0
Fine paper.............. 143.1 143.1 106.9 190.4 204.3 193.8 41.4 102.6
Packaging boards........ 208.4 234.8 61.8 209.1 193.1 188.0 46.8 81.0
Timber products......... 50.3 50.3 3.2 10.4 41.0 37.9 4.4 22.4
Market pulp............. 29.4 29.4 (18.0) 9.7 106.1 94.9 (4.1) 105.7
Paper merchants......... 5.4 5.4 (22.9) 2.0 0.5 0.5 0.5 4.1
Forest operations....... 111.2 111.2 108.8 111.0 141.1 141.1 25.8 33.0
Other operations(/2/)... (17.3) (28.6) (117.7) (40.2) (38.2) (38.2) (5.6) (13.3)
----- ----- ------ ------- ------- ------- ----- -----
Continuing operations
total.................. 771.5 823.5 653.2 1,071.6 1,234.6 1,204.7 242.1 463.7
Divested paper units.... 4.7 4.7 (59.0) (6.4) 22.9 (1.6) (1.6) --
Discontinued operations,
energy................. 123.7 123.7 114.5 114.5 150.9 102.7 40.0 26.6
Non-recurring items..... -- (52.0)(/3/) -- (471.0)(/4/) -- 102.6(/5/) 24.5 24.0
----- ------- ------- ----- -----
Total.................. 899.9 899.9 708.7 708.7 1,408.4 1,408.4 305.0 514.3
===== ===== ====== ======= ======= ======= ===== =====
</TABLE>
--------
(1) The figures for the three months ended March 31, 1999 and 2000 are
unaudited.
(2) Includes non-allocated corporate overhead items and elimination of group
internal margin in consolidation.
(3) The non-recurring items for 1997 consist mainly of a gain on sale of Stora
Reinsurance SA, loss on sale of Arnsberg, write-downs of assets in
connection with the shutdown of the paper machine at Stora
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<PAGE>
Langerbrugge, a provision made in connection with the shutdown of the
sulfite pulp production plant at Stora Port Hawkesbury and provisions made
for additional pension obligations.
(4) The non-recurring items for 1998 consist mainly of losses on sale of
business operations in Stora Carbonless, Stora Spezialpapiere and shares
in Svenska Dagbladet, a write-down of inventories in Skoghall, a
reimbursement of capital tax, effects of shortening the remaining useful
lives of some long-lived assets, impairment losses on long-lived assets,
provisions for early retirement pension obligations and termination
benefits, provisions made in connection with termination of agency and
lease agreements, environmental liabilities and direct merger costs.
(5) The non-recurring items for 1999 consist mainly of gains on sale of shares
and business operations.
The Three Months Ended March 31, 2000 Compared to the Three Months Ended
March 31, 1999
Sales
Group. Stora Enso's sales were (Euro)2,991.7 million for the three months
ended March 31, 2000, an increase of (Euro)377 million, or 14.4%, over sales
of (Euro)2,614.7 million for the comparable period in 1999. The increase in
sales was attributable primarily to increased product prices and delivery
volumes. Paper and board deliveries during the three months ended March 31,
2000 amounted to a total of 3,082,000 metric tons, as compared to deliveries
of 2,927,000 metric tons during the comparable period in 1999. Prices for fine
paper and pulp in particular were higher than during the same period last
year. Strengthening of the U.S. dollar, British pound and Swedish krona
relative to the euro accounted for approximately 25% of the sales increase.
The acquisition of paper merchants Carl Emil A/S and Paperi-Dahlberg Oy in
1999 also had a positive effect on sales made by the paper merchants operating
unit during the three months ended March 31, 2000. Sales increased in all
product areas except energy, where the market price for electricity was lower
during the three months ended March 31, 2000 than during the comparable period
in 1999. Sales for the three months ended March 31, 1999 included (Euro)25
million in sales by the Tervakoski and Dalum mills until their divestiture in
February 1999. The product area discussions below include internal sales.
Magazine Paper. Sales of magazine paper were (Euro)500.0 million for the
three months ended March 31, 2000, an increase of (Euro)63.5 million, or
14.5%, over sales of (Euro)436.5 million for the comparable period in 1999.
The increase was attributable to increased demand in Europe for both light
weight coated and supercalendered paper grades. In the three months ended
March 31, 2000, demand for light weight coated grades and supercalendered
grades in Europe was 13% and 9% higher, respectively, than in the comparable
period in 1999. During the first quarter of 2000, price increases of 1-3% were
implemented for light weight coated grades. Prices for supercalendered paper
grades remained largely unchanged. Deliveries of magazine papers totaled
676,000 tons for the three months ended March 31, 2000, as compared to 616,000
tons for the comparable period in 1999.
Newsprint. Sales for newsprint were (Euro)416.0 million for the three month
period ended March 31, 2000, a slight increase over sales of (Euro)410.6
million for the comparable period in 1999. This increase was caused by higher
price levels, which more than offset the impact of slightly lower delivery
volumes. Deliveries of newsprint totaled 759,000 tons for the three months
ended March 31, 2000, as compared to 779,000 tons for the comparable period in
1999.
Fine Paper. Sales of fine paper were (Euro)637.6 million for the three
months ended March 31, 2000, an increase of (Euro)111.8 million, or 21.3%,
over sales of (Euro)525.8 for the comparable period in 1999. The increase was
attributable to both increased deliveries and higher sales prices. Deliveries
of fine paper totaled 771,000 tons for the three months ended March 31, 2000,
as compared to 740,000 tons for the comparable period in 1999.
Packaging Boards. Sales of packaging boards were (Euro)661.8 million for the
three months ended March 31, 2000, an increase of (Euro)97.0 million, or
17.2%, over sales of (Euro)564.8 million for the comparable period in 1999.
The increase was attributable primarily to increased deliveries as well as
higher sales prices. Deliveries of packaging boards totaled 876,000 tons for
the three months ended March 31, 2000, as compared to 782,000 tons for the
comparable period in 1999.
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<PAGE>
Timber Products. Sales of timber products were (Euro)298.1 million for the
three month period ended March 31, 2000, an increase of (Euro)50.3 million, or
20.3%, over sales of (Euro)247.8 million for the comparable period in 1999. The
increase was attributable primarily to increased deliveries and higher sales
prices. Sawn timber deliveries for the three months ended March 31, 2000
totaled 1,159,000 cubic meters, as compared to 1,035,000 cubic meters for the
comparable period in 1999. The sales of the timber products business were
negatively affected by low log availability due to a strike by harvesters in
Finland.
Market Pulp. Sales of market pulp amounted to (Euro)330.7 million for the
first three months of 2000, an increase of (Euro)122.4 million, or 58.7%, over
sales of (Euro)208.3 million for the comparable period in 1999. The increase
was primarily attributable to significantly higher prices and increased
delivery volumes which more than offset the negative impact of the transport
and chemical industry strikes in Finland. Market pulp deliveries to external
customers outside Stora Enso totaled 305,000 tons for the three months ended
March 31, 2000, as compared to 335 million tons for the comparable period in
1999.
Paper Merchants. Sales by paper merchants were (Euro)225.4 million for the
three months ended March 31, 2000, an increase of (Euro)19.7 million, or 9.6%,
over sales of (Euro)205.7 for the comparable period in 1999. The acquisition of
merchants Carl Emil A/S and Paperi-Dahlberg Oy contributed (Euro)17 million to
the increase in the sales by paper merchants during the first quarter of 2000.
In addition, generally higher price levels had a beneficial impact.
Forest Operations. Sales by forest operations were (Euro)508.1 million for
the three month period ended March 31, 2000, an increase of (Euro)85.0 million,
or 20.1%, over sales of (Euro)423.1 million for the comparable period in 1999.
The increase was attributable primarily to the acquisition of Sydved AB, a
previously partly-owned procurement company in Sweden, and high delivery
volumes.
Energy. Energy sales amounted to (Euro)116.4 million for the three months
ended March 31, 2000, a decrease of (Euro)34.1 million, or 22.7%, over sales of
(Euro)150.5 for the comparable period in 1999. The consumption of electric
power in the mills of Stora Enso remained at levels similar to those consumed
in the first quarter of 1999. Energy prices for the three months ended March
31, 2000 have been lower than the average for 1999.
Elimination of Internal Sales; Other Operations. Elimination of internal
sales, offset by other operations, amounted to (Euro)619.2 million for the
three months ended March 31, 2000 as compared to (Euro)482.5 million for the
comparable period in 1999. This was caused by higher prices for pulp for
internal pulp deliveries.
Operating Profit
Group. The operating profit for the three month period ended March 31, 2000
amounted to (Euro)514.3 million, an increase of (Euro)209.3 million, or 68.6%,
over operating profit of (Euro)305.0 million for the comparable period in 1999.
This increase was due primarily to increased sales resulting from higher sales
prices and volumes, partly offset by the negative impact of higher prices for
recycled paper, which rose by over 60% compared with the corresponding period
in 1999. The operating profit was 17.4% of sales, 5.7 percentage points higher
than for the comparable period in 1999. Profitability improved during the first
quarter of 2000 as prices and volumes in all divisions except newsprint and
energy were better than in the first quarter of 1999. Also, higher-than-
expected synergy benefits resulting from the merger of STORA and Enso had a
beneficial effect on profitability.
Magazine Paper. For the three months ended March 31, 2000, the operating
profit for the magazine paper product area was (Euro)67.2 million, an increase
(Euro)7.9 million, or 13.3% over operating profit of (Euro)59.3 million for the
comparable period in 1999. This increase was due to higher sales which more
than offset the impact of higher costs for chemical pulp and recycled paper.
Newsprint. The operating profit for the newsprint product area was (Euro)61.0
million for the three months ended March 31, 2000, a decrease of (Euro)12.6
million, or 17.1%, over operating profit of (Euro)73.6 million for the
comparable period in 1999. The decrease was attributable primarily to the
rising cost of recycled paper and the
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strengthening of the Swedish krona against the euro. This decrease was
principally caused by the higher price level for recycled fiber during the
first quarter of 2000. In addition, transport and chemical industry strikes in
Finland had a negative impact of (Euro)1 million on the result for the first
quarter of 2000.
Fine Paper. The operating profit for the fine paper product area was
(Euro)102.6 million for the three months ended March 31, 2000, an increase of
(Euro)61.2 million, or 147.8%, over operating profit of (Euro)41.4 million for
the comparable period in 1999. The increase was attributable primarily to
increased sales and profitability due to higher prices for coated and uncoated
fine papers, which more than offset the negative impact of higher prices for
market pulp.
Packaging Boards. The operating profit for the packaging boards product area
was (Euro)81.0 million for the three months ended March 31, 2000, an increase
of (Euro)34.2 million, or 73.1%, over operating profit of (Euro)46.8 million
for the comparable period in 1999. This increase was caused primarily by the
higher level of sales and the improved cost structure resulting from the higher
rate of utilization.
Timber Products . The operating profit for the timber products product area
was (Euro)22.4 million for the three months ended March 31, 2000, an increase
of (Euro)18.0 million over the operating profit of (Euro)4.4 million for the
comparable period in 1999. This increase was caused primarily by higher sales.
In addition, improved margins and the beneficial effect of the strengthening of
the U.S. dollar contributed to the increase. The impact of these factors more
than offset the negative impact of somewhat higher production costs in the
Nordic countries.
Market Pulp. The operating profit for the market pulp product area was
(Euro)105.7 million for the three months ended March 31, 2000, an increase of
(Euro)109.6 million over the operating loss of (Euro)4.1 million for the
comparable period in 1999. This improvement was attributable primarily to the
high demand and limited inventories of pulp which increased the sales prices.
The transport and chemical industry strikes in Finland had a negative impact of
approximately (Euro)1 million on the result.
Paper Merchants. The operating profit for the paper merchants operating unit
was (Euro)4.1 million for the three months ended March 31, 2000, an increase of
(Euro)3.6 million over operating profit of (Euro)0.5 million for the comparable
period in 1999.
Forest Operations. The operating profit for the forest operations was
(Euro)33.0 million for the three month period ended March 31, 2000, an increase
of (Euro)7.2 million, or 27.9%, over operating profit of (Euro)25.8 million for
the comparable period in 1999. The negative impact of reduced felling in Stora
Enso's forests and lower capital gains was more than offset by the positive
impact of Stora Enso's acquisition of the remaining shares in Sydved AB and its
inclusion in the results.
Energy. The operating profit for the energy unit was (Euro)26.6 million for
the three months ended March 31, 2000, a decrease of (Euro)13.4 million, or
33.5%, over operating profit of (Euro)40.0 million for the comparable period in
1999. This decrease was caused by the lower prevailing prices for electricity.
Other Operations. Operating loss from other operations amounted to (Euro)13.3
million for the three months ended March 31, 2000, as compared to operating
loss of (Euro)5.6 million for the comparable period in 1999.
Financial Items
Net financial expense was (Euro)68.7 million for the three months ended March
31, 2000, a decrease of 5.6% as compared to (Euro)72.8 million for the
comparable period in 1999.
Profit
Profit before taxes and minority interests was (Euro)451.4 million for the
three month period ended March 31, 2000, an increase of (Euro)218.8 million, or
94.1%, over profit before taxes and minority interests of (Euro)232.6 million
for the comparable period in 1999. Income taxes for the three months ended
March 31, 2000 amounted to
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(Euro)149.8 million, compared to income taxes of (Euro)74.5 million for the
comparable period in 1999. Stora Enso's effective tax rate for the three months
ended March 31, 2000 was 33%, as compared with 32% for the comparable period in
1999. Minority interests on profit for the three months ended March 31, 2000
amounted to (Euro)7.4 million, compared to (Euro)2.6 million for the comparable
period in 1999. Net profit was (Euro)294.2 million for the three months ended
March 31, 2000, an increase of (Euro)138.7 million, or 89.2%, as compared with
net profit of (Euro)155.5 million for the comparable period in 1999.
The Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998
Sales
Group. Stora Enso's sales were (Euro)10,635.7 million for the year ended
December 31, 1999, an increase of (Euro)146.1 million, or 1.4%, over sales of
(Euro)10,489.6 million for the year ended December 31, 1998. The increase was
attributable to increased production and deliveries, a rise in pulp and timber
prices, and acquisitions. Deliveries increased most in fine paper and magazine
paper, particularly from Stora Enso's Oulu and Port Hawkesbury mills. These
effects were offset, to some extent, by decreases in the average price levels
for magazine paper, newsprint, fine paper and most packaging board grades.
Stora Enso's December 1998 acquisition of Holzindustrie Schweighofer AG's
sawmills resulted in a (Euro)381 million increase in sales during 1999. The
increase in sales was in large part offset by the divestiture of Stora Enso's
technical office paper operations in December 1998 and of the Dalum and
Tervakoski specialty paper mills in February 1999. Improvement in sales was
also due in part to the strengthening of the U.S. dollar and the British pound
sterling relative to the euro in 1999. The product area discussions below
include internal sales.
Magazine Paper. Sales of magazine paper were (Euro)1,950.4 million for the
year ended December 31, 1999, an increase of (Euro)98.6 million, or 5.3%, over
sales of (Euro)1,851.8 million for the year ended December 31, 1998. The
increase was attributable primarily to increased deliveries, particularly from
Stora Enso's Port Hawkesbury mill in Canada.
Newsprint. Sales for newsprint were (Euro)1,641.8 million for the year ended
December 31, 1999, a decrease of (Euro)51.9 million, or 3.1%, from sales of
(Euro)1,693.7 million for the year ended December 31, 1998. The decrease was
attributable primarily to lower sales prices.
Fine Paper. Sales of fine paper were (Euro)2,163.2 million for the year ended
December 31, 1999, an increase of (Euro)159.4 million, or 8.0%, over sales of
(Euro)2,003.8 million for the year ended December 31, 1998. The increase was
attributable primarily to increased deliveries, particularly from Stora Enso's
Oulu mill in Finland, which was partly offset by lower average prices.
Packaging Boards. Sales of packaging board were (Euro)2,341.5 million for the
year ended December 31, 1999, a decrease of (Euro)55.4 million, or 2.3%, from
sales of (Euro)2,396.9 million for the year ended December 31, 1998. The
decrease was attributable primarily to lower sales prices for folding boxboard,
whiteline chipboard and cupstock.
Timber Products. Sales of timber products amounted to (Euro)1,140.0 million
for the year ended December 31, 1999, an increase of (Euro)406.1 million, or
55.3%, over sales of (Euro)733.9 million for the year ended December 31, 1998.
The increase was attributable primarily to the consolidation of Holzindustrie
Schweighofer AG into Stora Enso's results for the full year 1999 and increases
in prices of whitewood and central European timber. The acquisition of
Holzindustrie Schweighofer AG in December 1998 resulted in a (Euro)381 million
increase in sales in 1999.
Market Pulp. Sales of market pulp amounted to (Euro)957.8 million for the
year ended December 31, 1999, an increase of (Euro)111.2 million, or 13.1%,
over sales of (Euro)846.6 million for the year ended December 31, 1998. The
increase was attributable to higher sales prices and slightly higher
deliveries.
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Paper merchants. Sales by the paper merchants were (Euro)787.2 million for
the year ended December 31, 1999, a decrease of (Euro)43.1 million, or 5.2%,
from sales of (Euro)830.3 million for the year ended December 31, 1998 due to
lower sales prices which were partially offset by higher delivery volumes.
Forest Operations. Sales by forest operations were (Euro)1,630.3 million for
the year ended December 31, 1999, a decrease of (Euro)15.6 million, or 0.9%,
from sales of (Euro)1,645.9 million for the year ended December 31, 1998. The
decrease was attributable primarily to lower prices, partially offset by higher
import volumes. Deliveries from Stora Enso's own forests increased modestly.
Divested Paper Units. Sales by Stora Enso's divested paper units amounted to
(Euro)24.7 million for the year ended December 31, 1999, a decrease of
(Euro)374.6 million, or 93.8%, from sales of (Euro)399.3 million for the year
ended December 31, 1998. These figures include sales by Stora Enso's Tervakoski
and Dalum specialty paper mills, which were sold in February 1999, and Stora
Enso's technical papers business which was sold in December 1998.
Energy. Energy sales amounted to (Euro)506.0 million for the year ended
December 31, 1999, an increase of (Euro)24.8 million, or 5.2%, over sales of
(Euro)481.2 million for the year ended December 31, 1998 due to increased
internal demand offset by lower energy prices.
Elimination of Internal Sales; Other Operations. Elimination of internal
sales, offset by other operations, amounted to (Euro)(2,153.9) million for the
year ended December 31, 1999, as compared to (Euro)(2,104.7) million for the
year ended December 31, 1998. Other operations include units that are not
within Stora Enso's product areas, such as its separate transportation and
sales and distribution companies.
Operating Profit (Loss)
Group. Stora Enso's operating profit was (Euro)1,408.4 million for the year
ended December 31, 1999, an increase of (Euro)699.7 million, or 98.7%, over
operating profit of (Euro)708.7 million for the year ended December 31, 1998.
Excluding non-recurring items, Stora Enso's operating profit in 1999 was
(Euro)1,305.8 million, representing an increase of (Euro)126.1 million, or
10.7%, over operating profit of (Euro)1,179.7 million for 1998. Non-recurring
items in 1999 principally included gains recorded from the sale of Stora Enso's
specialty paper operations and Pohjolan Voima C shares, and in 1998 principally
included gains and losses on sale of business operations and shares, direct
merger costs, impairment charges, provisions made for pension obligations and
termination benefits, environmental liabilities and provisions made in
connection with termination of agency and lease agreements. The increase was
attributable primarily to an increase in deliveries, synergies relating to the
combination of STORA and Enso and higher prices for pulp and timber, partly
offset by lower prices for magazine paper, fine paper, newsprint and packaging
board. Operating profit for 1999 also reflects a gain of (Euro)49 million from
proprietary trading activities, an increase of (Euro)24 million over 1998.
Stora Enso's improved operating profit was also due in part to the
strengthening of the U.S. dollar and the British pound sterling relative to the
euro in 1999.
Magazine Paper. The operating profit for the magazine paper product area was
(Euro)287.6 million for the year ended December 31, 1999, an increase of
(Euro)48.8 million, or 20.4%, over operating profit of (Euro)238.8 million for
the year ended December 31, 1998. The increase was attributable primarily to a
(Euro)37.5 million goodwill impairment charge in 1998, increased deliveries and
higher than expected synergy benefits, and was offset partly by slightly lower
sales prices and higher raw material price for pulp.
Newsprint. The operating profit for the newsprint product area was
(Euro)299.1 million for the year ended December 31, 1999, an increase of
(Euro)6.8 million, or 2.3%, over operating profit of (Euro)292.3 million for
the year ended December 31, 1998. The increase was attributable to more
favorable product sales mix and improved productivity, which resulted in lower
production costs. The increase was partly offset by lower sales prices.
Fine Paper. The operating profit for the fine paper product area was
(Euro)204.3 million for the year ended December 31, 1999, an increase of
(Euro)97.4 million, or 91.1%, over operating profit of (Euro)106.9 million for
the
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year ended December 31, 1998. The substantial difference in operating profit
from 1998 to 1999 was attributable primarily to non-recurring costs incurred in
1998 as well as to higher deliveries and synergy benefits in 1999. The increase
was partly offset by lower average prices in the latter half of 1999. Operating
profit excluding non-recurring items increased (Euro)3.4 million, or 1.8%, from
operating profit of (Euro)190.4 million for the year ended December 31, 1998.
Packaging Boards. The operating profit for the packaging boards product area
was (Euro)193.0 million for the year ended December 31, 1999, an increase of
(Euro)131.3 million, or 212.5%, over operating profit of (Euro)61.8 million for
the year ended December 31, 1998. The increase is attributable primarily to
non-recurring items in 1998. Operating profit excluding non-recurring items
decreased (Euro)21.1 million, or 10.1%, from operating profit of (Euro)209.1
million for the year ended December 31, 1998.
Timber Products. The operating profit for the timber products product area
was (Euro)41.0 million for the year ended December 31, 1999, an increase of
(Euro)37.8 million, or 1,181%, over operating profit of (Euro)3.2 million for
the year ended December 31, 1998. The increase was attributable primarily to
the consolidation of Holzindustrie Schweighofer AG into Stora Enso's results
for the full year 1999 as well as to increased price levels for whitewood and
central European timber and synergy benefits.
Market Pulp. The operating profit for the market pulp product area was
(Euro)106.1 million for the year ended December 31, 1999, an increase of
(Euro)124.1 million over an operating loss of (Euro)18 million for the year
ended December 31, 1998. The increase was due primarily to considerably higher
sales prices, increased deliveries and non-recurring costs in 1998. The
strengthening of the U.S. dollar and the British pound sterling relative to the
euro in 1999 also affected operating profit positively.
Paper merchants. The operating profit for the paper merchants was (Euro)0.5
million for the year ended December 31, 1999, an increase of (Euro)23.4 million
over an operating loss of (Euro)22.9 million for the year ended December 31,
1998. The increase was due to non-recurring costs in 1998, which were partially
offset by decreased sales prices.
Forest Operations. The operating profit for the forest operations was
(Euro)141.1 million for the year ended December 31, 1999, an increase of
(Euro)32.3 million, or 29.7%, over an operating profit of (Euro)108.8 million
for the year ended December 31, 1998. The increase was due primarily to
synergies and price increase for wood delivery.
Divested Paper Units. The operating profit for Stora Enso's divested paper
units amounted to (Euro)22.9 million for the year ended December 31, 1999, as
compared to an operating loss of (Euro)59 million for the year ended December
31, 1998. Operating profit in 1998 reflects a charge of (Euro)32.0 million to
write down the assets of the Dalum specialty paper mill to net realizable
value. Operating profit in 1999 included a gain of (Euro)24.5 million from the
sale of the Tervakoski specialty paper mill. Stora Enso sold these operations
in 1999.
Energy. The operating profit for the energy operations was (Euro)150.9
million for the year ended December 31, 1999, an increase of (Euro)36.4
million, or 31.7%, from operating profit of (Euro)114.5 million for the year
ended December 31, 1998. The increase was due primarily to a gain of (Euro)48.2
million recorded on the sale of the Series C Pohjolan Voima shares, which was
partly offset by declining energy prices.
Other Operations. Operating loss from other operations amounted to (Euro)38.2
million for the year ended December 31, 1999, as compared to operating loss of
(Euro)117.7 million for the year ended December 31, 1998. This includes non-
allocated corporate overhead items, elimination of group internal margins in
consolidation and non-recurring items recorded in 1998.
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Financial Items
Net financial expense was (Euro)266.6 million for the year ended December 31,
1999, a decrease of (Euro)112.6 million, or 29.7% compared to net financial
expense of (Euro)379.2 million during the year ended December 31, 1998, due
primarily to a drop in interest rates and a decline in Stora Enso's net
liabilities.
Profit
Stora Enso had a profit before tax and minority interests of (Euro)1,151.5
million for the year ended December 31, 1999, an increase of (Euro)812.1
million, or 239.3% over profit before tax and minority interests of (Euro)339.4
million during the year ended December 31, 1998. Income taxes for the year
ended December 31, 1999 amounted to (Euro)394.5 million, compared to income
taxes of (Euro)148.2 million during the year ended December 31, 1998. Stora
Enso's effective tax rate for the year ended December 31, 1999 was 34.3%,
compared to 43.7% for the year ended December 31, 1998. The effective tax rate
in 1999 is not comparable to the effective tax rate for 1998 due to non-
deductibility of some non-recurring items recorded in 1998. Minority interest
for the year ended December 31, 1999 increased from (Euro)0.2 million in 1998
to (Euro)4.5 million in 1999. Net profit was (Euro)752.5 million for the year
ended December 31, 1999, compared to (Euro)191.0 million for the year ended
December 31, 1998.
The Year Ended December 31, 1998 Compared to the Year Ended December 31, 1997
Sales
Group. Stora Enso had sales of (Euro)10,489.6 million for the year ended
December 31, 1998, an increase of (Euro)491.5 million, or 4.9%, over sales of
(Euro)9,998.1 million for the year ended December 31, 1997. The increase was
attributable to two principal factors: increased sales volumes in most product
areas in Western Europe and increased price levels, particularly for newsprint
and magazine papers. The inclusion of the results of Holtzmann for the full
year 1998 and the acquisition of the Suzhou mill in China in June 1998 also
contributed to the increase in sales. The positive developments were offset to
some degree by limited demand in the Asian and South American markets due to an
economic downturn affecting these regions in 1998. The product area discussions
below include internal sales.
Magazine Paper. Sales of magazine paper were (Euro)1,851.8 million for the
year ended December 31, 1998, an increase of (Euro)376.0 million, or 25.5%,
over sales of (Euro)1,475.8 million for the year ended December 31, 1997. The
increase was attributable primarily to increased sales volume and higher prices
that were introduced in the beginning of 1998. Sales increased due to the
inclusion of Holtzmann with sales of (Euro)100.3 million for the full year 1998
and the start-up of a new paper machine at Port Hawkesbury in May 1998, which
resulted in sales of (Euro)8.8 million for the year 1998.
Newsprint. Sales of newsprint were (Euro)1,693.7 million for the year ended
December 31, 1998, an increase of (Euro)159.6 million, or 10.4%, over sales of
(Euro)1,534.1 million for the year ended December 31, 1997. The increase was
attributable primarily to higher prices introduced at the beginning of 1998 as
well as increased deliveries and the inclusion of Holtzmann for the full year
1998 with sales of (Euro)36.0 million.
Fine Paper. Sales of fine paper were (Euro)2,003.8 million for the year ended
December 31, 1998, an increase of (Euro)190.3 million, or 10.5%, over sales of
(Euro)1,813.5 million for the year ended December 31, 1997. This increase
resulted from higher sales volumes attributable mainly to a new paper machine
at Stora Enso's Oulu mill in Finland for the full year 1998 and the acquisition
of the Suzhou mill in China in June 1998.
Packaging Boards. Sales of packaging board were (Euro)2,396.9 million for the
year ended December 31, 1998, a decrease of (Euro)88.6 million, or 3.6%, from
sales of (Euro)2,485.5 million for the year ended December 31, 1997. The
decrease was attributable primarily to lower sales volumes across the line for
packaging board products other than coreboard and laminating papers. Deliveries
decreased despite the start-up of the new
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paperboard manufacturing machine at the Skoghall mill in Sweden, which did not
operate at full capacity due to the lack of demand.
Timber Products. Sales of timber products were (Euro)733.9 million for the
year ended December 31, 1998, an increase of (Euro)11.7 million, or 1.6%, over
sales of (Euro)722.2 million for the year ended December 31, 1997, due to
increased sales volume. The inclusion of Holzindustrie Schweighofer AG in the
results of Stora Enso's sawmilling operations since December 1, 1998,
contributed to this increase, which was partly offset by lower sales in Japan.
Excluding sales attributable to Holzindustrie Schweighofer AG, sales of timber
products decreased by (Euro)6.5 million, or 0.9% in 1998.
Market Pulp. Sales of market pulp were (Euro)846.6 million for the year ended
December 31, 1998, a decrease of (Euro)112.1 million, or 11.7%, from sales of
(Euro)958.7 million for the year ended December 31, 1997, due to lower
deliveries and lower market prices, especially in short-fiber pulp.
Paper merchants. Sales by the paper merchants were (Euro)830.3 million for
the year ended December 31, 1998, an increase of (Euro)29.9 million, or 3.7%,
over sales of (Euro)800.4 million for the year ended December 31, 1997. The
increase was attributable primarily to the expansion of sales operations in
Hungary and Poland.
Forest Operations. Sales for the forest operations were (Euro)1,645.9 million
for the year ended December 31, 1998, an increase of (Euro)29.1 million, or
1.8%, over sales of (Euro)1,616.8 million for the year ended December 31, 1997.
The increase was attributable primarily to increased consumption at Stora
Enso's mills.
Divested Paper Units. Sales by the divested paper units amounted to
(Euro)399.3 million for the year ended December 31, 1998, a decrease of
(Euro)16.5 million, or 4.0%, from sales of (Euro)415.8 million for the year
ended December 31, 1997. The decrease was attributable primarily to lower price
levels for carbonless and thermal papers and lower deliveries of carbonless
paper. The decrease was offset, to a large degree, by increased deliveries in
Tervakoski specialty papers.
Energy. Sales of energy were (Euro)481.2 million for the year ended December
31, 1998, a decrease of (Euro)49.1 million, or 9.3%, from sales of (Euro)530.3
million for the year ended December 31, 1997. The decrease was attributable
primarily to lower prices due to the increased competition resulting from
ongoing deregulation of the electricity market in the Nordic countries, new
power distributors entering the market and the implementation of the Nord Pool
electricity exchange system.
Elimination of Internal Sales; Other Operations. Elimination of internal
sales, offset by other operations, amounted to (Euro)(2,104.7) million for the
year ended December 31, 1998, as compared to (Euro)(2,081.6) million for the
year ended December 31, 1997. This change was due to increased internal sales.
Operating Profit (Loss)
Group. Stora Enso's operating profit was (Euro)708.7 million for the year
ended December 31, 1998, a decrease of (Euro)191.2 million, or 21.2%, from
operating profit of (Euro)899.9 million for the year ended December 31, 1997.
The decrease was attributable primarily to non-recurring items totaling
(Euro)471.0 million. The non-recurring items consisted primarily of gains and
losses on sale of business operations and shares, direct merger costs,
impairment charges, provisions made for pension obligations and termination
benefits, environmental liabilities and provisions made in connection with
termination of agency and lease agreements. Excluding non-recurring items,
Stora Enso's operating profit in 1998 was (Euro)1,179.7 million, representing
an increase of (Euro)227.8 million, or 23.9%, from operating profit of
(Euro)951.9 million for 1997. This increase was attributable primarily to
improved profitability in the magazine paper, newsprint and fine papers product
areas.
Magazine Paper. The operating profit for the magazine paper product area was
(Euro)238.8 million for the year ended December 31, 1998, an increase of
(Euro)162 million, or 310.9%, over operating profit of (Euro)76.8 million for
the year ended December 31, 1997. The increase was attributable primarily to
price increases introduced in early 1998. The effect of price increases was
enhanced by higher deliveries and the resolution of start-up
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problems at the Port Hawkesbury mill that negatively affected 1997 results. The
increase in operating profit was partly offset by a (Euro)37.5 million
impairment charge of goodwill in the Reisholtz and Corbehem mills recorded in
1998.
Newsprint. The operating profit for the newsprint product area was
(Euro)292.3 million for the year ended December 31, 1998, an increase of
(Euro)128.1 million, or 78.0%, over operating profit of (Euro)164.2 million for
the year ended December 31, 1997 due to higher price levels for newsprint and,
to some degree, higher sales volumes.
Fine Paper. The operating profit for the fine paper product area was
(Euro)106.9 million for the year ended December 31, 1998, a decrease of
(Euro)36.2 million, or 25.3%, from operating profit of (Euro)143.1 million for
the year ended December 31, 1997. The decrease was attributable primarily to
(Euro)71.9 million in impairment charges of assets and goodwill at the Molndal,
Nymolla and Uetersen mills recorded in 1998. The decrease was partly offset by
higher sales and improved product mix. Operating profit excluding non-recurring
items was (Euro)190.4 million for the year ending December 31, 1998.
Packaging Boards. The operating profit for the packaging boards product area
was (Euro)61.8 million for the year ended December 31, 1998, a decrease of
(Euro)146.6 million, or 70.3%, from operating profit of (Euro)208.4 million for
the year ended December 31, 1997. The decrease was attributable primarily to
impairment charges of assets at the Baienfurt, Pankakoski and Molndal mills and
provisions for closing down the board mill at Molndal. Non-recurring items
recorded in 1998 totaled (Euro)147.3 million. Also, decreased volumes in the
latter half of the year resulted from declining demand. Operating profit
excluding non-recurring items was (Euro)209.1 million for the year ended
December 31, 1998. Operating profit in 1997 included a loss on the sale of the
Armsberg mill.
Timber Products. The operating profit for the timber products product area
was (Euro)3.2 million for the year ended December 31, 1998, a decrease of
(Euro)47.1 million, or 93.6%, from operating profit of (Euro)50.3 million for
the year ended December 31, 1997. The decrease was attributable primarily to
lower price levels for whitewood and redwood, which were on average 15% and 6%
lower, respectively, compared with price levels in 1997.
Market Pulp. The operating loss for the market pulp product area was (Euro)18
million for the year ended December 31, 1998, a decrease of (Euro)47.4 million
from operating profit of (Euro)29.4 million for the year ended December 31,
1997. The decrease resulted primarily from non-recurring items and from the
decline in the sales volumes of market pulp during the third and fourth
quarters attributable to the economic downturn, which continued in the Asian
market, and cutbacks in pulp production. Non-recurring items consisted
primarily of environmental provisions at the Skutskar mill and asset
impairments.
Paper merchants. The operating loss for the paper merchants was (Euro)22.9
million for the year ended December 31, 1998, a decrease of (Euro)28.3 million
from operating profit of (Euro)5.4 million for the year ended December 31,
1997. The decrease was attributable primarily to non-recurring costs of
(Euro)24.9 million, which related primarily to the mergers of paper merchants
in Denmark, France and the United Kingdom, and to increased costs relating to
the expansion of the distribution network and to lower demand in Eastern
Europe.
Forest Operations. The operating profit for the forest operations was
(Euro)108.8 million for the year ended December 31, 1998, a decrease of
(Euro)2.4 million, or 2.2%, from operating profit of (Euro)111.2 million for
the year ended December 31, 1997.
Divested Paper Units. The operating loss for the divested paper units
amounted to (Euro)59 million for the year ended December 31, 1998, as compared
to operating profit of (Euro)4.7 million for the year ended December 31, 1997.
The decrease is attributable primarily to a (Euro)20.6 million loss on the sale
of Stora Enso's technical office papers business and a (Euro)32 million charge
to write down the assets of the Dalum mill to their net realizable value.
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Energy. The operating profit for the energy operations was (Euro)114.5
million for the year ended December 31, 1998, a decrease of (Euro)9.2 million,
or 7.4%, from operating profit of (Euro)123.7 million for the year ended
December 31, 1997. The decrease was attributable primarily to lower energy
sales.
Other Operations. Operating loss from other operations amounted to
(Euro)117.7 million for the year ended December 31, 1998, as compared to an
operating loss of (Euro)17.3 million for the year ended December 31, 1997. The
increase in the operating loss was attributable primarily to direct merger
costs, provisions for termination of external sales agency and rental
agreements in connection with the combination of STORA and Enso and provisions
for environmental liabilities relating to the Falun copper mine.
Financial Items
Net financial expense was (Euro)379.2 million for the year ended December 31,
1998, an increase of 35.4% compared to net financial expense of (Euro)280.1
million during the year ended December 31, 1997, due primarily to exchange rate
differences.
Profit
Stora Enso had a profit before tax and minority interests of (Euro)339.4
million for the year ended December 31, 1998, a decrease of 46.7% over profit
before tax and minority interests of (Euro)636.3 million for the year ended
December 31, 1997. Income taxes for the year ended December 31, 1998 amounted
to (Euro)148.2 million, compared to income taxes of (Euro)205.6 million for the
year ended December 31, 1997. Stora Enso's effective tax rate for the year
ended December 31, 1998 was 43.7%, compared to 32.3% for the year ended
December 31, 1997. The effective tax rate in 1998 is not comparable to the
effective tax rate in 1997 due to temporary differences and the non-
deductibility of some non-recurring items recorded in 1998. Minority interest
for the year ended December 31, 1998 was (Euro)0.2 million, a decrease of
(Euro)21.4 million, compared to a minority interest of (Euro)21.6 million for
the year ended December 31, 1997. Net profit was (Euro)191.0 million for the
year ended December 31, 1998, compared to (Euro)409.0 million for the year
ended December 31, 1997.
Liquidity and Capital Resources
Stora Enso's principal source of liquidity is cash generated from operations.
Its principal liquidity requirements arise primarily from the need to fund
capital expenditures for the maintenance of its production facilities, to
expand its business and to fund its working capital requirements.
Net cash flow from operating activities declined by (Euro)243.1 million from
(Euro)1,733.5 million in 1998 to (Euro)1,490.4 million in 1999 despite
substantially higher operating profits in 1999. This was caused primarily by an
increase in net working capital of (Euro)169.7 million and an increase in taxes
of (Euro)310.9 million in 1999. Net cash flow from operating activities
increased from (Euro)1,233.4 million in 1997 to (Euro)1,733.5 million in 1998.
This was due principally to a decrease in working capital. Net cash flow from
operating activities was (Euro)413.8 million for the three months ended March
31, 2000, an increase of (Euro)334 million as compared to (Euro)79.8 million
for the comparable period in 1999. The increase was attributable primarily to
higher operating profit for the first quarter in 2000.
Cash used in investing activities declined from (Euro)1,271.2 million in 1998
to (Euro)562.4 million in 1999. This was due principally to lower capital
expenditures and lower acquisition expenditures. Cash used in investing
activities decreased from (Euro)1,331.4 million in 1997 to (Euro)1,271.2 in
1998. This was due principally to lower capital expenditures, partially offset
by higher acquisition expenditures. Cash used in investing activities was
(Euro)87.6 million during the three months ended March 31, 2000 as compared
with (Euro)172.2 million during the comparable period in 1999.
Cash used in financing activities increased from (Euro)219.9 million in 1998
to (Euro)893.4 million in 1999, due principally to repayment of long-term
indebtedness, partially offset by additional short-term borrowings and an
increase in short-term receivables. Cash used in financing activities increased
from (Euro)36.8 million in 1997 to
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(Euro)219.9 million in 1998, due principally to decreased borrowing and
decreased short-term receivables. Cash used in financing activities amounted to
(Euro)337.2 million for the three months ended March 31, 2000 as compared to
cash provided by financing activities of (Euro)82.6 million for the comparable
period in 1999.
Stora Enso's total interest-bearing liabilities were (Euro)6,345.0 million as
of December 31, 1999, compared to (Euro)6,557.0 million as of December 31,
1998, and (Euro)6,565.3 million as of December 31, 1997. Stora Enso's total
interest-bearing assets were (Euro)821.4 million as of December 31, 1999,
compared to (Euro)736.9 million as of December 31, 1998 and (Euro)475.4 million
as of December 31, 1997. At March 31, 2000, total interest-bearing liabilities
were (Euro)6,061.3 million. Stora Enso's net interest-bearing debt was
(Euro)5,523.6 million as of December 31, 1999, compared to (Euro)5,820.0
million as of December 31, 1998 and (Euro)6,089.9 million as of December 31,
1997. At March 31, 2000, Stora Enso's net interest-bearing debt was
(Euro)5,261.0 million.
Stora Enso has three long term credit facilities in place:
. a $1.24 billion facility that matures on March 5, 2003;
. a $1.5 billion facility that matures on June 9, 2004; and
. a DEM 1.2 billion facility that matures on October 29, 2004.
The aggregate unused credit available at December 31, 1999 amounted to
approximately (Euro)3.4 billion and was approximately (Euro)3.6 billion at
March 31, 2000.
Moody's Investor Services has assigned a Baa1 rating to Stora Enso's long
term debt and a P-2 rating to Stora Enso's short term debt. The comparable
ratings for Stora Enso's long term and short term debt from Standard & Poor's
are BBB+ and A-2, respectively.
Capital Expenditure
In 1999, Stora Enso's total capital expenditures were (Euro)740.2 million
compared to (Euro)896.4 million in 1998 and (Euro)1,133.6 million in 1997. The
largest projects in 1999 were the (Euro)34 million rebuild of a magazine paper
machine at the Maxau mill in Germany, a rebuild of the Gruvon recovery boiler
and a new fiber line at the Imatra mill in Finland. In 1998 and 1997, the
largest projects included new fine paper machines in Oulu, Finland, and Port
Hawkesbury, Canada, as well as a new paperboard manufacturing machine in
Skoghall, Sweden. For the three months ended March 31, 2000, Stora Enso's total
capital expenditure totaled (Euro)134.3 million, as compared to (Euro)192.7
million in the first quarter of 1999. The main investments during the first
quarter of 2000 were the rebuild of Imatra board machine no. 4, modernization
of sawmills in Sweden and the new fiber line at the Imatra mill.
Distribution of capital expenditure between product areas and geographic
regions is governed largely by the location of existing capacity.
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The following table describes Stora Enso's capital expenditure by product
area for the periods indicated:
<TABLE>
<CAPTION>
Year ended December
31,
-------------------
1997 1998 1999
------- ----- -----
((Euro) in
millions)
<S> <C> <C> <C>
Magazine paper.............................................. 322.5 219.9 102.2
Newsprint................................................... 98.2 103.8 72.3
Fine paper.................................................. 277.9 127.0 112.9
Packaging boards............................................ 215.5 211.7 232.7
Timber products............................................. 20.1 33.8 51.3
Market pulp................................................. 107.6 96.3 103.3
Paper merchants............................................. 9.7 12.0 6.6
Forest...................................................... 21.4 22.3 13.8
Other operations............................................ 21.8 29.5 33.3
------- ----- -----
Continuing operations total................................. 1,094.7 856.3 728.4
Divested units.............................................. 19.3 20.5 0.4
Discontinued operations, energy............................. 19.6 19.6 11.4
------- ----- -----
Total..................................................... 1,133.6 896.4 740.2
======= ===== =====
</TABLE>
The following table describes Stora Enso's capital expenditure by country in
its primary areas of operation:
<TABLE>
<CAPTION>
Year ended December
31,
-------------------
1997 1998 1999
------- ----- -----
((Euro) in
millions)
<S> <C> <C> <C>
Finland..................................................... 331.2 190.5 222.3
Sweden...................................................... 387.6 359.4 290.9
Germany..................................................... 87.4 115.5 86.8
Canada...................................................... 262.4 127.5 6.2
France...................................................... 8.4 15.1 12.5
Portugal.................................................... 15.2 20.4 40.7
Other....................................................... 41.4 68.0 80.8
------- ----- -----
Total..................................................... 1,133.6 896.4 740.2
======= ===== =====
</TABLE>
Total capital expenditures on scheduled projects, excluding acquisitions, in
2000 is estimated to be approximately (Euro)900 million. Stora Enso expects
that, consistent with recent past, this amount will be below the level of
depreciation charges in 2000 and will be financed from cash flow from
operations. The total cost of the Imatra fiber line is expected to amount to
(Euro)365 million over a three year period of which (Euro)160 million is
expected to be invested in 2000.
Inflation
Inflation in Finland as measured by change in the consumer price index during
1999, 1998, and 1997 was 1.2%, 1.4% and 1.2%, respectively. Inflation in Sweden
as measured by change in the consumer price index during 1999, 1998 and 1997
was 0.5%, (0.1)% and 0.4%, respectively.
Introduction of the Euro
In May 1998, Finland was approved as one of the first 11 EU member states to
join Stage Three of the EMU from its commencement date following approval of
Finland's participation in Stage Three by the Finnish Parliament. Stage Three
involves the replacement of participating countries' national currencies with a
new common currency, the euro, during a transitional period beginning January
1, 1999 and ending December 31, 2001. Beginning on January 1, 2002, euro notes
and coins will be introduced and notes and coins of the old
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national currencies will gradually be withdrawn from circulation. Starting on
July 1, 2002, the euro will be the only legal tender in countries participating
in the EMU.
The introduction of the euro has required changes in Stora Enso's information
technology and other systems to accommodate the use of the euro in corporate
transactions and in financial reporting. Stora Enso analyzed and implemented
the necessary changes to information technology and other systems required to
convert to a euro operating environment in 1998. The introduction of the euro
has not generated significant costs for Stora Enso.
Stora Enso began reporting in euros for financial accounting purposes
effective January 1, 1999. Accordingly, the consolidated financial statements
of Stora Enso have been restated into euros. Stora Enso's restated euro
financial statements depict the same trends as would have been presented if it
had continued to present its consolidated financial statements in Finnish
markka. Stora Enso's consolidated financial statements will, however, not be
comparable to the euro financial statements of other companies that previously
reported their financial information in a currency other than Finnish markka.
See Note 1 to the Stora Enso Consolidated Financial Statements.
Stora Enso has not experienced, nor does management expect, any material
adverse impact on Stora Enso's competitive position resulting from the
introduction of the euro. The introduction of the euro, and the consequent
elimination of the currency exchange rate risk between the national currencies
of the participating member states and the Finnish markka, has eliminated the
need for currency exchange transactions and hedging transactions with respect
to these currencies, resulting in transaction cost savings to Stora Enso. For
additional discussion regarding the impact of the euro on exchange rate and
currency risk exposure of Stora Enso, see "--Currency Fluctuations" and "--
Quantitative and Qualitative Disclosures about Market Risk--Foreign Exchange
Risk."
Year 2000
Stora Enso did not experience a single disruption of systems or services
related to the year 2000 date change that affected business processes,
facilities or suppliers or systemic or long-term problems affecting its
business operations as a whole. Stora Enso believes that its suppliers did not
face any significant year 2000 problems. Stora Enso spent approximately
(Euro)36 million to address the year 2000 problem. The costs were expensed in
the period incurred.
Quantitative and Qualitative Disclosures about Market Risk
The following discussion about Stora Enso's financial risk-management
activities includes "forward-looking statements" that involve risks and
uncertainties. Actual results could differ materially from those projected in
the forward-looking statements.
Financial Risk Management
Stora Enso has, as a global market participant, exposure to different kinds
of market risk. The major risk exposures for Stora Enso are foreign exchange
risk, funding and interest rate risk, and commodity risk. The continuously
evolving financial and business environment creates a challenge to Stora Enso's
treasury function.
The objective of Stora Enso's financial risk management policy is to hedge
financial exposure to secure profitability. The objectives and principles for
the management of financial exposure are defined in Stora Enso's financial
policy approved by Stora Enso's board of directors.
Stora Enso aims to optimize internal cash flows in order to minimize the
number of external transactions needed for Stora Enso. Net exposure is
subsequently managed in the financial markets.
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Stora Enso's treasury works together with the operating units to determine
the best hedging strategy for the respective units within the framework set out
in the financial risk management policy approved by the board of directors.
According to Stora Enso's financial risk management policy, Stora Enso's
treasury uses a variety of financial instruments to hedge net exposure. These
strategies include foreign exchange forward contracts, options, futures,
interest rate swaps, and currency swaps.
Foreign Exchange Risk
Stora Enso operates globally and is thus exposed to foreign exchange risk
arising from fluctuations in exchange rates of various currencies and currency
combinations.
A significant part of Stora Enso's production facilities is located outside
the euro currency area, mainly in Sweden. The geographical location of the
production facilities, the purchases of raw material, and the sales outside the
euro area lead to principal foreign exchange exposure in Swedish krona, U.S.
dollar and British pound sterling.
Stora Enso uses Value-at-Risk methodology (VaR) to assess foreign exchange
risk. The VaR calculates the potential profit or loss from a stochastic change
in the prices of items contained in the analyzed portfolio.
Stora Enso's market risk on foreign exchange position is calculated with a
VaR-model based on one-year historical volatilities and correlations. The risk
on the portfolio is then estimated with a Monte Carlo simulation procedure.
Because the VaR method is not reliable in extreme situations, Stora Enso uses
other risk measures in the daily monitoring of foreign exchange risk, including
stress tests and scenario analysis.
According to Stora Enso's financial risk management policy, the foreign
exchange net cash flow arising from sales and purchases is hedged according to
the criteria listed below:
. 50% of 12 months net exposure in a specific currency;
. A minimum of 25% and a maximum of 75% of the net exposure in a specific
currency may be hedged; and
. Stora Enso's treasury has a separate mandate to act according to the
present market conditions. The mandate given to the treasury by the board
of directors is a (Euro)5 million overnight Value-at-Risk limit on a 95%
confidence level.
For this purpose a number of financial instruments are used, including
foreign exchange forward contracts, foreign exchange options and cross currency
swaps.
The financial instruments used for the hedging of net foreign exchange
exposure arising from sales and purchases have, on average, a maturity of less
than one year.
The Value-at-Risk for hedged foreign exchange transactions was, at a 95%
confidence level, (Euro)2.7 million at the end of 1999.
The balance sheets of foreign subsidiaries of Stora Enso are translated into
euros using the exchange rates prevailing at the balance sheet date thus
exposing Stora Enso to fluctuations in foreign exchange rates (i.e.,
translation risk). The resulting translation differences are recorded directly
to consolidated shareholders' equity.
The translation risk policy approved by the board of directors requires Stora
Enso's treasury to minimize the exposure by funding assets in the same currency
whenever economically possible. If not possible, the board of directors has
approved that the remaining translation risk can be hedged after agreement
between the executive management group and Stora Enso's treasury.
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At the end of 1999, the translation risk measured with overnight Value-at-
Risk was (Euro)3.7 million on a 95% confidence level.
During 1999, Stora Enso did not hedge translation risk.
Funding and Interest Rate Risk
Stora Enso is also exposed to interest rate risk. Fluctuations in interest
rates affect Stora Enso's interest expenses. Stora Enso's treasury is
responsible for the funding of Stora Enso's business operations.
The funding policy approved by the board of directors states that the average
maturity of outstanding loans and committed credit facilities covering short-
term borrowing should be at least four years. The board of directors has
determined that the average maturity should be extended to seven years by the
end of 2002.
Furthermore, the funding policy states that Stora Enso's treasury must have
committed credit facilities to cover Stora Enso's general corporate funding
needs and all of its commercial paper borrowings. To avoid liquidity risk,
Stora Enso should always have loan programs and back-up credit facilities that
cover short term liabilities.
In order to achieve the targets set in the funding policy, Stora Enso's
treasury manages a number of loan programs and credit facilities.
In order to minimize interest rate risk and earnings fluctuations and to
adjust the cost of finance to business cycles, Stora Enso's treasury uses
financial derivatives, such as interest rate swaps, futures and options, to
hedge the interest rate exposure.
At the end of 1999, the basis point value of the loan portfolio for Stora
Enso was (Euro)1.7 million. The average maturity for the loan portfolio was 4.9
years and the duration for the loan portfolio was 3.7.
Commodity Risk
The paper and pulp business has historically experienced fluctuations in raw
material prices. Future fluctuations in raw material prices could have a
substantial effect on Stora Enso's earnings. Stora Enso has started to
implement a commodity risk management framework for fiber and energy. The
operating units are responsible for measuring and hedging commodity risks and
entering into derivative contracts with Stora Enso's treasury to hedge
commodity risk.
At the end of 1999, Stora Enso had outstanding commodity contracts hedging
fiber and energy prices in the form of commodity futures with a nominal value
of (Euro)31.2 million.
Equity Price Risk
Stora Enso has investments in publicly traded companies. The market value of
the equity investments was (Euro)187.0 million at December 31, 1999. These
securities have exposure to fluctuations in equity prices. The equities in the
portfolio are traded on the Helsinki Stock Exchange, the OM Stockholm Exchange,
The New York Stock Exchange and the Stock Exchange of Thailand. A 10% change in
equity prices would result in a (Euro)18.7 million change in the equity value
of these securities. At December 31, 1999, there were no outstanding financial
derivative contracts designated as hedges of the investment in publicly traded
companies in Stora Enso equity portfolio.
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<PAGE>
TAXATION ON STORA ENSO SERIES R SHARES AND
AMERICAN DEPOSITARY SHARES
The following description is based on tax laws of Finland and the United
States as in effect on the date of this document, and is subject to changes in
Finnish and U.S. law, possibly with retroactive effect. You should consult a
professional advisor as to the tax consequences of the ownership, purchase and
disposition of Stora Enso Series R shares or ADSs, including, in particular,
the effect of tax laws of any other jurisdiction.
Finnish Taxation
The following is a description of the principal Finnish income tax
consequences of the purchase, ownership, and disposition of Stora Enso Series R
shares or ADSs by a holder who is not a resident of Finland. It does not
address all potential Finnish tax consequences that may be applicable to
holders of the Stora Enso Series R shares or ADSs in light of their individual
circumstances. We urge you to consult your own tax advisor as to the
consequences of the purchase, ownership, and disposition of Stora Enso Series R
shares or ADSs in light of your particular circumstances, including the effect
of any non-Finnish tax laws. Statements regarding Finnish tax laws set forth
below are based on the laws in force and as interpreted by the relevant
taxation authorities as of the date of this document and are subject to changes
in law or interpretation, possibly with retroactive effect.
A beneficial owner of an ADS will be treated as the owner of the underlying
Series R share for purposes of the current Convention between the Government of
the United States of America and the Government of the Republic of Finland for
the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with
Respect to Taxes on Income and on Capital and for Finnish tax purposes.
Accordingly, the Finnish tax consequences to owners of Series R shares
discussed below will also apply to beneficial owners of ADSs.
Companies
Finnish companies are subject to national corporate income tax on their
worldwide income. With effect from January 1, 2000, the tax rate is 29% of
taxable income.
Finland applies an imputation or avoir fiscal system for profits distributed
as dividends in order to eliminate double taxation of companies and their
shareholders. Under the avoir fiscal system, there is a minimum tax payable to
the Finnish tax authorities by a Finnish company depending on the amount of
profit distributed as dividends. For the tax year 2000, the applicable minimum
tax is 29/71 of the dividends distributed to the shareholders. To the extent
that this minimum tax exceeds or is less than the corporate income tax payable
by the Finnish company, a tax surplus will be established or a supplementary
tax liability will be imposed on the company, as appropriate. Any tax surplus
generated may be used, for a period of ten years, to offset any supplementary
corporate income tax which may become payable in subsequent years.
Holders of Series R Shares and ADSs
Tax Credit on Dividends. The Finnish avoir fiscal system is applied in its
entirety only to shareholders who are residents of Finland. Under the avoir
fiscal system, a tax credit is available to resident shareholders on the
payment of dividends by a Finnish company equal to the lesser of their
allocable share of the tax paid by such company for its income and 29/71 of the
dividend paid, as described above. Because the corporate income tax rate and
the tax credit are currently of the same size, no taxes are generally payable
by Finnish resident shareholders in respect of dividend income received from a
Finnish company. The Finnish tax credit is not generally available to non-
residents. Shareholders who are non-residents may, however, be entitled to the
Finnish tax credit in whole or in part where there is a double taxation treaty
with Finland that contains the appropriate provisions. Currently, the only tax
treaty with these provisions in force is with Ireland, entitling some
shareholders resident in Ireland to a Finnish tax credit equal to one-half of
the credit available to residents of Finland.
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Withholding Tax on Dividends. Non-residents of Finland are subject to Finnish
withholding tax on dividends paid by a Finnish company. In the absence of any
applicable treaty, the withholding tax rate is 29%. Finland has entered into
double taxation treaties with many countries providing that the withholding tax
is reduced on dividends paid to persons entitled to the benefits under these
treaties. However, those treaties generally will not reduce Finnish taxation in
respect of shares that are effectively connected with a permanent establishment
or a fixed base in Finland, in which case Finnish income taxes are levied on
the dividends derived from those shares. In the case of the treaty with the
United States, the withholding tax rates are reduced to 15% or, in the case of
a shareholder who has at least 10% of the voting power of the Finnish
corporation, 5%. The Finnish company paying the dividend is responsible for
deducting any applicable Finnish withholding tax.
A reduction of the withholding tax rate can be obtained upon the submission
of a Source Tax Card or the required information (name, date of birth and
address) to the payor prior to the payment of dividends. If a Source Tax Card
or the required information is not submitted in a timely manner, a refund of
tax withheld in excess of the applicable treaty rate can be obtained upon
application to the local tax authority. Citibank N.A. as depositary bank for
the ADSs has agreed to use commercially reasonable efforts to make and maintain
arrangements enabling holders of ADSs to receive tax credits, reduction in
Finnish withholding tax or other benefits (under treaty or otherwise) relating
to dividend payments on the ADSs at the time dividends are paid.
No withholding tax is levied under Finnish law on dividends paid to corporate
entities that reside in the EU and directly hold at least 25% of the capital of
the distributing Finnish company, provided that these entities are not entitled
to the tax credit under the Finnish avoir fiscal system and are subject to a
general corporate income tax in their respective countries of residency.
Finnish Transfer Tax. There is no transfer tax payable in Finland (1) in
respect of sales of Series R shares or ADSs where neither the buyer nor the
seller of the shares is a resident of Finland or a Finnish branch of a foreign
credit institution or foreign brokerage firm or (2) in respect of share
transfers made on the Helsinki Stock Exchange. In the case of other share
transfers, a transfer tax at the rate of 1.6% of the sales price is payable by
the buyer. However, if the buyer is not (1) a resident of Finland, (2) a
Finnish branch of a foreign credit institution, or (3) a Finnish branch of a
foreign brokerage firm, the seller must collect the tax from the buyer.
Finnish Capital Gains and Other Taxes. A shareholder who is not resident in
Finland, and who does not engage in trade or business through a permanent
establishment or fixed base in Finland that could be regarded as the holder of
the relevant Series R shares or ADSs, will normally not be subject to Finnish
taxes on capital gains realized on the transfer of shares or ADSs. Transfers of
Series R shares by a non-resident of Finland by way of gift or by reason of the
death of the owner are subject to Finnish gift or inheritance tax,
respectively, if either the transferor or the transferee is a resident of
Finland, unless Finland has waived its rights to impose tax in a tax treaty.
U.S. Federal Income Taxation
General
The following is a description of the principal U.S. federal income tax
consequences of the purchase, ownership and disposition of Series R shares or
ADSs by a "U.S. Stora Enso Holder." As used in this document, the term "U.S.
Stora Enso Holder" is a beneficial owner of Series R shares or ADSs that is for
U.S. federal income tax purposes:
. a citizen or resident of the United States;
. a partnership or corporation created or organized in or under the laws of
the United States, any state or the District of Columbia;
. an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
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. a trust that validly elects to be treated as a U.S. person for U.S.
federal income tax purposes or if (1) a court within the United States is
able to exercise primary supervision over its administration and (2) one
or more U.S. persons have the authority to control all of the substantial
decisions of such trust.
A "Non-U.S. Stora Enso Holder" is a beneficial owner of Series R shares or
ADSs who is not a U.S. Stora Enso Holder. A partnership is not subject to U.S.
federal income tax, but rather the partners take their distributive shares of
the partnership's income or loss into account for U.S. federal income tax
purposes.
This description is not a comprehensive description of all of the tax
considerations that may be relevant to a holder of Series R shares or ADSs. In
particular, this description applies only to U.S. Stora Enso Holders who hold
Series R shares or ADSs as capital assets, and does not address aspects of U.S.
federal income tax that may be applicable to U.S. Stora Enso Holders who are
subject to special tax rules, including, without limitation, financial
institutions, real estate investment trusts, regulated investment companies,
dealers or traders in securities or currencies, banks, insurance companies,
tax-exempt entities, persons who acquired Series R shares or ADSs pursuant to
an exercise of employee stock option or rights or otherwise as compensation,
persons who hold Series R shares or ADSs as a position in a "straddle" or as
part of a "hedging" or "conversion" transaction for U.S. federal income tax
purposes, persons who own (or are deemed to own for U.S. federal income tax
purposes) ten percent or more (by voting power or value) of the Stora Enso
Series A and Series R shares and persons whose "functional currency" is not the
U.S. dollar. Moreover, this description does not address the U.S. federal
estate and gift tax or alternative minimum tax consequences of the purchase,
ownership or disposition of Series R shares or ADSs.
This description is based on the tax laws of the United States as in effect
and available on the date of this document, including the Internal Revenue
Code, related Treasury Regulations, judicial decisions and administrative
pronouncements, all of which are subject to change, possibly with retroactive
effect, and could affect the tax consequences described in this document. It is
also based on the representations of the depositary bank and assumes that each
obligation in the deposit agreement and any related agreements is performed in
accordance with its terms.
U.S. Stora Enso Holders are urged to consult their own tax advisors with
respect to the U.S. federal, state, local and foreign tax consequences of
acquiring, owning or disposing of ADSs in their particular circumstances.
Ownership of ADSs in General
For U.S. federal income tax purposes, holders of ADSs generally will be
treated as the owners of the Series R shares represented by such ADSs. The U.S.
Treasury Department, however, has expressed concern that parties to whom ADSs
are pre-released may in some circumstances be taking actions that are
inconsistent with the claiming of U.S. foreign tax credits by U.S. holders of
ADSs. Accordingly, the analysis regarding the availability of a U.S. foreign
tax credit for Finnish taxes and sourcing rules described below could be
affected by future actions that may be taken by the U.S. Treasury Department.
Distributions
The gross amount of cash or property distributed by Stora Enso with respect
to Series R shares or ADSs (other than some pro rata distributions, if any, of
Stora Enso shares to all shareholders of Stora Enso, including holders of ADSs)
including the amount of any withholding tax imposed on the distribution, will
be includible in income by a U.S. Stora Enso Holder as dividend income to the
extent such distributions are paid out of Stora Enso's current or accumulated
earnings and profits, as determined under U.S. federal income tax principles.
These dividends will not be eligible for the dividends received deduction
generally allowed to corporate U.S. persons. To the extent, if any, that the
amount of any distribution exceeds Stora Enso's current and accumulated
earnings and profits, as determined under U.S. federal income tax principles,
it will be treated first as a tax-free return of capital to the U.S. Stora Enso
Holder to the extent of the holder's adjusted tax basis and will be applied
against and reduce that adjusted tax basis. To the extent that a distribution
exceeds the U.S. Stora Enso
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Holder's adjusted tax basis in the Series R shares or ADSs, the distribution
will be taxed as gain recognized on the sale or exchange of a capital asset.
Stora Enso does not maintain calculations of its earnings and profits under
U.S. federal income tax principles.
Any dividend paid in Finnish markka or euros will be included in the gross
income of a U.S. Stora Enso Holder in an amount equal to the U.S. dollar value
of the Finnish markka or euros on the date of receipt. The amount of any
distribution of property other than cash will be the fair market value of the
property on the date of distribution. Dividends received by a U.S. Stora Enso
Holder with respect to Series R shares or ADSs will be treated as foreign
source income, which may be relevant in calculating the holder's foreign tax
credit limitation. Subject to specified conditions and limitations, Finnish tax
withheld on dividends may be deducted from taxable income or credited against a
U.S. Stora Enso Holder's U.S. federal income tax liability. The limitation on
foreign taxes eligible for credit is calculated separately with respect to
specific classes of income. For purposes of calculating the U.S. foreign tax
credit, dividends paid by Stora Enso generally will constitute "passive
income," or in the case of some U.S. Stora Enso Holders, "financial services
income." In addition, foreign tax credits will not be allowed for withholding
taxes imposed in respect of some short-term or hedged positions in securities
or in respect of arrangements in which a U.S. Stora Enso Holder's expected
economic profit, after non-U.S. taxes, is insubstantial. We urge you to consult
your own tax advisor regarding the availability of, and limitations on, any
foreign tax credit.
As discussed above under "--Finnish Taxation," Finland applies an imputation
or avoir fiscal system that provides tax credit benefits to some shareholders
resident in Finland and Ireland. The benefits of that system are not available
to U.S. Stora Enso Holders, and the minimum tax payable by Stora Enso in
respect of dividend distributions consequently will not be included in the
income of, or be available as rebates or foreign tax credits to, U.S. Stora
Enso Holders.
Subject to the discussion below under "--Information Reporting and Backup
Withholding," a Non-U.S. Stora Enso Holder of Series R shares or ADSs generally
will not be subject to U.S. federal income or withholding tax on dividends
received on the Series R shares or ADSs, unless such income is effectively
connected with the conduct by such Non-U.S. Stora Enso Holder of a trade or
business in the United States.
Sale or Exchange
Gain or loss realized by a U.S. Stora Enso Holder on the sale or exchange of
Series R shares or ADSs will be recognized for U.S. federal income tax purposes
as capital gain or loss in an amount equal to the difference between the U.S.
Stora Enso Holder's adjusted tax basis in the Series R shares or ADSs, as the
case may be, and the amount realized on such sale or exchange. In the case of a
non-corporate U.S. Stora Enso Holder whose holding period for the Series R
shares or ADSs is more than one year, the capital gain on the sale or exchange
of the Series R shares or ADSs will generally be taxed at a rate of 20%. Gain
or loss, as the case may be, recognized by a U.S. Stora Enso Holder generally
will be treated as U.S. source income for U.S. foreign tax credit purposes. The
deductibility of capital losses is subject to limitations.
Subject to the discussion below under "--Information Reporting and Backup
Withholding," a Non-U.S. Stora Enso Holder generally will not be subject to
U.S. federal income or withholding tax on any gain realized on the sale or
exchange of Series R shares or ADSs unless the gain is effectively connected
with the conduct by such Non-U.S. Stora Enso Holder of a trade or business in
the United States or, in the case of any gain realized by an individual Non-
U.S. Stora Enso Holder, the holder is present in the United States for 183 days
or more in the taxable year of the sale or exchange and other conditions are
met.
Information Reporting and Backup Withholding
U.S. information reporting requirements and backup withholding tax generally
will apply to payments to some non-corporate holders of Series R shares or
ADSs. Information reporting generally will apply to payments of dividends on,
and to proceeds from the sale or redemption of, Series R shares or ADSs by a
payor
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within the United States to a holder of Series R shares or ADSs (other than an
"exempt recipient," including a corporation, a payee that is a Non-U.S. Stora
Enso Holder that provides an appropriate certification, and some other
persons). A payor within the United States will be required to withhold 31% of
any payment of proceeds from the sale or redemption of Series R shares or ADSs
within the United States to a holder (other than an "exempt recipient") if the
holder fails to furnish its correct taxpayer identification number or otherwise
fails to comply with the backup withholding requirements.
U.S. Treasury Regulations issued on October 6, 1997, as amended, will modify
some of the rules discussed above generally with respect to payments on Series
R shares or ADSs made after December 31, 2000. In particular, a payor within
the United States will be required to withhold 31% of any payments of dividends
on, or proceeds from the sale of, Series R shares or ADSs within the United
States to a holder (other than an "exempt recipient," such as a corporation or
a payee that is not a U.S. person and that provides appropriate certification)
if the holder fails to furnish its correct taxpayer identification number or
otherwise fails to comply with, or establish an exemption from, backup
withholding tax requirements. In the case of payments by a payor or middleman
within the United States to a foreign simple trust, a foreign grantor trust or
a foreign partnership (other than payments to a foreign simple trust, a foreign
grantor trust or a foreign partnership that has entered into an agreement with
the Internal Revenue Service to qualify as a "withholding foreign trust" or a
"withholding foreign partnership" within the meaning of the U.S. Treasury
Regulations and payments to a foreign simple trust, a foreign grantor trust or
a foreign partnership that are effectively connected with the conduct of a
trade or business in the United States), the beneficiaries of the foreign
simple trust, the persons treated as the owners of the foreign grantor trust or
the partners of the foreign partnership, as the case may be, will be required
to provide the certification discussed above in order to establish an exemption
from backup withholding tax and information reporting requirements. Moreover, a
payor or middleman may rely on a certificate provided by a payee that is not a
U.S. person only if the payor or middleman does not have actual knowledge or a
reason to know that any information or certification stated in the certificate
is incorrect.
The above discussion is a summary of the principal U.S. tax consequences
relating to the acquisition, ownership and disposition of Series R shares or
ADSs. Consolidated shareholders are urged to consult their own tax advisors
concerning the tax consequences of their particular situations before making
any decision on how to vote with respect to the merger or any election to
receive ADSs in the merger.
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OWNERSHIP OF SECURITIES
Ownership of Consolidated Shares by Management and Significant Shareholders
Except as otherwise noted, the following table sets forth information
concerning the beneficial ownership of Consolidated shares as of June 30, 2000
for the following:
. each person or entity who is known by Consolidated to own beneficially
more than 5% of the outstanding Consolidated shares;
. each of Consolidated's current directors;
. the chief executive officer and each of the four other most highly
compensated executive officers of Consolidated; and
. all directors and executive officers of Consolidated, as a group.
The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Exchange Act and the information is not
necessarily indicative of beneficial ownership for any other purpose. Under
this rule, beneficial ownership includes any shares as to which the individual
or entity has voting power or investment power and any shares that the
individual has the right to acquire within sixty days of June 30, 2000 through
the exercise of any stock option or other right. Unless otherwise indicated in
the footnotes or table, each person or entity has sole voting and investment
power (or shares that power with his or her spouse) with respect to the shares
shown as beneficially owned.
The calculation of percentages in the "Percentage of Outstanding Shares"
column in the table below is based upon the number of Consolidated shares
issued and outstanding on June 30, 2000, plus Consolidated shares subject to
options held by the respective persons on June 30, 2000 and exercisable within
sixty days of that date.
Unless otherwise indicated below, the address for each person or entity
listed below is:
c/o Consolidated Papers, Inc.
P.O. Box 8050
Wisconsin Rapids, Wisconsin 54495-8050
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<TABLE>
<CAPTION>
Shares Owned
-------------------------------- Percentage
Sole Voting or Beneficially Shared Total of
Investment Shared Voting Investment Beneficial Outstanding
Name Power(/1/),(/2/) Power Power Ownership Shares
---- ---------------- ------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
George W. Mead.......... 268,524 32,145,154(/3/) 32,413,678 35.5%
Chairman (Director)
Robert McKay............ 419,586 32,145,154(/3/) 32,564,740 35.6%
Sally M. Hands.......... 192,466 32,145,154(/3/) 32,337,620 35.4%
Sanford C. Bernstein & 4,559,173(/4/) 398,276 4,559,173 5.0%
Co., Inc. .............
767 Fifth Avenue
New York, NY 10153
Other Directors
Ruth Baldwin Barker..... 402,638 52,000 52,000 454,638 *
James D. Ericson........ 7,076 7,076 *
Gorton M. Evans 111,383 111,383 *
(President & CEO)......
J. Joseph King.......... 7,094 7,094 *
Bernard S. Kubale....... 17,100 17,100 *
D. Richard Mead Jr...... 71,700 566,052 566,052 637,752 *
Gilbert D. Mead......... 56,634 56,634 *
Lawrence R. Nash........ 144,170 144,170 *
Glenn R. Rupp........... 13,100 13,100 *
Cynthia M. Sargent...... 183,036 183,036 *
John S. Shiely.......... 9,100 9,100 *
Other Executive Officers
Richard J. Kenney....... 59,292 59,292 *
Ronald E. Swanson....... 43,209 43,209 *
James E. Shewchuk....... 46,748 46,748 *
Directors and Executive
Officers as a group (27 2,027,392(/5/) 32,763,206(/3/) 34,790,598 38.1%(/6/)
persons)...............
</TABLE>
--------
*Less than one percent.
(1) Includes shares held by spouses or children of the following: for Mrs.
Barker, 103,000 shares; for Mr. McKay, 379,586 shares; for Mr. D. Richard
Mead Jr., 6,000 shares; for Mr. George W. Mead, 100,219 shares; for Mr.
Gilbert D. Mead, 9,620 shares; for Mr. Nash, 46,670 shares; for Mrs.
Sargent, 320 shares; and for all directors and executive officers as a
group, 645,415 shares. Beneficial ownership is disclaimed as to these
shares and as to all other shares over which the named person does not have
all beneficial rights.
(2) Includes shares which may be acquired within sixty (60) days upon exercise
of options: for Mrs. Barker, 14,000 shares; for Mr. Ericson, 4,000 shares;
for Mr. Evans, 78,000 shares; for Mr. King, 4,000 shares; for Mr. Kubale,
8,000 shares; for Mr. D. Richard Mead Jr., 12,000 shares; for Mr. Gilbert
D. Mead, 10,000 shares; for Mr. Nash, 4,000 shares; for Mr. Rupp, 10,000
shares; for Mrs. Sargent, 1,000 shares; for Mr. Shiely, 6,000 shares; for
Mr. Kenney, 36,929 shares; for Mr. Swanson, 30,691 shares; for Mr.
Shewchuk, 25,718 shares; and for all directors and executive officers as a
group, 381,427 shares.
(3) George W. Mead, Robert McKay and Sally M. Hands are voting trustees of the
Mead Voting Trust, a voting trust organized under Wisconsin law which holds
32,145,154 Consolidated shares. The voting trustees generally have the
right to determine the voting, but not the disposition, of the Consolidated
shares. However, in voting to approve the merger agreement, the voting
trustees will vote as directed by the holders of units of beneficial
interest. The three voting trustees and three directors each own units of
beneficial interest in the Mead Voting Trust. George W. Mead beneficially
owns 1,386,020 units of beneficial interest, or 4.3% of the Mead Voting
Trust. Robert McKay beneficially owns 28,380 units of beneficial interest,
or .09% of the Mead Voting Trust. Sally M. Hands beneficially owns
2,623,686 units of beneficial interest, or 8.2% of the Mead Voting Trust.
Cynthia M. Sargent, a director, owns 3,266,584 units
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of beneficial interest, or 10.2% of the Mead Voting Trust. Ruth Baldwin
Barker, a director, owns 2,543,016 units of beneficial interest, or 7.9% of
the Mead Voting Trust. Gilbert D. Mead, a director, owns 1,291,692 units of
beneficial interest, or 4.0% of the Mead Voting Trust. Each unit of
beneficial interest represents one Consolidated share. These numbers do not
include the units of the Mead Voting Trust held by spouses or children of
the unitholders, beneficial ownership of which is disclaimed.
(4) Based on the Form 13F filed by Sanford C. Bernstein & Co., Inc. with the
SEC on July 13, 2000, Sanford C. Bernstein & Co., Inc., an Investment
Advisor and Broker Dealer registered under Section 203 of the Investment
Advisers Act of 1940, is the beneficial owner of 4,559,173 Consolidated
shares representing approximately 5.0% of the total shares outstanding. It
reports that it has sole power to vote or direct the vote covering
2,909,529 shares, that it has shared power to vote 398,276 shares, that it
has no power to vote the remaining shares, and that it has sole power to
dispose of 4,559,173 shares.
(5) In addition, George W. Mead, Cynthia M. Sargent, Ruth Baldwin Barker and
Gilbert D. Mead own 8,487,312 units of beneficial interest in the Mead
Voting Trust, which will be voted as they direct in connection with the
merger. Accordingly, the Directors and Executive Officers as a group have,
with respect to the merger, sole voting power over 10,514,704 shares.
(6) After eliminating duplications in the table.
Ownership of Stora Enso's Securities by Management and Significant
Shareholders
The following table sets forth information concerning the beneficial
ownership of Stora Enso Series A shares and Series R shares as of June 30,
2000 for the following:
. each person or entity who is known by Stora Enso to own beneficially more
than 5% of its outstanding share capital or voting power; and
. all directors and members of the executive management group of Stora
Enso, as a group.
The calculation of percentages in the "Percentage of Outstanding Shares"
column in the table below is based upon the number of Stora Enso ordinary
shares issued and outstanding as of the date of this document, plus shares of
Stora Enso subject to warrants and options held by the respective persons as
of the date of this document and exercisable within sixty days.
<TABLE>
<CAPTION>
Series A Series R
Shares Shares Percentage of
Beneficially Beneficially Percentage of Outstanding
Name Owned Owned Votes Shares
---- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Finnish State.............. 55,595,937 81,483,501 24.1 18.0
Investor AB................ 61,991,786 15,900,962 24.1 10.3
Social Insurance
Institution of Finland.... 23,825,086 3,738,965 9.2 3.6
Sampo-Varma Group.......... 19,438,606 566,874 7.4 2.6
Directors and members of
the executive management
group, as a group (18
persons)(/1/),(/2/),(/3/).. 81,455,693 17,496,612 31.5 13.1
</TABLE>
--------
* Less than 0.1 percent.
(1) Includes 61,991,786 Series A shares and 15,900,962 Series R shares
beneficially owned by Investor AB. Claes Dahlback, Stora Enso's chairman
of the board, is the executive vice chairman of Investor AB and Marcus
Wallenberg, a member of Stora Enso's board, is the chief executive officer
and president of Investor AB. Mr. Dahlback and Mr. Wallenberg may be
deemed to have an interest in the Series A and Series R shares of Stora
Enso beneficially owned by Investor AB within the meaning of Rule 13d-3
under the Exchange Act. Both Mr. Dahlback and Mr. Wallenberg believe that
they do not possess the power to direct the voting of these shares and
disclaim beneficial ownership of the Stora Enso Series A and Series R
shares held by Investor AB.
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<PAGE>
(2) Includes 19,438,606 Series A shares and 566,874 Series R shares
beneficially owned by the Sampo-Varma Group. Paavo Pitkanen, a director of
Stora Enso, is the managing director of Varma-Sampo Mutual Pension
Insurance Company, an affiliate of the Sampo-Varma Group. Mr. Pitkanen may
be deemed to have an interest in the Series A shares of Stora Enso
beneficially owned by the Sampo-Varma Group within the meaning of Rule 13d-
3 under the Exchange Act. Mr. Pitkanen believes that he does not possess
the power to direct the voting of these shares and disclaims beneficial
ownership of the Stora Enso Series A shares held by the Sampo-Varma Group.
(3) Includes 909,000 Series R shares Stora Enso's directors and members of
Stora Enso's executive management group have the right to acquire within 60
days of the date of this document. See "Information About Stora Enso--
Equity-based Programs" for a description of holdings by individual members
of Stora Enso's management.
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DESCRIPTION OF STORA ENSO SERIES R SHARES
The following is a summary description of the material provisions of Stora
Enso Series R shares based on the provisions of Stora Enso's articles of
association and applicable provisions of Finnish law. However, because Stora
Enso's articles of association is the principal legal document governing the
terms of the Series R shares, we recommend that you read it for the precise
legal terms and other information that may be important to you. The following
description of the Series R shares is qualified by reference to Stora Enso's
articles of association and provisions of Finnish law. An English translation
of Stora Enso's articles of association is included as Annex C to this
document. Many of the rights and restrictions affecting Stora Enso Series R
shares are discussed in the "Comparison of Rights of Stora Enso Shareholders
and Consolidated Shareholders" section of this document, which we urge you to
review for additional information regarding these rights and restrictions. If
you would like more information about the rights of holders of Stora Enso ADSs,
you should review the "Description of Stora Enso American Depositary Shares"
section of this document.
General
Under Stora Enso's articles of association, Stora Enso's authorized share
capital may not be less than (Euro)850 million nor more than (Euro)3.4 billion.
On June 30, 2000, the issued share capital of Stora Enso is
(Euro)1,291,754,671.30 consisting of 759,855,689 fully-paid shares of which
208,951,188 are Series A shares and 550,904,501 are Series R shares. Each
Series A share and each ten Series R shares entitle the holder to one vote.
However, each shareholder has at least one vote. The shares are in book-entry
format and have no nominal value.
The Series A shares and Series R shares were listed on the Helsinki Stock
Exchange and the Stockholm Stock Exchange on December 23, 1998.
According to Stora Enso's articles of association, Series A shares may be
converted, without cost to the holder, into Series R shares on a one-for-one
basis at the request of a shareholder on dates to be decided annually by the
board of directors. During the most recent conversion period from September 6
through September 24, 1999, 34,443,467 Series A shares were converted into
Series R shares.
Dividends and Other Distributions
The payment of dividends must be authorized by the shareholders at a general
meeting.
Under Finnish law, shareholders' equity is divided into restricted and
unrestricted equity. Restricted equity consists of the share capital, the share
premium fund, the reserve fund and the revaluation fund. Other shareholders'
funds are included in unrestricted equity. The amount of any dividend is
limited to the amount of distributable funds based upon the financial
statements approved by the most recent annual general meeting of shareholders.
Stora Enso's distributable funds include the profit from the preceding fiscal
year, retained earnings from previous years and other unrestricted equity less
reported losses, capitalized incorporation costs, research and special
development costs, the acquisition cost of Stora Enso's own or any parent
company's shares and amounts that are to be reserved or otherwise left
undistributed. Stora Enso may not distribute more than the amount of
distributable equity shown on its financial statements or its consolidated
financial statements, whichever is lower. When calculating the distributable
equity for dividend purposes, the distributable funds shown on the consolidated
financial statements are also reduced by the amount of untaxed reserves
included in retained earnings. The dividend may not exceed the amount proposed
by the board of directors unless so requested at the annual general meeting by
the holders of not less than ten percent of all shares in which case the
dividend, if so requested, shall be the lower of (1) at least one-half of the
profit for the last preceding fiscal period less (A) any amount required to be
transferred to a reserve fund or otherwise left undisturbed and (B) the amount,
if any, by which Stora Enso's capitalized incorporation, research and special
development costs and acquisition costs of Stora Enso's own or any parent
company's shares exceed the total of the unrestricted reserves, the share
premium fund and the reserve fund, and (2) the amount of distributable funds as
defined above. However, in this case the dividend may not exceed eight percent
of Stora Enso's total shareholders'
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equity. Under Finnish law, a company may not pay interim dividends based on the
current fiscal year's earnings. Stora Enso's articles of association do not
require any amount to be transferred to a reserve fund or otherwise left
undisturbed.
Dividends and other distributions are paid to shareholders or their nominees
entered in the register of shareholders on the relevant record date. The
register is maintained by the Finnish Central Securities Depository through a
book-entry registrar. All of the Stora Enso Series A and Series R shares carry
equal rights to dividends and other distributions, including distributions of
assets in the event of the liquidation of Stora Enso. Under the Finnish Book-
Entry Securities System, dividends are paid by account transfers to the
accounts of the shareholders appearing in the registry.
Under Finnish law, a company may acquire its own shares using distributable
funds. Decisions on the acquisition of a company's own shares must be taken by
a general meeting of shareholders, unless the general meeting of shareholders
has authorized the board of directors to decide upon stock repurchases, which
authorization may remain in effect for up to one year. A public limited company
may neither directly nor through a subsidiary hold more than five percent of
its own share capital or voting rights. At the annual general meeting held on
March 21, 2000, Stora Enso's shareholders authorized the repurchase of up to
10,446,000 Series A shares and up to 25,541,000 Series R shares.
Voting Rights
A shareholder may attend and vote at a general meeting in person or through
an authorized representative. Each Series A share is, and each ten Series R
shares are, entitled to one vote. However, each holder of Series R shares is
entitled to a minimum of one vote. At a general meeting, resolutions are
usually passed by a majority of the votes cast. However, some resolutions, such
as a resolution to amend the articles of association, a resolution to issue
shares in contravention of shareholders' preferential subscription rights and,
in some cases, a resolution regarding a possible merger or liquidation of Stora
Enso, require approval by both two-thirds of the votes cast and two-thirds of
the shares represented at the general meeting. In addition, if a resolution
results in a limitation of the rights pertaining to a particular class of
shares, the resolution must be approved by a majority of the holders of the
affected shares and two-thirds of the affected shares represented at the
general meeting.
Under Finnish law, shareholders exercise their power to decide on corporate
matters at general meetings of shareholders. Stora Enso's articles of
association require that an annual general meeting of shareholders be held each
year before the end of June to consider, among other things:
. approval of the income statement and balance sheet;
. measures warranted by Stora Enso's profit or loss, including any possible
dividend;
. discharge of the directors and chief executive officer from liability;
. compensation for the directors and auditors;
. election and number of members of the board of directors and auditors;
and
. other matters brought up in the notice of the general meeting or matters
raised by individual shareholders.
Extraordinary general meetings in respect of specific matters are held when
considered necessary by the board of directors, or when requested in writing by
an auditor of Stora Enso or by shareholders representing at least ten percent
of all the issued shares.
Under Stora Enso's articles of association, a shareholder must give notice to
Stora Enso of an intention to attend a general meeting no later than the date
and time specified by the board of directors in the notice of the
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general meeting, which may not be earlier than five days before the general
meeting (the "last registration date"). Under Stora Enso's articles of
association, notices of general meetings must be given not earlier than two
months and not later than two weeks prior to the last registration date.
Because the ordinary shares are held in the Finnish Book-Entry Securities
System, in order to have the right to attend and vote at a general meeting, a
shareholder must generally be registered not later than five days prior to the
relevant general meeting in the register of shareholders kept by the Finnish
Central Securities Depository in accordance with the Finnish law. Voting rights
may not be exercised by a shareholder if such shareholder's shares are
registered in the name of a nominee. A beneficial owner wishing to exercise
voting rights must cancel the nominee arrangement and seek individual
registration not later than five days prior to the relevant general meeting.
There are no quorum requirements for general meetings.
Issuance of New Shares and Preemptive Rights
Stora Enso's share capital may be increased within the authorized share
capital set forth in Stora Enso's articles of association by a resolution
passed by a majority of all votes cast at a general meeting. If the authorized
share capital set forth in the articles of association would be exceeded,
increasing of the share capital requires amending Stora Enso's articles of
association by the vote of two-thirds of all votes cast and all shares
represented at a general meeting of shareholders. A general meeting of
shareholders may also authorize the board of directors to increase share
capital. The board of directors currently has no authorization to increase
Stora Enso's share capital. A general meeting of shareholders may also make a
resolution on an issuance of preference shares. Stora Enso currently has no
issued preference shares.
Under Finnish law, Stora Enso's existing shareholders have preferential
rights to subscribe, in proportion to their shareholdings, for new shares as
well as for issues of subscription warrants or debt instruments convertible
into shares or carrying warrants to subscribe for shares, unless the corporate
resolution approving the issuance provides otherwise. Under Finnish law, a
resolution waiving preemptive rights must be approved by at least two-thirds of
all votes cast and two-thirds of all shares represented at the general meeting
of shareholders. U.S. holders of the Series R shares and ADSs may not be able
to exercise any preemptive or preferential rights in respect of their shares
unless a registration statement under the Securities Act is effective with
respect to such rights or an exemption from the registration requirements under
the Securities Act is available.
Transfers
Upon a sale of ordinary shares through the Finnish Book-Entry Securities
System, the relevant shares are transferred from the seller's book-entry
account to the buyer's book-entry account as an account transfer. The sale is
registered as an advance transaction until settlement and payment for the
shares, after which the buyer will automatically be registered in the register
of shareholders of Stora Enso. In the case of registration in the name of a
nominee, a sale of shares does not require any entries into the Finnish Book-
Entry Securities System unless the nominee is changed as a result of the sale.
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DESCRIPTION OF STORA ENSO AMERICAN DEPOSITARY SHARES
General
This section describes the American depositary shares, or ADSs, that some
Consolidated shareholders will receive in the merger. Each ADS represents one
Stora Enso Series R share. The certificates that represent American depositary
shares are referred to as American depositary receipts, or ADRs.
Citibank, N.A. will act as the depositary bank for the ADSs. Citibank's
depositary offices are located at 111 Wall Street, New York, New York 10005.
ADSs represent ownership interests in securities that are on deposit with the
depositary bank, in this case one Series R share for each ADS. The depositary
bank has appointed a custodian to safekeep the securities on deposit. In this
case, the custodian is Svenska Handelsbanken, located at Etelaranta 8, FIN
00130 Helsinki, Finland.
Stora Enso has appointed Citibank as depositary bank under a deposit
agreement. A copy of the deposit agreement is included as an exhibit to the
Registration Statement of which this document is a part. You can obtain a copy
of the deposit agreement as described under "Where You Can Find More
Information."
The following is a summary description of the ADSs and your rights as an
owner of ADSs. Please remember that summaries by their nature lack the
precision of the information summarized and your rights and obligations as an
owner of ADSs will be determined by the deposit agreement and not by this
summary. We urge you to review the deposit agreement in its entirety as well as
the form of American depositary receipt attached to the deposit agreement.
Each ADS represents one Stora Enso Series R share on deposit with the
custodian bank. An ADS will also represent any other property received by the
depositary bank or the custodian on behalf of the owner of the ADS but that has
not been distributed to the owners of ADSs because of legal restrictions or
practical considerations as described below.
If you become an owner of ADSs, you will become a party to the deposit
agreement and therefore will be bound by its terms and to the terms of the ADR
that evidences the ADSs. The deposit agreement and the ADR specify Stora Enso's
rights and obligations as well as your rights and obligations as an owner of
ADSs and those of the depositary bank. As an ADS holder you appoint the
depositary bank to act on your behalf in specified circumstances. The deposit
agreement is governed by New York law. However, Stora Enso's obligations to the
holders of Series R shares will continue to be governed by the laws of Finland,
which may be different from the laws in the United States.
As an owner of ADSs, you may hold your ADSs either by means of an ADR
registered in your name or through a brokerage or safekeeping account. If you
decide to hold your ADSs through your brokerage or safekeeping account, you
must rely on the procedures of your broker or bank to assert your rights as an
ADS owner. Please consult with your broker or bank to determine what those
procedures are. This summary description assumes you have opted to own the ADSs
directly by means of an ADR registered in your name and, as such, Stora Enso
will refer to you as the "holder."
Dividends and Distributions
ADS holders generally have the right to receive the distributions made on the
Series R shares deposited with the custodian bank. Your receipt of these
distributions may be limited, however, by practical considerations and legal
limitations as described below. ADS holders will receive distributions under
the terms of the deposit agreement in proportion to the number of ADSs held as
of a specified record date.
Distributions of Cash
Stora Enso will notify the depositary bank whenever it makes a cash
distribution for the Series R shares on deposit with the custodian. Upon
receipt of this notice and the applicable funds, the depositary bank will, as
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soon as possible, arrange for the funds to be converted into U.S. dollars and
for the distribution of the U.S. dollars to the ADR holders under the terms of
the deposit agreement in proportion to the number of ADSs held on the specified
record date. An ADR holder will receive distributions in proportion to the
number of Series R shares represented by such holder's ADR.
Conversion into U.S. dollars will take place only if practicable and if the
U.S. dollars are transferable to the United States. Amounts distributed to
holders will be net of the fees, expenses, taxes and governmental charges
payable by ADR holders under the terms of the deposit agreement. The depositary
bank will apply the same method for distributing the proceeds of the sale of
any property, such as undistributed rights, held by the custodian in respect of
securities on deposit.
Distributions of Shares
Stora Enso will notify the depositary bank whenever it makes a free
distribution of Series R shares for the Series R shares on deposit with the
custodian. Upon receipt of this notice and the applicable Series R shares, the
depositary bank will either distribute to holders new ADSs representing the
Series R shares deposited or modify the ADS-to-Series R share ratio, in which
case each ADS you hold will represent rights and interests in the additional
Series R shares so deposited. Only whole new ADSs will be distributed.
Fractional entitlements will be sold and the proceeds distributed as in the
case of a cash distribution.
The distribution of new ADSs or the modification of the ADS-to-Series R share
ratio upon a distribution of Series R shares will be made net of the fees,
expenses, taxes and governmental charges payable by holders under the terms of
the deposit agreement. In order to pay such taxes or governmental charges, the
depositary bank may sell all or a portion of the new Series R shares so
distributed.
No distribution of new ADSs will be made if it would violate a law. If the
depositary bank does not distribute new ADSs as described above, it will use
its best efforts to sell the Series R shares received and distribute the
proceeds as in the case of a distribution of cash.
Distributions of Rights
Whenever Stora Enso intends to distribute to holders of Series R shares
rights to purchase additional Series R shares, it will give prior notice to the
depositary bank and will use its reasonable efforts to assist the depositary
bank in determining whether it is lawful and reasonably practicable to
distribute rights to purchase additional ADSs to holders of ADSs.
The depositary bank will establish procedures to distribute rights to
purchase additional ADSs to holders and to enable ADS holders to exercise their
purchase rights if it is lawful and reasonably practicable to make the rights
available and if Stora Enso provides all of the documentation contemplated in
the deposit agreement, such as opinions relating to the lawfulness of the
transaction. You may have to pay fees, expenses, taxes and other governmental
charges to subscribe for new ADSs upon the exercise of your rights. The
depositary bank is not obligated to establish procedures to facilitate the
distribution and exercise by holders of ADSs of rights to purchase new Series R
shares directly rather than in the form of new ADSs.
The depositary bank will not distribute the rights to you if:
. Stora Enso does not request that the rights be distributed to you or asks
that the rights not be distributed to you; or
. Stora Enso fails to deliver satisfactory documents to the depositary
bank; or
. it is not lawful or reasonably practicable to distribute the rights.
Management of Stora Enso currently expects that it will request the
depositary bank to distribute to the holders of Stora Enso ADSs any rights that
are distributed to the holders of Stora Enso's Series R shares and
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that Stora Enso would file a registration statement under the Securities Act in
order to facilitate the participation of Stora Enso ADS holders in any such
rights distribution if the filing of a registration statement is required to be
made before these rights may be distributed to holders of ADSs. However, Stora
Enso is under no legal obligation to take these actions.
In the event that rights are not exercised or distributed, the depositary
bank will sell the rights that are not exercised or not distributed if doing so
is lawful and reasonably practicable. The proceeds of a sale will be
distributed to holders as in the case of a cash distribution. If the depositary
bank is unable to sell the rights, it will allow the rights to lapse.
Elective Distributions
Whenever Stora Enso intends to distribute a dividend payable at the election
of shareholders either in cash or in additional Series R shares, Stora Enso
will give prior notice to the depositary bank and will indicate whether Stora
Enso wishes the elective distribution to be made available to you. In such
case, Stora Enso will use its reasonable efforts to assist the depositary bank
in determining whether the distribution is lawful and reasonably practicable.
Management of Stora Enso currently expects to make available to the holders of
Stora Enso ADSs the elections that are available to the holders of Stora Enso
Series R shares.
The depositary bank will make the election available to holders of ADSs only
if it is reasonably practicable and if Stora Enso has provided all of the
documentation contemplated in the deposit agreement. In such case, the
depositary bank will establish procedures to enable you to elect to receive
either cash or additional ADSs, in each case as described in the deposit
agreement.
If the election is not made available to you, you will receive either cash or
additional ADSs, depending on what a shareholder in Finland would receive in
the event the shareholder fails to make an election, as more fully described in
the deposit agreement.
Other Distributions
Whenever Stora Enso intends to distribute property other than cash, Series R
shares or rights to purchase additional Series R shares, Stora Enso will notify
the depositary bank in advance and will indicate whether the distribution
should be made to holders of ADSs. If so, Stora Enso will use its reasonable
efforts to assist the depositary bank in determining whether distribution to
ADS holders is lawful and reasonably practicable. Management of Stora Enso
currently expects that it will request the depositary bank to distribute to the
holders of Stora Enso ADSs any property that is distributed to the holders of
Stora Enso Series R shares.
If it is reasonably practicable to distribute this property to you and if
Stora Enso provides all of the documentation contemplated in the deposit
agreement, the depositary bank will distribute the property to the holders in a
manner it deems practicable.
The distribution will be made net of fees, expenses, taxes and governmental
charges payable by ADS holders under the terms of the deposit agreement. In
order to pay these taxes and governmental charges, the depositary bank may sell
all or a portion of the property received.
The depositary bank will not distribute the property to you and will sell the
property if:
. Stora Enso does not request that the property be distributed to you or if
Stora Enso asks that the property not be distributed to you; or
. Stora Enso does not deliver satisfactory documents to the depositary
bank; or
. the depositary bank determines that all or a portion of the distribution
to you is not lawful or not reasonably practicable.
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The proceeds of a sale will be distributed to holders as in the case of a
cash distribution.
Stora Enso has no obligation to register under the Securities Act the Stora
Enso ADSs, shares, rights or other securities that may be distributed to
holders of Series R shares and ADSs. Stora Enso also has no obligation to take
any other action to permit the distribution of ADRs, shares, rights, or
anything else to ADR holders. This means that you may not receive distributions
that Stora Enso makes on its shares or any value for them if it is illegal or
impractical for Stora Enso to make them available to you.
Redemption
Whenever Stora Enso decides to redeem any of the securities on deposit with
the custodian, it will notify the depositary bank. If it is reasonably
practicable and if Stora Enso provides all of the documentation contemplated in
the deposit agreement, the depositary bank will mail a notice of the redemption
to the ADS holders.
The custodian will be instructed to surrender the securities being redeemed
against payment of the applicable redemption price. The depositary bank will
convert the redemption funds received into U.S. dollars under the terms of the
deposit agreement and will establish procedures to enable ADS holders to
receive the net proceeds from the redemption upon surrender of their ADSs to
the depositary bank. ADS holders may have to pay fees, expenses, taxes and
other governmental charges upon the redemption of their ADSs. If fewer than all
ADSs are being redeemed, the ADSs to be retired will be selected by lot or on a
pro rata basis, as the depositary bank may determine.
Changes Affecting Series R Shares
The Series R shares held on deposit for your ADSs may change from time to
time. For example, there may be a change in nominal or par value, a split-up,
cancellation, consolidation or classification of such Series R shares or a
recapitalization, reorganization, merger, consolidation or sale of assets.
If a change were to occur, your ADSs would, to the extent permitted by law,
represent the right to receive the property received or exchanged in respect of
the Series R shares held on deposit. The depositary bank may in such
circumstances deliver new ADSs to you or call for the exchange of your existing
ADSs for new ADSs. If the depositary bank may not lawfully distribute the
property to you, it may sell the property and distribute the net proceeds to
you as in the case of a cash distribution.
Issuance of ADSs Upon Deposit of Series R Shares
The depositary bank may create ADSs on your behalf if you or your broker
deposit Series R shares with the custodian. The depositary bank will deliver
these ADSs to the person you indicate only after you pay to the custodian any
applicable issuance fees, charges and taxes payable for the transfer of the
Series R shares.
The issuance of ADSs may be delayed until the depositary bank or the
custodian receives confirmation that all required approvals have been given and
that the Series R shares have been duly transferred to the custodian. The
depositary bank will only issue ADSs in whole numbers.
When you make a deposit of Series R shares, you will be responsible for
transferring good and valid title to the depositary bank. You will be deemed to
represent and warrant that:
. the Series R shares are duly authorized, validly issued, fully paid, non-
assessable and legally obtained;
. all preemptive and similar rights, if any, with respect to the Series R
shares have been validly waived or exercised;
.you are duly authorized to deposit the Series R shares;
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. the Series R shares presented for deposit are free and clear of any lien,
encumbrance, security interest, charge, mortgage or adverse claim, and
are not, and the ADSs issuable upon deposit will not be, "restricted
securities," as defined in the deposit agreement, with permitted
exceptions; and
. the Series R shares presented for deposit have not been stripped of any
rights or entitlements.
If any of the representations or warranties are incorrect in any way, Stora
Enso and the depositary bank may, at your cost and expense, take any and all
actions necessary to correct the consequences of the misrepresentations.
Withdrawal of Shares Upon Cancellation of ADSs
As an ADS holder, you will be entitled to present your ADSs to the depositary
bank for cancellation and then receive the underlying Series R shares at the
custodian's offices. In order to withdraw the Series R shares represented by
your ADSs, you will be required to pay to the depositary bank the fees for
cancellation of ADSs and any charges and taxes payable upon the transfer of the
Series R shares being withdrawn. You assume the risk for delivery of all funds
and deposited property upon withdrawal. Once canceled, the ADSs will not have
any rights under the deposit agreement.
If you hold an ADS registered in your name, the depositary bank may ask you
to provide proof of identity and genuineness of any signature and other
documents as the depositary bank may deem appropriate before it will cancel
your ADSs. The withdrawal of the Series R shares represented by your ADSs may
be delayed until the depositary bank receives satisfactory evidence of
compliance with all applicable laws and regulations. Please keep in mind that
the depositary bank will only accept ADSs for cancellation that represent a
whole number of securities on deposit.
You will have the right to withdraw the securities represented by your ADSs
at any time except for:
. temporary delays that may arise because (1) the transfer books for the
Series R shares or ADSs are closed, or (2) Series R shares are
immobilized on account of a shareholders' meeting or a payment of
dividends;
. obligations to pay fees, taxes and similar charges; and
. restrictions imposed because of laws or regulations applicable to ADSs or
the withdrawal of securities on deposit.
The deposit agreement may not be modified to impair your right to withdraw
the Series R shares represented by your ADSs except to comply with mandatory
provisions of law.
Voting Rights
Under Finnish law and Stora Enso's articles of association, it is a
precondition for exercising your voting rights that you:
. be registered in Stora Enso's register of shareholders as a shareholder
at least five days prior to the last registration date of the
shareholders' meeting and
. give notice of your intention to attend the meeting, in person or by
power of attorney, not later than a date specified in the notice
convening the meeting.
In order to accommodate these requirements, the depositary bank has agreed to
establish procedures that enable an ADS holder who provides valid voting
instructions to instruct the depositary bank to request the custodian to cause
the Series R shares represented by the holder's ADSs to be registered in the
register of shareholders in the name of the holder and give notice to Stora
Enso of the holder's intention to attend the meeting and to vote the shares at
meeting in person or by proxy. These procedures may require you to
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immobilize your ADSs with the depositary bank, either by delivering your ADSs
to the depositary bank or by instructing the depositary bank to block the
transfer of the applicable ADR, so as to enable the depositary bank to re-
register the Series R shares in your name. The voting rights of holders of
Series R shares are described in "Description of Stora Enso Series R Shares--
Voting Rights."
At Stora Enso's request, the depositary bank will mail to you any notice of
shareholders' meeting received from Stora Enso together with information
explaining how to instruct the depositary bank to exercise the voting rights of
the securities represented by ADSs.
If the depositary bank timely receives voting instructions from a holder of
ADSs, it will endeavor to vote the securities represented by the holder's ADSs
in accordance with the instructions.
Because each ten (10) Series R shares are entitled, under the terms of Stora
Enso's articles of association, to one vote, the depositary bank will, except
in the circumstance described below, accept voting instructions from holders of
ADSs only in even multiples of ten (10) ADSs. However, because Stora Enso's
articles of association provide that each holder of Series R shares is entitled
to a minimum of one (1) vote, the depositary bank will accept voting
instructions from holders of fewer than ten (10) ADSs.
Please note that the ability of the depositary bank to carry out voting
instructions may be limited by practical and legal limitations and the terms of
the securities on deposit. Stora Enso cannot assure you that you will receive
voting materials in time to enable you to return voting instructions to the
depositary bank in a timely manner. This means that you may not be able to
exercise your right to vote and there may be nothing you can do if your shares
are not voted as you requested.
Fees and Charges
As an ADS holder, you will be required to pay the following service fees to
the depositary bank:
<TABLE>
<CAPTION>
Service Fees
------- ----
<S> <C>
Issuance of ADSs Up to 5c per ADS issued
Cancellation of ADSs Up to 5c per ADS canceled
Exercise of rights to purchase additional ADSs Up to 5c per ADS issued
Distribution of cash upon sale of rights and other
entitlements Up to 2c per ADS held
</TABLE>
As an ADS holder you will also be responsible to pay specified fees and
expenses incurred by the depositary bank as well as taxes and governmental
charges such as:
. fees for the transfer and registration of Series R shares, such as upon
deposit and withdrawal of Series R shares;
. expenses incurred for converting foreign currency into U.S. dollars;
. expenses for cable, telex and fax transmissions and for delivery of
securities; and
. taxes and duties upon the transfer of securities, such as when Series R
shares are deposited or withdrawn from deposit.
Stora Enso has agreed to pay other agreed charges and expenses of the
depositary bank. In addition, the depositary bank has agreed to reimburse Stora
Enso for some of its expenses in connection with the establishment and
maintenance of the ADR program. Note that the fees and charges you may be
required to pay may vary over time and may be changed by agreement between
Stora Enso and the depositary. You will receive prior notice of any changes.
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Amendments and Termination
Stora Enso may agree with the depositary bank to modify the deposit agreement
at any time without your consent. Stora Enso undertakes to give ADS holders 30
days' prior notice of any modifications that would prejudice any of their
substantial rights under the deposit agreement, except in very limited
circumstances enumerated in the deposit agreement.
You will be bound by the modifications to the deposit agreement if you
continue to hold your ADSs after the modifications to the deposit agreement
become effective. The deposit agreement cannot be amended to prevent you from
withdrawing the Series R shares represented by your ADSs, except as permitted
by law.
Stora Enso has the right to direct the depositary bank to terminate the
deposit agreement. Similarly, the depositary bank may in some circumstances on
its own initiative terminate the deposit agreement. In either case, the
depositary bank must give notice to the ADS holders at least 30 days before
termination.
Upon termination, the following will occur under the deposit agreement:
For a period of six months after termination, you will be able to request the
cancellation of your ADSs and the withdrawal of the Series R shares represented
by your ADSs and the delivery of all other property held by the depositary bank
in respect of those Series R shares on the same terms as prior to the
termination. During this six month period the depositary bank will continue to
collect all distributions, such as dividends, received on the Series R shares
on deposit but will not distribute any property to you until you request the
cancellation of your ADSs.
After the expiration of this six month period, the depositary bank may sell
the securities held on deposit. The depositary bank will hold the proceeds from
the sale and any other funds then held for the holders of ADSs in an
unsegregated and non-interest-bearing account. At that point, the depositary
bank will have no further obligations to ADS holders other than to account for
the funds then held for the holders of ADSs still outstanding.
Books of Depositary
The depositary bank will maintain ADS holder records at its depositary
office. You may inspect these records at the depositary bank's office during
regular business hours but solely for the purpose of communicating with other
ADS holders in the interest of business matters relating to the ADSs and the
deposit agreement.
The depositary bank will maintain facilities in New York to record and
process the issuance, cancellation, combination, split-up and transfer of ADRs.
These facilities may be closed from time to time, to the extent not prohibited
by law.
Limitations on Obligations and Liabilities
The deposit agreement limits our obligations and the depositary bank's
obligations to you. Please note the following:
. Stora Enso and the depositary bank are obligated only to take the actions
specifically stated in the deposit agreement without negligence or bad
faith;
. The depositary bank disclaims any liability for any failure to carry out
voting instructions, for any manner in which a vote is cast or for the
effect of any vote, provided it acts in good faith and in accordance with
the terms of the deposit agreement;
. The depositary bank disclaims any liability for any failure to determine
the lawfulness or practicality of any action, for the content of any
document forwarded to you on Stora Enso's behalf or for the accuracy
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of any translation of these documents, for the investment risks associated
with investing in Series R shares, for the validity or worth of the Series
R shares, for any tax consequences that result from the ownership of ADSs,
for the credit-worthiness of any third party, for allowing any rights to
lapse under the terms of the deposit agreement, for the timeliness of any
of Stora Enso's notices or for Stora Enso's failure to give notice;
. Stora Enso and the depositary bank will not be obligated to perform any
act that is inconsistent with the terms of the deposit agreement;
. Stora Enso and the depositary bank disclaim any liability if Stora Enso
and the depositary bank are prevented or forbidden from acting on account
of any law or regulation, any provision of its articles of association,
any provision of any securities on deposit or by reason of any act of God
or war or other circumstances beyond our control;
. Stora Enso and the depositary bank disclaim any liability by reason of
any exercise of, or failure to exercise, any discretion provided for in
the deposit agreement or in Stora Enso's articles of association or in
any provisions of securities on deposit;
. Stora Enso and the depositary bank further disclaim any liability for any
action or inaction in reliance on the advice or information received from
legal counsel, accountants, any person presenting Series R shares for
deposit, any holder of ADSs or a holder's authorized representative, or
any other person believed by either the depositary bank or Stora Enso in
good faith to be competent to give such advice or information;
. Stora Enso and the depositary bank also disclaim liability for the
inability by an ADS holder to benefit from any distribution, offering,
right or other benefit which is made available to holders of Series R
shares but is not, under the terms of the deposit agreement, made
available to you; and
. Stora Enso and the depositary bank may rely without any liability upon
any written notice, request or other document believed to be genuine and
to have been signed or presented by the proper parties.
Pre-Release Transactions
The depositary bank may, in specified circumstances, issue ADSs before
receiving a deposit of Series R shares or release Series R shares before
receiving ADSs for cancellation. These transactions are commonly referred to as
"pre-release transactions." The deposit agreement limits the aggregate size of
pre-release transactions and imposes a number of conditions on these
transactions, for example, the need to receive collateral, the type of
collateral required and the representations required from brokers. The
depositary bank may retain the compensation received from the pre-release
transactions.
Taxes
You will be responsible for the taxes and other governmental charges payable
on the ADSs and the securities represented by the ADSs. Stora Enso, the
depositary bank and the custodian may deduct from any distribution the taxes
and governmental charges payable by ADS holders and may sell any and all
property on deposit to pay the taxes and governmental charges payable by
holders. You will be liable for any deficiency if the sale proceeds do not
cover the taxes that are due.
The depositary bank may refuse to issue ADSs, to deliver, transfer, split and
combine ADRs or to release securities on deposit until all taxes and charges
are paid by the applicable holder. The depositary bank has agreed to use
commercially reasonable efforts to obtain tax refunds and reduced tax
withholding for any distributions on your behalf in accordance with U.S. and
Finnish law and the U.S.-Finland tax treaty. However, you may be required to
provide to the depositary bank and to the custodian proof of taxpayer status
and residence and other information as the depositary bank and the custodian
may require to fulfill legal obligations. You are required to indemnify Stora
Enso, the depositary bank and the custodian for any claims with respect to
taxes based on any tax benefit obtained for you.
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Foreign Currency Conversion
The depositary bank will arrange for the prompt conversion of all foreign
currency received into U.S. dollars if conversion is practicable, and it will
promptly distribute the U.S. dollars in accordance with the terms of the
deposit agreement. You may have to pay fees and expenses incurred in converting
foreign currency, such as fees and expenses incurred in complying with currency
exchange controls and other governmental requirements.
If the conversion of foreign currency is not practicable or lawful, or if any
required approvals are denied or not obtainable at a reasonable cost or within
a reasonable period, the depositary bank may take the following actions in its
discretion:
. convert the foreign currency to the extent practicable and lawful and
distribute the U.S. dollars to the holders for whom the conversion and
distribution is lawful and practicable;
. distribute the foreign currency to holders for whom the distribution is
lawful and practicable; and
. hold the foreign currency, without liability for interest, for the
applicable holders.
THE FINNISH SECURITIES MARKET
General
The securities market in Finland is supervised by the Finnish Financial
Supervision Authority. The principal statute governing the securities market is
the Finnish Securities Market Act of 1989, as amended. The Securities Market
Act contains regulations with respect to company and shareholder disclosure
obligations, admission to listing and trading of listed securities and public
takeovers, among other things. The role of the Finnish Financial Supervision
Authority is to monitor compliance with these regulations.
The Securities Market Act specifies minimum disclosure requirements for
Finnish companies applying for listing on the Helsinki Securities and
Derivatives Exchange, Clearing House Ltd., commonly referred to as the Helsinki
Stock Exchange, or making a public offering of securities in Finland. The
information provided must be sufficient to enable investors to make a sound
evaluation of the security being offered and the issuing company. Finnish
listed companies have a continuing obligation to publish regular financial
information and to inform the market of any matters likely to have a material
impact on the value of their securities.
A shareholder, including a holder of Stora Enso ADSs, is required to notify a
Finnish listed company and the Finnish Financial Supervision Authority when its
voting participation in, or its percentage ownership of, issued share capital
of the company reaches, exceeds or falls below 5%, 10%, 15%, 20%, 25%, 33 1/3%,
50% or 66 2/3%, calculated in accordance with the Securities Market Act, or
when the shareholder enters into an agreement or other arrangement having such
effect. If a Finnish listed company receives information indicating that a
voting interest or ownership interest has reached, exceeded or fallen below
these thresholds, it must make disclosure to the public and to the Helsinki
Stock Exchange.
The Securities Market Act requires that a shareholder whose holding in a
listed company exceeds two-thirds of the total voting rights attached to the
shares of the company after the commencement of a public quotation of such
shares must offer to purchase the remaining shares and securities entitling the
holder of the securities to receive shares of the company. Under the Finnish
Companies Act, a shareholder holding more than 90% of the shares and the votes
attached to the shares in a company has the right to purchase the remaining
shares for fair market value. In addition, any shareholder that possesses
shares that may be so purchased by a majority shareholder is entitled to
require the majority shareholder to purchase its shares. Detailed rules apply
for the calculation of the above proportions of shares and votes.
The Finnish Criminal Code contains provisions relating to the misuse of
privileged or inside information and market manipulation. Breach of these
provisions constitutes a criminal offense.
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The Helsinki Stock Exchange operates as a securities exchange, an organizer
of other public trades in securities and as an options exchange. The Helsinki
Stock Exchange carries on exchange and related operations while the Finnish
Central Securities Depository, which maintains the commercial book-entry
register for Stora Enso, acts as the national securities depositary offering
clearing and registry services and performs issuer services functions.
The Finnish Book-Entry Securities System
General
Finland has made a gradual changeover from a certificated securities system
to a book-entry securities system since August 1, 1991, when the relevant
legislation came into effect. Use of the book-entry securities system is
mandatory for shares listed on the Helsinki Stock Exchange. The Stora Enso
Series A and Series R shares were entered into the book-entry system on October
10, 1998.
Most activities relating to the book-entry securities system are centralized
at the Finnish Central Securities Depository, which provides national clearing
and registration services for securities. The Finnish Central Securities
Depository maintains a central book-entry securities system for both equity and
debt securities.
The Finnish Central Securities Depository maintains a register of the
shareholders of listed companies and accounts for shareholders that do not wish
to utilize the services of a commercial book-entry registrar. The expenses
incurred by the Finnish Central Securities Depository in connection with
maintaining such accounts are borne by the issuers participating in the book-
entry securities system.
Registration
In order to effect entries in the book-entry securities system, a security
holder or such holder's nominee must establish a book-entry account with the
Finnish Central Securities Depository or register its securities through
nominee registration. All transactions in securities registered with the book-
entry securities system are executed as computerized book-entry transfers. The
Finnish Central Securities Depository confirms book-entry transfers by sending
notifications of transactions to the investor holding the respective book-entry
account. Investors also receive an annual statement of their holdings as of the
end of each calendar year.
Each book-entry account is required to contain specified information with
respect to the account holder or the custodian administering the assets of a
custodial nominee account. This information includes the type and number of
book-entry securities registered and the rights and restrictions pertaining to
the account and to the book-entry securities registered in the account. A
custodial nominee account is identified as such on the entry. The Finnish
Central Securities Depository is required to observe strict confidentiality,
although some information contained in the registers, such as the name,
nationality and address of each account holder, must be made available to the
public.
The Finnish Central Securities Depository is strictly liable for, among other
things, errors and omissions on the registers maintained by it and for any
unauthorized disclosure of information. To cover this contingency, the Finnish
Central Securities Depository maintains a statutory guarantee fund, which is
required to reach a level of not less than FIM 110 million ((Euro)18.5 million)
by December 31, 2011 in respect of book-entry and settlement operations. The
balance of the statutory guarantee fund currently stands at FIM 20.5 million
((Euro)3.5 million).
Trading and Settlement
Trading in, and clearing of, securities on the Helsinki Stock Exchange is in
euros, with the minimum tick size for trading quotations being one euro cent.
All price information is produced and published only in euros.
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The trading system of the Helsinki Stock Exchange, the Helsinki Exchanges
Automated Trading and Information System, is a decentralized and fully
automated order-driven system. Trading is conducted on the basis of trading
lots, which are fixed separately for each share series.
Official share trading takes place from 10:30 a.m. to 5:30 p.m. Helsinki time
on each trading day. Offers may be placed in the system beginning at 9:30 a.m.
during a pretrading period. Offers are matched from 10:10 to 10:30 a.m. to
determine the opening quotations of the day. Contract transactions may continue
to be registered during aftermarket trading from 5:30 to 6:00 p.m. and from
9:00 to 9:25 a.m. the following morning within the price limits arrived at
during the official share trading.
The transactions are normally cleared in the Finnish Central Securities
Depository's automated clearing and settlement system on the third banking day
after the trade date unless otherwise agreed by the parties.
Custody of the Shares and Nominees
Shares are held in the book-entry register of the Finnish Central Securities
Depository. A non-Finnish shareholder may appoint a custodian (or some non-
Finnish organizations approved by the Finnish Central Securities Depository) to
act as a nominee shareholder on its behalf. A nominee shareholder is entitled
to receive dividends and to exercise all share subscription rights and other
financial rights attaching to the shares held in its name. It may not, however,
exercise any administrative rights attaching to such shares, such as the right
to attend and vote at general meetings of the company. A beneficial owner
wishing to exercise these rights must terminate the nominee arrangement and
obtain registration of the shares in the owner's own name not later than five
days prior to the relevant general meeting. A nominee is required to disclose
to the Finnish Financial Supervision Authority and the relevant company on
request the name of the beneficial owner of any shares registered in the name
of the nominee, where the beneficial owner is known, as well as the number of
shares owned by the beneficial owner.
Finnish depositories for both Clearstream (formerly Cedelbank) and Euroclear
have nominee accounts within the book-entry securities system and, accordingly,
non-Finnish shareholders may hold their shares through their accounts with
Clearstream or Euroclear.
Shareholders wishing to hold their shares in the book-entry securities system
in their name and who do not maintain a custody account in Finland are required
to open a custody account at a credit institution, investment services company
or other institution authorized to act as a book-entry registrar by the Finnish
Council of State and a convertible Finnish markka or euro account.
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THE SWEDISH SECURITIES MARKET
Stora Enso Series R shares are also listed on the "A" list of the OM
Stockholm Exchange.
Trading on the Stockholm Exchange is conducted on behalf of clients by banks
and brokers. While banks and brokers are permitted to act as the principal in
trading both on and off the Stockholm Exchange, they generally engage in
transactions as agent. There are no market makers or specialist systems on the
Stockholm Exchange.
Trading on the Stockholm Exchange begins each morning at 9:30 a.m. (Stockholm
time) at an opening price determined by the Stockholm Automated Exchange
System, a computerized order-matching system, based on orders entered by
Stockholm Exchange members, and continues at prices based on market demand
until 5:30 p.m. (Stockholm time). Buy and sell orders are registered on the
system in round lots, typically of 100 shares, and odd lots are matched
separately at the last price for round lots.
The Stockholm Exchange is a fully electronic marketplace. Member firms of the
Stockholm Exchange are able to operate from a remote location via advanced data
communications. The brokers' representatives are able to trade through work
stations that have been developed by the Stockholm Exchange or through their
own electronic data processing systems which are linked to the Stockholm
Automated Exchange System.
In addition to official trading on the Stockholm Exchange, there is also
trading off the Stockholm Exchange during and after official trading hours.
Trades in excess of 20 round lots can be effected off the Stockholm Exchange if
the transaction price lies within the spread then appearing on the Stockholm
Automated Exchange System, and trades in excess of 500 round lots (for shares
on the "Most Traded Shares" list of the Stockholm Exchange) or 250 round lots
(for all other shares) may, however, be effected off the Stockholm Exchange
without regard to the spread. Trades after official Stockholm Exchange trading
hours must normally be effected at a transaction price that lies within the
spread appearing on the Stockholm Automated Exchange System at the time of the
closing. If there are no orders in the Stockholm Automated Exchange System at
such time, the trade may be effected at a price that otherwise reflects the
market situation at such time. If the market situation changes after the
closing of the Stockholm Automated Exchange System, trades may be effected
outside the spread, provided that it can be shown that the transaction price
reflected the market situation prevailing at the time of the trade. Trading on
the Stockholm Exchange tends to involve a higher percentage of retail clients,
while trading off the Stockholm Exchange, whether through intermediaries or
directly, often involves larger Swedish institutions, banks arbitraging between
the Swedish market and foreign markets, and foreign buyers and sellers
purchasing shares from or selling shares to Swedish institutions.
The Stockholm Exchange is an authorized stock exchange in accordance with the
Swedish Stock Exchange and Clearing House Act and is subject to regulation by
the Swedish Financial Authority. The Swedish Stock Exchange and Clearing House
Act provides for the regulation and supervision of the Swedish securities
markets and market participants and the Swedish Financial Authority implements
such regulation and supervision.
The regulatory system governing trading on and off the Stockholm Exchange is
intended to achieve transparency and equality of treatment. All trades on the
Stockholm Exchange are made through the Stockholm Automated Exchange System to
the Stockholm Exchange, which records information as to the banks and brokers
involved, the issuer, the number of shares and the price and the time of the
transaction. Each bank or broker is required to maintain records indicating
trades carried out as agent or, in the case of banks, as principal. All trades
off the Stockholm Exchange by or through members of the Stockholm Exchange must
also be reported to the Stockholm Exchange within five minutes, although trades
after 5:30 p.m. are to be reported no later than 15 minutes prior to the
opening on the next trading day. All trading information reported on the
Stockholm Exchange is publicly available. The Stockholm Exchange also maintains
a Market Supervision Unit that reviews trading data during the day on a "real
time" basis, as described below.
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The Swedish Insider Trading Act provides sanctions against insider trading.
The insider trading rules are policed by the Swedish Financial Supervisory
Authority, and the Market Supervision Unit of the Stockholm Exchange reviews
trading data for indications of unusual market activity or trading behavior.
The Market Supervision Unit also continually examines information
disseminated by listed companies. Accordingly, earnings reports and information
about acquisitions, other investment plans and changes in ownership structure
are reviewed on a daily basis. When the Market Supervision Unit becomes aware
of non-public price sensitive information, it monitors trading in the shares
concerned to ensure that if unusual trading activity develops which evidences
that persons may be trading on such information, the information is made public
as soon as possible.
The Financial Instruments Trading Act contains a provision prohibiting undue
manipulation of the price of financial instruments. A person involved in a
trade on the securities market who enters into fictitious transactions or who
transfers financial instruments with secret agreements involving the withdrawal
of the instruments from the general trade, for the purpose of unduly
manipulating the price for the financial instruments, may be sentenced to up to
four years imprisonment. Other actions may also be considered undue price
manipulation if the purpose is to deceive those who trade in financial
instruments.
Under some circumstances market manipulation may also constitute a violation
of the Swedish Insider Trading Act or fraud under Swedish law. As previously
described, trading data is recorded as to all securities and derivative
transactions relating to listed securities and data related to trading activity
is subject to supervisory review by the Swedish Financial Supervisory
Authority, providing a further enforcement mechanism for reducing market
manipulation. The Swedish Financial Supervisory Authority may revoke the
operating license of a bank or broker engaged in improper conduct including
market manipulation.
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COMPARISON OF RIGHTS OF STORA ENSO SHAREHOLDERS AND CONSOLIDATED SHAREHOLDERS
The rights of Consolidated shareholders are currently governed by Wisconsin
corporate law and Consolidated's articles of incorporation and bylaws. Upon
completion of the merger, some Consolidated shareholders will become holders of
Stora Enso ADSs, each representing one Series R share of Stora Enso. Their
rights as ADS holders are governed by the deposit agreement, which is governed
by New York law, and their rights as Stora Enso shareholders will be governed
by Finnish law, Stora Enso's articles of association and the deposit agreement.
There are a number of differences between the rights of Stora Enso shareholders
and Consolidated shareholders. The following is a brief summary of the material
differences between the rights of Stora Enso shareholders and the rights of
Consolidated shareholders and is qualified in its entirety by reference to the
relevant provisions of Finnish corporate law and Wisconsin corporate law and by
Stora Enso's articles of association and Consolidated's articles of
incorporation and bylaws. Stora Enso's articles of association are included as
Annex C to this document and Consolidated's charter documents are incorporated
by reference as exhibits to the registration statement. Please also refer to
"Description of Stora Enso Series R Shares" and "Description of Stora Enso
American Depositary Shares."
Shareholder's Meetings
Provisions Currently Applicable Provisions To Be Applicable
to Consolidated Shareholders to Stora Enso Shareholders
Annual and Special Meetings. Under
Annual and Special Meetings. Under Finnish corporate law, companies may
Wisconsin corporate law, a hold two types of meetings, annual
corporation must hold an annual and special, sometimes referred to
meeting at a time specified in its as extraordinary. Under Stora Enso's
bylaws and may hold special articles of association, the annual
meetings. Consolidated's bylaws general meeting of shareholders must
provide for an annual meeting to be be held each year prior to the end
held on the fourth Monday of April of June.
of each year, or on a different date
determined by the board of
directors.
Place of Meeting. Under Finnish
corporate law, a general meeting of
shareholders of a company
incorporated in Finland must be held
at the company's domicile, which for
Stora Enso is Helsinki, Finland. If
there is a valid reason, a general
meeting of shareholders may also be
held at some other location. Under
Stora Enso's articles of
association, the annual general
meeting of shareholders must be held
in Helsinki.
Place of Meeting. Consolidated's
bylaws provide that the annual
meeting of shareholders shall be
held either at Consolidated's
principal office in Wisconsin
Rapids, Wisconsin, or at another
place selected by Consolidated's
board of directors.
Right to Call Meetings. Under
Wisconsin corporate law, a special
meeting of shareholders may be
called by the board of directors, by
any person authorized by the
articles of incorporation or bylaws
to call a special meeting or upon
the written demand of the holders of
10% of the votes entitled to be cast
on any issue proposed to be
considered at the special meeting.
Consolidated's bylaws provide that a
special meeting of the shareholders
may be called by the chairman of the
board, the president and chief
executive officer or the secretary
at the request of any two members of
the board of directors or by the
chairman of the board or president
and chief
Right to Call Meetings. Under
Finnish corporate law, a special
meeting of shareholders may be
called by the board of directors.
Furthermore, the board has an
obligation to call a special meeting
of the shareholders at the written
request of the auditors of the
company or a group of shareholders
representing at least 10% of the
outstanding shares of the company.
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Provisions Currently Applicable Provisions To Be Applicable
to Consolidated Shareholders to Stora Enso Shareholders
executive officer upon written Notice. Under Stora Enso's articles
demand by a holder or holders of of association, notices of general
shares with at least 10% of the meetings must be given not earlier
votes entitled to be cast on any than two months and not later than
issue proposed to be considered at 14 days prior to the so-called "last
the meeting. registration date" (which is a date
no earlier than the fifth day before
the meeting as specified by the
board of directors in the notice
announcing the general meeting) by
publishing an advertisement in at
least two Finnish-language and one
Swedish-language newspapers. In
addition, Stora Enso has undertaken
to furnish holders of its ADSs with
English-language notices of
shareholders' meetings and other
communications that are made
generally available to the Stora
Enso shareholders.
Notice. Under Wisconsin corporate
law, a Wisconsin corporation must
notify its shareholders of an annual
or special meeting not less than 10
nor more than 60 days before the
meeting, unless the corporation's
articles of incorporation or bylaws
provide otherwise. Consolidated's
bylaws provide that notice of an
annual meeting or a special meeting
must be delivered not less than 10
nor more than 50 days before the
date of the meeting and that notice
of a special meeting called at the
request of holders of not less than
10% of the outstanding shares
entitled to vote at the meeting must
be delivered not less than 45 nor
more than 50 days before the date of
the meeting. Consolidated's bylaws
require that notice of a meeting
must state the place, day and hour
of the meeting and that notice of a
special meeting must also state the
purpose or purposes for which the
meeting is called. Under Wisconsin
law, notice may be delivered by mail
or, if authorized by the shareholder
receiving the notice, by electronic
transmission, such as over the
internet, or by telephone, fax or
telegram.
Under Finnish corporate law, notices
of general meetings must state the
matters that will be addressed at
the meeting. If the purpose of the
meeting includes a proposed
amendment to the company's articles
of association, the principal
contents of the amendment must be
described in the notice.
Attendance and Voting. Under Stora
Enso's articles of association, a
shareholder must give notice to the
company of his or her intention to
attend a general meeting no later
than the "last registration date."
Shareholders entitled to attend and
vote at a general meeting must be
registered in the register of
shareholders, which is kept by the
Finnish Central Securities
Depository in accordance with
Finnish law, no later than five days
prior to the general meeting of
shareholders. A shareholder may
attend and vote at a general meeting
in person or through an authorized
representative, but only
shareholders in attendance or so
represented may vote. A shareholder,
including any holder of ADSs, whose
shareholding is registered in
nominee or "street name" may not
attend and vote at a general meeting
of shareholders or authorize a
representative to do so on his or
her behalf. A beneficial owner
wishing to exercise these rights
must cancel the nominee arrangement
and arrange for his or her shares to
be registered in his or her name in
the shareholder register of the
Finnish Central Securities
Depository
Attendance and Voting. Shareholders
entitled to vote at a meeting may
attend and vote at the meeting in
person or by proxy. A shareholder
may appoint a proxy in writing or by
transmitting or authorizing the
transmission of an electronic
transmission of the appointment,
including over the internet or by
telephone, fax or telegram. Each
Consolidated share is entitled to
one vote.
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Provisions Currently Applicable Provisions To Be Applicable
to Consolidated Shareholders to Stora Enso Shareholders
not later than five days before the
general meeting of shareholders.
Quorum. Under Consolidated's bylaws,
the presence in person or by proxy For a description of how ADS holders
of the holders of record of a may exercise voting rights, see
majority of the shares entitled to "Description of Stora Enso American
vote at a meeting of shareholders Depositary Shares--Voting Rights."
constitutes a quorum for the
transaction of business at a
meeting.
Quorum. There are no quorum
requirements for shareholders'
meetings under Finnish corporate law
or Stora Enso's articles of
association.
Vote Required for Mergers. Under
Wisconsin corporate law, because
Consolidated was incorporated before
1973 and because its articles of
incorporation do not provide
otherwise, a merger to which
Consolidated is a party must be
approved by the affirmative vote of
the holders of two-thirds of the
shares entitled to vote on the
merger and the affirmative vote of
the holders of two-thirds of the
shares of each class or series
entitled to vote separately on the
merger, if any. There is no separate
class or series of Consolidated
shares entitled to vote separately
on the merger.
Vote Required for Mergers. Finnish
corporate law requires that before a
merger or a consolidation can be
approved by the shareholders, a
merger plan setting forth the terms
and conditions for the transaction
must be adopted by the corporation's
board of directors. After the
adoption of the merger plan by the
board of directors, the merger plan
must be submitted to the
shareholders of the target company
for approval. The merger plan must
also be submitted for approval by
the shareholders of the surviving
company if at least five percent of
the shareholders so request.
Approval of the merger plan
generally requires approval by two-
thirds of both the votes cast and
the shares represented at the
general meeting. If the company has
more than one class of shares with
different voting rights, approval of
the merger plan also requires the
vote of two-thirds of the shares of
each such class of shares
represented at the general meeting.
A business combination may also be
effected by means of an exchange
offer, that is, an offer made in
contravention of shareholders'
preemptive rights by which shares of
a target company are exchanged for
shares in an acquiring company,
which requires approval by two-
thirds of the votes cast and shares
represented at the general meeting
of the acquiring company. An
exchange offer does not require the
adoption of any formal merger plan.
Submission of Shareholder Proposals. Consolidated's
bylaws provide that if a shareholder
wishes to nominate a person for
election as a director or bring
other business before a meeting,
then the shareholder must give
timely notice of the
Submission of Shareholder
Proposals. A shareholder may
nominate a person for election and
bring proposals relating to Stora
Enso's business before a general
meeting of shareholders. Under
Finnish corporate law, the
shareholder has to give
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<PAGE>
Provisions Currently Applicable Provisions To Be Applicable
to Consolidated Shareholders to Stora Enso Shareholders
written notice of a proposal to
nomination or other business to Stora Enso's board of directors
Consolidated. In order to be timely, within a sufficient period of time
a notice must be: prior to the publication of the
notice of the general meeting.
. received by Consolidated not less
than 60 days nor more than 90 days
before the meeting at which the
nomination or other business is to
be considered; or
Shareholder Action Without a
Meeting. Shareholder action by
written consent in lieu of a
shareholder meeting is not provided
for under Finnish corporate law or
Stora Enso's articles of
association.
. received by Consolidated not later
than 10 days after notice of the
meeting was given or made public,
if notice of the meeting was given
by Consolidated less than 70 days
before the meeting.
Notices given by shareholders must
be in writing and contain a
description of the business to be
brought before the meeting or
information regarding the nominee to
the board of directors, as the case
may be, and other information
specified in Consolidated's bylaws.
Shareholder Action Without a
Meeting. Under Wisconsin corporate
law, shareholders may take action
required or permitted to be taken at
a meeting without a meeting if a
written consent is signed by all of
the corporation's shareholders
entitled to vote on the action,
unless the corporation's articles of
incorporation provide otherwise.
Consolidated's articles of
incorporation do not provide
otherwise.
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Amendment of Constituent Documents
Provisions To Be Applicable
Provisions Currently Applicable to Stora Enso Shareholders
to Consolidated Shareholders
Under Finnish corporate law,
Articles of Incorporation. Under approval by two-thirds of the votes
Wisconsin corporate law, the board cast as well as two-thirds of all
of directors of a corporation may shares represented at a general
propose amendments to a meeting is required to amend the
corporation's articles of provisions of a company's articles
incorporation and may establish of association. The following
conditions for the submission of the amendments to Stora Enso's articles
amendment to the shareholders. Under of association require a vote of
most circumstances, Wisconsin greater than two-thirds of the votes
corporate law provides that cast and shares represented at a
amendments to a corporation's general meeting:
articles of incorporation must be
approved by both the board of
directors of the corporation and its
shareholders. Under Wisconsin
corporate law, because Consolidated
was incorporated before 1973 and
because its articles of
incorporation do not provide
otherwise, an amendment to
Consolidated's articles of
incorporation which is required to
be approved by the shareholders must
be approved by the affirmative vote
of the holders of two-thirds of the
shares entitled to vote on the
amendment and the affirmative vote
of two-thirds of each class or
series entitled to vote separately
on the amendment, if any. There is
currently no separate class or
series of Consolidated shares
entitled to vote separately on an
amendment to Consolidated's articles
of incorporation.
. inclusion of provisions in the
articles of association which
provide for a mandatory transfer
of more than ten percent of the
company's net profit to a reserve
fund on an annual basis or
otherwise requires such an amount
to be left undistributed requires
a vote of two-thirds of the votes
cast and more than nine-tenths of
the shares represented at a
general meeting;
. inclusion of provisions in the
articles of association which
alter the rights of the holders of
a particular class of shares must
be approved not only by two-thirds
of the votes cast and two-thirds
of the shares represented at a
general meeting but also by all of
the shareholders whose shares are
affected by the amendment;
Bylaws. Under Wisconsin corporate . inclusion of provisions in the
law the board of directors or the articles of association which
shareholders of a corporation may alter the rights of the existing
adopt, amend or repeal the bylaws, shareholders with respect to
except to the extent that the distributions must be approved not
articles of incorporation reserve only by two-thirds of the votes
that power to the shareholders or cast and two-thirds of the shares
the shareholders provide in represented at a general meeting
adopting, amending or repealing a but also by all shareholders whose
particular bylaw, that the board of shares are affected;
directors may not amend, repeal or
readopt that bylaw or the
shareholders set specific voting
requirements for the board of
directors to amend, repeal, or
readopt that bylaw. Consolidated's
articles of incorporation do not
reserve the power to amend the
bylaws to the shareholders. None of
Consolidated's bylaws includes any
of the provisions described above.
. inclusion of provisions in the
articles of association which
alter the obligations of the
existing shareholders, including
inclusion of provisions requiring
mandatory capital contributions,
must be approved not only by two-
thirds of the votes cast and two-
thirds of the shares represented
at a general meeting but also by
all shareholders whose shares are
affected; and
. inclusion of provisions in the
articles of association which
alter the relative rights of the
holders of different classes of
shares must be passed not only by
two-thirds of the votes cast and
shares represented at a general
meeting but also by the
affirmative vote of:
. half of the total shares of each
of the affected classes, and
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<PAGE>
Provisions To Be Applicable
to Stora Enso Shareholders
. two-thirds of the shares of each
of the affected classes present
at the meeting.
Under Finnish corporate law, Stora
Enso's articles of association may
not be amended, altered or repealed
by the board of directors.
Stora Enso does not have an
organizational document comparable
to Consolidated's bylaws.
Shareholders' Inspection Rights
Provisions To Be Applicable
Provisions Currently Applicable to Stora Enso Shareholders
to Consolidated Shareholders
Under Finnish corporate law,
Under Wisconsin corporate law, each shareholders may, during ordinary
shareholder of record and his or her business hours, examine the
agent or attorney has the right to company's list of shareholders, the
inspect and copy for a proper company's list of shares and the
purpose the list of shareholders minutes of the general meetings of
prepared for a meeting. The list shareholders. In addition,
must be arranged by class or series shareholders are entitled to request
of shares and must show the address information from the members of the
of, and the number of shares owned company's board of directors and the
by, each shareholder of record. president and chief executive
Inspections must be conducted during officer in a general meeting of
regular business hours at the shareholders regarding issues
shareholder's expense. This right of relating to the company's financial
inspection begins two business days statements and financial condition
after notice of the shareholders' as well as other issues considered
meeting is given and continues in the meeting. The board of
through the meeting. This right of directors and the president and
inspection may be exercised upon chief executive officer have an
written demand. obligation to provide the requested
information unless they determine
that the release of such information
would be materially detrimental to
the company. If the board of
directors determines that releasing
the requested information would be
materially detrimental to the
company, the information must be
provided to one of the company's
auditors within two weeks of the
general meeting. The auditor must,
within one month of the general
meeting, prepare a statement as to
the materiality to the company of
the requested information, as
reflected in the company's accounts,
and this statement must be made
available to the shareholders at the
principal executive offices of the
company.
Both shareholders of record and
beneficial shareholders of a
Wisconsin corporation who satisfy
specified requirements, and their
attorneys and agents, have the right
to inspect and copy the
corporation's bylaws and, subject to
the requirements discussed below,
minutes of meetings and consent
actions of the board of directors
and shareholders, records of actions
taken by a committee of the board of
directors on behalf of the
corporation, accounting records and
the record of shareholders.
Inspections must be conducted during
regular business hours and are
conducted at the shareholder's
expense. Notice of a demand must be
given in writing five business days
before the date on which the
shareholder wants to inspect and
copy the records. For records other
than the bylaws, the demand must be
made in good faith and for proper
purpose, and the person must have
been a shareholder for at least six
months or hold at least 5% of the
outstanding shares of the
corporation.
A Wisconsin corporation is also
required to mail a copy of its
latest financial statements to any
shareholder who requests a copy in
writing.
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Dividends
Provisions Currently Applicable Provisions To Be Applicable
to Consolidated Shareholders to Stora Enso Shareholders
Under Finnish corporate law and
Under Wisconsin corporate law, general market practice, dividends
dividends are paid at the discretion on the shares of a Finnish company
of the board of directors of a are paid annually after the
Wisconsin corporation. The board may shareholders' approval of the
authorize, and the corporation may company's results for that year.
pay, dividends or make other This means, in effect, that the
distributions to its shareholders, payment of each annual dividend
including in connection with the requires the approval of the holders
repurchase of the corporation's of a majority of votes represented
shares, in amounts determined by the at an annual general meeting of
board, unless: shareholders. The amount of the
dividend may not exceed the amount
recommended by the board of
directors, except to a limited
extent in the event of a demand by
holders of at least ten percent of
the total number of shares
outstanding. It is the current
practice of Stora Enso's board of
directors to publicly announce their
recommendation regarding dividends
for the preceding fiscal year in
February of each year. The
recommendation of the board of
directors is considered at the
annual general meeting, which is
usually held in March or April of
the year following the year with
respect to which the dividend is
paid.
. after the distribution the
corporation would not be able to
pay its debts as they become due
in the usual course of business;
or
. the corporation's total assets
after the distribution would be
less than the sum of its total
liabilities, plus, unless the
articles of incorporation provide
otherwise, the amount that would
be needed to satisfy the
preferential rights upon
dissolution of shareholders whose
preferential rights are superior
to those receiving the
distribution, if the corporation
were to be dissolved at the time
of distribution. Consolidated's
articles of incorporation do not
contain a provision like this and
Consolidated does not have any
outstanding shares with preferred
rights.
Under Finnish corporate law, the
amount of any dividend is limited to
the amount of distributable funds
based upon the financial statements
approved by the shareholders at the
most recent annual general meeting.
Distributable funds include:
.the profit for the preceding
financial year;
.retained earnings from previous
years; and
.other unrestricted equity
less the reported losses,
capitalized incorporation, research
and specified development costs,
acquisition cost of the company's
own or parent company's shares, and
the amount that the articles of
association require to be
transferred to the reserve fund or
is otherwise to be left
undistributed. Stora Enso's articles
of association do not require any
amount to be transferred to a
reserve fund or otherwise left
undisturbed.
In addition, the amount of any
dividend is limited to the lesser of
the parent company's and the
consolidated group's distributable
funds available at the end of the
preceding fiscal year. See
"Description of Stora Enso Series R
Shares--Dividends and Other
Distributions."
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Issuance of New Shares
Provisions Currently Applicable Provisions To Be Applicable
to Consolidated Shareholders to Stora Enso Shareholders
Under Finnish corporate law, a
Under Wisconsin corporate law, a corporation's share capital may be
corporation may, by action of its increased, so long as the
board of directors, issue up to the corporation's total share capital
number of shares of a class or after the issuance does not exceed
series authorized in the the authorized share capital set
corporation's articles of forth in the articles of
incorporation. If a corporation association, through a resolution
wishes to increase the number of passed at a general meeting of
shares of a class or series shareholders by a majority of all
authorized in its articles of votes cast. For a corporation to
incorporation, then it must amend increase its share capital in excess
its articles of incorporation in the of its currently authorized share
manner described above. capital would require amending the
corporation's articles of
association by a vote of two-thirds
of all votes cast and all shares
represented at a general meeting of
shareholders.
The listing requirements of the NYSE
applicable to Consolidated require
prior shareholder approval of
specified issuances of shares,
including issuances of shares
bearing voting power equal to or
exceeding 20% of the pre-issuance
outstanding voting power or pre-
issuance outstanding number of
shares.
In general, under Finnish corporate
law, shareholder approval is
required before a company may issue
new shares. However, shareholders
may authorize the board of directors
to approve a new issuance of shares
in the future without obtaining
further shareholder authorization,
provided that this authorization may
not be used by the board of
directors to approve a share
issuance in excess of 20% of the
company's outstanding share capital
at the time the shareholders granted
the board of directors this
authority.
The same NYSE listing requirements
will apply to Stora Enso if the ADSs
are listed on the NYSE.
Assessability
Provisions Currently Applicable Provisions To Be Applicable
to Consolidated Shareholders to Stora Enso Shareholders
In general, shareholders of a In general, shareholders of a
Wisconsin corporation are not Finnish corporation are not
personally liable for the acts or personally liable for the acts or
debts of the corporation. debts of the corporation.
Shareholders of a Wisconsin
corporation may be directly liable
up to the aggregate par value of the
shares owned by them for debts of
the corporation owed to the
corporation's employees for services
performed for the corporation, but
not exceeding six months' service in
any one case. Some Wisconsin courts
have interpreted par value to mean
the amount paid by the shareholder
for their shares.
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<PAGE>
Preemptive Rights
Provisions Currently Applicable Provisions To Be Applicable
to Consolidated Shareholders to Stora Enso Shareholders
Under Wisconsin corporate law, Under Finnish corporate law,
subject to specified limitations, shareholders of Finnish companies
holders of shares of a class have preferential rights to
authorized before 1991 have subscribe, on a pro rata basis, for
preemptive rights to acquire a new shares as well as for new
corporation's unissued shares or issuances of warrants or debt
other securities convertible into instruments convertible into shares
unissued shares, unless the articles or carrying warrants to subscribe
of incorporation provide otherwise. for shares, unless the corporate
Consolidated's articles of resolution approving the issuance
incorporation provide that no holder provides otherwise. Shareholders may
of its capital stock has or will waive their preferential
have any preemptive rights. subscription rights in respect of
any particular offering, either
individually or collectively, at a
general meeting of shareholders. In
the case of a collective waiver of
preferential subscription rights,
the waiver must be approved by at
least two-thirds of all votes cast
and all shares represented at a
general meeting of shareholders.
Takeover Protections
Provisions Currently Applicable Provisions To Be Applicable
to Consolidated Shareholders to Stora Enso Shareholders
Finnish corporate law does not
Wisconsin corporate law protects contain any specific restrictions on
domestic corporations from hostile business combinations between a
takeovers and abusive takeover Finnish corporation and a
tactics by preventing a person from significant shareholder or an
engaging in specified transactions interested shareholder.
with the corporation after that
person has acquired a significant
portion of the corporation's shares.
These protections fall into three
categories:
Restrictions on foreign ownership of
Finnish companies were abolished as
of January 1, 1993. However, under
the Finnish Act on the Control of
Foreigners' Acquisition of Finnish
Companies of 1992, clearance by the
Finnish Ministry of Trade and
Industry would be required if a
foreign person or entity, other than
a person or entity from another
member state of the European
Economic Area or the Organization
for Economic Cooperation and
Development, or a Finnish entity
controlled by one or more of these
foreign persons or entities, were to
acquire one-third or more of the
voting power of Stora Enso. The
Ministry of Trade and Industry may
refuse clearance where the
acquisition would jeopardize
important national interests, in
which case the matter would be
referred to the government of
Finland.
. the business combination statute,
which regulates specified types of
transactions with interested
stockholders;
. the fair price statute, which
regulates the price at which large
shareholders may acquire the
remaining shares of the
corporation; and
. the control share statute, which
regulates the voting power of
shares held by specified large
shareholders.
The following is a summary of each
of these statutes.
Business combination
statute. Wisconsin corporate law
prohibits business combinations
between some Wisconsin corporations;
including Consolidated, and a person
who is an interested stockholder.
This prohibition lasts for three
years after the date on which that
person became an interested
stockholder. Business combinations
include mergers, share exchanges,
sales of assets, liquidations,
dissolutions,
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<PAGE>
Provisions Currently Applicable
to Consolidated Shareholders
and specified types of stock
transactions and stock issuances. An
interested stockholder is a person
who owns at least 10% of a
corporation's outstanding shares or
who is an affiliate or associate of
the corporation and owned at least
10% of the corporation's outstanding
shares at any time within the prior
three-year period. The prohibition
on business combinations does not
apply if the corporation's board of
directors approves either the
business combination or the share
acquisition that caused the person
to be designated as an interested
stockholder. The board of directors'
approval must be given before the
date on which a person becomes an
interested stockholder. The
prohibition on business combinations
continues after the initial three-
year period unless:
. the corporation's board of
directors approved the share
acquisition that caused the
interested stockholder to be
designated as an interested
stockholder;
. a majority of the corporation's
stockholders, excluding the
interested stockholder, approve
the business combination;
. the interested stockholder pays a
fair price, as defined in the
statute, for the shares it
acquires in the business
combination; or
. the business combination is
specifically excluded from the
prohibition on business
combinations.
The business combination statute
does not apply to the merger because
the merger is not a business
combination with an interested
stockholder within the meaning of
the business combination statutes.
Fair price statute. Wisconsin
corporate law requires that business
combinations between some Wisconsin
corporations, including
Consolidated, and a person
designated as a significant
shareholder must be approved by 80%
of all of the corporation's
shareholders and two-thirds of all
of the corporation's shareholders
other than the significant
shareholder. This requirement does
not apply if the corporation's
shareholders receive a fair price,
as defined in the statute, for their
shares from the significant
shareholder in the business
combination. A significant
shareholder is a person who owns 10%
or more of the corporation's
outstanding shares or who is an
affiliate of the corporation and
owned at least 10% of the
corporation's outstanding shares at
any time within the prior two-year
period.
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<PAGE>
Provisions Currently Applicable
to Consolidated Shareholders
The fair price statutes do not apply
to the merger because the merger is
not a business combination with a
significant shareholder within the
meaning of the fair price statutes.
Control share statute. Under
Wisconsin corporate law, if a person
holds more than 20% of the
outstanding shares of some Wisconsin
corporations, including
Consolidated, then the voting power
of the shares held by that person in
excess of 20% of the corporation's
outstanding shares is reduced to 10%
of the voting power the excess
shares would otherwise have had. The
full voting power of the excess
shares may be restored by a vote of
a majority of the corporation's
shares. The person seeking
restoration of full voting power may
vote on this resolution.
Dissenters' or Appraisal Rights
Provisions Currently Applicable Provisions To Be Applicable
to Consolidated Shareholders to Stora Enso Shareholders
Under Finnish corporate law, when a
Under Wisconsin corporate law, a person, alone or together with one
shareholder may dissent from, and or more of its affiliates, owns both
obtain payment of the fair value of more than nine-tenths of all the
his or her shares in the event of, share capital in a company and
specified mergers, share exchanges shares representing more than 90
and transactions involving the sale percent of the shares and the votes
of all or substantially all of the entitled to be cast at a meeting of
corporation's property other than in shareholders, that person may
the usual and regular course of require the minority shareholders to
business. However, dissenters' sell their shares to such person, a
rights generally are not available so-called compulsory acquisition. On
to holders of shares, such as the other hand, any minority
Consolidated shares, that are shareholder which is a shareholder
registered on a national securities in a company that has a majority
exchange or quoted on the National shareholder with sufficient share
Association of Securities Dealers, capital and voting rights to effect
Inc. Automated Quotations System, a compulsory acquisition, may demand
unless the transaction is a business that the majority shareholder
combination involving a significant purchase his or her shares. Absent
shareholder or the corporation's an agreement on the purchase price,
articles of incorporation provide an arbitration tribunal will
otherwise. determine a reasonable price, which,
in the case of a compulsory
acquisition following an offer to a
substantial number of persons, in
which more than the majority of the
outstanding shares were acquired by
such majority owner, or its
affiliate, will, normally, be the
same as the price paid in such
offer. Finnish corporate law does
not provide for any other kind of
appraisal rights.
Because the Consolidated shares are
listed on the New York Stock
Exchange, Consolidated's articles of
incorporation do not provide for
dissenters' rights and the merger is
not a business combination including
a significant shareholder within the
meaning of the dissenters' rights
statute, Consolidated's shareholders
do not have dissenters' rights in
the merger.
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<PAGE>
Size, Qualifications and Classification of the Board of Directors
Provisions Currently Applicable Provisions To Be Applicable
to Consolidated Shareholders to Stora Enso Shareholders
Stora Enso's articles of association
Consolidated's articles of provide that the board of directors
incorporation provide that the may not have fewer than six nor more
number of directors constituting the than ten members. Stora Enso's
board of directors shall be fixed in shareholders will be asked to
the bylaws, but shall not be less approve a resolution to increase the
than three. Consolidated's bylaws maximum size of the board to 11
provide that the number of directors members. Directors are elected by
shall be nine or such other number the annual general meeting of
fixed by a majority vote of the shareholders for a period ending
board of directors. By resolution of with the following annual general
Consolidated's board of directors, meeting of shareholders. Under
there are currently 12 members on Finnish corporate law at least half
Consolidated's board. Consolidated's of the board members must be
bylaws provide that Consolidated residents of a European Economic
directors do not need to be Area country unless the Finnish
residents of the state of Wisconsin Ministry of Trade and Industry has
or shareholders of Consolidated. granted an exception from such
Consolidated's board of directors is requirement. Stora Enso's board of
not divided into classes and each directors currently consists of ten
director serves for a one-year term members, all of whom are residents
until his or her successor is of the European Economic Area
elected. countries.
Removal of Directors and Filling of Vacancies
Provisions Currently Applicable Provisions To Be Applicable
to Consolidated Shareholders to Stora Enso Shareholders
Under Finnish corporate law,
Under Wisconsin corporate law, directors may be removed from office
shareholders of a corporation may at any time, with or without cause,
remove a director with or without by a majority of votes cast at a
cause, unless the corporation's general meeting. Vacancies on the
articles of incorporation or bylaws board of directors may only be
provide that a director may only be filled by a majority of votes cast
removed for cause. Consolidated's at a general meeting except where
bylaws provide that a director may statutory provisions or the articles
only be removed by the shareholders of association prescribe otherwise.
for cause, except that the Stora Enso's articles of association
shareholders may remove a director do not contain any provisions
without cause if the board of relating to the removal of directors
directors recommends the removal of or filling of vacancies on the board
the director. Under Consolidated's of directors.
bylaws, cause means being convicted
of a felony which may not be
appealed or being judged liable for
actions or omissions in the
performance of the director's duty
to Consolidated which has a material
adverse effect on Consolidated, with
no further right of appeal.
Consolidated's bylaws provide that
vacancies on the board of directors
may be filled by the shareholders,
the board of directors or a majority
of all of the directors remaining in
office if the number of directors
remaining in office is less than a
quorum.
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<PAGE>
Limitations on a Director's Liability
Provisions Currently Applicable Provisions To Be Applicable
to Consolidated Shareholders to Stora Enso Shareholders
Under Finnish corporate law,
Under Wisconsin corporate law, a directors may become personally
director is not liable to the liable to the corporation for
corporation, its shareholders or any damages caused to shareholders based
person asserting rights on behalf of on negligence or intentional acts.
the corporation or its shareholders Personal liability to a third party,
for monetary damages or other including creditors, employees and
monetary liabilities arising from a contractors of the company,
breach of or failure to perform any requires, in addition to negligence
duty resulting solely from his or or an intentional act, a breach of a
her status as a director, unless the provision of the Finnish corporate
breach constitutes: law or the corporation's articles of
association. Under Finnish law,
directors and officers must
discharge their duties with that
degree of care and skill that an
"ordinary prudent person" would
exercise under similar circumstances
in like position, and breach of this
standard constitutes negligence.
Courts will not second guess the
business judgments of directors and
officers if exercised in good faith
on the basis of available
information.
. a willful failure to deal fairly
with the corporation or its
shareholders in connection with a
matter in which the director has a
material conflict of interest;
. a violation of criminal law,
unless the director had reasonable
cause to believe that his or her
conduct was lawful or no
reasonable cause to believe that
his or her conduct was unlawful;
. a transaction from which the
director derived an improper
personal profit; or
. willful misconduct.
Under Wisconsin corporate law, a
director or officer, in discharging
his or her duties to the corporation
and determining what he or she
believes is in the best interests of
the corporation, may, in addition to
considering the effects of any
action on shareholders, consider:
. the effects of the action on
employees, suppliers and customers
of the corporation;
. the effects of the action on the
communities in which the
corporation operates; and
. any other factors that the
director or officer considers
pertinent.
Indemnification of Officers and Directors
Provisions Currently Applicable Provisions To Be Applicable
to Consolidated Shareholders to Stora Enso Shareholders
Finnish corporate law does not
Wisconsin corporate law requires a address the question of whether a
corporation to indemnify a director company may in advance agree to
or officer to the extent that he or indemnify its directors and officers
she has been successful on the for costs and expenses incurred by
merits or otherwise in the defense them as a result of suits or claims
of a proceeding for all reasonable arising out of their past or future
expenses that he or she incurred in service to the company. Market
the proceeding if the director or practice in Finland has been not to
officer was a party because he or include any specific indemnity
she is or was a director or officer provisions in the articles of
of the corporation. Indemnification association of publicly listed
is also required in
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<PAGE>
Provisions Currently Applicable Provisions To Be Applicable
to Consolidated Shareholders to Stora Enso Shareholders
companies, but rather to
other instances, unless the director retroactively discharge the
or officer is personally liable directors and officers of the
because the director or officer company from any and all liabilities
breached or failed to perform a duty relating to their activities on
that he or she owes to the behalf of the company by proposing
corporation, and the breach or resolutions to that effect for the
failure to perform constitutes any consideration of shareholders at the
of the following: annual general meeting and through
establishment of directors and
officers insurance plans. Adoption
of a resolution in favor of
indemnification by the shareholders
prevents the company from bringing a
lawsuit against the director or
officer based on facts that the
company or the shareholders were
aware of at the time of the adoption
of the resolution. However,
shareholders may bring a suit
against the officers or directors in
the name of the company based on
facts they were not aware of at the
time of the adoption of the
resolution. In addition,
shareholders may, despite the
adoption of the resolution, bring a
suit in the name of the company if a
director or officer has caused
damage directly to the shareholders.
. a willful failure to deal fairly
with the corporation or its
shareholders in connection with a
matter in which the director or
officer has a material conflict of
interest;
. a violation of criminal law,
unless the director or officer had
reasonable cause to believe that
his or her conduct was lawful or
no reasonable cause to believe
that his or her conduct was
unlawful;
. a transaction from which the
director or officer derived an
improper personal benefit; or
. willful misconduct.
Wisconsin corporate law allows a
corporation to limit its obligation
to indemnify directors and officers,
but Consolidated's articles of
incorporation do not limit
Consolidated's obligation to
indemnify its directors and
officers.
Wisconsin corporate law also permits
a corporation to provide directors
and officers additional rights of
indemnification, except for conduct
described above, in the articles of
incorporation or bylaws, by a
resolution adopted by the board of
directors or a majority vote of
shareholders, or by written
agreement. Consolidated's bylaws
provide for indemnification of its
directors and officers to the
fullest extent permitted by
Wisconsin law and set forth
procedural requirements for
requesting indemnification. If a
director or officer provides
Consolidated with a written
affirmation of his or her good faith
belief that he or she has not
breached or failed to perform his or
her duties in a manner listed above
and a written undertaking to repay
Consolidated if he or she is not
entitled to indemnification, then
Consolidated is required to pay or
reimburse the director or officer
for all reasonable expenses as
incurred.
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<PAGE>
Shareholder Derivative Lawsuits
Provisions Currently Applicable Provisions To Be Applicable
to Consolidated Shareholders to Stora Enso Shareholders
Under Finnish corporate law,
Under Wisconsin corporate law, a individual shareholders may initiate
shareholder of record or a derivative actions to enforce the
beneficial shareholder of a rights of a corporation only in
corporation may commence or maintain limited circumstances. Derivative
a civil suit in the right of the actions may generally be initiated
corporation, also referred to as a only upon a vote of shareholders at
derivative proceeding, only if: a general meeting. After a general
meeting has resolved to discharge
the management from liability in
respect of the latest fiscal year,
shareholders generally cannot
initiate a derivative action against
management relating to that fiscal
year. In some situations, when the
general meeting does not result in
the initiation of a derivative
action against management or the
enforcement of other rights of the
corporation, shareholders can
initiate a derivative action;
provided, however, that an action
can generally be initiated only by a
group of shareholders holding, in
the aggregate, at least 10% of all
issued shares or at least two-thirds
of the shares represented at the
general meeting.
. the shareholder was a shareholder
of record or beneficial
shareholder at the time of the act
or omission complained of or
became a shareholder through
transfer by operation of law from
a person who was a shareholder at
that time;
. the shareholder fairly and
adequately represents the
interests of the corporation in
enforcing the right of the
corporation;
. a written demand is made upon the
corporation to take suitable
action; and
. 90 days expire from the date on
which the demand was made, unless
the shareholder is notified prior
to the expiration of the 90 days
that the corporation has rejected
the demand, or unless irreparable
injury would result to the
corporation by waiting for the
expiration of the 90 days.
A court is required to dismiss a
derivative proceeding upon a motion
by the corporation if the court
finds that one of the groups
specified under Wisconsin corporate
law has determined, acting in good
faith after conducting a reasonable
inquiry upon which its conclusions
are based, that maintenance of the
derivative proceeding is not in the
best interests of the corporation.
This determination may be made by:
. a majority vote of independent
directors present at a meeting of
the board of directors if the
independent directors constitute a
quorum;
. a majority vote of a committee
consisting of two or more
independent directors appointed by
majority vote of independent
directors present at a meeting of
the board of directors, whether or
not the independent directors who
vote constitute a quorum; or
. a panel of one or more independent
persons appointed by a court upon
a motion by the corporation.
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<PAGE>
Provisions Currently Applicable
to Consolidated Shareholders
If a shareholder commences a
derivative suit after a
determination has been made to
reject the demand, then the
shareholder must allege that the
determination was made improperly. A
court has the ability to delay a
derivative proceeding for an
appropriate period of time if the
corporation commences an inquiry
into the allegations made in the
demand or complaint. Under some
circumstances, a court may charge
the shareholder or the corporation
with the expenses of the derivative
proceeding.
ENFORCEMENT OF LIABILITIES AND SERVICE OF PROCESS
Stora Enso is organized under the laws of the Republic of Finland. All of
Stora Enso's directors, except for George W. Mead following the transaction,
and executive officers, as well as some of the experts named in this document,
are not residents of the United States, and a substantial portion of the assets
of Stora Enso and its directors and officers are located outside the United
States. As a result, it may not be possible for investors to effect service of
process within the United States upon these persons or to enforce against them
in U.S. courts judgments obtained in U.S. courts based upon civil liability
provisions of the federal securities laws of the United States. Stora Enso has
been advised by Mr. Jyrki Kurkinen, general counsel of Stora Enso, that there
is doubt as to the enforceability in Finland, in original actions or actions
for the enforcement of judgments of U.S. courts, of civil liabilities based
solely upon the federal securities laws of the United States.
WHERE YOU CAN FIND MORE INFORMATION
Consolidated files annual, quarterly and special reports, proxy statements
and other information with the Securities and Exchange Commission. Following
the merger, Stora Enso will be required to file annual and special reports,
including annual reports on Form 20-F (which it will first file in 2001 with
respect to fiscal year 2000), and other information with the SEC. You may read
and copy any reports, statements or other information on file with the SEC at
the SEC's public reference room located at 450 Fifth Street, NW, Washington,
D.C. 20549 or at one of the SEC's other public reference rooms in New York, New
York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. SEC filings are also available to
the public from commercial document retrieval services and, for the
Consolidated filings and the registration statement of which this document
forms a part, at the Internet world wide web site maintained by the SEC at
www.sec.gov.
Stora Enso has filed a registration statement on Form F-4 to register with
the SEC the Stora Enso Series R shares underlying the Stora Enso ADSs
Consolidated shareholders will receive in the merger and a registration
statement on Form F-6 in respect of the Stora Enso ADSs. This document is a
part of the registration statement on Form F-4 and constitutes a prospectus of
Stora Enso, as well as being a proxy statement of Consolidated for its
shareholder meeting.
The SEC permits Stora Enso and Consolidated to "incorporate by reference"
information into this document. This means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be part of this
document, except for any information superseded by information contained
directly in this document.
This document incorporates by reference the filings set forth below that have
been previously made with the SEC. These filings contain important information
about Consolidated and its financial condition.
169
<PAGE>
The following documents, which have been filed by Consolidated or Stora Enso
with the SEC, are incorporated by reference into this document:
. Consolidated's Quarterly Report on Form 10-Q for the period ended March
31, 2000 (SEC File Number 001-11359 and filing date of May 12, 2000);
. Consolidated's Annual Report on Form 10-K, for the year ended December
31, 1999 (SEC File Number 001-11359 and filing date of March 24, 2000);
. Consolidated's Annual Report on Form 10-K/A for the year ended December
31, 1999 (SEC File Number 001-11359 and filing date of July 26, 2000);
. Consolidated's Current Report on Form 8-K, dated February 22, 2000 (SEC
File Number 001-11359 and filing date of February 24, 2000);
. Consolidated's Current Report on Form 8-K, dated February 22, 2000 (SEC
File Number 001-11359 and filing date of March 1, 2000);
. Consolidated's Current Report on Form 8-K, dated February 22, 2000 (SEC
File Number 001-11359 and filing date of March 2, 2000);
. Consolidated's Current Report on Form 8-K, dated July 19, 2000 (SEC File
Number 001-11359 and filing date of July 20, 2000);
. Consolidated's Form 425, dated June 14, 2000 (SEC File Number 001-11359)
and filing date of June 14, 2000.
. Consolidated's Form 425, dated April 13, 2000 (SEC File Number 001-11359)
and filing date of April 13, 2000.
. Consolidated's Form 425, dated April 12, 2000 (SEC File Number 001-11359
and filing date of April 12, 2000);
. Consolidated's Form 425, dated April 10, 2000 (SEC File Number 001-11359
and filing date of April 10, 2000);
. Consolidated's Form 425, dated March 13, 2000 (SEC File Number 001-11359
and filing date of March 13, 2000);
. Stora Enso's Form 425, dated July 24, 2000 (SEC File Number 001-11359 and
filing date of July 24, 2000);
. Stora Enso's two Forms 425, each dated July 5, 2000 (SEC File Number 001-
11359 and filing date of July 5, 2000);
. Stora Enso's Form 425, dated April 13, 2000 (SEC File Number 001-11359
and filing date of April 13, 2000);
. Stora Enso's Form 425, dated March 14, 2000 (SEC File Number 001-11359
and filing date of March 14, 2000); and
. Stora Enso's Form 425, dated February 22, 2000 (SEC File Number 001-11359
and filing date of March 13, 2000).
Stora Enso and Consolidated also incorporate by reference into this document
additional documents that they may file with the SEC from the date of this
document to the date of Consolidated's special meeting. These include reports
such as Annual Reports on Form 10-K and Form 20-F, Quarterly Reports on Form
10-Q, Current Reports on Form 8-K, any reports on Form 6-K so designated, as
well as proxy statements. Consolidated shares are listed on the NYSE. The Stora
Enso Series R shares are listed on the Helsinki Stock Exchange under the symbol
"STERV" and on the OM Stockholm Exchange under the symbol "STER." You may
inspect any periodic reports, proxy statements and other information filed with
the SEC by Consolidated at the offices of the NYSE, 20 Broad Street, New York,
New York 10005. We expect that after the merger, the Stora Enso ADSs will be
listed on the NYSE and that, following the merger, you will be able to inspect
any periodic reports and other information filed with the SEC by Stora Enso at
the offices of the NYSE.
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<PAGE>
If you are a Stora Enso or Consolidated shareholder, you may have been sent
some of the documents incorporated by reference, but you can obtain any of them
through Stora Enso, Consolidated, the SEC or, in the case of Consolidated's
documents, the SEC's Internet world wide web site as described above. Documents
incorporated by reference are available without charge, excluding all exhibits
unless an exhibit has been specifically incorporated by reference into this
document. Shareholders may obtain documents incorporated by reference into this
document by requesting them in writing, by telephone, by e-mail or web site
from the appropriate company at the following addresses:
Stora Enso Oyj Consolidated Papers, Inc.
Kanavaranta 1, P.O. Box 510 High Street
309 P.O. Box 8050
FIN-00101 Helsinki Wisconsin Rapids, Wisconsin 54495-8050
Finland Telephone: 1-715-422-3778
Telephone: 011-358-2046- Web site: www.consolidatedpapers.com
131 Attention: Secretary
Web site:
www.storaenso.com
Attention: Investor
Relations
If you would like to request documents from Stora Enso or Consolidated,
please do so by August 23, 2000 to receive them before the Consolidated special
meeting.
You should rely only on the information contained or incorporated by
reference into this document to vote on the transaction. No one has been
authorized to provide you with information that is different from what is
contained in, or incorporated by reference into, this document. This document
is dated July 26, 2000. You should not assume that the information contained
in, or incorporated by reference into, this document is accurate as of any date
other than that date, and neither the mailing of this document to Consolidated
shareholders nor the issuance of Stora Enso ADSs in the merger shall create any
implication to the contrary.
EXPERTS
The consolidated financial statements of Stora Enso as of December 31, 1998
and 1999 and for each of the three years in the period ended December 31, 1999
included in this document have been so included in reliance on the report of
SVH Pricewaterhouse Coopers Oy, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
The consolidated financial statements of Consolidated Papers incorporated by
reference in this document as of and for the year ended December 31, 1999, have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect to the financial statements and are
included in this document in reliance upon the authority of said firm as
experts in giving said reports.
The consolidated financial statements of Enso Group for each of the two years
in the period ended as of December 31, 1998 included in this document have been
so included in reliance on the report of SVH Pricewaterhouse Coopers Oy,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
LEGAL MATTERS
The validity of the Stora Enso Series R shares, including those underlying
the ADSs, to be issued to Consolidated shareholders in connection with the
merger, as well as other legal matters in connection with the merger will be
passed upon for Stora Enso by Asianajotoimisto White & Case Oy. Other specified
legal matters in connection with the merger will be passed upon for Stora Enso
by Cleary, Gottlieb, Steen & Hamilton. Specified legal matters in connection
with the merger will be passed upon for Consolidated by McDermott, Will &
Emery.
171
<PAGE>
INDEX TO STORA ENSO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants........................................ F-2
Consolidated Income Statements for the years ended December 31, 1997,
1998 and 1999........................................................... F-3
Consolidated Balance Sheets as at December 31, 1998 and 1999............. F-4
Equity Reconciliation as at December 31, 1998 and 1999................... F-5
Consolidated Cash Flow Statements for the years ended December 31, 1997,
1998 and 1999........................................................... F-6
Notes to the Stora Enso Consolidated Financial Statements................ F-8
</TABLE>
INDEX TO STORA ENSO UNAUDITED CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Unaudited Condensed Consolidated Interim Income Statements for the three
month periods ended March 31, 1999 and 2000............................. F-65
Unaudited Condensed Consolidated Interim Balance Sheets as at March 31,
1999 and 2000........................................................... F-66
Unaudited Condensed Statement of Changes in Shareholders' Equity......... F-67
Unaudited Condensed Consolidated Interim Cash Flow Statements for the
three month periods ended March 31, 1999 and 2000....................... F-68
Notes to the Unaudited Condensed Consolidated Interim Financial
Statements.............................................................. F-69
</TABLE>
INDEX TO ENSO GROUP CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants........................................ F-77
Consolidated Income Statements for the years ended December 31, 1997 and
1998.................................................................... F-78
Consolidated Cash Flow Statements for the years ended December 31, 1997
and 1998................................................................ F-79
Notes to the Enso Group Consolidated Financial Statements................ F-81
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
STORA ENSO OYJ
We have audited the accompanying consolidated balance sheets of Stora Enso
Oyj and its subsidiaries as of December 31, 1999 and 1998, and the related
consolidated income statements and consolidated cash flows for each of the
three years in the period ended December 31, 1999, all expressed in euros.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Finland, which are substantially the same as those followed in the
United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Stora Enso Oyj
and its subsidiaries as of December 31, 1999 and 1998, and the consolidated
results of their operations and cash flows for each of the three years in the
period ended December 31, 1999, in conformity with International Accounting
Standards.
International Accounting Standards vary in certain respects from accounting
principles generally accepted in the United States. The application of the
latter would have affected the determination of consolidated net profit for
each of the two years in the period ended December 31, 1999, and the
determination of consolidated shareholders' equity at December 31, 1999 and
1998, to the extent summarized in Note 28 to the consolidated financial
statements.
SVH Pricewaterhouse Coopers Oy
/s/ Pekka Nikula
---------------------------------
Pekka Nikula
Authorized Public Accountant
Helsinki, Finland
February 22, 2000, except for Note 27,
as to which the date is April 17, 2000
and for Note 28, as to which the date is
May 2, 2000
F-2
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(in millions, except for per share amounts)
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
Note 1997 1998 1999 1999
----- -------- -------- -------- --------
(Euro) (Euro) (Euro) $
<S> <C> <C> <C> <C> <C>
Sales........................... 2, 3 9,998.1 10,489.6 10,635.7 10,182.6
Changes in inventories of
finished goods and work in
progress....................... 7.9 41.8 (119.4) (114.3)
Other operating income.......... 5 60.6 44.9 126.1 120.7
Materials and services.......... (5,353.7) (5,033.5) (4,843.3) (4,637.0)
Freight and sales commissions... (1,100.4) (1,016.0) (993.5) (951.2)
Personnel expenses.............. 6, 25 (1,737.3) (1,805.2) (1,754.3) (1,679.6)
Depreciation, amortization and
impairment charges............. 9 (829.7) (1,151.4) (885.4) (847.7)
Other operating expenses........ (145.6) (861.6) (757.5) (725.2)
-------- -------- -------- --------
Operating profit................ 2, 3 899.9 708.7 1,408.4 1,348.4
Net financial items............. 7 (280.1) (379.2) (266.6) (255.2)
Share of results of associated
companies...................... 11 16.5 9.9 9.7 9.3
-------- -------- -------- --------
Profit before tax and minority
interests...................... 636.3 339.4 1,151.5 1,102.4
Income tax expense.............. 8 (205.6) (148.2) (394.5) (377.7)
-------- -------- -------- --------
Profit after tax................ 430.6 191.2 757.0 724.8
Minority interests.............. (21.6) (0.2) (4.5) (4.3)
-------- -------- -------- --------
Net profit for the period....... 409.0 191.0 752.5 720.4
======== ======== ======== ========
Basic earnings per share........ 26 0.54 0.25 0.99 0.95
Diluted earnings per share...... 26 0.54 0.25 0.99 0.95
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
All balances have been restated from Finnish markka into euros using the
conversion rate as of
January 1, 1999.
F-3
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
As at December 31,
--------------------------
Note 1998 1999 1999
------ -------- -------- --------
(Euro) (Euro) $
<S> <C> <C> <C> <C>
ASSETS
Fixed assets and other long-term investments 10
Intangible assets............................ 42.0 60.3 57.7
Goodwill..................................... 540.5 466.4 446.5
Property, plant and equipment................ 10,424.6 10,717.6 10,261.0
Investments in associated companies.......... 11, 12 334.1 165.5 158.4
Investments in other companies............... 13 128.8 280.4 268.5
Investments.................................. 14 48.0 49.3 47.2
Non-current loan receivables................. 17 90.1 66.8 64.0
Deferred tax assets.......................... 8 7.8 5.9 5.6
Other non-current assets..................... 79.2 88.6 84.8
-------- -------- --------
11,695.1 11,900.8 11,393.8
Current assets
Inventories.................................. 15 1,332.3 1,265.6 1,211.7
Tax receivables.............................. 3.4 71.9 68.8
Short-term receivables....................... 16 1,783.4 2,090.5 2,001.4
Current portion of loan receivables.......... 17 3.9 63.0 60.3
Cash and cash equivalents.................... 17 595.0 642.2 614.8
-------- -------- --------
3,718.0 4,133.2 3,957.1
-------- -------- --------
Total assets............................... 15,413.1 16,034.0 15.351.0
======== ======== ========
SHAREHOLDERS' EQUITY AND LIABILITIES
Shareholders' equity......................... 18
Share capital................................ 1,277.5 1,277.6 1,233.2
Restricted equity............................ 704.6 698.2 668.5
Retained earnings............................ 3,120.4 3,224.9 3,087.5
Net profit for the period.................... 191.0 752.5 720.4
-------- -------- --------
5,293.5 5,953.2 5,699.6
-------- -------- --------
Minority interests........................... 278.7 202.0 193.4
-------- -------- --------
Commitments and contingencies................ 23
Long-Term Liabilities
Pension provisions........................... 20 531.7 575.5 551.0
Deferred tax liabilities..................... 8 1,337.3 1,488.9 1,425.5
Other provisions............................. 20 256.0 186.5 178.6
Long-term debt............................... 19 4,294.1 3,846.2 3,682.4
-------- -------- --------
Other long-term liabilities.................. 90.8 87.0 83.3
-------- -------- --------
6,509.9 6,184.1 5,920.7
Current liabilities
Current portion of long-term debt............ 19 1,218.4 446.7 427.7
Short-term borrowings........................ 19 475.4 1,476.6 1,413.7
Other current liabilities.................... 20 1,451.7 1,507.8 1,443.6
Tax liabilities.............................. 185.5 263.6 252.4
-------- -------- --------
3,331.0 3,694.7 3,537.3
-------- -------- --------
Total shareholders' equity and liabilities... 15,413.1 16,034.0 15,351.0
======== ======== ========
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
All balances have been restated from Finnish markka into euros using the
conversion rate as of January 1, 1999.
F-4
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
EQUITY RECONCILIATION
(in millions)
<TABLE>
<CAPTION>
As at December 31,
---------------------------
1998 1999 1999
------- -------- --------
(Euro) (Euro) $
<S> <C> <C> <C>
Share capital at January 1....................... 1,277.5 1,277.5 1,223.1
Warrants exercised............................... -- 0.1 0.1
Share capital at December 31..................... 1,277.5 1,277.6 1,223.2
------- -------- --------
Restricted equity at January 1................... 736.2 704.6 674.6
Warrants exercised............................... -- 1.9 1.8
Transfer from retained earnings.................. 23.4 -- --
Translation difference........................... (55.0) (8.3) (7.9)
------- -------- --------
Restricted equity at December 31................. 704.6 698.2 668.5
------- -------- --------
Retained earnings at January 1................... 3,499.5 3,311.4 3,170.3
Effect of adopting IAS 19 revised................ -- (27.2) (26.0)
Retained earnings as restated.................... -- 3,284.2 3,114.3
Dividends paid................................... (242.6) (268.3) (256.9)
Transfer to restricted equity.................... (23.4) -- --
Translation difference........................... (113.1) 208.9 200.0
Net profit for the period........................ 191.0 752.5 720.4
------- -------- --------
Retained earnings at December 31................. 3,311.4 3,977.4 3,808.0
------- -------- --------
Total shareholders' equity....................... 5,293.5 5,953.2 5,699.6
======= ======== ========
Distributable funds
Retained earnings at December 31................. 3,311.4 3,977.4 3,808.0
Untaxed reserves included in retained earnings... (935.2) (1,387.2) (1,328.1)
------- -------- --------
Distributable funds at December 31............... 2,376.2 2,590.2 2,479.9
======= ======== ========
Cumulative translation differences
Restricted equity................................ 327.0 318.7 305.1
Retained earnings................................ (514.9) (306.0) (293.0)
------- -------- --------
Cumulative translation differences at December
31.............................................. (187.9) 12.7 12.2
======= ======== ========
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
All balances have been restated from Finnish markka into euros using the
conversion rate as of January 1, 1999.
F-5
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS
(in millions)
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------
1997 1998 1999 1999
-------- -------- ------- -------
(Euro) (Euro) (Euro) $
<S> <C> <C> <C> <C>
Net profit for the period............... 409.0 191.0 752.5 720.4
Reversal of non-cash items:
Minority interests..................... 21.6 0.2 4.5 4.3
Taxes.................................. 205.6 148.2 394.5 377.7
Depreciation, amortization and
impairment charges.................... 829.7 1,151.4 885.4 847.7
Share of results of associated
companies............................. (16.5) (9.9) (9.7) (9.3)
Profit and losses on sale of fixed
assets................................ (5.2) 6.4 (97.5) (93.3)
Net financial income................... 280.1 379.2 266.6 255.2
Interest received....................... 34.3 17.9 12.8 12.3
Interest paid, net of amount
capitalized............................ (356.4) (378.4) (279.3) (267.4)
Dividends received...................... 2.1 2.3 3.9 3.7
Other financial items, net.............. 39.9 (21.0) 37.3 35.7
Income taxes paid....................... (79.4) (39.1) (310.9) (297.7)
Change in net working capital, net of
businesses acquired or sold............ 20.2 136.0 (218.0) (208.7)
-------- -------- ------- -------
Net cash provided by operating
activities............................. 1,385.0 1,584.2 1,442.1 1,380.7
-------- -------- ------- -------
Cash flow from investing activities
Acquisition of subsidiary shares, net of
cash................................... (228.4) (402.8) (87.1) (83.4)
Acquisition of shares in associated
companies.............................. (93.8) (42.4) (2.7) (2.6)
Investment in shares in other
companies.............................. (22.7) (68.8) (14.1) (13.5)
Capital expenditures.................... (1,201.1) (896.4) (729.1) (698.0)
Proceeds from dispositions of subsidiary
shares, net of cash.................... 146.8 125.8 140.4 134.4
Proceeds from dispositions of shares in
associated companies................... 6.9 -- 72.0 68.9
Proceeds from dispositions of shares in
other companies........................ 4.4 3.7 1.5 1.4
Proceeds from sale of fixed assets...... 38.7 35.4 28.7 27.5
Proceeds from (payments of ) long-term
receivables, net....................... 17.8 (25.7) 28.0 26.8
-------- -------- ------- -------
Net cash used in investing activities... (1,331.4) (1,271.2) (562.4) (538.4)
-------- -------- ------- -------
Cash flow from financing activities
Proceeds from (payments of) long-term
liabilities, net....................... 225.3 313.2 (613.6) (587.5)
Proceeds from (payments of) short-term
borrowings, net........................ (172.3) (143.2) 35.2 33.7
Dividends paid.......................... (235.7) (244.8) (268.8) (257.3)
Proceeds from issuance of share
capital................................ -- -- 2.0 1.9
Other................................... (5.7) 4.2 -- --
-------- -------- ------- -------
Net cash used in financing activities... (188.4) (70.6) (845.2) (809.2)
-------- -------- ------- -------
Net increase (decrease) in cash and cash
equivalents............................ (134.9) 242.4 34.6 33.1
Effect of exchange rate changes on cash
and cash equivalents................... 9.6 (3.1) 12.7 12.2
Cash and cash equivalents at beginning
of year................................ 480.9 355.7 595.0 569.7
-------- -------- ------- -------
Cash and cash equivalents at end of
year................................... 355.7 595.0 642.2 614.8
======== ======== ======= =======
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
All balances have been restated from Finnish markka into euros using the
conversion rate as of January 1, 1999.
F-6
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS
(in millions)
Supplemental Cash Flow Information
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------
1997 1998 1999 1999
------ ------ ------ ------
(Euro) (Euro) (Euro) $
<S> <C> <C> <C> <C>
Change in net working capital consists of:
Change in inventories......................... (23.8) (43.2) 120.7 115.6
Change in interest-free receivables........... (377.3) 221.4 (203.4) (194.7)
Change in interest-free liabilities........... 269.7 107.1 (87.0) (83.3)
Proceeds from (payments of) short-term
receivables.................................. 151.6 (149.3) (48.3) (46.2)
------ ------ ------ ------
20.2 136.0 (218.0) (208.7)
====== ====== ====== ======
Non-cash investing and financing activities:
Finance lease obligations incurred............ -- -- 11.1 10.6
Acquisition of group companies
Cash flow on acquisitions
Purchase consideration on acquisitions........ 315.0 411.9 87.1 83.4
Cash and cash equivalents in acquired
companies.................................... (86.6) (9.1) -- --
------ ------ ------ ------
228.4 402.8 87.1 83.4
====== ====== ====== ======
Acquired net assets
Operating working capital..................... 4.7 42.3 1.2 1.1
Operating fixed assets........................ 365.3 598.6 1.5 1.4
Interest-bearing assets less cash and cash
equivalents.................................. 4.4 1.3 -- --
Tax liabilities............................... -- (3.4) -- --
Interest-bearing liabilities.................. (79.6) (183.6) 1.0 1.0
Minority interests............................ (66.4) (23.8) 83.4 79.8
------ ------ ------ ------
228.4 402.8 87.1 83.4
====== ====== ====== ======
Disposition of subsidiary shares
Cash flow on disposal......................... 146.8 128.7 140.4 134.4
Sale consideration from disposal of
companies.................................... -- (2.9) -- --
------ ------ ------ ------
Cash and cash equivalents in sold companies... 146.8 125.8 140.4 134.4
====== ====== ====== ======
Net assets sold
Operating working capital..................... 19.7 69.1 27.8 26.6
Operating fixed assets........................ 166.0 154.4 75.9 72.7
Interest-bearing assets less cash and cash
equivalents.................................. -- 0.2 -- --
Tax liabilities............................... (13.6) (34.5) -- --
Interest-bearing liabilities.................. -- (45.6) -- --
Minority interests............................ -- (4.4) -- --
Gain (loss) on sale........................... (25.2) (13.4) 36.7 35.1
------ ------ ------ ------
146.8 125.8 140.4 134.4
====== ====== ====== ======
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
All balances have been restated from Finnish markka into euros using the
conversion rate as of January 1, 1999.
F-7
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1--Accounting principles
Principal activities
Stora Enso Oyj (the "Company") is a Finnish limited liability company
organized under the laws of the Republic of Finland, domiciled in Helsinki. The
operations of Stora Enso Oyj and its subsidiaries (together "Stora Enso" or the
"Group") are organized into core product areas and supporting areas. The core
product areas are magazine paper, newsprint, fine paper and packaging boards.
The supporting areas are timber products, market pulp, paper merchants and
forest operations. The Group's main market is Europe.
Basis of presentation
The consolidated financial statements of Stora Enso are prepared in
accordance with and comply with International Accounting Standards (IAS), and
include the financial statements of Stora Enso Oyj and its subsidiaries. The
financial statements are prepared under the historical cost convention. Stora
Enso has previously prepared and reported its consolidated financial statements
in Finnish markka ("FIM"). With the introduction of the euro ("EUR" or
"(Euro)") on January 1, 1999, Stora Enso has elected to present the
accompanying consolidated financial statements in euro. Accordingly, the
Finnish markka consolidated financial statements for each period presented have
been restated into euros using the Finnish markka/euro irrevocable conversion
rate as of January 1, 1999, (Euro)1.00=FIM 5.94573. Stora Enso's restated euro
financial statements depict the same trends as would have been presented if it
had continued to present its consolidated financial statements in Finnish
markka. Stora Enso's consolidated financial statements will, however, not be
comparable to the euro financial statements of other companies that previously
reported their financial information in a currency other than Finnish markka.
Solely for the convenience of the reader, the consolidated financial
statements as of and for the year ended December 31, 1999 have been translated
into United States dollars ("USD" or "$") at the rate of USD 0.9574 per euro,
the noon buying rate on March 31, 2000 as announced by the Federal Reserve Bank
of New York. The translation should not be construed as a representation that
the amounts shown could be converted into USD at such rate.
Use of estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
Principles of consolidation
Stora Enso was formed as a combination of Enso Oyj and Stora Kopparbergs
Bergslags Aktiebolag (publ). In December 1998, the shareholders of Stora
Kopparbergs Bergslags Aktiebolag (publ) converted 96.1% of their shares into
the shares of Enso Oyj. As a result of the merger Stora Kopparbergs Bergslags
Aktiebolag is a subsidiary of Stora Enso Oyj (formerly Enso Oyj).
The Stora Enso merger was accounted for as a uniting of interests under IAS.
Accordingly, the historical information of Enso and STORA have been restated as
if the companies had been combined for all periods presented.
F-8
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The consolidated financial statements include the parent company, Stora Enso
Oyj, and all companies in which it holds, directly or indirectly, over 50% of
the voting rights. The financial statements of some companies which Stora Enso
controls but in which Stora Enso holds less than 50% of the voting rights are
also consolidated. The principal subsidiaries have been listed in Note 24.
Associated companies (voting rights between 20% and 50%) are consolidated
using the equity method. The most significant associated companies have been
listed in Note 11. These are undertakings where the Group has significant
influence, but which it does not control. Provisions are recorded for long term
impairment value. Equity accounting involves recognizing in the income
statement the Group's share of the associates profit or loss for the year. The
Group's interest in the associated company is carried in the balance sheet at
an amount that reflects its share of the net assets of the associate and
includes goodwill on the acquisition.
Companies that have been acquired are accounted for under the purchase method
and are included in the consolidated financial statements from the date of
their acquisition. Divestments are included in the consolidated financial
statements until the date of sale.
All inter-company transactions, receivables, liabilities and unrealized
profits, as well as the distribution of profits within the Group, are
eliminated. When necessary, accounting policies for subsidiaries have been
adjusted to ensure consistency with the policies adopted by Stora Enso.
Minority interests have been disclosed separately from the consolidated
shareholders' equity and are recorded as a separate deduction in the
consolidated income statement.
Transactions in foreign currencies
Transactions in foreign currencies are recorded at the rate of exchange
prevailing at the date of the transaction. An approximate exchange rate is used
for the transactions entered into during a month. At the end of the month,
foreign currency denominated receivables and liabilities are translated using
the month-end exchange rate. The foreign exchange differences of operating
business items are entered into the respective income statement account before
operating profit. Foreign exchange differences on financial assets and
liabilities are entered as a net amount in the financial items of the income
statement.
Subsidiaries
The income statements of subsidiaries outside of Finland are translated into
the reporting currency using the average exchange rates for the year. The
balance sheets of subsidiaries outside of Finland are translated into the
reporting currency using the exchange rates prevailing at the balance sheet
date. The resulting translation differences are recorded directly to
shareholders' equity. The cumulative translation differences of divestments are
offset against the gain or loss on disposal.
Derivative financial instruments
The Group enters into derivative financial instruments to hedge its exposure
against foreign currency fluctuations on some balance sheet assets,
liabilities, and anticipated transactions denominated in foreign currencies.
The derivative financial instruments used to hedge foreign exchange risk are
forward exchange contracts, foreign exchange options and currency swaps.
The subsidiaries handle all their foreign currency dealings in conjunction
with the Group treasury. Their foreign currency exposure is largely hedged
through forward agreements. Gains and losses on forward exchange contracts
hedging future cash flows are recognized by the subsidiaries in the period when
the sale or purchase transactions are recognized. The Group treasury values all
outstanding forward exchange contracts
F-9
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
with market rates prevailing at the balance sheet date and the unrealized gains
and losses are recorded in the income statement under financial items. These
forward exchange contracts are short-term in nature, maturing on average,
within six months.
Premiums paid for purchased foreign currency options are entered under option
premiums paid and premiums received for written options are entered as premiums
received at the date of the payment under financial items. Profits and losses
are booked on maturity of the agreements and entered as adjustments to
financial items. Option contracts are valued at the balance sheet date by using
generally approved option valuation models and the resulting unrealized gains
and losses (i.e., fair values) are recorded under financial items.
Currency swaps are valued at the balance sheet date by using foreign exchange
rates prevailing at the balance sheet date. Interest rate payables and
receivables under currency swaps are accrued and recorded under interest income
and expense.
The Group enters into derivative financial instruments such as interest rate
swaps, forwards, futures, options and combinations of these instruments to
hedge its exposure to interest rate risk.
Profits and losses on interest rate forward rate agreements are recorded when
cash flows are realized.
Cash flows from interest rate futures are realized at the maturities of the
contracts. Interest income and expenses are included in financial items as the
cash flows are realized and are not accrued at balance sheet dates.
Premiums paid on interest options purchased are included in interest expense.
Correspondingly, premiums received on options sold are included in interest
income. Option contracts are valued at the balance sheet date by using
generally approved option valuation models and the resulting unrealized gains
and losses (i.e., fair values) are included in financial items.
Interest payable and receivable under interest rate swaps is accrued at the
balance sheet date and included in interest income or expense.
Commodity instruments are used to ensure the Group's access to raw materials
at appropriate prices. Outright purchase or sale transactions are recorded at
the contracted rates. Changes in the fair values of open commodity instruments
are not recognized until the actual purchase transactions are recognized in the
financial statements. Commodity futures and swaps are used for hedging
commodity risk.
Revenue recognition
Sales are recorded upon shipment of products to customers in accordance with
agreed terms of sales.
Sales include the sale of products, raw material, energy supplies, services
and energy less indirect sales tax, sales discounts and exchange differences on
sales in foreign currencies.
Other operating income includes rental income, subsidies and gains from sale
of fixed assets.
Research and development
Research and development costs are expensed as incurred. Research and
development expenses totaled (Euro)79.0 million, (Euro)80.0 million and
(Euro)84.0 million for the years ended December 31, 1997, 1998 and 1999,
respectively. Research and development expenses are included in other operating
expenses in the consolidated income statement.
F-10
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Computer software development costs
Development costs or acquisition cost of new software that are clearly
associated with an identifiable and unique product which will be controlled by
the Group and has probable benefit exceeding the cost beyond one year are
recognized as an intangible asset and depreciated over the software's expected
useful life. Associated costs include staff costs of the development team and
an appropriate portion of overhead. The cost to maintain software is expensed
as incurred. Costs associated with the development or adjustment of software
for the euro conversion and year 2000 are expensed as incurred.
Environmental remediation costs
Environmental expenditures that result from remediation of an existing
condition caused by past operations, and that do not contribute to current or
future revenues, are expensed as incurred. Environmental liabilities are
recorded based on current interpretations of environmental laws and regulations
when it is probable that a present obligation has arisen and the amount of such
liability can be reliably estimated. Amounts accrued are not discounted and do
not include third-party recoveries.
Discontinued operations
A discontinued operation results from the decision to divest of an operation,
disposed pursuant to a single plan, that represents a separate, major line of
business of which the assets, net profit or losses on operations may be
distinguished physically, operationally and for financial reporting purposes.
The pre-tax gain or loss on disposal of discontinued operations is included in
other operating income in the consolidated income statement.
Income taxes
The Group's income tax expense includes taxes of Group companies based on
taxable profit for the period together with tax adjustments for previous
periods, the change in deferred income taxes and share of tax of associated
companies.
Deferred income taxes are provided using the liability method to reflect the
net tax effects of all temporary differences between the financial reporting
and tax bases of assets and liabilities and are measured using enacted tax
rates. Principal temporary differences arise from intercompany profit in
inventory, depreciation on property, plant and equipment, untaxed reserves, and
tax losses carried forward. Deferred tax assets relating to the carryforward of
unused tax losses are recognized to the extent that it is probable that future
taxable profit will be available against which unused tax losses can be
utilized.
Temporary differences for accumulated depreciation and untaxed reserves
(appropriations) are recorded in shareholders' equity and deferred tax
liability in the consolidated balance sheet. Under Finland's Companies Act, the
temporary differences for untaxed reserves and accumulated depreciation
difference included in shareholders' equity are excluded from distributable
funds.
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair
value of the Group's share of the net assets of the acquired
subsidiary/associated undertaking at the date of the acquisition. Goodwill is
reported using the exchange rate at the date of the acquisition. Goodwill is
amortized on a straight-line basis over its expected useful life. Useful lives
vary from 5 to 20 years, depending on the nature of the acquisition. Expected
useful lives are reviewed at each balance sheet date and where these differ
from previous estimates, amortization periods are adjusted accordingly.
F-11
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Intangible assets
Intangible assets include trademarks, patents, copyrights and software
licenses. Intangible assets are amortized on a straight-line basis over
expected useful lives. Useful lives vary from between 5 to 10 years.
Property, plant and equipment
Property, plant and equipment are stated at historical cost less straight-
line accumulated depreciation. Interest cost on borrowings to finance the
construction of property, plant and equipment are capitalized during the period
of time that is required to complete and prepare the property for its intended
use, as part of the asset. Land includes charges arising from the planting and
care of fast-growing forest holdings outside Finland and Sweden. Depreciation
is based on the following expected useful lives:
<TABLE>
<S> <C>
Buildings
Industrial................................................... 10-40 years
Hydroelectric power.......................................... 40-50 years
Office & residential......................................... 20-50 years
Heavy machinery
Pulp and paper machines...................................... 20 years
Sawmills..................................................... 12-15 years
Light machinery................................................ 10 years
Computer equipment, vehicles, office equipment and light
forestry machinery............................................ 4-10 years
</TABLE>
Land is not depreciated as it is deemed to have an indefinite life.
Ordinary maintenance and repair charges are expensed as incurred. However,
the cost of significant renewals and improvements is capitalized and
depreciated over the remaining useful life of the related asset. Retirements,
sales and disposals of property, plant and equipment are recorded by removing
the cost and accumulated depreciation from the accounting records with any
resulting gain or loss reflected in the income statement.
Assets to be disposed of are reported at the lower of the carrying amount and
fair value less cost to sell.
Impairment
The carrying amounts of assets are reviewed at each balance sheet date to
determine whether there is any indication of impairment. If any such indication
exists, the recoverable amount is estimated as the higher of the net selling
price and the value in use. An impairment loss is recognized whenever the
carrying amount exceeds the recoverable amount.
A previously recognized impairment loss is reversed if there has been a
change in the estimates used to determine the recoverable amount, however not
to an extent higher than the carrying amount that would have been determined
had no impairment loss been recognized in prior years. For goodwill, a
recognized impairment loss is not reversed, unless (a) the impairment loss was
caused by a specific external event of an exceptional nature that is not
expected to recur; and (b) subsequent external events have occurred that
reverse the effect of that event.
Accounting for leases
Leases of property, plant and equipment where the Group assumes substantially
all benefits and risks of ownership are classified as finance leases. Finance
leases are capitalized at the inception of the lease at the lower of the fair
value of the leased property or at the estimated present value of the
underlying lease
F-12
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
payments. Each lease payment is allocated between the liability and finance
charges so as to achieve a constant rate on the finance balance outstanding.
The corresponding rental obligations, net of finance charges are included in
interest-bearing liabilities. The interest element of the finance charge is
charged to the income statement over the lease period. Property, plant and
equipment acquired under finance leasing contracts are depreciated over the
lesser of the useful life of the asset or lease period.
Leases of assets under which all the risks and benefits of ownership are
retained by the lessor are classified as operating leases. Payments made under
operating leases and rental agreements are expensed on a straight-line basis
over the period of the lease.
When an operating lease is terminated before the lease period has expired,
any payment required to be made to the lessor by way of penalty is recognized
as an expense in the period in which termination takes place.
Inventories
Inventories are reported at the lower of cost and net realizable value. Cost
is determined by the first-in, first-out (FIFO) method. The cost of finished
goods and work in progress comprises raw material, direct labor, other direct
costs and related production overhead but excludes interest expenses.
Trade receivables
Trade receivables are reported at anticipated realizable value. An estimate
is made for doubtful receivables based on a review of all outstanding amounts
at year-end.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, deposits held at call with
banks, and other liquid investments with original maturity less than three
months, net of bank overdrafts. Bank overdrafts are included in short-term
borrowings under current liabilities.
Investments
Investments in marketable equity securities are carried at the lower of cost
and market value determined on a portfolio basis. The Group evaluates the
carrying amounts of its long-term investments and recognizes declines other
than temporary in the value of the investments on an individual basis.
Provisions
Provisions are recognized when the Group has a present legal or constructive
obligation as a result of past events, it is probable that an outflow of
resources embodying an economic benefit will be required to settle the
obligation and a reliable estimate of the amount of the obligation can be made.
Employee benefits
The Group operates a number of defined benefits and defined contribution
plans throughout the world, the assets of which are generally held in separate
trustee administered funds. The pension plans are generally funded by payments
from employees and by the relevant Group companies, taking into account the
recommendations of independent qualified actuaries. The Group's contributions
to the defined contribution pension plans are charged to the income statement
in the year to which they relate.
F-13
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the defined benefit plans, the pension accounting costs are assessed
using the projected unit credit method. Under this method, the cost of
providing pensions is charged to the income statement so as to spread the
regular cost over the service lives of employees in accordance with the advice
of qualified actuaries who carry out a full valuation of the plan every year.
The pension obligation is measured as the present value of estimated future
cash outflows using interest rates of government securities that have terms to
maturity approximating the terms of the related liability. All actuarial gains
and losses are spread forward over the average remaining service lives of
employees. In 1999 the Group implemented IAS 19 (revised) Employee Benefits and
accounted for the transitional liability by adjusting the retained earnings at
January 1, 1999.
Restricted Equity
The components of restricted equity include share premium account,
translation adjustment for foreign subsidiaries, and legal reserves, as
required by law in certain countries where subsidiaries are incorporated.
Government grants
Government grants relating to the purchase of property, plant and equipment
are included in non-current liabilities as deferred income. The grants are
credited to the income statement on a straight line basis over the expected
lives of the related assets.
Earnings per share
Earnings per share are computed by dividing net profit for the year by the
weighted average number of shares outstanding during each period. The average
number of treasury shares has been deducted from the number of outstanding
shares.
The diluted earnings per share have been computed by applying the "treasury
stock" method, under which earnings per share data is computed as if the
warrants and options were exercised at the beginning of the period, or on
issuance, if later, and as if the funds obtained thereby were used to purchase
common stock at the average market price during the period. In addition to the
weighted average number of shares outstanding, the denominator includes the
incremental shares obtained through the assumed exercise of the warrants and
options.
The assumption of exercise is not reflected in earnings per share when the
exercise price of the warrants and options exceeds the average market price of
the common stock during the period. The warrants and options have a dilutive
effect only when the average market price of the common stock during the period
exceeds the exercise price of the warrants and options.
Dividends
The dividend proposed by the Board is not deducted from the distributable
shareholders' equity until the shareholders' decision at the Annual General
Meeting. At the Annual General Meeting on March 21, 2000, a dividend of
(Euro)0.40 will be proposed resulting in a total dividend of
(Euro)303,942,275.60.
New Accounting Standards
IAS 39, Financial Instruments: Recognition and Measurement, requires all
financial assets and financial liabilities to be recognized on the balance
sheet, including all derivatives. They are initially measured at cost, which is
the fair value or whatever was paid or received to acquire the financial asset
or liability. Subsequent to initial recognition, all financial assets should be
measured to fair value except for specified exceptions. After acquisition most
financial liabilities should be measured at original recorded amount less
principal repayments and amortization. For those financial assets and
liabilities that are remeasured to fair value, the Group can either recognize
the adjustment in the income statement or in equity until the asset is sold.
The standard is
F-14
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
effective for financial statements for financial years beginning on or after
January 1, 2001. The Group is currently evaluating, and has not yet determined,
the impact of adopting IAS 39 on its financial statements.
IAS 38, Intangible Assets, requires that an intangible asset should be
recognized if, and only if, it is probable that future economic benefits
attributable to the asset will flow to the enterprise and the cost of the asset
can be measured reliably. In addition, the standard requires expenditure on
advertising, training, start-up, and research and development activities to be
expensed as incurred. The standard is effective for annual financial statements
covering periods beginning on or after July 1, 1999. The Group does not expect
the adoption to have a material impact on its financial statements.
IAS 22 (revised), Business Combinations, addresses the accounting for an
acquisition of one entity by another and also a rare situation of a uniting of
interests when an accounting acquirer cannot be identified. The changes made to
the previous IAS 22 relate to: recognition of identified assets and liabilities
in an acquisition; determination of the fair values of assets acquired and
liabilities assumed; treatment of both positive goodwill and negative goodwill;
and transitional provisions based on earlier application of the prior rules.
The Group does not expect the adoption of the revised standard to have a
material adverse effect on its financial statements.
Note 2--Segment information
For management purposes, the Group's business segments are organized by
product areas on a worldwide basis into operating divisions--Magazine Paper,
Newsprint, Fine Paper, Packaging Boards, Timber Products, Market Pulp, Paper
Merchants, and Forest Operations--each headed by an executive vice president.
The divisions are the basis on which the Group reports its primary segment
information.
Magazine Paper develops, manufactures, and supplies uncoated and coated
magazine paper grades for the primary use in magazines, catalogs, brochures,
and for other printed advertising purposes to printers and publishers.
Newsprint develops, manufactures, and supplies standard and specialty newsprint
grades for publishers to be used in newspapers, newspaper supplements,
advertising leaflets, telephone directories, and paperback books. Fine Paper
develops, manufactures, and supplies graphic coated and office uncoated fine
paper grades for publishers: graphic coated fine paper is used in the
production of advertising materials, brochures, high quality books, and
magazines; office uncoated fine paper products are copy and offset papers,
envelope, writing papers, and continuous stationery papers. Packaging Boards
develops, manufactures, and supplies consumer packaging boards, corrugated
boards, corrugated board raw materials, coreboard, kraft paper, and laminating
papers for various industries. Timber Products manufactures and supplies sawn
goods used in the joinery, furniture, and construction industries, and by
manufacturers of prefabricated houses. Market Pulp manufactures and supplies
dried long-fiber and short-fiber chemical pulp to the Group's own paper mills
and to outside customers as well as fluff pulp to outside customers. Paper
merchants distributes paper to printers, offices, and agencies and acts as a
link in the distribution of the Group's fine paper products to the graphic
industry. Forest operations procures and supplies timber for Stora Enso's mills
and manages timberlands.
The accounting policies of the reportable segments are the same as those
described in Note 1 to the Consolidated Financial Statements. See Note 3 for a
discussion of the discontinued energy operations. Segment sales include
intersegment sales valued at arm's length transfer prices. The Group evaluates
the performance of its operating segments and allocates resources to them based
on operating performance.
Information about Stora Enso's reportable segments as of and for the years
ended December 31, 1999, 1998 and 1997 is shown in the following tables.
F-15
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Sales by segment
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------------------
1997 1998 1998 1998 1999 1999 1999
-------- -------- -------- -------- -------- -------- --------
Inter- Inter-
External group Total External group Total
------------------ -------- -------- -------- -------- --------
(Euro) (Euro) (Euro) (Euro) (Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Magazine paper.......... 1,475.8 1,847.1 4.7 1,851.8 1,920.7 29.7 1,950.4
Newsprint............... 1,534.1 1,658.2 35.5 1,693.7 1,599.0 42.8 1,641.8
Fine paper.............. 1,813.5 1,842.0 161.8 2,003.8 1,927.9 235.3 2,163.2
Packaging boards........ 2,485.5 2,347.8 49.1 2,396.9 2,266.9 74.6 2,341.5
Timber products......... 722.2 636.2 97.7 733.9 1,044.1 95.9 1,140.0
Market pulp............. 958.7 470.4 376.2 846.6 624.2 333.6 957.8
Paper merchants......... 800.4 829.3 1.0 830.3 753.9 33.3 787.2
Forest operations....... 1,616.8 223.2 1,422.7 1,645.9 226.5 1,403.8 1,630.3
Other operations and
elimination of internal
sales.................. (2,081.6) 62.4 (2,167.1) (2,104.7) 95.1 (2,249.0) (2,153.9)
-------- -------- -------- -------- -------- -------- --------
Continuing operations
total................. 9,325.4 9,916.6 (18.4) 9,898.2 10,458.3 -- 10,458.3
Divested units.......... 415.8 380.9 18.4 399.3 24.7 -- 24.7
Discontinued operations,
Energy................. 530.3 192.1 289.1 481.2 152.7 353.3 506.0
Elimination of internal
sales, Energy.......... (273.4) -- (289.1) (289.1) -- (353.3) (353.3)
-------- -------- -------- -------- -------- -------- --------
Group total............ 9,998.1 10,489.6 -- 10,489.6 10,635.7 -- 10,635.7
======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Share of
results of
associated Operating profit by
companies segment
------------- -----------------------
Year ended December 31,
-------------------------------------
1998 1999 1997 1998 1999
------ ------ ------ ------ -------
(Euro) (Euro) (Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C> <C> <C>
Magazine paper........................... -- 0.1 76.8 238.8 287.6
Newsprint................................ -- -- 164.2 292.3 299.1
Fine paper............................... 1.2 1.4 143.1 106.9 204.3
Packaging boards......................... 0.2 (0.1) 208.4 61.8 193.1
Timber products.......................... 0.7 2.3 50.3 3.2 41.0
Market pulp.............................. -- -- 29.4 (18.0) 106.1
Paper merchants.......................... -- 0.6 5.4 (22.9) 1.1
Forest operations........................ -- -- 111.2 108.8 141.1
Other operations......................... 7.8 5.4 (17.3) (117.7) (38.2)
--- ---- ----- ------ -------
Continuing operations total............ 9.8 9.7 771.5 653.2 1,234.6
Divested units........................... -- -- 4.7 (59.0) 22.9
Discontinued operations, Energy.......... 0.1 -- 123.7 114.5 150.9
--- ---- ----- ------ -------
Group total............................ 9.9 9.7 899.9 708.7 1,408.4
=== ==== ===== ====== =======
</TABLE>
F-16
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Operating capital by segment(/1/)
<TABLE>
<CAPTION>
As at December
31,
-----------------
1998 1999
-------- --------
(Euro) (Euro)
(in millions)
<S> <C> <C>
Magazine paper................................................ 2,025.2 2,125.5
Newsprint..................................................... 1,547.2 1,454.8
Fine paper.................................................... 2,260.0 2,301.0
Packaging boards.............................................. 2,272.7 2,438.9
Timber products............................................... 401.1 460.6
Market pulp................................................... 1,153.3 1,178.0
Paper merchants............................................... 212.4 187.3
Forest operations............................................. 1,408.1 1,346.2
Other operations.............................................. 127.1 387.8
-------- --------
Continuing operations total................................. 11,407.1 11,880.1
Divested units................................................ 91.7 0.0
Discontinued operations, Energy............................... 1,367.6 1,473.3
-------- --------
Total....................................................... 12,866.4 13,353.4
======== ========
</TABLE>
--------
(1) Operating capital represents the sum of fixed assets and other long-term
investments (excluding investments, loan receivables and deferred tax
assets), inventories, short-term receivables, other provisions, other long-
term liabilities and other current liabilities.
Reconciliation of operating capital to total assets
<TABLE>
<CAPTION>
As at December
31,
-----------------
1998 1999
-------- --------
(Euro) (Euro)
(in millions)
<S> <C> <C>
Operating capital............................................. 12,866.4 13,353.4
Operating liabilities......................................... 1,798.5 1,781.4
Interest-bearing receivables.................................. 736.9 821.4
Tax receivables............................................... 11.3 77.8
-------- --------
Total assets................................................ 15,413.1 16,034.0
======== ========
</TABLE>
Assets and liabilities by segment
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------
1998 1999
-------------------- --------------------
Assets Liabilities Assets Liabilities
-------- ----------- -------- -----------
(Euro) (Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C> <C>
Magazine paper........................ 2,240.2 215.0 2,362.9 237.4
Newsprint............................. 1,825.6 278.4 1,724.1 269.3
Fine paper............................ 2,501.2 241.2 2,607.5 306.5
Packaging boards...................... 2,577.8 305.1 2,780.3 341.5
Timber products....................... 556.7 155.6 601.5 140.9
Market pulp........................... 1,298.3 145.0 1,316.5 138.5
Paper merchants....................... 326.0 113.6 326.3 139.0
Forest operations..................... 1,555.1 147.0 1,534.3 188.1
Other operations...................... 995.9 8,163.0 1,261,0 8,071.4
-------- ------- -------- -------
Continuing operations 13,876.8 9,763.9 14,514.4 9,832.5
Divested units........................ 116.5 24.8 0,0 0,0
Discontinuing operations 1,419.8 52.2 1,519.6 46,3
-------- ------- -------- -------
Total............................... 15,413.1 9,840.9 16,034.0 9,878.8
======== ======= ======== =======
</TABLE>
F-17
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Capital expenditure by segment
<TABLE>
<CAPTION>
Year ended December
31,
---------------------
1997 1998 1999
------- ------ ------
(Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C>
Magazine paper............................................ 322.5 219.9 102.2
Newsprint................................................. 98.2 103.8 72.3
Fine paper................................................ 277.9 127.0 112.9
Packaging boards.......................................... 215.5 211.7 232.7
Timber products........................................... 20.1 33.8 51.3
Market pulp............................................... 107.6 96.3 103.3
Paper merchants........................................... 9.7 12.0 6.6
Forest operations......................................... 21.4 22.3 13.8
Other operations.......................................... 21.8 29.5 33.3
------- ----- -----
Continuing operations total............................. 1,094.7 856.3 728.4
Divested units............................................ 19.3 20.5 0.4
Discontinued operations, Energy........................... 19.6 19.6 11.4
------- ----- -----
Total................................................... 1,133.6 896.4 740.2
======= ===== =====
</TABLE>
Depreciation, amortization and impairment charges by segment
<TABLE>
<CAPTION>
Year ended December
31,
---------------------
1997 1998 1999
------ ------- ------
(Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C>
Magazine paper............................................ 152.1 207.3 183.9
Newsprint................................................. 133.9 150.8 139.9
Fine paper................................................ 151.7 248.3 177.7
Packaging boards.......................................... 186.2 296.3 188.7
Timber products........................................... 22.6 25.6 39.2
Market pulp............................................... 84.1 93.6 89.1
Paper merchants........................................... 10.8 13.1 12.3
Forest operations......................................... 11.8 12.7 12.1
Other operations.......................................... 33.7 27.0 24.7
----- ------- -----
Continuing operations total............................. 786.9 1,074.7 867.6
Divested units............................................ 31.8 66.5 2.6
Discontinued operations, Energy........................... 11.0 10.2 15.2
----- ------- -----
Total................................................... 829.7 1,151.4 885.4
===== ======= =====
</TABLE>
Average personnel by segment
<TABLE>
<CAPTION>
Year ended December
31,
--------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Magazine paper............................................. 4,575 4,887 4,745
Newsprint.................................................. 5,215 5,651 5,564
Fine paper................................................. 7,057 7,310 7,565
Packaging boards........................................... 10,478 10,189 10,114
Timber products............................................ 2,050 2,188 3,605
Market pulp................................................ 2,707 2,474 2,383
Paper merchants............................................ 1,636 1,680 1,577
Forest operations.......................................... 2,484 2,212 2,134
Other operations........................................... 2,074 2,387 2,216
------ ------ ------
Continuing operations total.............................. 38,276 38,978 39,903
Divested units............................................. 1,807 1,800 115
Discontinued operations, Energy............................ 218 209 208
------ ------ ------
Total.................................................... 40,301 40,987 40,226
====== ====== ======
</TABLE>
F-18
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Sales by destination
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------
1997 1998 1999
------- -------- --------
(Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C>
Germany............................................... 1,611.2 1,827.0 1,825.7
UK.................................................... 1,405.4 1,436.9 1,321.7
France................................................ 893.9 1,003.6 974.0
Sweden................................................ 919.9 881.0 810.5
Finland............................................... 741.3 726.0 730.2
Netherlands........................................... 525.7 555.0 538.8
Italy................................................. 384.9 432.6 450.7
Spain................................................. 371.9 400.4 440.0
Belgium............................................... 341.3 373.9 349.4
Denmark............................................... 307.7 329.6 286.8
Other EU.............................................. 317.9 321.0 423.0
Total EU............................................ 7,821.0 8,287.0 8,150.8
Other Europe.......................................... 620.6 733.9 635.3
North America......................................... 318.3 445.5 607.4
Asia Pacific.......................................... 623.9 406.2 773.6
Others................................................ 614.3 617.0 468.6
------- -------- --------
Total............................................... 9,998.1 10,489.6 10,635.7
======= ======== ========
</TABLE>
Capital expenditure by location
<TABLE>
<CAPTION>
Year ended December
31,
---------------------
1997 1998 1999
------- ------ ------
(Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C>
Sweden.................................................... 387.6 359.4 290.9
Finland................................................... 331.2 190.5 222.3
Germany................................................... 87.4 115.5 86.8
Portugal.................................................. 15.2 20.4 40.7
France.................................................... 8.4 15.1 12.5
Canada.................................................... 262.4 127.5 6.2
Other..................................................... 41.4 68.0 80.8
------- ----- -----
Total................................................... 1,133.6 896.4 740.2
------- ----- -----
</TABLE>
F-19
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Total assets
<TABLE>
<CAPTION>
As at December
31,
-----------------
1998 1999
-------- --------
(Euro) (Euro)
(in millions)
<S> <C> <C>
Finland....................................................... 5,563.2 5,603.6
Sweden........................................................ 4,856.8 5,471.6
Germany....................................................... 2,111.4 1,929.6
Canada........................................................ 551.6 661.1
France........................................................ 545.4 485.4
Portugal...................................................... 229.2 250.9
Austria....................................................... 176.8 250.6
China......................................................... 213.7 234.7
Other......................................................... 1,165.0 1,146.5
-------- --------
Total....................................................... 15,413.1 16,034.0
======== ========
</TABLE>
Capital employed(/1/)
<TABLE>
<CAPTION>
As at December
31,
-----------------
1998 1999
-------- --------
(Euro) (Euro)
(in millions)
<S> <C> <C>
Finland....................................................... 4,422.0 4,291.8
Sweden........................................................ 3,477.0 3,958.6
Germany....................................................... 1,502.0 1,205.8
Canada........................................................ 529.2 654.6
France........................................................ 350.5 333.6
Portugal...................................................... 184.4 209.6
China......................................................... 178.4 205.3
Austria....................................................... 81.8 159.9
Other......................................................... 639.6 659.4
-------- --------
Total....................................................... 11,365.0 11,678.6
======== ========
</TABLE>
--------
(1) Total capital employed represents operating capital less net tax
liabilities.
F-20
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 3--Discontinued operations
In August 1999, Stora Enso announced a plan to sell its off-mill site energy
operations. Subsequently, Stora Enso sold its shares in Teollisuuden
Sahkonmyynti Oy and some of its shares in Pohjolan Voima Oy and recorded a pre-
tax gain of (Euro)48.2 million (related tax of (Euro)13.5 million). The
remaining shares in Pohjolan Voima Oy are held for disposal.
In January 2000, Stora Enso signed a letter of intent with Fortum Oyj to sell
the majority of its off-mill site energy operations.
<TABLE>
<CAPTION>
Discontinued
Continuing operations operations, Energy Total
---------------------------- ------------------------- ----------------------------
Year ended December 31, Year ended December 31, Year ended December 31,
---------------------------- ------------------------- ----------------------------
1997 1998 1999 1997 1998 1999 1997 1998 1999
-------- -------- -------- ------- ------- ------- -------- -------- --------
(Euro) (Euro) (Euro) (Euro) (Euro) (Euro) (Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales................... 9,467.8 10,008.4 10,129.7 530.3 481.2 506.0 9,998.1 10,489.6 10,635.7
Changes in inventories
of finished goods and
work in progress...... 7.9 42.0 (119.8) -- (0.2) 0.5 7.9 41.8 (119.4)
Other operating
income................ 60.2 43.3 77.4 0.4 1.6 48.7 60.6 44.9 126.1
Materials and
services.............. (4,955.7) (4,700.7) (4,582.3) (398.0) (332.8) (260.9) (5,353.7) (5,033.5) (4,843.3)
Freight and sales
commissions........... (1,100.4) (1,016.0) (993.5) -- -- -- (1,100.4) (1,016.0) (993.5)
Personnel expenses..... (1,726.8) (1,795.3) (1,743.8) (10.5) (9.9) (10.4) (1,737.3) (1,805.2) (1,754.3)
Depreciation,
amortization and
impairment charges.... (826.4) (1,136.4) (870.2) (3.3) (15.0) (15.2) (829.7) (1,151.4) (885.4)
Other operating
expenses.............. (150.5) (851.1) (639.7) 4.9 (10.4) (117.9) (145.6) (861.6) (757.5)
-------- -------- -------- ------- ------- ------- -------- -------- --------
Operating profit........ 776.1 594.2 1,257.9 123.8 114.5 150.8 899.9 708.7 1,408.4
Net financial items.... (226.4) (323.9) (211.1) (53.7) (55.4) (55.5) (280.1) (379.2) (266.6)
Share of results of
associated companies.. 16.5 9.9 9.7 -- -- 0.1 16.5 9.9 9.7
Profit before tax and
minority interests..... 556.2 280.3 1,056.5 70.1 59.1 95.4 636.3 339.4 1,151.5
Income tax expense...... (185.1) (133.1) (367.7) (20.5) (15.1) (26.8) (205.6) (148.2) (394.5)
Profit after tax........ 381.0 147.2 688.9 49.6 44.0 68.5 430.6 191.2 757.0
Minority interests...... (21.6) (0.2) (4.5) -- -- -- (21.6) (0.2) (4.5)
-------- -------- -------- ------- ------- ------- -------- -------- --------
Net profit for the
period................ 359.4 147.0 684.4 49.6 44.0 68.5 409.0 191.0 752.5
======== ======== ======== ======= ======= ======= ======== ======== ========
</TABLE>
F-21
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Continuing Discontinued
operations operations, Energy Total
----------------- ------------------- -----------------
As at December As at December
31, As at December 31, 31,
----------------- ------------------- -----------------
1998 1999 1998 1999 1998 1999
-------- -------- --------- --------- -------- --------
(Euro) (Euro) (Euro) (Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Assets
Fixed assets and other
long-term investments
Intangible assets...... 42.0 60.3 -- -- 42.0 60.3
Goodwill............... 540.5 466.4 -- -- 540.5 466.4
Property, plant and
equipment............. 9,248.7 9,451.9 1,175.9 1,265.7 10,424.6 10,717.6
Investments in
associated companies.. 175.9 159.6 158.2 5.9 334.1 165.5
Investments in other
companies............. 87.7 96.3 41.1 184.1 128.8 280.4
Investments............ 48.0 49.3 -- -- 48.0 49.3
Long-term loan
receivables........... 47.6 17.5 42.5 49.3 90.1 66.8
Deferred tax assets.... 7.8 5.9 -- -- 7.8 5.9
Other non-current
assets................ 77.1 85.0 2.1 3.7 79.2 88.6
-------- -------- --------- --------- -------- --------
10,275.3 10,392.1 1,419.8 1,508.7 11,695.1 11,900.8
Current assets
Inventories............ 1,332.0 1,264.9 0.3 0.7 1,332.3 1,265.6
Tax receivables........ 3.4 71.3 -- 0.6 3.4 71.9
Short-term
receivables........... 1,651.0 1,925.1 132.4 59.5 1,783.4 2,090.5
Current portion of
long-term
receivables........... 3.9 63.0 -- -- 3.9 63.0
Cash and cash
equivalents........... 586.9 627.9 8.1 120.1 595.0 642.2
-------- -------- --------- --------- -------- --------
3,577.2 3,952.3 140.8 180.9 3,718.0 4,133.2
Total assets........... 13,852.5 14,344.4 1,560.6 1,689.6 15,413.1 16,034.0
======== ======== ========= ========= ======== ========
<CAPTION>
Continuing Discontinued
operations operations, Energy Total
----------------- ------------------- -----------------
As at December As at December
31, As at December 31, 31,
----------------- ------------------- -----------------
1998 1999 1998 1999 1998 1999
-------- -------- --------- --------- -------- --------
(Euro) (Euro) (Euro) (Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Shareholders' equity and
liabilities
Shareholders' equity... 4,970.9 5,589.5 322.6 363.7 5,293.5 5,953.2
Minority interests..... 273.5 196.1 5.3 5.9 278.7 202.0
Long-term liabilities
Pension provisions..... 524.8 568.1 6.9 7.4 531.7 575.5
Deferred tax
liabilities........... 1,248.2 1,410.7 89.1 78.2 1,337.3 1,488.9
Other provisions....... 256.0 186.5 0.0 0.0 256.0 186.5
Long-term debt......... 3,238.6 2,730.3 1,055.5 1,115.9 4,294.1 3,846.2
Other long-term
liabilities........... 90.8 87.0 -- -- 90.8 87.0
-------- -------- --------- --------- -------- --------
5,358.4 4,982.6 1,151.5 1,201.5 6,509.9 6,184.1
Current liabilities
Current portion of
long-term debt........ 1,217.8 440.9 0.6 5.8 1,218.4 446.7
Short-term borrowings.. 465.4 1,413.1 10.0 63.6 475.4 1,476.6
Other current
liabilities........... 1,381.1 1,461.5 70.6 46.3 1,451.7 1,507.8
Tax liabilities........ 185.5 260.6 0.0 3.0 185.5 263.6
-------- -------- --------- --------- -------- --------
3,249.8 3,576.1 81.2 118.6 3,331.0 3,694.7
Total shareholders'
equity and
liabilities........... 13,852.4 14,344.4 1,560.6 1,689.6 15,413.1 16,034.0
======== ======== ========= ========= ======== ========
</TABLE>
F-22
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Discontinued
Continuing operations operations, Energy Total
--------------------------- --------------------------- ---------------------------
Year ended December 31, Year ended December 31, Year ended December 31,
--------------------------- --------------------------- ---------------------------
1997 1998 1999 1997 1998 1999 1997 1998 1999
-------- -------- ------- ------- ------- ------- -------- -------- -------
(Euro) (Euro) (Euro) (Euro) (Euro) (Euro) (Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash flow from operating
activities
Net profit for the
period................. 359.4 147.0 684.0 49.6 44.0 68.5 409.0 191.0 752.5
Reversal of non-cash
items
Minority interests..... 21.6 0.2 4.5 -- -- -- 21.6 0.2 4.5
Taxes.................. 185.1 133.1 367.7 20.5 15.1 26.8 205.6 148.2 394.5
Depreciation,
amortization and
impairment charges.... 826.4 1,138.6 870.3 3.3 12.8 15.1 829.7 1,151.4 885.4
Share of results of
associated companies.. (16.5) (9.9) (9.7) -- -- (0.1) (16.5) (9.9) (9.7)
Profit and losses on
sale of fixed assets.. (5.2) 6.4 (49.3) -- -- (48.2) (5.2) 6.4 (97.5)
Net financial income... 226.4 323.8 211.1 53.7 55.4 55.5 280.1 379.2 266.6
Interest received....... 34.3 17.9 12.8 -- -- -- 34.3 17.9 12.8
Interest paid, net of
amount capitalized..... (302.7) (323.0) (223.8) (53.7) (55.4) (55.5) (356.4) (378.4) (279.3)
Dividends received...... 2.1 2.3 3.9 -- -- -- 2.1 2.3 3.9
Other financial items,
net.................... 39.9 (21.0) 37.3 -- -- -- 39.9 (21.0) 37.3
Income taxes paid....... (58.9) (24.0) (268.8) (20.5) (15.1) (42.1) (79.4) (39.1) (310.9)
Change in net working
capital................ 20.2 144.7 (136.2) -- (8.7) (81.8) 20.2 136.0 (218.0)
-------- -------- ------- ------- ------- ------- -------- -------- -------
Net cash provided by
operating activities.. 1,332.1 1,536.1 1,503.8 52.9 48.1 (61.7) 1,385.0 1,584.2 1,442.1
Cash flow from investing
activities
Acquisitions........... (344.9) (514.0) (103.9) -- -- -- (344.9) (514.0) (103.9)
Divestments............ 196.8 164.9 170.6 -- -- 72.0 196.8 164.9 242.6
Capital expenditures... (1,195.6) (877.9) (705.7) (5.5) (18.5) (23.4) (1,201.1) (896.4) (729.1)
Proceeds from (payments
of) long-term
receivables, net...... 17.8 (31.0) 21.2 -- 5.3 6.8 17.8 (25.7) 28.0
Net cash used in
investing activities.. (1,325.9) (1,258.0) (617.8) (5.5) (13.2) 55.4 (1,331.4) (1,271.2) (562.4)
Cash flow from financing
activities
Dividends paid......... (235.7) (244.8) (268.8) -- -- -- (235.7) (244.8) (268.8)
Other cash flow from
financing activities.. 92.3 59.7 (588.6) (45.0) (34.8) 12.3 47.3 24.9 (576.3)
Net cash used in
financing activities.. (143.4) (35.8) (857.4) (45.0) (34.8) 12.3 (188.4) (70.6) (845.1)
Net increase (decrease)
in cash and cash
equivalents............ (137.2) 242.3 28.6 2.4 0.1 6.0 (134.8) 242.4 34.6
Effect of exchange rate
changes on cash and
cash equivalents...... 9.6 (3.1) 12.4 -- -- 0.2 9.6 (3.1) 12.8
Cash and cash
equivalents at
beginning of year..... 475.3 347.7 586.9 5.6 8.0 8.1 480.9 355.7 595.0
Cash and cash
equivalents at end of
year................... 347.7 586.9 627.9 8.0 8.1 14.3 355.7 595.0 642.2
</TABLE>
Note 4--Effect of major acquisitions and disposals
Acquisitions
In January 1999, Stora Enso initiated a compulsory redemption of STORA and
offered to buy all remaining outstanding STORA Series A and Series B shares at
a price of SEK 88 per share. At December 31, 1999, Stora Enso held 98.7% of the
shares. A total of (Euro)83 million was used to purchase minority shares
between January and December, 1999. The compulsory redemption procedure has
been referred to arbitration and is still under consideration.
F-23
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stora Enso acquired E. Holtzmann & Cie AG in several steps between April 1997
and November 1998. The total acquisition cost of the shares amounted to
(Euro)599.6 million. The acquisition resulted in goodwill of (Euro)165.2
million.
The Group acquired Holzindustrie Schweighofer GmbH in December 1998 for a
total acquisition cost of (Euro)122.9 million. A portion of the purchase price
was paid in cash and the remainder was paid in shares of Stora Enso Timber Oy,
giving the Schweighofer family a 33% interest in Stora Enso Timber Oy. The
acquisition resulted in goodwill of (Euro)82.9 million.
In 1998, the Group acquired 60% of Suzhou Papyrus Paper Co. Ltd. The purchase
price of (Euro)79.0 million is contingent upon the performance of the mill and
will not be finalized until 2001.
In 1998, the Group acquired a 19.9% interest in the Thai company Advance Agro
Plc for (Euro)67.9 million. A marketing agreement was also signed giving Stora
Enso sole rights to market Advance Agro's pulp and fine paper outside Thailand.
In 1997, the Group invested (Euro)257.0 million for a 50% joint venture
interest in the construction of a Brazilian pulp mill.
Disposals
During 1999 Stora Enso sold Tervakoski Oy to an Austrian company Trierenberg
AG and the fixed assets of Dalum to a group of Danish investors. The sale price
totaled (Euro)120 million. The gain on sale of Tervakoski Oy amounted to
(Euro)24.5 million. Dalum was sold at book value, after a write-down of
(Euro)32.0 million in 1998 to net realizable value based on a letter of intent,
thus no gain or loss on sale was recorded in 1999.
In 1999, Stora Enso sold its holdings in Teollisuuden Sahkonmyynti Oy and its
holdings of Series C Shares of Pohjolan Voima to Eastern Group plc (see Note
3).
In December 1998, the Group sold its technical office papers businesses to
Mitsubishi Corporation. The Group retained a 24% stake in the technical office
papers manufacturers. A loss of (Euro)20.6 million was recorded on the sale.
In 1997, the recycled fiber-based board mill was sold to Cascades SA at a
loss of (Euro)26.4 million.
Note 5--Other operating income
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------
1997 1998 1999
------- ------- -------
(Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C>
Gains on sale of fixed assets and other long-term
investments..................................... 42.1 23.3 111.7
Rent............................................. 15.0 17.0 10.1
Subsidies........................................ 3.5 4.6 4.3
------- ------- -------
Total............................................ 60.6 44.9 126.1
======= ======= =======
Losses on sale of fixed assets and other long-
term investments included in other operating
expenses........................................ (36.8) (29.7) (14.2)
======= ======= =======
</TABLE>
In 1999, gains on sale of fixed assets and other long-term investments
includes a gain of (Euro)48.2 million from the sale of Pohjolan Voima Oy shares
and a gain of (Euro)24.5 million from the sale of Tervakoski Oy.
Losses on sale of fixed assets and other long-term investments in 1998
included a loss on the sale of shares of Stora Carbonless and Stora
Spezialpapiere of (Euro)20.6 million and (Euro)3.2 million from the sale of
shares of Svenska Dagbladet.
Gain on sale of fixed assets and other long-term investments in 1997 consists
of gain on sale of shares of Stora Reinsurance S.A.
F-24
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 6--Personnel expenses
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1997 1998 1999
------- ------- -------
(Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C>
Wages and salaries...... 1,299.0 1,364.5 1,333.0
Pensions and other
statutory employers'
contributions.......... 438.3 440.7 421.3
------- ------- -------
Total................... 1,737.3 1,805.2 1,754.3
======= ======= =======
</TABLE>
Pension expense and other statutory employers' contributions
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------
1997 1998 1999
------- ------- -------
(Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C>
Pension expenses paid to pension funds
Obligatory......................................... 31.9 40.6 48.2
Voluntary.......................................... 9.4 11.2 6.7
Pension expenses paid to insurance companies
Obligatory......................................... 58.9 58.2 66.8
Voluntary.......................................... 21.7 25.9 5.4
Accrued pension liabilities in the period............ 36.1 18.8 12.5
Top management pension arrangements.................. 1.2 2.6 --
Training............................................. 0.4 1.0 --
Other personnel costs
Obligatory......................................... 277.5 281.5 260.3
Voluntary.......................................... 1.3 1.0 21.3
------- ------- -------
Total................................................ 438.3 440.7 421.3
======= ======= =======
</TABLE>
Note 7--Net financial items
<TABLE>
<CAPTION>
Year ended December
31,
----------------------
1997 1998 1999
------ ------ ------
(Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C>
Dividend income......................................... 2.1 2.3 3.9
Interest income......................................... 34.3 17.9 20.9
Other financial income.................................. 31.2 38.6 12.6
Exchange gains and losses............................... 22.7 (30.3) 31.6
Interest expenses....................................... (356.4) (378.4) (328.0)
Other financial expenses................................ (14.0) (29.2) (7.5)
------ ------ ------
Total................................................... (280.1) (379.2) (266.6)
====== ====== ======
</TABLE>
F-25
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 8--Income taxes
Profit before tax and minority interests is as follows:
<TABLE>
<CAPTION>
Year ended December
31,
-----------------------
1997 1998 1999
------ ------ -------
(Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C>
Profit before tax and minority interests
Finnish Group companies............................... 157.9 353.0 578.0
Swedish Group companies............................... 217.7 5.1 304.0
German Group companies................................ 84.3 (261.1) 217.6
Other Group companies................................. 176.4 242.4 51.8
------ ------ -------
Total................................................. 636.3 339.4 1,151.5
====== ====== =======
The (expense) credit for income taxes consists of the following:
<CAPTION>
Year ended December
31,
-----------------------
1997 1998 1999
------ ------ -------
(Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C>
Tax (expense) credit
Current tax expense
Finnish Group companies............................. (42.0) (110.3) (141.0)
Swedish Group companies............................. (33.3) (102.8) (79.4)
German Group companies.............................. (27.2) 91.2 (46.6)
Other Group companies............................... (0.7) (13.4) (27.2)
Change in deferred taxes
Finnish Group companies............................. (75.7) 4.6 (27.5)
Swedish Group companies............................. (27.7) 64.6 (1.0)
German Group companies.............................. 2.9 (58.9) (69.4)
Other Group companies............................... 2.6 (20.7) (0.1)
Taxes of associated companies......................... (4.6) (2.5) (2.4)
------ ------ -------
Total................................................. (205.6) (148.2) (394.5)
====== ====== =======
The following is a reconciliation of income taxes calculated at the 28% tax
rate:
<CAPTION>
Year ended December
31,
-----------------------
1997 1998 1999
------ ------ -------
(Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C>
Profit before tax and minority interests.............. 636.3 339.4 1,151.5
Income tax at Finnish statutory rate of 28%........... 178.2 95.0 322.4
Impact of different tax rates outside Finland......... 15.4 (3.4) 57.4
Non-deductible expenses and tax exempt income, net.... 39.3 78.0 18.2
Tax losses carried forward............................ (33.3) (1.2) (15.3)
Other items........................................... 6.1 (20.2) 11.8
------ ------ -------
Income taxes in the consolidated income statement..... 205.6 148.2 394.5
====== ====== =======
</TABLE>
F-26
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred income tax assets and liabilities are summarized as follows:
<TABLE>
<CAPTION>
As at December
31,
----------------
1998 1999
------- -------
(Euro) (Euro)
(in millions)
<S> <C> <C>
Deferred tax assets:
Tax losses carried forward................................... 74.8 68.5
Less valuation allowance..................................... (67.5) (62.6)
Corporate tax credit......................................... 0.5 --
------- -------
Total deferred tax assets in the balance sheet............... 7.8 5.9
======= =======
Deferred tax liabilities:
Depreciation difference and untaxed reserves................. 1,111.3 1,140.9
Group eliminations........................................... (10.4) (5.9)
Tax losses carried forward and other temporary differences... (129.4) 5.5
Fair value adjustments for acquired net assets............... 365.8 348.4
------- -------
Total deferred tax liabilities in the balance sheet.......... 1,337.3 1,488.9
======= =======
Net deferred tax liabilities in the balance sheet............ 1,329.5 1,483.0
======= =======
</TABLE>
The Group has recognized a deferred tax asset for its net operating loss
carryforwards and established a valuation allowance against this amount. That
determination was based upon an analysis of the probability criterion applied
to each tax jurisdiction of the Group. The valuation allowance for net deferred
tax assets decreased by (Euro)4.9 million in 1999. The reduction was the result
of the Group's ability to utilize loss carryforwards in 1999.
At December 31, 1999, Stora Enso had loss carryforwards mainly attributable
to foreign subsidiaries of (Euro)647 million of which approximately (Euro)485
million have no expiration. The remaining carryforwards expire during the years
2003-2004.
Reconciliation of changes of deferred tax liabilities and deferred tax assets
as at December 31, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
As at Adoption Charge (credit) As at
December 31, of IAS 19 to income Acquisitions/ Exchange December 31,
1998 revised statement divestments difference 1999
------------ --------- --------------- ------------- ---------- ------------
(Euro) (Euro) (Euro) (Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Deferred tax liabilities
Depreciation difference
and untaxed reserves... 1,111.3 -- (29.2) -- 58.8 1,140.9
Group eliminations...... (10.4) -- 4.5 -- -- (5.9)
Tax losses carried
forward and other
temporary differences.. (129.4) (10.6) 144.7 -- 0.8 5.5
Fair value adjustments
for acquired net
assets................. 365.8 -- (23.8) (12.9) 19.3 348.4
------- ----- ----- ----- ---- -------
Total deferred tax
liabilities............ 1,337.3 (10.6) 96.2 (12.9) 78.9 1,488.9
======= ===== ===== ===== ==== =======
Deferred tax assets
Tax losses carried
forward................ 7.8 -- 1.9 -- -- 5.9
Change in net deferred
tax liabilities........ 1,329.5 (10.6) 98.1 (12.9) 78.9 1,483.0
======= ===== ===== ===== ==== =======
</TABLE>
F-27
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
As at Charge (credit) As at
December 31, to income Exchange December 31,
1997 statement Acquisitions Difference 1998
------------ --------------- ------------ ---------- ------------
(Euro) (Euro) (Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C> <C> <C>
Deferred tax liabilities
Depreciation difference
and untaxed reserves... 1,166.0 33.6 (26.1) (62.2) 1,111.3
Group eliminations...... (18.0) 6.8 -- 0.8 (10.4)
Tax losses carried
forward and other
temporary differences.. (122.8) (13.7) -- 7.1 (129.4)
Fair value adjustments
for acquired net
assets................. 348.7 (20.4) 60.2 (22.7) 365.8
------- ----- ----- ----- -------
Total deferred tax
liabilities............ 1,373.9 6.3 34.1 (77.0) 1,337.3
======= ===== ===== ===== =======
Deferred tax assets
Tax losses carried
forward................ 11.9 4.1 -- -- 7.8
Change in net deferred
tax liabilities........ 1,362.0 10.4 34.1 (77.0) 1,329.5
======= ===== ===== ===== =======
</TABLE>
No deferred tax liability has been recognized for undistributed earnings of
Finnish subsidiaries because, in most cases, such earnings can be transferred
to the parent company without tax consequences. The Group does not provide for
deferred income taxes on undistributed earnings of non-Finnish subsidiaries
because such earnings are intended to be permanently reinvested in those
operations, except in specific situations where the Group has elected to
distribute earnings of these subsidiaries.
Note 9--Depreciation, amortization and impairment charges
<TABLE>
<CAPTION>
Year ended December
31,
------------------------
1997 1998 1999
------ -------- ------
(Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C>
Depreciation and amortization
Intangible assets.................................... (13.4) (13.6) (12.7)
Buildings and structures............................. (95.9) (95.4) (85.4)
Machinery and equipment.............................. (643.0) (742.3) (687.1)
Other tangible assets................................ (15.8) (17.6) (18.6)
Goodwill............................................. (48.1) (64.5) (61.9)
------ -------- ------
Total................................................ (816.3) (933.4) (865.7)
====== ======== ======
Impairment charges
Buildings and structures............................. (3.2) (1.5) --
Machinery and equipment.............................. (10.2) (126.7) (18.6)
Other tangible assets................................ -- -- (1.1)
Goodwill............................................. -- (89.9) --
Total................................................ (13.4) (218.1) (19.7)
====== ======== ======
Depreciation, amortization and impairment charges.... (829.7) (1,151.4) (885.4)
====== ======== ======
</TABLE>
F-28
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Impairment of machinery and equipment for the year ended December 31, 1998
consisted of the following:
The market situation and the poor profitability of some assets led the Group
to evaluate long-lived assets for possible impairment. The values of such
assets were determined using discounted future cash flow analysis and estimated
market values for specified assets as if they were to be sold or disposed of.
As a result, the Group recognized an impairment charge of (Euro)126.7 million.
Of the total charge, (Euro)32.0 million related to write-down of the Dalum
paper mill assets (fine paper segment) to net realizable value based on a
signed letter of intent. The mill was divested in 1999. (Euro)30.2 million
related to write-down of assets in Molndal fine paper mill (fine paper segment)
in accordance with a plan to close down the mill. (Euro)22.9 million related to
Nymolla off-machine coater (fine paper segment), which continues to be in use,
but has been producing negative cash flows for several years. Summa Paper
Machine (newsprint segment) and Pankakoski Board Machine (packaging boards
segment) were written-down by (Euro)6.0 million and (Euro)8.4 million,
respectively, due to the out-of-date technology and continuous negative
operating performance of these machines. The remaining (Euro)27.2 million
reflects impairments of assets containing out of date technology that are no
longer in use.
Impairment of goodwill for the year ended December 31, 1998 consisted of the
following:
Uetersen (fine paper segment)
Declining profitability due to increased competition in coated fine paper
production led the Group to evaluate long-lived assets and associated goodwill
of this activity for possible impairment. As a consequence of these factors,
recoverability of the carrying amounts of such assets was tested for
impairment. These tests led to impairment at December 31, 1998 for goodwill
amounting to (Euro)27.7 million.
Corbehem (magazine paper segment)
Closing down of two paper machines and the increased market capacity of the
light weight coated paper and Corbehem's relative position as a small producer
led the Group to evaluate long-lived assets and associated goodwill of this
activity for possible impairment. As a consequence of these factors,
recoverability of the carrying amounts of such assets was tested for
impairment. These tests led to impairment at December 31, 1998 for goodwill
amounting to (Euro)12.5 million.
Reisholz (magazine paper segment)
Increased supercalendered paper capacity and quality requirements in the
market and Reisholz's limited ability to compete with a small machine led the
Group to evaluate long-lived assets and associated goodwill of this activity
for possible impairment. As a consequence of these factors, recoverability of
the carrying amounts of such assets was tested for impairment. These tests led
to impairment at December 31, 1998 for goodwill amounting to (Euro)25.1
million.
Baienfurt (packaging boards segment)
Low profitability at Baienfurt mill due to decreased product prices led the
Group to evaluate long-lived assets and associated goodwill of this activity
for possible impairment. As a consequence of these factors, recoverability of
the carrying amounts of such assets was tested for impairment. These tests led
to impairment at December 31, 1998 for goodwill amounting to (Euro)24.6
million.
F-29
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The values in use of such assets referred to above were determined using
discounted cash flows over the life of the long-lived assets and associated
goodwill. Discounted cash flows were estimated based upon the following
criteria:
--future cash flows are discounted on a four-year basis,
--the terminal value is discounted based on the average cash flow of
normalized year which has been calculated using trend prices,
--a discount factor of 6.52% was used for Uetersen and Baienfurt, 6.63% for
Corbehem and 6.5% for Reisholz.
Note 10--Fixed assets and long-term investments
<TABLE>
<CAPTION>
Land Buildings Machinery Other
Intangible and and and tangible
Goodwill assets water structures equipment assets
-------- ---------- ------- ---------- --------- --------
(Euro) (Euro) (Euro) (Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31,
1999
Acquisition cost at
January 1.............. 994.3 101.0 2,174.9 2,467.5 11,398.4 609.5
Translation difference.. 7.7 0.9 150.3 85.5 613.6 18.0
Reclassifications....... -- 12.0 (66.9) (6.6) (15.1) 76.6
Additions............... 3.1 11.8 7.1 63.0 640.6 38.5
Disposals............... (18.6) (4.2) (4.3) (40.1) (332.1) (161.3)
Acquisition cost at
December 31............ 986.5 121.5 2,261.1 2,569.3 12,305.3 581.3
----- ----- ------- ------- -------- ------
Accumulated depreciation
and amortization at
January 1.............. 453.8 59.0 -- 820.8 5,205.8 199.1
Accumulated depreciation
and amortization of
companies acquired..... -- 0.3 -- 2.6 3.7 --
Translation difference.. 4.4 0.4 -- 31.3 253.3 2.8
Depreciation and
amortization........... 61.9 12.7 -- 85.4 687.1 18.6
Accumulated depreciation
and amortization of
assets sold............ -- (11.1) -- (38.2) (222.1) (70.5)
Impairment charges...... -- -- -- -- 18.6 1.1
Accumulated depreciation
and amortization at
December 31............ 520.1 61.2 -- 901.9 5,946.4 151.1
----- ----- ------- ------- -------- ------
Net book value at
December 31, 1999...... 466.4 60.3 2,261.1 1,667.4 6,358.9 430.2
Net book value at
December 31, 1998...... 540.5 42.0 2,174.9 1,646.7 6,192.6 410.4
</TABLE>
Intangible assets include unamortized computer software development costs of
(Euro)11.0 million and (Euro)11.4 million at December 31, 1998 and 1999,
respectively. Amortization for the period amounted to (Euro)0.6 million in 1998
and (Euro)0.8 million in 1999.
The Group has capitalized interest on construction of qualifying assets using
interest rates ranging from 6% to 11%. The amount of interest capitalized for
the years ended December 31, 1998 and 1999 totaled (Euro)4.8 million and
(Euro)0.3 million, respectively. Amortization for the period amounted to
(Euro)12.3 million in 1998 and (Euro)11.9 million in 1999.
F-30
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 11--Associated companies
<TABLE>
<CAPTION>
Year ended December
31,
----------------------
1997 1998 1999
------ ------ ------
(Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C>
Historical cost at January 1.......................... 171.5 273.1 289.9
Translation difference................................ 0.1 (14.8) 1.8
Additions............................................. 106.0 42.3 20.2
Disposals............................................. (4.5) (1.2) (36.8)
Transfer to investments in other companies............ -- (9.4) (141.9)
----- ----- ------
Historical cost at December 31........................ 273.1 289.9 133.3
===== ===== ======
Equity adjustment to investments in associated
companies at January 1............................... 40.5 44.8 44.2
Share of results of associated companies before tax... 16.5 9.9 9.7
Translation difference................................ -- (0.1) (27.3)
Dividends received during the year.................... (5.1) (7.2) (3.1)
Income taxes.......................................... (4.6) (2.5) (2.4)
Disposals and other changes........................... (2.5) (0.7) 11.2
Equity adjustment at December 31...................... 44.8 44.2 32.2
----- ----- ------
Carrying value of investments in associated companies
at December 31....................................... 317.9 334.1 165.5
===== ===== ======
</TABLE>
The 1999 transfer from investments in associated companies to investments in
other shares includes (Euro)134.6 million relating to the reduction of
shareholding in Pohjolan Voima Oy to 16.5% at December 31, 1999.
Share in investment in significant associated companies is as follows:
<TABLE>
<CAPTION>
As at December 31,
------------------
% 1998 1999 Domicile
---- ------ ------ --------
(Euro) (Euro)
(in millions)
<S> <C> <C> <C> <C>
Sunila Oy (pulp mill)............................. 50.0 27.2 28.8 Finland
Steveco Oy (stevedoring).......................... 36.7 16.0 14.6 Finland
Veracel (pulp mill project)....................... 50.0 82.8 73.2 Brazil
Mitsubishi HiTec Paper Bielefeld GmbH (technical
office papers)................................... 24.0 18.0 18.1 Germany
Mitsubishi HiTec Paper Flensburg GmbH (technical
office papers)................................... 24.0 5.7 5.9 Germany
</TABLE>
Note 12--Related party transactions
<TABLE>
<CAPTION>
As at
December 31,
-------------
1998 1999
------ ------
(Euro) (Euro)
(in millions)
<S> <C> <C>
Receivables from and payables to associated companies
Long-term loans receivable..................................... 28.1 11.3
Trade receivables.............................................. 54.7 22.1
Short-term investments and receivables......................... 32.9 35.9
Prepaid expenses and accrued income............................ -- 0.1
Other receivables.............................................. 7.2 --
Trade payables................................................. 18.0 11.4
Accrued liabilities and deferred income........................ 7.4 0.2
Other current interest-bearing liabilities..................... 29.9 5.8
</TABLE>
F-31
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Year ended December
31,
----------------------
1997 1998 1999
------ ------ ------
(Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C>
Sales to associated companies........................ 98.2 103.3 122.7
Purchases from associated companies.................. (403.9) (285.1) (150.1)
</TABLE>
Interest income on long-term loan receivables from associated companies
totaled (Euro)1.5 million for the years ended December 31, 1998 and 1999.
The Group occasionally engages in transactions, included sales of wood
material and purchases of energy and pulp products, with associated companies.
Terms of the agreements are in each case negotiated on an arm's length basis
and are conducted upon terms that the Group believes to be customary in the
industry and generally no less favorable than would be available from
unaffiliated third parties.
Stora Enso is entitled to borrow amounts from its Finnish pension funds. At
December 31, 1998 and 1999, the Group's long-term borrowings from its Finnish
pension funds totaled (Euro)246.1 million and (Euro)244.4 million,
respectively. Interest expenses associated with such borrowings amounted to
(Euro)12.4 million and (Euro)11.5 million in 1998 and 1999, respectively.
Note 13--Investments in other companies
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------
1997 1998 1999
------- ------- -------
(Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C>
Acquisition cost at January 1.................. 58.2 57.0 128.8
Translation differences........................ -- (1.1) 0.5
Additions...................................... 10.5 68.8 13.4
Disposals...................................... (11.4) (4.8) (7.1)
Write-downs.................................... (0.2) (0.5) 3.0
Transfer from associated companies............. -- 9.4 141.9
------- ------- -------
Net carrying amount at December 31............. 57.0 128.8 280.4
======= ======= =======
</TABLE>
Investments in other companies include listed investments of (Euro)72.2
million and (Euro)74.8 million in 1998 and 1999, respectively. At the balance
sheet date, the market value of these investments was (Euro)51.9 million and
(Euro)58.5 million in 1998 and 1999, respectively.
F-32
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 14--Investments
<TABLE>
<CAPTION>
As at December 31, 1999
------------------------------
Number Carrying Market
% of shares Value Value
---- --------- -------- ------
(Euro) (Euro)
(in millions)
<S> <C> <C> <C> <C>
Finnlines Oyj, Helsinki......................... 5.5 1,104,670 1.9 33.1
Finnair Oyj, Helsinki........................... 0.0 14,400 0.1 0.1
Helsingin Puhelin Oyj, Helsinki................. 0.0 1,410 0.1 0.1
HPY Holding Oyj, Helsinki....................... 0.0 19,650 0.0 0.7
Kemira Oyj, Helsinki............................ 0.1 160,000 0.9 1.0
Keski-Suomen Puhelin Oyj, Jyvaskyla, A-series... 0.0 286 0.0 0.0
Merita Foresta, Helsinki........................ -- 5,000,000 0.8 1.9
Nordic Baltic Holding AB, Stockholm............. 0.3 3,706,215 8.7 21.6
Neptun Maritime Oyj, Helsinki................... 2.3 1,261,211 2.5 2.7
Outokumpu Oyj, Espoo............................ 0.0 47 0.0 0.0
Raisio Yhtyma Oyj, Raisio, V-series............. 0.1 120,000 0.8 0.5
Raisio Yhtyma Oyj, Raisio, K-series............. 0.0 5,100 0.0 0.0
Rautaruukki Oyj, Helsinki....................... 0.1 130,000 0.8 0.9
Sampo Insurance Company, Turku, A-series........ 2.8 1,722,228 20.5 59.8
Sonera Oyj, Helsinki............................ 0.0 30,000 0.2 2.0
Merita Pro Obligaatio........................... -- 59,559 0.5 0.6
Mega Carrier KB................................. 33.0 -- 6.2 6.2
KB Metro Flyg................................... 33.0 -- 5.2 5.2
---- -----
Total......................................... 49.3 136.4
==== =====
</TABLE>
Proceeds from disposals of investments were as follows:
<TABLE>
<CAPTION>
Year ended
December 31,
---------------
1998 1999
------- -------
(Euro) (Euro)
(in millions)
<S> <C> <C>
Net book amount................................................. 4.0 4.4
Gain on sale.................................................... 9.2 3.1
------- -------
Total......................................................... 13.2 7.5
======= =======
Note 15--Inventories
<CAPTION>
As at December
31,
---------------
1998 1999
------- -------
(Euro) (Euro)
(in millions)
<S> <C> <C>
Materials and supplies.......................................... 518.1 550.2
Work in progress................................................ 72.1 65.4
Finished goods.................................................. 695.8 590.5
Other inventories............................................... 46.2 59.5
------- -------
Total......................................................... 1,332.3 1,265.6
======= =======
</TABLE>
F-33
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 16--Short-term receivables
<TABLE>
<CAPTION>
As at December
31,
---------------
1998 1999
------- -------
(Euro) (Euro)
(in millions)
<S> <C> <C>
Trade receivables............................................... 1,421.6 1,732.7
Prepaid expenses and accrued income............................. 149.5 154.5
Other receivables............................................... 212.3 203.2
------- -------
Total......................................................... 1,783.4 2,090.5
======= =======
</TABLE>
Receivables falling due after one year are included in non-current
receivables.
Note 17--Other financial assets
<TABLE>
<CAPTION>
As at December 31,
--------------------
1998 1999
--------- ---------
(Euro) (Euro)
(in millions)
<S> <C> <C>
Non-current loan receivables.............................. 90.1 66.8
Short-term receivables:
Current portion of loan receivables..................... 3.9 63.0
Cash and cash equivalents............................... 595.0 642.3
--------- ---------
Total other financial assets.......................... 689.0 772.1
========= =========
</TABLE>
Non-current loan receivables include (Euro)49.3 million of receivables that
relate to discontinued operations at December 31, 1999. Interest rates on the
receivables range from 4.8% to 6.8% per annum.
The current portion of loan receivables include a (Euro)35.0 million loan
granted to an associated company (interest rate of 3.5%, maturity of 3 months)
at December 31, 1999.
F-34
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 18--Shareholders' equity
Under the Articles of Association, the Company's issued share capital may not
be less than (Euro)850 million or more than (Euro)3,400 million. The issued
share capital may be increased or reduced between these limits without
amendment to the Articles of Association. The minimum number of shares that can
be issued is 500,000,000 and the maximum number is 2,000,000,000. Series A
shares entitle the holder to one vote per share. Series R shares entitle the
holder to one vote per ten shares with the minimum of one vote. The maximum
number of Series A shares is 500,000,000 and Series R shares is 1,600,000,000.
The combined total number of Series A and R shares cannot exceed 2,000,000,000.
Under the Articles of Association, the Company's Series A shares may be
converted into Series R shares at the request of a shareholder on dates that
are decided annually by the Board of Directors.
Changes in number of shares
<TABLE>
<CAPTION>
Series A Series R Total
----------- ----------- -----------
<S> <C> <C> <C>
At December 31, 1997..................... 116,729,125 194,361,705 311,090,830
Change from Series A shares to Series R
shares.................................. (1,357,954) 1,357,954 --
Conversion from Series A and B STORA
shares.................................. 128,023,484 320,465,375 448,488,859
At December 31, 1998..................... 243,394,655 516,185,034 759,579,689
Change from Series A shares to Series R
shares.................................. (34,443,467) 34,443,467 --
Warrants exercised and registered........ -- 30,000 30,000
At December 31, 1999..................... 208,951,188 550,658,501 759,609,689
Number of votes.......................... 208,951,188 55,065,850 264,017,038
Share capital at December 31, 1999,
(Euro) in millions...................... 351.4 926.2 1,277.6
</TABLE>
The par value for each Series A and R shares is FIM 10 ((Euro)1.68).
On December 31, 1999, 246,000 warrants were exercised that were not
registered in the Finnish Trade Register until January 26, 2000. As a result,
the number of Series R shares increased to 550,904,501 and the total number of
shares to 755,855,689.
Group companies held 5,601 Series R treasury shares with a total nominal
value of (Euro)8,478 at December 31, 1999. The Board of Directors, the chief
executive officer and the deputy chief executive officer owned 19,275 Series A
shares and 35,409 Series R shares at December 31, 1999 representing less than
0.1% of the total voting rights of the Company as follows:
<TABLE>
<CAPTION>
As at December 31, 1999
--------------------------
Series A Series R Warrants
-------- -------- --------
<S> <C> <C> <C>
Claes Dahlback....................................... 2,541 9,529 --
Jukka Harmala........................................ -- 3,000 399,000
Bjorn Hagglund....................................... 7,877 14,618 --
Josef Ackermann...................................... -- 1,300 --
Paavo Pitkanen....................................... 3,800 -- --
Jan Sjoqvist......................................... 508 943 --
Krister Ahlstrom..................................... 1,500 -- --
Marcus Wallenberg.................................... 3,049 6,019 --
------ ------ -------
19,275 35,409 399,000
====== ====== =======
</TABLE>
In 1997, the shareholders approved the plan to offer to 15 members of the
senior management bonds with warrants for a maximum amount of FIM 1,000,000
((Euro)168,187). Each FIM 1,000 ((Euro)168.19) bond carries one warrant
entitling the holder to subscribe to 3,000 Series R shares at a subscription
price per share of FIM 45.57 ((Euro)7.66). The bonds accrue interest at 4.0%
and mature in five years.
F-35
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 18--Shareholders' equity--(continued)
The components of restricted equity include the following:
<TABLE>
<CAPTION>
As at
December 31,
-------------
<S> <C> <C>
1998 1999
------ ------
(Euro) (Euro)
(in millions)
Share premium account............................................. -- 1.9
Translation adjustment............................................ 327.0 318.7
Legal reserves.................................................... 377.6 377.6
------ ------
Restricted equity total......................................... 704.6 698.2
====== ======
</TABLE>
Note 19--Borrowings
Repayment schedule of long-term interest-bearing liabilities including
current portion at December 31, 1999 is as follows:
<TABLE>
<CAPTION>
As at December 31,
-----------------------------------------------------
2000 2001 2002 2003 2004 after 2004 Total
------ ------ ------ ------ ------ ---------- -------
(Euro) (Euro) (Euro) (Euro) (Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Bonds with warrants..... -- -- 0.2 -- -- -- 0.2
Bond loans.............. 205.3 160.7 52.6 163.0 345.5 671.7 1,598.7
Loans from credit
institutions........... 152.0 139.5 136.0 76.1 314.2 889.5 1,707.3
Pension loans........... 33.0 32.9 32.8 27.0 81.8 275.2 482.5
Leasing liabilities..... 30.9 34.5 17.0 9.7 18.6 192.9 303.5
Other long-term
liabilities............ 25.6 4.0 3.2 30.1 1.6 136.1 200.7
----- ----- ----- ----- ----- ------- -------
Total................. 446.7 371.6 241.7 305.9 761.7 2,165.3 4,292.9
===== ===== ===== ===== ===== ======= =======
</TABLE>
At December 31, 1999, the Group's unused credit facilities totaled
(Euro)3,416.9 million.
F-36
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Bond loans included in long-term debt consist of the following as at December
31, 1998 and 1999:
<TABLE>
<CAPTION>
As at As at
Original December 31, December 31,
Interest rate Currency amount 1998 1999
Fixed Rate -------------- -------- -------- ------------ ------------
(Euro) in millions)
<S> <C> <C> <C> <C> <C>
1989-1999........... 8.00 DEM 200.0 102.3 0.0
1991-2000........... 8.22 USD 35.0 29.9 34.8
1991-2000........... 9.68 USD 43.0 36.8 42.8
1991-2006........... 9.99 USD 50.4 43.2 50.2
1993-2001........... 6.74 USD 45.0 38.6 44.8
1993-2003........... 9.50 SEK 150.0 16.1 17.5
1993-2003........... 9.50 SEK 25.0 2.7 2.9
1993-2003........... 8.96 SEK 350.0 36.8 40.9
1993-2003........... 9.50 SEK 255.0 26.7 29.8
1993-2003........... 8.64 USD 65.0 55.7 64.7
1993-2004........... 7.11 USD 7.0 6.0 7.0
1993-2019........... 8.60 USD 50.0 42.9 49.8
1994-2004........... 8.00 SEK 500.0 52.5 58.4
1995-2001........... 7.75 USD 50.0 42.9 49.8
1996-2006........... 8.75 SEK 250.0 26.4 29.2
1996-2006........... 7.90 SEK 470.0 49.6 54.9
1997-2000........... 1.26 JPY 3,000.0 22.5 29.2
1997-2004........... 6.00 FIM 1,484.0 249.6 249.6
1997-2007........... 7.25 SEK 500.0 52.8 58.4
1997-2017........... 4.11 JPY 10,000.0 75.3 97.3
1998-2000........... 4.97 FIM 100.0 16.8 16.8
1998-2002........... 5.50 SEK 200.0 21.0 23.4
1998-2002........... 5.50 SEK 50.0 5.2 5.8
1998-2002........... 5.50 SEK 50.0 5.2 5.8
1998-2004........... 5.35 SEK 200.0 21.0 23.4
1998-2005........... 5.20 SEK 200.0 21.0 23.4
1998-2005........... 6.00 SEK 200.0 21.0 23.4
1998-2008........... 4.00 SEK 264.4 27.8 30.9
1999-2005........... 4.75 SEK 135.0 0.0 15.8
1999-2005........... 4.75 SEK 165.0 0.0 19.3
1999-2006........... 5.90 SEK 500.0 0.0 58.4
Floating Rate
1994-1999........... -- FIM 250.0 42.0 0.0
1994-1999........... -- FIM 425.0 71.5 0.0
1994-1999........... -- USD 100.0 85.8 0.0
1994-1999........... -- USD 50.0 42.9 0.0
1994-1999........... -- USD 50.0 42.9 0.0
1995-2000........... LIBOR + 0.325 USD 75.0 64.2 74.7
1995-2000........... LIBOR + 0.35 USD 50.0 42.9 49.8
1997-2007........... LIBOR + 0.35 FIM 110.0 18.5 18.5
1998-2001........... STIBOR + 0.25 SEK 200.0 21.0 23.4
1998-2002........... STIBOR + 0.25 SEK 100.0 10.6 11.7
1998-2005........... STIBOR + 0.27 SEK 80.0 8.4 9.3
1998-2005........... STIBOR + 0.34 SEK 200.0 21.0 23.4
1998-2008........... LIBOR + 0.35 USD 30.0 25.7 29.9
1998-2008........... LIBOR + 0.33 USD 40.0 0.0 39.9
1999-2005........... STIBOR + 0.318 SEK 300.0 0.0 35.0
1999-2005........... STIBOR + 0.45 SEK 110.0 0.0 12.8
1999-2008........... STIBOR + 0.75 SEK 105.3 0.0 12.3
------- -------
Total............. 1,646.0 1,598.7
======= =======
</TABLE>
F-37
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Loans from credit institutions consist of international credit institution
borrowings with varying maturities and either fixed or floating interest rates.
The majority of the Group's loans from credit institutions are denominated in
euro currencies. Other credit institution loans are denominated mainly in
Swedish kronor and U.S. dollars. The interest rates of the loans range from
3.261% percent to 6.27% at December 31, 1999 and the loans mature between 2000
and 2008.
As permitted in Finland, a portion of annual pension payments have been
borrowed from pension insurance companies at specified interest rates.
Principal payments are due annually based on 7.0% of the outstanding balance on
the anniversary date of the loan. The Group may elect to borrow up to 55.0% of
the pension contribution of the year. The interest rate on such pension loans,
which is regulated by the Finnish government, was 5.25% at December 31, 1999.
Breakdown of operating capital / net interest-bearing liabilities by
currencies is as follows as at December 31, 1998 and 1999:
<TABLE>
<CAPTION>
As at December 31,
----------------------------------
1998 1999 1998 1999
-------- -------- ------- -------
Net interest-
bearing
Operating Capital liabilities
----------------- ----------------
(Euro) (Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C> <C>
EUR.......................................... 7,387.2 7,327.6 2,794.6 1,896.5
SEK.......................................... 4,259.6 4,877.4 2,358.6 2,660.7
USD/CAD...................................... 545.0 689.6 687.6 810.2
CNY.......................................... 159.7 205.3 -- --
GBP.......................................... 119.5 98.4 (42.0) 14.1
Other........................................ 395.4 155.2 21.2 142.1
-------- -------- ------- -------
Total...................................... 12,866.4 13,353.5 5,820.0 5,523.6
======== ======== ======= =======
</TABLE>
Finance lease liabilities
<TABLE>
<CAPTION>
As at December 31,
1999
--------------------
Discontinued
Total operations
------ ------------
(Euro) (Euro)
(in millions)
<S> <C> <C>
Minimum lease payments
Less than 1 year........................................... 63.3 14.9
Between 1 year and 5 years................................. 253.4 59.8
More than 5 years.......................................... 224.0 116.3
------ -----
540.6 191.1
====== =====
Future finance charges on finance leases................... (237.1) (78.0)
Repayment schedule for finance lease liabilities
Present value of finance lease liabilities................. 303.5 113.1
Less than 1 year........................................... 58.9 7.7
Between 1 year and 5 years................................. 169.7 30.9
More than 5 years.......................................... 74.8 74.5
------ -----
303.5 113.1
====== =====
</TABLE>
F-38
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Short-term borrowings
<TABLE>
<CAPTION>
As at December
31,
--------------
1998 1999
------ -------
(Euro) (Euro)
(in millions)
<S> <C> <C>
Short-term loans................................................. 475.4 1,476.6
</TABLE>
The Group's short-term loans are mostly denominated in Swedish kronor (58%)
and in euros (35%).
The maturities of short-term loans are between 2 weeks and 9 months (SEK) and
between 2 weeks and 4 months (EUR). Short-term loans consisted mainly of
commercial paper and the weighted average interest rate applicable to short-
term borrowings was 4.13% (SEK) and 3.29% (EUR) and 3.80% (SEK) and 3.44% (EUR)
at December 31, 1998 and 1999, respectively.
Note 20--Other current liabilities and other provisions
Other current liabilities
<TABLE>
<CAPTION>
As at December
31,
---------------
1998 1999
------- -------
(Euro) (Euro)
(in millions)
<S> <C> <C>
Advances received............................................... 3.0 17.4
Trade payables.................................................. 643.0 748.4
Other current liabilities....................................... 285.0 305.6
Accrued liabilities and deferred income......................... 520.7 436.4
------- -------
Total......................................................... 1,451.7 1,507.8
======= =======
</TABLE>
Accrued liabilities and deferred income mainly consist of personnel expenses,
VAT liability, discounts and other accruals.
Other provisions
<TABLE>
<CAPTION>
Environmental Pension Other
------------- ------- ------
(Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C>
Carrying value at December 31, 1998................ 56 532 200
Translation difference............................. 2 26 9
Increase........................................... 5 38 10
Decrease........................................... (1) (20) (94)
--- --- ---
Carrying value at December 31, 1999.............. 62 576 125
=== === ===
</TABLE>
F-39
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 21--Fair value of financial instruments
The following table presents the carrying amounts and fair values of the
Group's financial instruments outstanding at December 31, 1998 and 1999. The
fair values of financial instruments are defined as the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced liquidation or sale.
<TABLE>
<CAPTION>
As at December 31,
----------------------------------------
1998 1999
-------------------- -------------------
Carrying Carrying
amount Fair value amount Fair value
-------- ---------- -------- ----------
(Euro) (Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C> <C>
Financial assets
Non-current loan receivables.......... 90.1 90.1 66.8 66.8
Current portion of loan receivables... 3.9 3.9 63.0 63.0
Short-term money market instruments... 246.5 246.5 202.9 202.9
Financial liabilities
Short term borrowings................. 475.4 475.4 1,476.6 1,476.6
Long-term debt........................ 4,294.1 4,437.0 3,846.2 3,947.0
Current portion of long-term debt..... 1,218.4 1,218.4 446.7 446.7
Off-balance sheet instruments
Currency options purchased............ 0.7 0.7 -- --
Currency options written.............. (0.4) (0.4) -- --
Forward foreign exchange contracts.... 24.6 24.6 12.0 12.0
Interest rate swaps................... (3.3) 23.9 4.3 3.3
Interest rate futures................. 3.3 3.3 -- --
Cross currency swaps.................. 21.4 54.5 29.7 20.7
Interest rate options................. 0.3 0.3 -- --
</TABLE>
Fair values of financial instruments have been estimated as follows.
Financial assets
The carrying amounts are a reasonable estimate of the fair values of
financial assets because of the short term maturity of such instruments. Bank
account balances are not included in the amounts.
Short-term borrowings and current portion of long-term debt
The carrying amounts are a reasonable estimate of the fair values because of
the short maturity of such instruments.
Long-term debt
The carrying amounts of floating rate long-term debt approximate fair values.
Carrying amounts of pension loans approximate fair values. The fair values of
fixed rate long-term debts are estimated using a discounted cash flow analysis.
Currency options
The carrying amounts of currency option contracts are calculated using year-
end market rates and generally used option pricing models and thus the carrying
amounts approximate fair values.
F-40
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Foreign exchange forward contracts
The carrying amounts of forward contracts are calculated using year-end
market rates and thus the carrying amounts approximate fair values.
Interest rate swaps
The fair values of interest rate swaps have been calculated using a
discounted cash flow analysis. The carrying amount of interest rate swaps is
the amount of net accrued interest.
Cross currency swaps
The fair values of cross currency swaps have been calculated using a
discounted cash flow analysis and year-end foreign exchange rates. The carrying
amount of cross currency swap is the foreign exchange differential between
contract rate and year-end market rate and the amount of net accrued interest.
Interest rate futures
The fair values of interest rate futures have been calculated either by using
a discounted cash flow analysis or using quoted market prices on future
exchanges thus the carrying amounts approximate fair values.
Note 22--Risk management contracts
The nominal values of outstanding risk management contracts are as follows:
<TABLE>
<S> <C> <C>
As at December 31,
<CAPTION>
1998 1999
--------- ---------
(Euro) (Euro)
(in millions)
<S> <C> <C>
Interest rate derivatives
Forward agreements........................................... 4,895.6 1,694.4
Interest rate swap agreements................................ 792.3 799.2
Interest rate options........................................ 2,864.0 --
--------- --------
Interest rate derivatives, total............................. 8,551.9 2,493.6
========= ========
Foreign exchange derivatives
Forward agreements........................................... 15,920.6 2,940.6
Options
Purchased.................................................. 659.0 --
Written.................................................... 248.4 --
Cross currency swap agreements............................... 749.5 425.1
--------- --------
Foreign exchange derivatives, total.......................... 17,577.5 3,365.7
========= ========
Maturity of interest rate swap contracts
Under 1 year................................................. 96.0 87.0
1-5 years.................................................... 434.3 350.1
5-10 years................................................... 220.0 362.1
Over 10 years................................................ 42.0 --
--------- --------
Total.................................................... 792.3 799.2
========= ========
</TABLE>
F-41
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Financial risk management
Conducting the Group's international industrial operations presents a number
of market risks. The financial risks of the Group were managed by different
financial centers during 1999 and to some extent by the subsidiaries. The
responsibility for managing financial risk was transferred to the Group
treasury, Stora Enso Financial Services, S.A. by the end of 1999. At the same
time the proprietary trading operations were discontinued.
The overall objective of the Group treasury is to provide cost-effective
funding to the subsidiaries as well as to manage financial risks in order to
minimize the negative effects of market fluctuations on the Group's net income.
The main exposures for the Group are funding risk, interest rate risk, currency
risk and commodity risk.
Funding risk
Funding risk arises from the difficulty of obtaining financing for operations
at a given point in time. Funding risk is the ratio of long-term financing
divided by capital employed, which should not be less than one.
In order to minimize the cost of refinancing Stora Enso's loan portfolio and
to ensure that funding can be obtained, the Group treasury must have committed
credit facilities to cover the Group's general corporate funding needs and all
of its commercial paper borrowings. The average maturity of the outstanding
loans and committed credit facilities should be at least four years in length.
Interest rate risk
The Group is exposed to changes in interest rates. Due to the cyclical nature
of the industry, the Group's interest rate risk management policy is to
synchronize the cost of capital with the return on capital employed. This is
achieved by swapping the long-term fixed interest rates to short-term floating
interest rates.
Foreign exchange risk
The Group operates internationally and is thus exposed to currency exchange
risk arising from fluctuations in foreign exchange rates. Foreign currency
denominated sales and purchases and foreign currency denominated balance sheet
items (i.e., transaction risk) as well as net investments in foreign
subsidiaries (i.e., translation risk) give rise to foreign currency exchange
risk.
The benchmark for hedging transaction risk is to hedge 50% of the upcoming 12
months net exposure in a specific currency. The Group's policy is to hedge at a
minimum 25% and at a maximum 75% of the net exposure in that currency.
The policy of the Group is to minimize translation risk exposure by funding
the assets, whenever economically possible, in the same currency. If matching
of the assets and liabilities in the same currency is not possible, hedging of
the remaining translation risk may take place. The Group does not hedge
translation risk of currencies that it believes will in the future join the
European economic and monetary union.
Commodity risk
Prices for the Group's main products have been cyclical in nature and
therefore the Group's earnings are highly exposed to commodity price
volatility. The Group has begun the process of implementing a commodity risk
management framework in the areas of fibers and energy. The subsidiaries have
the responsibility of measuring and hedging their commodity risks and can enter
into hedging instruments through the Group treasury.
F-42
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Proprietary operations
The proprietary operations of Stora Enso were discontinued at the end of
1999. These operations took market risk positions, employing directional and
relative value risk-taking strategies, diversified across markets and
instruments. Directional strategies anticipated changes in absolute rate and
price levels; relative value strategies anticipated changes in relationship
between markets and classes of instruments. The proprietary operations were
active in the following areas: fixed income, foreign exchange and equity
markets.
Credit risk
Credit insurance has been obtained for customers in the main market areas in
Western Europe, the United States and Canada. In other market areas of the
world, measures to reduce credit risks include letters of credit, prepayments
and bank guarantees. The Group has also obtained export guarantees covering
both political and commercial risks from Finnvera. These export guarantees are
used in connection with individual customers outside the Organization for
Economic Co-operation and Development area.
Management believes that no significant concentration of credit risk with any
individual customer, counterparty or geographical region exists for Stora Enso.
Supply risk
The Group's manufacturing operations depend upon obtaining adequate supplies
of raw materials on a timely basis. Stora Enso's principal raw materials are
wood, energy and chemicals. Group companies may at times be substantially
dependent on a limited number of suppliers of key resources due to
availability, locale, price, quality and other considerations. Also, from time
to time suppliers may extend lead times, limit supplies or increase prices due
to capacity constraints or other factors. The Group works closely with its key
suppliers around the world in an attempt to mitigate supplier risk. In
addition, the Group produces some of its key resources in house.
The Group's results of operations could be adversely affected if the Group
were unable to obtain adequate supplies of raw materials in a timely manner or
if there were significant increases in the costs of raw materials.
Note 23--Commitments and contingencies
<TABLE>
<CAPTION>
As at December 31,
--------------------
1998 1999
--------- ---------
(Euro) (Euro)
(in millions)
<S> <C> <C>
On own behalf
Pledges given (1)........................................ 86.7 64.6
Mortgages................................................ 764.9 649.0
On behalf of associated companies
Mortgages................................................ 1.0 1.0
Guarantees............................................... 112.9 11.6
On behalf of others
Pledges given............................................ -- 2.5
Guarantees............................................... 108.3 198.9
Other commitments, own
Leasing commitments, in 2000............................. 23.0 24.2
Leasing commitments, after 2000.......................... 100.5 92.6
Pension liabilities...................................... 2.5 3.4
Other commitments........................................ 17.8 45.5
</TABLE>
F-43
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
As at December
31,
---------------
1998 1999
------- -------
(Euro) (Euro)
(in millions)
<S> <C> <C>
Total
Pledges given.................................................. 86.7 67.1
Mortgages...................................................... 766.0 650.0
Guarantees..................................................... 221.2 210.5
Leasing commitments............................................ 123.5 116.8
Pension liabilities............................................ 2.5 3.4
Other commitments.............................................. 17.8 45.5
------- -------
Total........................................................... 1,217.6 1,093.3
======= =======
</TABLE>
--------
(1) Assets pledged consist of marketable securities as at December 31, 1998 and
1999.
Stora Enso has guaranteed leasing agreements relating to Stora Enso Barcelona
SA to a maximum of (Euro)38.1 million. The commitment extends until December
23, 2003.
Guarantees are made in the ordinary course of business on behalf of
associated companies and others in limited circumstances. The guarantees are
entered into with financial institutions and other credit guarantors and
generally obligate the Group to make payment in the event of default by the
borrower.
The guarantees have off-balance sheet credit risk which represents the
accounting loss that would be recognized at the reporting date if
counterparties failed to perform completely as contracted. The credit risk
amounts are equal to the contractual amounts, assuming that the amounts are
fully advanced and that no amounts could be recovered from other parties.
Contingent assets of (Euro)28.0 million at December 31, 1999 consisted of a
surplus in the Swedish pension system.
The Group leases offices and warehouse space under various non-cancelable
operating leases. Some contracts contain renewal options. The future cost for
contracts exceeding one year and for non-cancelable operating leasing contracts
are as follows:
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 after 2004 Total
---- ------ ------ ------ ------ ---------- ------
(Euro) (Euro) (Euro) (Euro) (Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
24.2 19.7 16.4 14.4 6.8 35.3 116.8
</TABLE>
Schweighofer Privatstiftung holds 26.5% of Stora Enso Timber Oy shares.
Schweighofer Privatstiftung has a put option allowing them to sell their shares
to Stora Enso Oyj at a predetermined price. The put option may be exercised
between January 1, 2002 and June 30, 2006.
Contingent liabilities
The Group is a party to legal proceedings that arise in the ordinary course
of business. These lawsuits primarily involve claims arising out of commercial
law issues. Stora Enso is also involved in administrative proceedings relating
primarily to competition law. Management does not believe that liabilities
related to such proceedings in the aggregate, before insurance recoveries, if
any, are likely to be material to the Group's financial condition or result of
operations.
F-44
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In March 1999, Stora Enso received a statement of objection from the European
Commission relating to producers of newsprint which the Commission's
investigation indicated were part of a suspected price cartel from 1989 to
1995. Stora Enso has given its reply within the stipulated time schedule
denying all allegations. Should the Group be found to have participated in a
prohibited pricing behavior, it would be subjected to a substantial fine.
Management is currently not in a position to assess the final outcome of the
investigation. The European Commission has not specified any amount of fines or
other relief, if any, sought against the alleged participants. No provision has
been made in relation to the matter.
In June 1999, the Finnish Competition Authority issued a statement of
objections regarding alleged cooperation in raw wood procurement to specified
Finnish forest companies, including Stora Enso. According to the statement of
objections, the largest forest companies in Finland and the associations for
forest owners have exchanged company-specific information about their raw wood
procurement, including information about pricing. The Finnish Competition
Authority found that the forest companies may have agreed upon the price levels
for raw wood and divided sources of supply. Stora Enso's response is due in
September 2000. Management is unable to predict at this time the final outcome
of statement of objections or whether the resolution of the matter could
materially affect the Group's results of operations, cash flows or financial
position. No provision has been made for any potential liability.
Stora Timber Finance B.V. has been found responsible for pollution of soil in
part of the harbor of Amsterdam. Stora Timber Finance B.V. has appealed the
decision to the Court of Appeal of Amsterdam. Management estimates that, in the
event of an adverse decision by the appeals court, the clean-up costs could
range from approximately (Euro)2.5 million to approximately (Euro)6.0 million.
(Euro)2.5 million was recorded at December 31, 1999.
F-45
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 24--Principal Stora Enso Subsidiaries at December 31, 1999
<TABLE>
<CAPTION>
The
nominal
% of shares currency Net profit
and voting value of Book value for the
rights held shares in in (Euro), period in (Euro),
Country by the Group Currency thousands thousands thousands
---------- ------------ -------- --------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Stora Kopparbergs
Bergslags AB........... Stora Enso 98.7 SEK 1,676,156 4,738,102 217,279
Newsprint & Magazine
Paper
Stora Enso Publication
Papers Oy Ltd.......... FI 100.0 EUR 135,391 186,689 (2,396)
Kymenso Oy.............. FI 100.0 EUR 2,523 6,728 (1,134)
Varenso Oy.............. FI 100.0 EUR 1,682 5,046 (4)
Stora Enso Sachsen
GmbH................... DE 100.0 EUR 51,129 55,194 5,788
Stora Enso Maxau GmbH &
Co KG.................. DE 100.0 EUR 38,347 544,625 736
Stora Enso Langerbrugge
NV..................... BE 100.0 EUR 23,550 15,850 23,008
Stora Enso Corbehem SA.. FR 100.0 EUR 97,028 308,344 26,714
Stora Enso Kabel GmbH... DE 100.0 EUR 17,384 52,663 (3,714)
Stora Enso Reisholz
GmbH................... DE 100.0 EUR 4,602 13,549 (1,593)
Stora Enso Hylte AB..... SE 100.0 SEK 200,000 334,609 4,413
Stora Enso Kvarnsveden
AB..................... SE 100.0 SEK 150,000 239,070 (4,125)
Stora Enso Port
Hawkesbury Ltd......... CA 100.0 CAD 852,550 538,260 (7,071)
Fine Paper
Stora Enso Fine Papers
Oy..................... FI 100.0 EUR 84,094 162,857 33,419
Berghuizer Papierfabriek
NV..................... NL 100.0 EUR 8,743 47,845 6,302
Stora Enso Fine Paper
AB..................... SE 100.0 SEK 487,585 330,131 (11,652)
Stora Enso Nymolla AB... SE 100.0 SEK 142,727 153,820 6,383
Stora Enso Grycksbo AB.. SE 100.0 SEK 125,000 17,496 4,607
Stora Enso Molndal AB... SE 100.0 SEK 75,000 0 13,316
Stora Enso Uetersen
GmbH................... DE 100.0 EUR 9715 28,632 (316)
Stora Enso Suzhou Paper
Co Ltd................. CN 60.7 USD 75,000 36,428 (16,528)
Packaging Boards
Corenso United Oy Ltd... FI 71.0 EUR 18,628 26,019 2,157
Stora Enso Ingerois Oy.. FI 100.0 EUR 33,638 79,048 7,600
Stora Enso Pankakoski Oy
Ltd.................... FI 100.0 EUR 5,046 11,773 2,090
Laminating Papers Oy.... FI 100.0 EUR 10,091 20,183 (4,075)
Stora Enso Barcelona
S.A.................... ES 100.0 EUR 41,332 39,332 5,190
Stora Enso Packaging
Oy..................... FI 100.0 EUR 18,501 19,441 23,398
ZAO Pakenso............. RU 100.0 RUR 137,865 13,363 (3,371)
Stora Enso Packaging
AB..................... SE 100.0 SEK 30,000 23,265 3,831
Pakenso Baltica SIA..... LV 100.0 LVL 570 833 (814)
Stora Enso Paperboard
AB..................... SE 100.0 SEK 350,000 496,078 45,431
Stora Enso Fors AB...... SE 100.0 SEK 180,000 113,921 3,964
Stora Enso Newton Kyme
Ltd.................... GB 100.0 GBP 1,500 0 (3,454)
Timber Operations
Stora Enso Timber Oy
Ltd.................... FI 73.5 EUR 39,098 148,506 12,247
Holzindustrie
Schweighofer AG........ AU 100.0 EUR 436 120,078 8,368
Puumerkki Oy............ FI 100.0 EUR 8,241 21,042 137
Stora Enso Timber AB.... SE 100.0 SEK 100,000 46,715 (23,663)
Market Pulp
Kemijarven Sellu Oy..... FI 100.0 EUR 8,409 28,592 6,130
Enocell Oy.............. FI 98.4 EUR 42,383 201,153 (11,243)
Stora Enso Pulp AB...... SE 100.0 SEK 25,000 109,200 22,185
Celulose Beira
Industrial SA.......... PT 100.0 EUR 772,802 76,089 25,074
Paper Merchants
Papyrus Merchants AB.... SE 100.0 SEK 1,000 99,201 0
Papyrus AB.............. SE 100.0 SEK 21,000 90,511 849
Energy
Pamilo Oy............... FI 2.0 EUR 182 1,883 81
Stora Enso Energy AB.... SE 100.0 SEK 100,000 114,040 (15,010)
Kopparkraft AB.......... SE 49.0 SEK 685,967 408,132 644
Forest Operations
AS Stora Enso Mets...... EE 100.0 EEK 2,126 1,584 174
Stora Enso Skog AB...... SE 100.0 SEK 25,000 196,328 17,271
</TABLE>
F-46
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 25--Employee benefits
Short-term employee benefits and equity compensation benefits
Most of the employees directly involved in production belong to labor unions.
Collective bargaining agreements are customarily negotiated between respective
unions and the forest industry. Salaries for senior management are negotiated
individually.
Stora Enso has the following incentive systems:
In 1999, the Group implemented a bonus plan based on synthetic options for
120 management employees. The amount of the bonus was based on Stora Enso's
weighted average price for the Series R shares traded on the Helsinki Stock
Exchange during the period from October 1, 1999 to December 31, 1999. If the
weighted average share price was between FIM 45 and FIM 70 per share
((Euro)7.57 to 11.77 per share) bonuses would be earned to a maximum of FIM
75,000 ((Euro)12,614) or FIM 150,000 ((Euro)25,228) depending on the grant. The
bonuses were paid in January, 2000.
In 1999, a profit-sharing plan was made available to substantially all
permanent employees of the former STORA Group. Of the amount of Group profit
exceeding the equivalent amount of 12.0% return on capital employed, 10.0% was
accrued for the employees, up to a maximum of one sixth of the dividend paid to
Stora Enso shareholders.
Stora Enso has an incentive plan that takes into account the performance,
development and results of the business units, as well as individual employee
performance. Stora Enso's performance based bonus system is based on company
profits and on the achievement of key business targets.
Management of divisions and business units have an annual bonus plan based on
the result of the respective division or business unit and the achievement of
personal key targets in separately defined areas. The maximum bonus is two
months salary. Employees participate in another bonus plan in which the bonus
is calculated as a percentage of each employee's annual salary, the maximum
being 7%. All bonuses are discretionary and are not partially triggered if the
results of the Group do not exceed a predetermined minimum level.
Bonus plan from year 2000 onwards
The Group has decided to continue the performance-based bonus plans from year
2000 onwards. Initially the system will cover Finland, Sweden and a few other
countries and will later be implemented expanded depending on local practice
and legislation.
Management
For middle and top management a bonus plan exists of up to 20-40% of salary
depending on the person's position in the company. The bonus is linked to the
corporate return on capital employed target of 13% and individual business
targets.
Option plan for key personnel (1999)
In August 1999, the Group announced an annual share option plan for
approximately 200 key personnel. The plan is an integrated part of the top
management compensation structure. Participation and terms of future plans will
be decided each year. The 1999 plan comprises synthetic options. The seven-year
options may be exercised between July 15, 2002 and July 15, 2005 entitling the
participant to cash compensation in the form of
F-47
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the difference between the strike price and the prevailing share price. The
strike price is (Euro)11.75 based on the average Series R share price from May
through July plus a premium of 10%. In an attempt to minimize the cost of the
option plan, Stora Enso has entered into a financial derivative agreement.
Because these options are synthetic, there is no dilution on outstanding
shares. The options are not transferable and expire if the employee leaves the
Group.
Post employment benefits
Pension plans
The Group has established a number of pension plans for its operations
throughout the world. In Finland pension cover is arranged through Stora Enso's
own pension funds and partly through Finnish insurance companies. In Sweden
pension cover is arranged through book reserves in accordance with the Swedish
"PRI/FPG System" which covers the vast majority of large Swedish corporations.
Pension arrangements for companies outside Finland and Sweden are made in
accordance with the regulations and practice of each country in question. Most
of these programs are defined benefit pension plans with retirement,
disability, death and termination income benefits. The retirement benefits are
generally a function of years of employment and final salary and coordinated
with local national pensions.
The Group's policy for funding its defined benefit plans is to satisfy local
statutory funding requirements for tax deductible contributions. The discount
rate used in actuarial calculations of liability in book reserves have been
adjusted to market rate. The Group has also some fully insured plans and
defined contribution plans. The retirement age of the management of Group
companies has been agreed at between 60-65 years. For members of the Executive
Management Group the retirement age has been agreed at 60 years.
Defined benefit pension plans
The amounts recognized in balance sheet are as follows:
<TABLE>
<CAPTION>
As at December 31,
--------------------
1998 1999
--------- ---------
(Euro) (Euro)
(in millions)
<S> <C> <C>
Present value of funded obligations....................... 295.8 334.2
Fair value of plan assets................................. (281.5) (302.3)
Present value of unfunded obligations..................... 523.2 548.9
Unrecognized actuarial gains and losses................... 2.1 3.5
Unrecognized prior service cost........................... (7.9) (8.9)
--------- ---------
Net liability in the balance sheet........................ 531.7 575.5
========= =========
</TABLE>
The amounts recognized in the income statement are as follows:
<TABLE>
<CAPTION>
Year ended
December 31,
1999
------------
(Euro)
(in
millions)
<S> <C>
Current service cost............................................... 18.4
Interest cost...................................................... 37.1
Expected return on plan assets..................................... (10.4)
Net actuarial losses (gains) recognized in year.................... (19.3)
Losses curtailment................................................. 0.4
-----
Total included in personnel expenses............................... 26.1
=====
</TABLE>
F-48
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Movements in the liability recognized in the balance sheet are as follows:
<TABLE>
<CAPTION>
Year ended
December 31,
1999
------------
(Euro)
(in
millions)
<S> <C>
Net liability at the beginning of year........................... 531.7
Effect of adopting IAS 19 (adjusted to opening balance of
retained earnings).............................................. 37.9
Translation differences.......................................... 26.2
Net expense recognized in the income statement................... 26.1
Contributions paid............................................... (46.4)
-----
Net liability at the end of the year............................. 575.5
=====
</TABLE>
Weighted average assumptions used in calculations of pension obligations are
as follows:
<TABLE>
<CAPTION>
As at December
31,
---------------
1998 1999
------- -------
<S> <C> <C>
Discount rate %................................................. 5.0-6.5 5.0-7.3
Expected return on plan assets %................................ 6.0-8.0 5.5-8.0
Future salary increase %........................................ 1.0-4.0 1.0-4.0
Future pension increases %...................................... 1.5-2.8 1.5-2.8
Expected average remaining working lives of employees........... 12-18 11-18
</TABLE>
Note 26--Earnings per share
Basic earnings per share is calculated as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Net profit for the period, EUR, in
millions................................. 409.0 191.0 752.5
Weighted average number of Series A and R
shares................................... 759,574,088 759,574,088 759,579,513
Basic earnings per share, (Euro).......... 0.54 0.25 0.99
</TABLE>
Diluted earnings per share is calculated as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Weighted average number of shares, Series
A and R shares........................... 759,574,088 759,574,088 759,579,513
Effect of warrants........................ 116,688 247,904 1,048,530
----------- ----------- -----------
Diluted number of shares.................. 759,690,776 759,821,992 760,628,043
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Net profit for the period, EUR, in
millions................................. 409.0 191.0 752.5
Adjusted weighted average number of Series
A and R Shares and assumed conversion.... 759,690,776 759,821,992 760,628,043
Diluted earnings per share, (Euro)........ 0.54 0.25 0.99
</TABLE>
F-49
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 27--Subsequent events
In January 2000, Stora Enso reached an agreement to sell a building in
Stockholm to Telia. The gain on sale of the building will amount to
approximately (Euro)23.2 million before taxes and will be recognized in the
first quarter of 2000.
In January 2000, Stora Enso and Fortum Oyj signed a letter of intent relating
to the sale of the majority of the Group's power assets located outside the
mills to Fortum group companies or its designates. See Note 3 for more details.
In January 2000, Stora Enso reached an agreement to acquire the Finnish paper
merchant Paperi-Dahlberg Oy and the Norwegian paper merchant Carl Emil A/S with
annual sales of (Euro)50 million.
On February 22, 2000, Stora Enso and Consolidated Papers, Inc. executed a
definitive agreement for Stora Enso to acquire Consolidated Papers for
approximately (Euro)4.9 billion, including the assumption of approximately
(Euro)0.9 billion in debt. Under the terms of the agreement, all of the issued
and outstanding shares of Consolidated Papers will be converted, at the
election of the holder, into cash or Stora Enso ADSs (American Depositary
Shares) representing an interest in underlying Series R shares of Stora Enso,
or a combination of cash and ADSs, with a targeted value of $44.00 per
Consolidated Papers share. The transaction has been unanimously approved by the
boards of directors of both companies. The consummation of the transaction,
which is subject to regulatory approvals and the approval of the shareholders
of both companies, is expected to occur in August 2000.
In March 2000, the IASC Board approved IAS 40, Investment Property. IAS 40
requires that an enterprise must choose either a fair value model or a cost
model for the valuation of its investment property. Investment property is land
or a building or part of a building or both held to earn rentals or for capital
appreciation or both rather than for use by itself or held for sale. In the
fair value model, investment property should be measured at fair value and
changes in fair value should be recognized in the income statement. In the cost
model, investment property should be measured at depreciated cost less any
accumulated impairment losses. An enterprise should apply the model chosen to
all its investment property. IAS 40 is effective for periods beginning on or
after January 1, 2001. Earlier application is permitted. The Group has not yet
determined what, if any, impact this adoption will have on its financial
statements.
At Stora Enso's Annual General Meeting held on March 21, 2000, the
shareholders approved the dividend proposed by the Board of Directors of
(Euro)0.40 per each Series A and R share.
Also, at the Annual General Meeting, the Articles of Association were amended
to increase the Company's minimum share capital to (Euro)850.0 million and the
maximum share capital to (Euro)3,400 million. The shares have no nominal value.
The share capital was converted into euros and increased to 1,291,754,671.30
euro through a bonus issue of 13,769,143.87 euro by transferring an amount
equal to the amount of the increase from the reserve fund into share capital.
On April 17, 2000, Stora Enso signed an agreement with Fortum Oyj for the
sale of its off-mill site energy operations for approximately (Euro)1.9
billion, including the assumption of approximately (Euro)1.1 billion in debt.
The deal is subject to the approvals of the Finnish and Swedish competition
authorities.
F-50
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 28--Summary of differences between International Accounting Standards and
Generally Accepted Accounting Principles in the United States
The Group's consolidated financial statements are prepared in accordance with
International Accounting Standards (IAS), which differ in a number of respects
from the accounting principles generally accepted in the United States (U.S.
GAAP). Such differences include methods for measuring and presenting the
amounts shown in the consolidated financial statements, as well as additional
disclosures required by U.S. GAAP.
Reconciliation of net profit and shareholders' equity
The following is a summary of the significant adjustments to net profit and
shareholders' equity required when reconciling such amounts recorded in the
Group's consolidated financial statements to the corresponding amounts in
accordance with U.S. GAAP. The most significant adjustment, which impacts the
Group's profit and shareholder's equity in reconciling such amounts from IAS to
U.S. GAAP, relates to the accounting for business combinations. As further
detailed below, the significant business combination of STORA and Enso is
accounted for as a uniting of interests under IAS but is accounted for using
the purchase method under U.S. GAAP. This difference impacts the valuation of a
number of financial statement accounts at the date of the combination. For
presentation purposes in the reconciliation, which follow, the "Business
combination" item includes solely the impact of valuation differences that
arose using the purchase method under U.S. GAAP. The other reconciling items
reflect the pre-and post-combination differences between IAS and U.S. GAAP.
Reconciliation of net profit
<TABLE>
<CAPTION>
Year ended December
31,
------------------------
1998 1999 1999
------- ------- ------
(Euro) (Euro) $
(in millions, except
for per share amounts)
<S> <C> <C> <C>
Reconciliation of net profit
Net profit in accordance with IAS.................... 191.0 752.5 757.8
U.S. GAAP adjustments:
a) Employee benefit plans.......................... 8.2 (3.0) (3.0)
b) Business combination............................ (268.4) (143.4) (144.4)
c) Forest accounting............................... (11.4) (1.9) (1.9)
d) Marketable equity securities.................... -- (1.8) (1.8)
e) Derivative financial instruments................ 3.3 (54.4) (54.8)
f) Sale and leaseback transactions................. 3.5 4.0 4.0
g) Impairment of goodwill.......................... 89.9 (13.5) (13.6)
h) Stock based compensation........................ -- (1.2) (1.2)
i) Synthetic option hedge.......................... -- (16.2) (16.3)
Deferred tax effect of U.S. GAAP adjustments......... (2.1) 28.4 28.6
------- ------- ------
Net income in accordance with U.S. GAAP.............. 14.0 549.5 553.4
======= ======= ======
Earnings per share in accordance with U.S. GAAP:
Basic earnings per share........................... 0.02 0.72 0.73
Diluted earnings per share......................... 0.02 0.72 0.73
Basic weighted average number of shares
(thousands)....................................... 759,574 759,580
Diluted weighted average number of shares
(thousands)....................................... 759,822 760,628
</TABLE>
F-51
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Year ended December
31,
--------------------
1998 1999 1999
------ ------ -----
(Euro) (Euro) $
(in millions,
except for per
share amounts)
<S> <C> <C> <C>
Presentation of net income and earnings per share under
U.S. GAAP:
Net income:
Income from continuing operations....................... 2.1 511.6 515.2
Discontinued operations:
Income from discontinued operations, net of income taxes
of (Euro)3.4 million and (Euro)13.3 million,
respectively........................................... 11.9 37.9 38.2
------ ----- -----
Net income in accordance with U.S. GAAP............... 14.0 549.5 553.4
====== ===== =====
Basic and diluted earnings per share:
Basic earnings per share
Continuing operations................................... 0.00 0.67 0.68
Discontinued operations................................. 0.02 0.05 0.05
Total basic earnings per share............................ 0.02 0.72 0.73
Diluted earnings per share
Continuing operations................................... 0.00 0.67 0.68
Discontinued operations................................. 0.02 0.05 0.05
Total diluted earnings per share.......................... 0.02 0.72 0.73
Consolidated Statement of Comprehensive Income
The Company has adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income", which establishes standards for the reporting
and presentation of comprehensive income and its components. The Company has
chosen to present comprehensive income in accordance with IAS.
Components of comprehensive income consist of the following:
<CAPTION>
Year ended December
31,
--------------------
1998 1999 1999
------ ------ -----
(Euro) (Euro) $
(in millions)
<S> <C> <C> <C>
Comprehensive income
Net income in accordance with IAS......................... 191.0 752.5 757.8
Other comprehensive income, net of tax
Foreign currency translation adjustment................. (121.0) 142.4 143.4
------ ----- -----
Comprehensive income in accordance with IAS............... 70.0 894.9 901.2
====== ===== =====
</TABLE>
F-52
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Reconciliation of shareholders' equity
<TABLE>
<CAPTION>
As at December 31,
-------------------------
1998 1999 1999
------- ------- -------
(Euro) (Euro) $
(in millions)
<S> <C> <C> <C>
Reconciliation of shareholders' equity
Shareholders' equity in accordance with IAS......... 5,293.5 5,953.2 5,994.9
U.S. GAAP adjustments:
a) Employee benefit plans......................... 13.8 10.8 10.9
b) Business combination........................... 1,086.1 942.7 949.3
c) Forest accounting.............................. 30.6 28.7 28.9
d) Marketable equity securities................... 66.9 70.9 71.4
e) Derivative financial instruments............... 32.1 (22.3) (22.5)
f) Sale and leaseback transactions................ (821.0) (905.7) (912.0)
g) Impairment of goodwill......................... 89.9 76.4 76.9
h) Stock based compensation....................... -- (1.2) (1.2)
i) Synthetic option hedge......................... -- (16.2) (16.3)
Deferred tax effect of U.S. GAAP adjustments........ 18.4 53.1 53.4
------- ------- -------
Shareholders' equity in accordance with U.S. GAAP... 5,810.3 6,190.4 6,233.7
======= ======= =======
</TABLE>
(a) Employee benefit plans
The companies within the Group have various pension plans in accordance with
the local conditions and practices in the countries in which they operate. The
plans are generally funded through payments to insurance companies, pension
funds or by own provisions, as determined by periodic actuarial calculations.
Any deficits or benefits requiring additional contributions are funded through
payments or provisions allocated over a period of years not exceeding the
expected remaining lives of the participating employees. The Group has met
minimum funding requirements for the countries in which it operates.
Under IAS 19 (revised) and under U.S. GAAP SFAS No. 87 "Employers' Accounting
for Pensions," pension expense is based upon a specified methodology that
includes a designated actuarial approach and reflects the concept of accrual
accounting. Under U.S. GAAP, pension expense is recorded on a full accrual
basis and reflected in the income statement over the working lives of the
employees provided with such benefits. The economic and demographic assumptions
used in calculating pension expense are required to be reviewed and updated
periodically to the extent that local market economic conditions and
demographics change. Under U.S. GAAP, the Group has estimated the effect on net
income and shareholders' equity assuming the adoption of SFAS No. 87 as of
January 1, 1998. (The adoption of SFAS No. 87 on the actual effective date of
January 1, 1989 was not feasible.) As of January 1, 1998, an unrecognized
transition obligation was determined and is being amortized over the then
average future working lifetime of employee participants commencing January 1,
1989.
F-53
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table sets forth the changes in the benefit obligation and fair
value of plan assets during the year and the funded status of the significant
defined benefit pension plans showing the amounts that would be recognized in
the Group's consolidated balance sheet in accordance with U.S. GAAP at December
31:
<TABLE>
<CAPTION>
Retirement Benefits
----------------------------------
1998 1999
---------------- ----------------
Domestic Foreign Domestic Foreign
-------- ------- -------- -------
(Euro) (Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year.... -- 537.0 548.8 608.4
Service cost............................... -- 9.7 11.8 11.1
Interest cost.............................. -- 30.7 29.1 33.9
FAS 88 events.............................. -- 3.0 -- (0.9)
Amendments................................. -- 0.6 46.0 --
Acquisitions............................... 548.8 49.3 -- 0.7
Actuarial loss (gain)...................... -- 45.8 19.0 4.2
Benefits paid.............................. -- (34.2) (39.1) (38.5)
Currency effect............................ -- (33.5) -- 48.5
----- ------ ------ ------
Benefit obligation at end of year.......... 548.8 608.4 615.6 667.4
===== ====== ====== ======
<CAPTION>
Retirement Benefits
----------------------------------
1998 1999
---------------- ----------------
Domestic Foreign Domestic Foreign
-------- ------- -------- -------
(Euro) (Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C> <C>
Change in plan assets
Fair value of plan assets at beginning of
year...................................... -- 98.3 454.3 100.3
Actual return on plan assets............... -- 8.9 41.1 2.6
Company contribution....................... -- 39.1 29.8 46.9
FAS 88 events.............................. -- -- -- (1.7)
Acquisitions............................... 454.3 1.5 -- --
Benefits paid.............................. -- (34.2) (39.1) (38.5)
Currency effect............................ -- (13.2) -- 22.0
----- ------ ------ ------
Fair value of plan assets at end of year... 454.3 100.4 486.1 131.6
===== ====== ====== ======
Funded status.............................. (94.6) (508.0) (129.5) (535.8)
Unrecognized transitional obligation
(asset)................................... -- 4.3 -- 3.1
Unrecognized prior service cost............ -- 0.6 46.0 0.6
Unrecognized actuarial loss................ -- 44.5 4.8 58.7
----- ------ ------ ------
(Accrued)/Prepaid benefit cost............. (94.6) (458.6) (78.7) (473.4)
===== ====== ====== ======
</TABLE>
F-54
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Amounts recognized in the statement of financial position for purposes of
U.S. GAAP at December 31 consist of:
<TABLE>
<CAPTION>
Retirement Benefits
----------------------------------
1998 1999
---------------- ----------------
Domestic Foreign Domestic Foreign
-------- ------- -------- -------
(Euro) (Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C> <C>
Accrued benefit liability.................. (146.8) (498.1) (140.3) (527.7)
Prepaid benefit cost....................... 52.2 8.4 61.6 21.4
Intangible asset........................... -- 10.8 -- 8.8
Accumulated other comprehensive income..... -- 20.3 -- 24.1
------ ------ ------ ------
Net amount recognized...................... (94.6) (458.6) (78.7) (473.4)
====== ====== ====== ======
</TABLE>
For plans where accumulated benefit obligation ("ABO") exceeds assets, the
ABO, projected benefit obligation ("PBO") and fair value of plan assets at
December 31, is as follows:
<TABLE>
<CAPTION>
Retirement Benefits
---------------------------------
1998 1999
---------------- ----------------
Domestic Foreign Domestic Foreign
-------- ------- -------- -------
(Euro) (Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C> <C>
ABO........................................... 247.7 480.6 241.2 509.7
PBO........................................... 321.6 505.4 311.7 536.3
Fair value of assets.......................... 174.9 1.5 185.0 1.6
</TABLE>
Net periodic benefit cost in accordance with U.S. GAAP for the years ended
December 31, 1998 and 1999 includes the following components:
<TABLE>
<CAPTION>
Retirement Benefits
---------------------------------
1998 1999
---------------- ----------------
Domestic Foreign Domestic Foreign
-------- ------- -------- -------
(Euro) (Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C> <C>
Service Cost.................................. -- 9.7 11.8 11.1
Interest cost................................. -- 30.7 29.1 33.9
Expected return on plan assets................ -- (7.6) (27.0) (8.9)
Amortizations................................. -- 1.1 -- 1.1
Subtotal...................................... -- 33.9 13.9 37.2
FAS 88........................................ -- 3.0 -- 0.8
--- ---- ----- ----
Net periodic benefit cost..................... -- 36.9 13.9 38.0
=== ==== ===== ====
</TABLE>
Other events affecting balance sheet at December 31:
<TABLE>
<CAPTION>
Retirement Benefits
---------------------------------
1998 1999
---------------- ----------------
Domestic Foreign Domestic Foreign
-------- ------- -------- -------
(Euro) (Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C> <C>
Acquisitions................................. 94.6 47.9 -- 0.8
---- ---- ---- ----
Total expense and change in balance sheet.... 94.6 84.8 13.9 38.8
==== ==== ==== ====
</TABLE>
F-55
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Weighted-average assumptions used in the calculation of pension costs and the
projected benefit obligations at December 31 are as follows:
<TABLE>
<CAPTION>
Retirement Benefits
---------------------------------
1998 1999
---------------- ----------------
Domestic Foreign Domestic Foreign
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Discount rate................................. 5.50% 5.44% 5.80% 5.82%
Rate of compensation increase................. 2.80% 2.66% 2.80% 2.98%
Expected return on plan assets................ 6.00% 7.63% 6.00% 7.76%
</TABLE>
Effective January 1, 2000, the financing terms of the Finnish statutory
employment pension scheme (TEL) were amended. The amendments resulted in an
increase in the employer-funded portion of TEL benefits and a decrease in the
pay as you go portion of TEL benefits pertaining to the old age pensions which
was partly offset by a decrease in the employer-funded portion of TEL benefits
and an increase in the pay as you go portion of TEL benefits as a result of the
amendment to disability pensions.
The effect of these amendments was (Euro)46.0 million on the PBO at December
31, 1999.
At December 31, 1999, approximately 55% of domestic plan assets consist of
Stora Enso securities and loans to Stora Enso. The remaining plan assets
consist primarily of real estate, cash and debt and equity securities.
(b) Business combination
In December, 1998, Enso Oyj acquired STORA through a share exchange
transaction and changed its name to Stora Enso Oyj. The business combination
was accounted for using the uniting of interests method in the consolidated
financial statements prepared in accordance with IAS. Under U.S. GAAP, the
business combination is accounted for as a purchase (reverse acquisition), with
STORA as the accounting acquiror. The total purchase consideration of Enso has
been determined on the basis of the fair value of the transaction when the
combination was announced on June 2, 1998.
The excess of the cost of the acquisition of Enso over the fair value of the
net assets acquired totaled (Euro)124.4 million and has been recorded as
goodwill under U.S. GAAP. Such goodwill is being amortized on straight-line
basis over an estimated economic useful life of 20 years from the effective
date of the combination.
F-56
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
U.S.
GAAP
IAS U.S. GAAP purchase
balance purchase balance
sheet at Historical accounting sheet at
December U.S. GAAP fair value December
31, 1998 adjustments adjustments 31, 1998
-------- ----------- ----------- --------
(Euro) (Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C> <C>
Assets
Intangible assets......... 294.4 -- (135.6) 158.8
Tangible assets........... 4,723.4 (30.3) 1,447.3 6,140.4
Other long-term
investments.............. 409.5 66.8 176.6 652.9
Current assets............ 1,912.5 -- 104.2 2,016.7
Total................... 7,339.8 36.5 1,592.5 8,968.8
======= ===== ======= =======
Liabilities
Minority interest......... 113.5 -- -- 113.5
Provisions................ 105.9 43.5 51.2 200.6
Long-term liabilities..... 3,017.7 (2.0) 455.2 3,470.9
Current liabilities....... 1,652.6 -- -- 1,652.6
------- ----- ------- -------
Total................... 4,889.7 41.5 506.4 5,437.6
======= ===== ======= =======
Shareholders'
equity/purchase price.... 2,450.1 (5.0) 1,086.1 3,531.2
======= ===== ======= =======
</TABLE>
The impact of the above adjustments on the 1998 and 1999 reconciliations of
net income and shareholders' equity to the corresponding amounts under U.S.
GAAP is as follows:
<TABLE>
<CAPTION>
Year ended
December 31, 1999
-----------------
(Euro)
(in millions)
<S> <C>
Net income
Amortization of goodwill.................................... 21.5
Depletion of forest assets.................................. (11.0)
Depreciation of tangible assets............................. (81.5)
Cost of goods sold.......................................... (66.5)
Other operating income...................................... (72.7)
Financial income and expenses............................... 7.2
Change in deferred tax liabilities.......................... 59.6
------
Total....................................................... (143.4)
======
</TABLE>
The 1998 net income adjustment consists of elimination of Enso's net profit
for the year ended December 31, 1998 totaling (Euro)278.0 million and
capitalization of direct acquisition costs to the purchase consideration
totaling (Euro)9.6 million.
F-57
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
As at December
31,
---------------
1998 1999
------- ------
(Euro) (Euro)
(in millions)
<S> <C> <C>
Shareholders' equity
Goodwill..................................................... (135.6) (114.1)
Land and water............................................... 260.1 249.1
Buildings and structures..................................... 370.0 354.5
Machinery and equipment...................................... 792.7 726.6
Shares in associated companies............................... 201.1 128.4
Inventories.................................................. 66.5 --
Short-term receivables....................................... 37.7 44.9
Provisions................................................... (51.2) (51.2)
Deferred tax liabilities..................................... (455.2) (395.6)
------- ------
Total........................................................ 1,086.1 942.7
======= ======
</TABLE>
(c) Forest assets
Under IAS, forest assets are stated at historical acquisition cost. For
forest holdings outside Finland and Sweden, reforestation costs arising from
the planting and care of fast-growing forest holdings are included.
Reforestation costs related to the forest holdings in Finland and Sweden are
expensed as incurred.
For purposes of U.S. GAAP, forest assets are stated at the lower of cost and
market value. Cost includes all expenditures incurred on the acquisition of the
forest (excluding land cost) plus reforestation cost less depletions.
Capitalized costs related to forest assets harvested each year are included in
the income statement as depletions.
Under U.S. GAAP, with regard to the forest holdings in Finland and Sweden,
capitalized reforestation costs were (Euro)16.3 million and (Euro)17.3 million
and depletion of forest assets was (Euro)24.7 million and (Euro)26.8 million
for the years ended December 31, 1998 and 1999, respectively.
A provision for replanting forests is made with regard to the forest holdings
in Sweden in the IAS accounts. This provision amounted to (Euro)22 million and
(Euro)21 million for the years ended December 31, 1998 and 1999, respectively.
Under U.S. GAAP, these costs are capitalized as part of the forest assets as
incurred, and the provision has consequently been reversed.
(d) Investments in marketable securities
Under IAS, the Group's marketable investments are recorded at cost and
carried at the lower of cost and market value determined on a portfolio basis.
Changes in market value are generally not recognized until realized.
Under U.S. GAAP, the Group's investments in equity securities with readily
determinable market values are classified as available-for-sale securities
within non-current assets and reported at fair value, with unrealized gains and
losses excluded from earnings and reported, net of applicable taxes, in a
separate component of shareholders' equity.
F-58
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Available-for-sale securities in accordance with U.S. GAAP are summarized as
follows:
<TABLE>
<CAPTION>
Gross unrealized Gross unrealized Market
U.S. GAAP cost holding gains holding losses value
-------------- ---------------- ---------------- ------
(Euro) (Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C> <C>
December 31, 1998....... 106.0 87.7 20.8 172.9
December 31, 1999....... 105.9 88.7 17.8 176.8
</TABLE>
The change in net unrealized holding gain or (loss) on available-for-sale
securities that has been included in the separate component of shareholders'
equity during 1998 is (Euro)(11.9) million and during 1999 (Euro)4.6 million,
net of taxes. Reclassification adjustment for gains included in income during
1998 is (Euro)(3.5) million and during 1999 (Euro)(0.6) million, net of taxes.
(e) Derivative financial instruments
Under U.S. GAAP, hedge (deferral) accounting is applied to qualifying
derivative financial instruments that are designated and effective as a hedge.
Unrealized gains and losses on such derivative financial instruments are
deferred until the gains and losses on the related underlying hedged items are
recognized. If the derivative financial instruments do not qualify as hedges,
unrealized gains and losses are recognized immediately in income.
The Group enters into forward exchange contracts to manage its foreign
exchange exposure related to some anticipated future revenues and expenses
denominated in foreign currencies other than the euro. Some of these
transactions are entered into in respect of future revenues and expenses that
are not covered by firm commitments. As permitted under IAS, the Group defers
the unrealized gains and losses on such hedges until the related revenue and
expense are realized. Under U.S. GAAP such unrealized gains and losses must be
included in the determination of net income.
Between the years 1992 and 1994, the Group entered into series of long-term
equity swaps. Under IAS, the Group has accrued interest on the notional amount
of the swaps as well as included the dividend payments received in its
consolidated income statement. The equity swaps were closed during 1999, as a
result of which Stora Enso realized a gain of (Euro)22.5 million, net of tax.
Under U.S. GAAP, these equity swaps are considered as derivative financial
instruments that do not fulfill the criteria for hedge accounting, thus,
unrealized gains and losses must be included in the determination of net
income.
(f) Sale-leaseback transactions
In 1986, STORA implemented a partnership-financing arrangement whereby
STORA's hydropower assets were sold at market value to a newly formed company,
Kopparkraft, while obtaining an option to acquire the shares of Kopparkraft at
a later stage and leasing the assets under an operating lease. A number of
agreements concluded at the time assured the financing partners a real return
of slightly more than 4% on invested capital. STORA was a minority shareholder
in Kopparkraft, together with a consortium of 18 Swedish insurance companies
and pension institutions. Effective December 31, 1996, STORA refinanced
Kopparkraft, to the effect that the former financing partners were released in
accordance with the principles of the option agreement and were replaced by
others. The new financing partners comprise a consortium with far fewer
participants, headed by Nordbanken. The terms of the option agreement have been
changed to a fixed price for the shares of Kopparkraft, whereas under the
earlier terms the price of the shares would be determined after consideration
of factors not readily determinable. Under the terms of the new option
agreement, the Group has established the repurchase price for power assets at a
fixed price of (Euro)981 million (SEK 8.4 billion)--the value at December 31,
1996. Under this agreement, the Group has the right but not the obligation to
repurchase the
F-59
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
particular assets in 2003 or 2007. Through a delivery agreement, the Group
pledges to purchase all power produced at the cost price, with supplements to
cover interest and dividends to shareholders.
Under IAS, this transaction has been accounted for using sale and leaseback
accounting and accordingly, the gain on the transaction has been recognized.
Due to the Group's continuing involvement with the assets, the sale-leaseback
transaction is classified as a financing arrangement under U.S. GAAP.
Accordingly, until the gain is realized through sale of the hydropower assets,
the gain is reversed and the proceeds from the sale are treated as an
obligation. At December 31, 1998 and 1999, the impact of reversing the sale of
these assets would decrease property, plant and equipment by (Euro)821.0
million (SEK 7,789 million) and (Euro)905.7 million (SEK 7,755 million),
respectively.
(g) Impairment of goodwill
As explained in Note 9 to the Consolidated Financial Statements, the Group
recognized an impairment charge of (Euro)89.9 million on goodwill. In
determining the recoverable amount of these assets Stora Enso discounted future
cash flows expected to result from the use and eventual disposition of these
assets.
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," prescribes the methodology for
determination of an asset's recoverable amount. Under SFAS 121, expected cash
flows used in determination of an asset's recoverable amount should be
undiscounted. The recoverable amount based on undiscounted cash flows exceeds
the carrying value and therefore no impairment exists relating to these assets.
The impairment loss recognized for the year ended December 31, 1998 of
(Euro)89.9 million has been reversed under U.S. GAAP. Additional amortization
expense of (Euro)13.5 million has been recognized for the year ended December
31, 1999, respectively, resulting from reversal of the write-down recorded
under IAS. Accumulated depreciation relating to these assets at December 31,
1998 and 1999 was (Euro)152.2 million and (Euro)165.7 million, respectively.
(h) Stock based compensation
Under IAS 19 (revised), "Employee Benefits," no compensation is recognized
for equity compensation benefits for stock warrants or for cash payments that
will depend on the future market price of the Company's stock.
As allowed by the Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," ("FAS 123"), under U.S. GAAP, the
Company has elected to apply Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," ("APB 25") and related
interpretations in accounting for its schemes.
The Company's option scheme, synthetic options, established in 1999 will be
settled in cash by measuring the difference between the exercise price and the
prevailing stock price. Under U.S. GAAP, this scheme is accounted for as stock
appreciation rights in accordance with FASB Interpretation No 28, "Accounting
for Stock Appreciation Rights and Other Variable Stock Option or Award Plans,"
where compensation is measured each period end between the exercise price and
the current stock price. Such compensation is accrued as a charge to expense
over the future service period and adjusted in subsequent periods up to the
measurement date for changes, either increases or decreases, in the stock
price. At year-end 1999, the amount recognized is based on the stock price at
December 31, 1999.
F-60
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information relating to stock warrants granted in 1997 is as follows:
<TABLE>
<CAPTION>
Number of
shares
---------
<S> <C>
Shares under vested warrants at December 31, 1998.................. 3,000,000
Exercised and registered........................................... 30,000
Shares under vested warrants at December 31, 1999.................. 2,970,000
</TABLE>
246,000 shares were registered on January 26, 2000.
The weighted-average fair value of warrant grant of (Euro)2.01 was estimated
on the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions: dividend yield of 2.30%; expected
volatility of 30.6%; risk-free interest rate of 4.56%; and expected lives of
4.3 years.
(i) Synthetic option hedge
In connection with the establishment of the synthetic option scheme, Stora
Enso entered into a total return swap in order to mitigate its exposure on the
appreciation of its shares. Stora Enso has accrued for the interest payment on
the notional amount of the swap and for the difference between the exercise
price and the hedged stock price. For U.S. GAAP purposes, this transaction does
not qualify for hedge accounting and is therefore marked to market together
with the fair value of the option scheme with the resulting unrealized loss
included in the determination of net income.
(j) Additional disclosures required under U.S. GAAP
Valuation and qualifying accounts
Provisions for obsolete inventories are valuation allowance are as follows
for the years ended December 31, 1997, 1998 and 1999, respectively:
<TABLE>
<CAPTION>
Balance at
beginning Balance at
of year Additions Deductions Other end of year
---------- --------- ---------- ------ -----------
(Euro) (Euro) (Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C> <C> <C>
1999
Obsolescence
provision............ 52.3 10.7 (37.6) (0.9) 26.2
Valuation allowance... 67.5 (4.9) 62.6
1998
Obsolescence
provision............ 44.8 38.7 (27.7) (3.5) 52.3
Valuation allowance... 53.7 13.8 67.5
1997
Obsolescence
provision............ 14.5 48.9 (17.9) (0.7) 44.8
Valuation allowance... 46.0 7.7 53.7
</TABLE>
F-61
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Consolidated statement of changes in shareholders' equity
The components of shareholders' equity under IAS are as follows:
<TABLE>
<CAPTION>
Share capital
(par value Cumulative
FIM 10 per Share translation Retained
share) premium adjustment earnings Total
------------- ------- ----------- -------- -------
(Euro) (Euro) (Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C> <C> <C>
Balance at January 1,
1997................... 1,277.5 324.3 (73.1) 3,756.2 5,284.9
Transfer to reserves.. -- 30.0 -- (30.0) --
Dividends paid
((Euro) 0.30 per
share)............... -- -- -- (233.5) (233.5)
Contribution.......... -- -- -- (0.4) (0.4)
Net profit for the
period............... -- -- -- 409.0 409.0
Translation
adjustment........... -- -- 53.2 -- 53.2
Balance at December 31,
1997................... 1,277.5 354.3 (19.9) 3,901.3 5,513.2
Transfer to reserves.. -- 23.4 -- (23.4) --
Dividends paid
((Euro) 0.33 per
share)............... -- -- -- (242.6) (242.6)
Net profit for the
period............... -- -- -- 191.0 191.0
Translation
adjustment........... -- -- (168.1) -- (168.1)
Balance at December 31,
1998................... 1,277.5 377.7 (188.0) 3,826.3 5,293.5
Effect of adopting IAS
19 (revised)......... -- -- -- (27.2) (27.2)
Balance at January 1,
1999 as restated....... 1,277.5 377.7 (188.0) 3,799.1 5,266.3
Warrants exercised.... 0.1 1.9 -- -- 2.0
Dividends paid
((Euro) 0.35 per
share)............... -- -- -- (268.3) (268.3)
Net profit for the
period............... -- -- -- 752.5 752.5
Translation
adjustment........... -- -- 200.6 -- 200.6
Balance at December 31,
1999................... 1,277.6 379.6 12.6 4,283.3 5,953.2
</TABLE>
Accumulated other comprehensive income comprises translation differences
only.
Consolidated statement of shareholders' equity for the years ended December
31, 1997 and 1998, have been restated from Finnish markka into euros using the
conversion rate as of January 1, 1999.
Leases
The Group leases tangible assets, including buildings and machinery and
equipment, under long-term arrangements. As of December 31, 1999, the
approximate future minimum lease payments under noncancelable leases that have
initial or remaining noncancelable lease terms in excess of one year are as
follows under IAS:
<TABLE>
<CAPTION>
Operating Capital
--------- -------
(Euro) (Euro)
(in millions)
<S> <C> <C>
Year ending December 31,
2000...................................................... 24.2 63.3
2001...................................................... 19.7 63.5
2002...................................................... 16.4 63.6
2003...................................................... 14.4 63.6
2004...................................................... 6.8 62.6
After 2004................................................ 35.3 224.0
----- ------
Total minimum lease payments.............................. 116.8 540.6
Less amount representing interest......................... (237.1)
Present value of minimum lease payments................... 303.5
======
</TABLE>
F-62
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Rental expense under operating leases in accordance with IAS amounted to
(Euro)25.6 million, (Euro)23.0 million and (Euro)24.2 million for the years
ended December 31, 1997, 1998, 1999, respectively.
Under IAS, the amount related to capital leases of machinery and equipment
included in tangible assets was (Euro)115.7 million and (Euro)107.7 million as
of December 31, 1998 and 1999, respectively. Accumulated amortization with
respect to the leased assets was (Euro)43.4 million and (Euro)53.1 million as
of December 31, 1998 and 1999, respectively.
Foreign exchange differences
The aggregate foreign exchange gains and losses included in the consolidated
income statements for the years ended December 31, 1998 and 1999 are as
follows:
<TABLE>
<CAPTION>
Year ended
December 31,
--------------
1998 1999
------ ------
(Euro) (Euro)
(in millions)
<S> <C> <C>
Sales.......................................................... (20.8) 24.1
Costs and expenses............................................. (1.0) (2.0)
Net financial items............................................ (30.3) 31.6
----- ----
Total.......................................................... (52.1) 53.7
===== ====
</TABLE>
(k) Classification differences
Consolidated income statement
In accordance with IAS, the Group classifies gains on sale of fixed assets as
a component of operating profit. Under U.S. GAAP, these items would be
classified as a component of non-operating profit.
Deferred taxes
In accordance with IAS, the Group classifies all deferred tax assets and
liabilities as non-current. Under U.S. GAAP, deferred tax assets and
liabilities are classified as current or non-current based on the
classification of the related non-tax asset or liability, to the extent
applicable. Under U.S. GAAP, (Euro)8.6 million and (Euro)11.7 million at
December 31, 1998 and 1999, respectively, would be classified as current
deferred tax assets arising from the elimination of intercompany profit in
inventories.
(l) New accounting standards
On June 15, 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS
133"), as amended by Statement of Financial Accounting Standards No. 137,
"Accounting for Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of FASB Statement No. 133" ("FAS 137"). FAS 137 delayed the
effective date of FAS 133 to be effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. FAS 133 requires that an entity recognize
all derivative instruments as either assets or liabilities on the balance sheet
at fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether
a derivative is designated as part of a hedge transaction and, if it is, the
type of hedge transaction. For fair-value hedge transactions in which the Group
is hedging changes in an asset's, liability's, or firm commitment's fair value,
changes in the fair value of the derivative instrument will generally
F-63
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
be offset in the income statement by changes in the hedged item's fair value.
For cash-flow hedge transactions, in which the Group is hedging the variability
of cash flows related to a variable-rate asset, liability, or a forecasted
transaction, changes in the fair value of the derivative instrument will
generally be reported in other comprehensive income. The gains and losses on
the derivative instruments that are reported in other comprehensive income will
be reclassified as earnings in the periods in which earnings are impacted by
the variability of the cash flows of the hedged item. The ineffective portion
of all hedges will be recognized in current-period earnings. The impact of FAS
133 on the Group's financial statements will depend on a variety of factors,
including the future level of forecasted and actual foreign currency
transactions, the extent of the Group's hedging activities, the types of
hedging instruments used and the effectiveness of such instruments. The Group
is currently evaluating, and has not yet determined, the impact of adopting FAS
133 on its financial statements.
F-64
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED INTERIM INCOME STATEMENTS
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Three month period ended March 31,
-------------------------------------
Note 1999 2000 2000
---- ------------ ------------ -----------
(Euro) (Euro) $
<S> <C> <C> <C> <C>
Sales............................. 2 2,614.7 2,991.7 2,864.3
Expenses and other operating
income........................... (1,646.2) (1,806.4) (1,729.4)
Personnel expenses................ (436.2) (445.5) (426.5)
Depreciation, amortization and
impairment charges............... (227.3) (225.5) (215.9)
----------- ----------- -----------
Operating profit.................. 2 305.0 514.3 492.5
Net financial items .............. 4 (72.8) (68.7) (65.8)
Share of results of associated
companies........................ 0.4 5.8 5.5
----------- ----------- -----------
Profit before tax and minority
interests........................ 232.6 451.4 432.2
Income tax expense................ 1 (74.5) (149.8) (143.4)
----------- ----------- -----------
Profit after tax.................. 158.1 301.6 288.8
Minority interests................ (2.6) (7.4) (7.1)
----------- ----------- -----------
Profit for the period............. 155.5 294.2 281.7
=========== =========== ===========
Basic earnings per share.......... 5 0.20 0.39 0.37
Diluted earnings per share........ 5 0.20 0.39 0.37
</TABLE>
The accompanying Notes are an integral part of these Unaudited Condensed
Consolidated Financial Statements.
F-65
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
As at March 31,
--------------------------
Note 1999 2000 2000
---- -------- -------- --------
(Euro) (Euro) $
<S> <C> <C> <C> <C>
ASSETS
Fixed assets and other long-term investments.. 6
Property, plant and equipment, intangible
assets and goodwill.......................... 11,237.3 11,321.2 10,838.9
Investments in associated and other
companies.................................... 446.1 446.7 427.6
Investments................................... 48.5 50.0 47.9
Non-current loan receivables.................. 79.4 67.7 64.8
Deferred tax assets........................... -- 5.9 5.6
Other non-current assets...................... 88.8 87.4 83.8
-------- -------- --------
11,900.1 11,978.9 11,468.6
Current assets
Inventories................................... 7 1,354.9 1,343.4 1,286.2
Tax receivables............................... 9.1 97.1 92.9
Short-term receivables........................ 2,096.7 2,227.6 2,132.7
Current portion of loan receivables........... 203.4 49.3 47.2
Cash and cash equivalents..................... 577.8 634.8 607.8
-------- -------- --------
4,241.9 4,352.2 4,166.8
-------- -------- --------
Total assets................................ 16,142.0 16,331.1 15,635.4
======== ======== ========
SHAREHOLDERS' EQUITY AND LIABILITIES
Shareholders' equity.......................... 8 5,270.0 6,068.8 5,810.3
-------- -------- --------
Minority interests............................ 211.1 206.6 197.8
-------- -------- --------
Commitments and contingencies................. 9
Long-Term Liabilities
Pension provisions............................ 581.7 578.9 554.2
Deferred tax liabilities...................... 1,371.4 1,521.3 1,456.5
Other provisions.............................. 269.5 200.4 191.8
Long-term debt................................ 4,359.9 3,829.7 3,666.5
Other long-term liabilities................... 93.0 88.0 84.3
-------- -------- --------
6,675.5 6,218.3 5,953.4
-------- -------- --------
Current liabilities
Interest-bearing liabilities.................. 1,975.8 1,652.7 1,582.3
Tax liabilities............................... 223.4 293.5 280.9
Other current liabilities..................... 1,786.2 1,891.2 1,810.6
-------- -------- --------
3,985.4 3,837.4 3,673.9
-------- -------- --------
Total shareholders' equity and liabilities.. 16,142.0 16,331.1 15,635.4
======== ======== ========
</TABLE>
The accompanying Notes are an integral part of these Unaudited Condensed
Consolidated Financial Statements.
F-66
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
UNAUDITED CONDENSED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
(in millions)
<TABLE>
<CAPTION>
Cumulative
Share capital Share translation Retained
(par value) premium adjustment earnings Total
------------- ------- ----------- -------- -------
(Euro) (Euro) (Euro) (Euro) (Euro)
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1998...................... 1,277.5 377.7 (188.0) 3,826.3 5,293.5
Effect of adopting IAS 19
(revised)............... -- -- -- (27.2) (27.2)
Balance at January 1, 1999
as restated............... 1,277.5 377.7 (188.0) 3,799.1 5,266.3
Warrants exercised....... 0.1 1.9 -- -- 2.0
Dividends paid ((Eu-
ro)0.35 per share)...... -- -- -- (268.3) (268.3)
Net profit for the peri-
od...................... -- -- -- 752.5 752.5
Translation adjustment... -- -- 200.6 -- 200.6
Balance at December 31,
1999...................... 1,277.6 379.6 12.6 4,283.3 5,953.2
Dividends paid ((Eu-
ro)0.40 per share)...... -- -- -- (303.9) (303.9)
Net profit for the peri-
od...................... -- -- -- 294.2 294.2
Translation adjustment... -- -- 125.3 -- 125.3
Balance at March 31, 2000.. 1,277.6 379.6 138.0 4,273.6 6,068.8
</TABLE>
The accompanying Notes are an integral part of these Unaudited Condensed
Consolidated Financial Statements.
F-67
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED INTERIM CASH FLOW STATEMENTS
(in millions)
<TABLE>
<CAPTION>
Three month period
ended March 31,
----------------------
1999 2000 2000
------ ------ ------
(Euro) (Euro) $
<S> <C> <C> <C>
Cash flow from operating activities
Operating profit...................................... 305.0 514.3 492.5
Adjustments........................................... 227.7 183.8 176.0
Change in net working capital, net of businesses ac-
quired or sold....................................... (335.8) (70.9) (67.9)
------ ------ ------
Cash flow generated by operations..................... 196.9 627.2 600.5
Net financial items................................... (72.8) (68.7) (65.8)
Income taxes paid..................................... (44.3) (144.7) (138.5)
------ ------ ------
Net cash provided by operating activities............. 79.8 413.8 396.2
------ ------ ------
Cash flow from investing activities
Acquisitions.......................................... (77.1) (31.9) (30.5)
Proceeds from sale of fixed assets and shares......... 87.5 78.6 75.3
Capital expenditures.................................. (192.7) (134.9) (129.2)
Proceeds from long-term receivables, net.............. 10.1 0.6 0.6
------ ------ ------
Net cash used in investing activities................. (172.2) (87.6) (83.9)
------ ------ ------
Cash flow from financing activities
Change in long-term liabilities, net.................. 115.8 (147.6) (141.3)
Change in short-term borrowings, net.................. (33.2) (286.5) (274.3)
Proceeds from issuance of share capital............... 72.0 0.0 0.0
Other change in shareholders' equity.................. -- 99.7 95.5
Other change in minority interest..................... (72.0) (2.8) (2.7)
------ ------ ------
Net cash used in financing activities................. 82.6 (337.2) (322.8)
------ ------ ------
Net increase (decrease) in cash and cash equivalents.. (9.8) (11.0) (10.5)
Effect of exchange rate changes on cash and cash
equivalents.......................................... (7.4) 3.6 3.4
Cash and cash equivalents at beginning of period...... 595.0 642.2 614.8
------ ------ ------
Cash and cash equivalents at end of period............ 577.8 634.8 607.8
====== ====== ======
</TABLE>
The accompanying Notes are an integral part of these Unaudited Condensed
Consolidated Financial Statements.
F-68
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
Note 1--Accounting policies
These interim unaudited condensed consolidated financial statements are
prepared in accordance with IAS 34, Interim Financial Reporting. The accounting
policies used in preparation of the interim consolidated financial statements
are consistent with those used in the annual financial statements for the year
ended December 31, 1999, except that the Group adopted IAS 38, Intangible
assets and IAS 22 (revised), Business Combinations as of January 1, 2000. IAS
38 requires that an intangible asset should be recognized if, and only if, it
is probable that future economic benefits attributable to the asset will flow
to the Group and the cost of the asset can be measured reliably. In addition,
IAS 38 requires expenditure on advertising, training, start-up, and research
and development activities to be expensed as incurred. The adoption of IAS 38
did not have a material impact on the consolidated financial statements. The
adoption of IAS 22 (revised), which addresses the recognition of identified
assets and liabilities in an acquisition, the determination of the fair values
of assets acquired and liabilities assumed, the treatment of goodwill, did not
have a material impact on the consolidated financial statements.
In the opinion of the management, all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation have been included.
These interim consolidated financial statements should be read in conjunction
with the Stora Enso consolidated financial statements as at December 31, 1999
and for the three month period then ended and the related notes to the
consolidated financial statements.
Costs that arise unevenly during the financial year are anticipated or
deferred in the interim financial statements only if it would be also
appropriate to anticipate or defer such costs at the end of the year.
Income tax expense for the interim periods presented has been accrued using
the tax rate that would be applicable to expected total annual earnings for
each tax jurisdiction to the extent applicable, that is, the estimated average
annual effective income tax rate applied to the pre-tax income of the interim
period. The estimated average annual effective tax rates used at consolidation
were 32% and 33% for the three month period ended March 31, 1999 and 2000,
respectively.
Solely for the convenience of the reader, the unaudited interim consolidated
financial statements as of and for the three month period ended March 31, 2000
have been translated into United States dollars ("USD" or "$") at the rate of
USD 0.9574 per euro, the noon buying rate on March 31, 2000 as announced by the
Federal Reserve Bank of New York. The translation should not be construed as a
representation that the amounts shown could be converted into USD at such rate.
F-69
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
Note 2--Segment information
Sales by segment
<TABLE>
<CAPTION>
Three month period ended
March 31,
------------------------
1999 2000
------------ ------------
(Euro) (Euro)
(in millions)
<S> <C> <C>
Magazine paper................................ 436.5 500.0
Newsprint..................................... 410.6 416.0
Fine paper.................................... 525.8 637.6
Packaging boards.............................. 564.8 661.8
Timber products............................... 247.8 298.1
Market pulp................................... 208.3 330.7
Paper merchants............................... 205.7 225.4
Forest operations............................. 423.1 508.1
Other operations.............................. (482.5) (619.2)
------------ ------------
Continuing operations total................... 2,540.1 2,958.5
============ ============
Divested units................................ 24.7 --
Discontinued operations, Energy............... 150.5 116.4
Internal sales, Energy........................ (100.6) (83.2)
------------ ------------
Total....................................... 2,614.7 2,991.7
============ ============
Operating profit by segment
<CAPTION>
Three month period ended
March 31,
------------------------
1999 2000
------------ ------------
(Euro) (Euro)
(in millions)
<S> <C> <C>
Magazine paper................................ 59.3 67.2
Newsprint..................................... 73.6 61.0
Fine paper.................................... 41.4 102.6
Packaging boards.............................. 46.8 81.0
Timber products............................... 4.4 22.4
Market pulp................................... (4.1) 105.7
Paper merchants............................... 0.5 4.1
Forest operations............................. 25.8 33.0
Other operations.............................. (5.6) 10.7
------------ ------------
Continuing operations total................... 242.1 487.7
============ ============
Divested units................................ 22.9 --
------------ ------------
Discontinued operations, Energy............... 40.0 26.6
------------ ------------
Total....................................... 305.0 514.3
============ ============
</TABLE>
F-70
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
Note 3--Acquisitions
During the three month period ended March 31, 2000, Stora Enso acquired the
paper merchants Carl Emil A/S in Norway and Paperi-Dahlberg Oy in Finland and
the tube plants of Huhtamaki Van Leer in the Netherlands and Sweden. Total cost
for these acquisitions amounted to (Euro)35.5 million.
Note 4--Net financial items
<TABLE>
<CAPTION>
Three month period
ended March 31,
---------------------
1999 2000
--------- ---------
(Euro) (Euro)
(in millions)
<S> <C> <C>
Dividend income................................... 1.9 1.1
Interest income................................... 6.5 14.6
Interest expense.................................. (83.3) (78.1)
Other financial income and expenses, net.......... (3.1) (0.5)
Exchange rate difference.......................... 5.2 (5.9)
--------- ---------
(72.8) (68.7)
========= =========
</TABLE>
Note 5--Earnings per share
Basic earnings per share is calculated as follows:
<TABLE>
<CAPTION>
Three month period
ended March 31,
-----------------------
1999 2000
----------- -----------
<S> <C> <C>
Net profit for the period, (Euro), in millions. 155.5 294.2
Weighted average number of Series A and R
shares......................................... 759,791,572 759,855,689
Basic earnings per share, (Euro)................ 0.20 0.39
</TABLE>
Diluted earnings per share is calculated as follows:
<TABLE>
<CAPTION>
Three month period
ended March 31,
-----------------------
1999 2000
----------- -----------
<S> <C> <C>
Weighted average number of shares, Series A and
R shares....................................... 759,579,689 759,855,689
Effect of warrants.............................. 211,883 1,076,971
----------- -----------
Diluted number of shares........................ 759,791,572 760,932,660
Net profit for the period, (Euro), in millions.. 155.5 294.2
Adjusted weighted average number of Series A and
R Shares and assumed conversion................ 759,791,572 760,932,660
Diluted earnings per share, (Euro).............. 0.20 0.39
</TABLE>
F-71
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
Note 6--Fixed assets and other long-term investments
<TABLE>
<CAPTION>
Three month
period ended
March 31,
------------------
1999 2000
-------- --------
(Euro) (Euro)
(in millions)
<S> <C> <C>
Capital expenditure and commitments
Opening net book amount............................. 11,695.1 11,900.8
Acquisition of subsidiary........................... 2.2 11.1
Additions........................................... 192.7 134.9
Disposals........................................... (99.2) (33.2)
Depreciation, amortization, impairment charges and
translation differences............................ 109.3 (34.7)
-------- --------
Closing net book amount............................. 11,900.1 11,978.9
-------- --------
Borrowings
Current............................................. 1,975.8 1,652.7
Non-current......................................... 4,359.9 3,829.7
-------- --------
Total............................................. 6,335.7 5,482.4
Opening amount...................................... 5,987.9 5,769.5
Acquisition of subsidiary........................... 1.4 10.9
Bonds issued........................................ 115.2 --
Repayment of borrowings............................. (32.6) (434.1)
Translation difference.............................. 263.8 136.1
-------- --------
Closing amount...................................... 6,335.7 5,482.4
-------- --------
Acquisition
Property, plant and equipment....................... 2.2 11.1
Borrowings.......................................... (1.4) (10.9)
Other assets, less liabilities...................... 76.3 15.9
-------- --------
Fair value of net assets............................ 77.1 16.1
-------- --------
Goodwill............................................ -- 15.8
-------- --------
Total purchase consideration, net of cash......... 77.1 31.9
-------- --------
</TABLE>
Note 7--Inventories
<TABLE>
<CAPTION>
At March 31,
---------------
1999 2000
------- -------
(Euro) (Euro)
(in millions)
<S> <C> <C>
Materials and supplies.................................... 569.1 559.6
Work in progress.......................................... 75.9 74.8
Finished goods............................................ 650.4 630.8
Other inventories......................................... 59.5 78.2
------- -------
Total................................................... 1,354.9 1,343.4
======= =======
</TABLE>
F-72
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
Note 8--Shareholders' equity
Changes in number of shares
<TABLE>
<CAPTION>
Series A Series R Total
----------- ----------- -----------
<S> <C> <C> <C>
At December 31, 1998..................... 243,394,655 516,185,034 759,579,689
Change from Series A shares to Series R
shares.................................. (34,443,467) 34,443,467 --
Warrants exercised and registered October
26, 1999................................ -- 30,000 30,000
At December 31, 1999..................... 208,951,188 550,658,501 759,609,689
Warrants exercised and registered January
26, 2000................................ 246,000 246,000
At March 31, 2000........................ 208,951,188 550,904,501 759,855,689
</TABLE>
Group companies held 5,601 Series R treasury shares with a total nominal
value of (Euro)8,478 at March 31, 2000, representing less than 0.1% of the
total share capital and voting rights of the Company.
Option plan in 2000 for key personnel
The Annual General Meeting approved the continuance of the annual rolling
incentive scheme initiated in 1999 for approximately 200 key personnel in 2000.
The plan is an integrated part of the top management compensation structure.
The seven-year options may be exercised between April 1, 2003 and March 31,
2007 and entitle the participant either to cash compensation in the form of the
difference between the strike price and the prevailing share price or to an
option to purchase outstanding shares. The strike price is (Euro)12.25 based on
the average Series R share price in the period of three days prior and after
the Annual General Meeting on March 21, 2000, plus a premium of 10%. In an
attempt to minimize the cost of the option plan, Stora Enso has entered into a
financial derivative agreement. Because these options are synthetic, there is
no dilution on outstanding shares. The options are not transferable and expire
if the employee leaves the Group.
Note 9--Commitments and contingencies
<TABLE>
<CAPTION>
At March 31,
---------------
1999 2000
------- -------
(Euro) (Euro)
(in millions)
<S> <C> <C>
Commitments and contingent liabilities
On own behalf
Pledges given................................................. 134.2 67.6
Mortgages..................................................... 611.8 646.0
On behalf of associated companies
Mortgages..................................................... 1.0 1.0
Guarantees.................................................... 119.3 11.2
On behalf of others
Pledges given................................................. -- 2.6
Guarantees.................................................... 119.5 201.6
Other commitments, own
Leasing commitments, in next 12 months........................ 26.5 23.2
Leasing commitments, after next 12 months..................... 111.0 95.3
Pension liabilities........................................... 2.7 3.0
Other commitments............................................... 17.6 42.3
Total.......................................................
Pleges given.................................................. 134.2 70.2
Mortgages..................................................... 612.8 647.0
Guarantees.................................................... 238.8 212.8
Leasing commitments........................................... 137.5 118.5
Pension liabilities........................................... 2.7 3.0
Other commitments............................................. 17.6 42.3
------- -------
Total....................................................... 1,143.6 1,093.8
------- -------
</TABLE>
F-73
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
Contingent assets at March 31, 1999 consisted of a surplus in the Swedish
pension system. There were no contingent assets at March 31, 2000.
Note 10--Financial instruments
The following table presents the fair values and nominal amounts of the
Group's financial instruments outstanding at March 31, 1999 and 2000. The fair
values of financial instruments are defined as the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced liquidation or sale.
<TABLE>
<CAPTION>
At March 31,
---------------
1999 2000
------- -------
(Euro) (Euro)
Financial instruments (in millions)
<S> <C> <C>
Fair value
Interest rate derivatives.............................. 23.8 (0.5)
Foreign exchange derivatives........................... 54.1 20.3
Nominal value
Interest rate derivatives.............................. 7,810.2 1,059.8
Foreign exchange derivatives........................... 8,263.0 3,781.9
</TABLE>
Note 11--Subsequent events
On April 17, 2000, Stora Enso entered into an agreement to sell a significant
portion of its off-mill site energy operations, including its shares in
affiliated hydro power and nuclear power generators entitling Stora Enso to
energy generation capacity, its regional power distribution networks and power
sales agreements to Fortum Oyj, a Finnish energy and petro-chemical company,
for a purchase price of approximately (Euro)1.8 billion, including the
assumption of approximately (Euro)1.2 billion in debt. As a result of the sale,
Stora Enso expects to record a gain on the disposition of approximately
(Euro)530 million before tax and approximately (Euro)513 million after tax. The
transaction was completed on May 31 and June 5, 2000.
Note 12--Summary on differences between IAS and U.S. GAAP
The Group's consolidated financial statements are prepared in accordance with
International Accounting Standards ("IAS"), which differ in a number of
respects from the accounting principles generally accepted in the United States
("U.S. GAAP"). The following summary provides a narrative explanation of the
principal differences as applied to Stora Enso. This summary should be read in
conjunction with the annual consolidated financial statements of Stora Enso.
Employee benefit plans
Under IAS, the determination of pension expense for defined benefit plans
differs from the methodology set forth in U.S. GAAP. For purposes of U.S. GAAP,
the Group has estimated the effect on net income and shareholders' equity
assuming the application of SFAS No. 87 in calculating pension expense as of
January 1, 1998.
Business combination
In December 1998, Enso Oyj acquired STORA through a share exchange
transaction and changed its name to Stora Enso Oyj. The business combination
was accounted for using the uniting of interests method in the consolidated
financial statements prepared in accordance with IAS. Under U.S. GAAP, the
business combination is accounted for as a purchase (reverse acquisition), with
STORA as the accounting acquiror.
F-74
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS--(Continued)
Forest assets
Under IAS, forest assets are stated at historical acquisition cost and
include reforestation costs arising from the planting and care of fast-growing
forest holdings outside Finland and Sweden. Reforestation costs related to
forest holdings in Finland and Sweden are expensed as incurred and provisions
for replanting forests are made. For purposes of U.S. GAAP, forest assets are
stated at the lower of cost and market value. Cost includes all expenditures
incurred on the acquisition of the forest (excluding land cost) plus
reforestation cost less depletions. Capitalized costs related to forest assets
harvested each year are included in the income statement as depletions. Under
U.S. GAAP, replanting costs are capitalized as part of the forest assets as
incurred.
Investments in marketable securities
Under IAS, the Group's marketable investments are recorded at cost and
carried at the lower of cost and market value determined on a portfolio basis.
Changes in market values are not recognized until realized. Under U.S. GAAP,
the Group's investments in equity securities with readily determinable market
values are classified as available-for-sale securities within non-current
assets and reported at fair value, with unrealized gains and losses excluded
from earnings and reported, net of applicable taxes, in a separate component of
shareholders' equity.
Derivative financial instruments
The Group enters into forward exchange contracts to manage its foreign
exchange exposure related to certain anticipated future revenues and expenses
denominated in foreign currencies other than the euro. Certain of these
transactions are entered into in respect of future revenues and expenses that
are not covered by firm commitments. As permitted under IAS, the Group defers
the unrealized gains and losses on such hedges until the related revenue and
expense are realized. Under U.S. GAAP such unrealized gains and losses must be
included in the determination of net income.
The Group has entered into series of long-term equity swaps. Under IAS, the
Group has accrued interest on the notional amount of the swaps as well as
included the dividend payments received in its consolidated income statement.
Under U.S. GAAP, these equity swaps are considered as derivative financial
instruments that do not fulfill the criteria for hedge accounting, thus,
unrealized gains and losses must be included in the determination of net
income.
Sale-leaseback transaction
Under IAS, the Group has recognized a gain resulting from a sale and
leaseback transaction qualifying as an operating lease. Due to the Group's
continuing involvement with the assets, the sale and leaseback transaction is
classified as a financing arrangement under U.S. GAAP and the gain is deferred
and amortized over the longer of the remaining useful life of the asset or the
lease.
Impairment of goodwill
Under IAS, the Group has recognized an impairment charge on goodwill and in
determining the recoverable amount of these assets the Group has used
discounted future cash flows expected to result from the use and eventual
disposition of these assets. Under U.S. GAAP, expected cash flows used in
determination of an asset's recoverable amount should be undiscounted. The
recoverable amount based on undiscounted cash flows exceeds the carrying value
and therefore no impairment exists relating to these assets under U.S. GAAP.
F-75
<PAGE>
STORA ENSO OYJ AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS--(Continued)
Stock compensation
Under IAS, no compensation is recognized for equity compensation benefits for
stock warrants or for cash payments that will depend on the future market price
of the Company's stock. For stock warrants under U.S. GAAP, the difference
between the fair market value and of the stock less the amount paid by the
employee is treated as compensation expense in the year the option is granted.
For cash awards based on the company's stock performance, where compensation is
measured each period and between the exercise price and the current stock price
and the compensation, if any, is accrued as a charge to expense over the future
service period and adjusted in subsequent periods up to the measurement date
for changes, either increases or decreases, in the stock price.
Synthetic option hedge
In connection with the establishment of the synthetic option schemes, Stora
Enso has entered into total return swaps in order to mitigate its exposure on
the appreciation of its shares. Under IAS, Stora Enso has accrued for the
interest payment on the notional amount of these swaps and for the difference
between the exercise price and the hedged stock price. For U.S. GAAP purposes,
these transactions do not qualify for hedge accounting and are therefore marked
to market together with the fair value of the option schemes with the resulting
unrealized loss included in the determination of net income.
F-76
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Stora Enso Oyj:
In our opinion, the income statements and cash flow statements of Enso Group
(the "Company"), an integrated part of Stora Enso Oyj, as defined in Note 1 to
the consolidated income statements and cash flow statements, present fairly, in
all material respects, the results of its operations and its cash flows for
each of the two years in the period ended December 31, 1998, in conformity with
International Accounting Standards. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in Finland, which are substantially the same as those followed in the
United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
The Company is a fully integrated part of Stora Enso Oyj. Consequently, as
indicated in Note 2, these financial statements have been derived from the
consolidated financial statements and accounting records of Stora Enso Oyj.
International Accounting Standards vary in certain significant respects from
accounting principles generally accepted in the United States and as allowed by
Item 17 to Form 20-F. The application of the latter would have affected the
determination of consolidated net profit expressed in Euros for the period
ended December 31, 1998, to the extent summarized in Note 11 to the
consolidated financial statements.
SVH Pricewaterhouse Coopers Oy
/s/ Pekka Nikula
---------------------------------
Pekka Nikula
Authorized Public Accountant
Helsinki, Finland
April 22, 2000
F-77
<PAGE>
ENSO GROUP
CONSOLIDATED INCOME STATEMENTS
(in millions, except for per share amounts)
<TABLE>
<CAPTION>
Year ended
December 31,
------------------
Note 1997 1998
---- -------- --------
(Euro) (Euro)
<S> <C> <C> <C>
Sales................................................ 3 4,922.5 5,298.4
Changes in inventories of finished goods and work in
progress............................................ (8.8) 27.4
Other operating income............................... 5 26.1 22.1
Materials and services............................... (2,527.5) (2,668.2)
Freight and sales commissions........................ (565.5) (479.6)
Personnel expenses................................... 6 (797.1) (865.5)
Depreciation, amortization and impairment charges.... 9 (375.3) (427.3)
Other operating expenses............................. (172.8) (299.5)
-------- --------
Operating Profit..................................... 3 501.6 607.8
Net financial items.................................. 7 (150.9) (184.4)
Share in results of associated companies............. 16.5 9.9
-------- --------
Profit before tax and minority interests............. 367.2 433.4
Income tax expense................................... 8 (129.0) (149.7)
-------- --------
Profit after tax..................................... 238.2 283.7
Minority interests................................... (11.4) (5.7)
-------- --------
Net profit for the period............................ 226.8 278.0
======== ========
Basic earnings per share............................. 10 0.73 0.89
Diluted earnings per share........................... 10 0.73 0.89
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
All balances have been restated from Finnish markka into euros using the
conversion rate as of January 1, 1999.
F-78
<PAGE>
ENSO GROUP
CONSOLIDATED CASH FLOW STATEMENTS
(in millions)
<TABLE>
<CAPTION>
Year ended
December 31,
--------------
1997 1998
------ ------
(Euro) (Euro)
<S> <C> <C>
Net profit for the period..................................... 226.8 278.0
Reversal of non-cash items
Minority interests........................................... 11.4 5.7
Taxes........................................................ 129.0 149.7
Depreciation, amortization and impairment charges............ 375.3 427.3
Share of results of associated companies..................... (16.5) (9.9)
Profit and losses on sale of fixed assets.................... (8.0) (7.9)
Net financial income......................................... 150.9 184.4
Interest received............................................. 11.1 2.5
Interest paid, net of amount capitalized...................... (185.6) (183.0)
Dividends received............................................ 2.1 2.3
Other financial items, net.................................... 21.5 (6.2)
Income taxes paid............................................. (62.5) (31.0)
Change in net working capital, net of businesses acquired or
sold......................................................... (12.5) 75.4
------ ------
Net cash provided by operating activities..................... 643.0 887.2
------ ------
Cash flow from investing activities
Acquisition of subsidiary shares, net of cash................. (223.4) (330.5)
Acquisition of shares in associated companies................. (11.4) (84.4)
Investment in shares in other companies....................... (0.2) (4.6)
Capital expenditures.......................................... (382.5) (300.5)
Proceeds from dispositions of subsidiary shares, net of cash.. 111.6 --
Proceeds from sale of fixed assets............................ 24.5 23.3
Other......................................................... (2.4) (1.7)
Proceeds from (payments of) long-term receivables, net........ 27.7 1.9
------ ------
Net cash used in investing activities ........................ (456.2) (696.5)
------ ------
Cash flow from financing activities
Proceeds from (payments of) long-term liabilities, net........ (22.6) 131.4
Proceeds from (payments of) short term borrowings, net........ (82.6) (148.0)
Dividends paid................................................ (94.3) (115.5)
Other......................................................... (6.7) 3.5
------ ------
Net cash used in financing activities......................... (206.2) (128.6)
------ ------
Net increase (decrease) in cash and cash equivalents.......... (19.4) 62.1
Effect of exchange rate changes on cash and cash equivalents.. (3.9) (0.3)
Cash and cash equivalents at beginning of year................ 123.1 99.8
------ ------
Cash and cash equivalents at end of period.................... 99.8 161.5
====== ======
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
All balances have been restated from Finnish markka into euros using the
conversion rate as of January 1, 1999
F-79
<PAGE>
ENSO GROUP
CONSOLIDATED CASH FLOW STATEMENTS
Supplemental Cash Flow Information:
<TABLE>
<CAPTION>
Year ended
December 31,
-------------
1997 1998
------ -----
Change in net working capital, net of businesses acquired or sold include
<S> <C> <C>
Change in inventories............................................ 55.0 (66.3)
Change in interest-free receivables.............................. (252.1) 62.3
Change in interest-free liabilities.............................. 126.6 113.0
Proceeds from (payments of) short-term receivables............... 58.0 (33.6)
------ -----
(12.5) 75.4
====== =====
Acquisition of group companies
Cash flow on acquisition
Purchase consideration on acquisitions........................... 310.0 335.9
Cash and cash equivalents in acquired companies.................. (86.6) (5.4)
------ -----
223.4 330.5
====== =====
Acquired net assets
Operating working capital........................................ 4.7 15.5
Operating fixed assets........................................... 365.3 408.5
Interest-bearing assets less cash and cash equivalents........... 4.4 (1.3)
Tax liabilities.................................................. -- 3.4
Interest bearing liabilities..................................... (84.6) (96.3)
Minority interests............................................... (66.4) 0.7
------ -----
223.4 330.5
====== =====
Disposition of subsidiary shares
Sale consideration from disposal of companies.................... 111.6 --
Net assets sold
Operating working capital........................................ 5.5 --
Operating fixed assets........................................... 30.6 --
Gain on sale..................................................... 75.5 --
------ -----
111.6 --
====== =====
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
All balances have been restated from Finnish markka into euros using the
conversion rate as of January 1, 1999
F-80
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting policies
Background and description of Business
In December 1998, Enso Oyj (the "Company" or "Enso") changed its name to
Stora Enso Corporation ("Stora Enso") in connection with the consummation of
the acquisition through a share exchange by the Company of Stora Kopparbergs
Bergslags Aktiebolag (publ) ("STORA"), whereby shareholders of STORA converted
96.1% of their shares in STORA into shares of the Company. After the share
exchange, shareholders of STORA held 59.0% of the shares and 54.3% of the
voting rights in the Company.
As the acquisition was consummated at year-end 1998, both STORA and the
Company had continued to operate as separate legal consolidated subgroup of
companies. Accordingly, the accompanying consolidated financial statements
present the Company and its subsidiaries and their operations at December 31,
1998 and 1997, as they would have been presented had the Company not been the
legal acquirer of STORA and not accounted for the acquisition as an uniting of
interests with restatement of all prior periods.
Enso is a Finnish limited liability company organized under the laws of the
Republic of Finland and domiciled in Helsinki. The operations of Enso and its
subsidiaries (together "Enso Group" or "the Group") were organized into four
core segments. The four segments were base industries, fine paper, publication
paper and packaging boards. The three latter segments engage in the
manufacturing and supply of various board and paper products. Base industries
is responsible for resources, such as wood procurement, pulp, sawmilling, and
energy. The main market for the Company's products is in Europe.
2. Basis of presentation
Although Enso operated as a separate legal consolidated subgroup, it was the
legal acquirer of STORA. Accordingly, Enso did not prepare separate financial
statements in accordance with International Accounting Standards in the normal
course of business without giving effect to the acquisition of STORA.
Consequently, these financial statements have been derived by extracting the
acquisition of STORA and its effect on assets, liabilities, and revenues and
expenses of Enso. The accompanying financial statements reflect revenues and
expenses directly attributable to Enso prior to the acquisition of STORA on a
stand-alone basis.
Accounting convention
The consolidated financial statements of Enso Group are prepared in
accordance with and comply with International Accounting Standards ("IAS"), and
include the financial statements of Enso Oyj and its subsidiaries. The
financial statements are prepared under the historical cost convention.
Stora Enso has previously prepared and reported its consolidated financial
statements in Finnish markka ("FIM"). With the introduction of the euro
("(Euro)") on January 1, 1999, Stora Enso has elected to present its
consolidated financial statements in euro. Accordingly, the Finnish markka
consolidated financial statements of Stora Enso for each period presented have
been restated into euros using the Finnish markka/euro irrevocable conversion
rate as of January 1, 1999 (Euro)1.00=FIM 5,94573. Therefore, Enso's
consolidated financial statements for the years ended December 31, 1997 and
1998 have also been restated into euros. Enso's restated euro financial
statements depict the same trends as would have been presented if it had
continued to present its consolidated financial statements in Finnish markka.
Enso's consolidated financial statements will, however, not be comparable to
the euro financial statements of other companies that previously reported their
financial information in a currency other than Finnish markka.
F-81
<PAGE>
ENSO GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Principles of consolidation
The consolidated financial statements include the parent company, Enso Oyj,
and all companies in which it holds, directly or indirectly, over 50% of the
voting rights. The financial statements of some companies which Enso Group
controls but in which Enso holds less than 50% of the voting rights are also
consolidated. Associated companies (voting rights between 20% and 50%) are
consolidated using the equity method. Associated companies are undertakings
where the Group has significant influence, but which it does not control.
Provisions are recorded for long term impairment value. Equity accounting
involves recognizing in the income statement the Group's share of the
associates' profit or loss for the year. The Group's interest in the associated
company is carried in the balance sheet at an amount that reflects its share of
the net assets of the associate and includes goodwill on the acquisition.
Companies, that have been acquired, are accounted for under the purchase
method and are included in the consolidated financial statements from the date
of their acquisition. Divestments are included in the consolidated financial
statements until the date of sale.
All inter-company transactions, receivables, liabilities and unrealized
profits as well as the distribution of the profits within the Group are
eliminated. When necessary accounting policies for subsidiaries have been
changed to ensure consistency with the policies adopted by the Group. Minority
interests have been disclosed separately from the consolidated shareholders'
equity and are recorded as a separate deduction in the consolidated income
statement.
Transactions in foreign currencies
Transactions in foreign currencies are recorded at the rates of exchange
prevailing at the date of the transactions. An approximate exchange rate is
used for the transactions entered into during a month. At the end of month the
foreign currency denominated receivables and liabilities in the balance sheet
are valued using the end of the month exchange rate. The foreign exchange
differences of operating business items are entered into the respective income
statement account before operating profit. Foreign exchange differences on
financial assets and liabilities are entered as a net amount in the financial
items of the income statement.
Subsidiaries
The income statements of subsidiaries outside of Finland are translated into
reporting currency using the average exchange rate for the year. The balance
sheets of subsidiaries outside of Finland are translated into reporting
currency using the exchange rates prevailing at the balance sheet date. The
resulting translation differences are recorded directly to shareholders'
equity. The cumulative translation differences of divestments are offset
against the gain or loss on disposal.
Derivative financial instruments
The Group enters into derivative financial instruments to hedge its exposure
against foreign currency fluctuations on selected balance sheet assets,
liabilities, and anticipated transactions denominated in foreign
F-82
<PAGE>
ENSO GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
currencies. The derivative financial instruments used to hedge foreign exchange
risk are forward exchange contracts, foreign exchange options and currency
swaps.
The subsidiaries handle all their foreign currency dealings in conjunction
with Group treasury. Their foreign currency exposure is largely hedged through
forward agreements. Gains and losses on forward exchange contracts hedging
future cash flows are recognized by the subsidiaries in the period when the
sale or purchase transactions are recognized. The Group treasury values all
outstanding forward exchange contracts with market rates prevailing at the
balance sheet date and the unrealized gains and losses are recorded in the
income statement under financial items. These forward exchange contracts are
short-term in nature, maturing on average, within six months.
Premiums paid for purchased foreign currency options are entered under option
premiums paid and premiums received for written options are entered as premiums
received at the date of the payment under financial items. Profits and losses
are booked on maturity of the agreements and entered as adjustments to
financial items. Option contracts are valued at the balance sheet date by using
generally approved option valuation models and the resulting unrealized gains
and losses (i.e., fair values) are recorded under financial items.
Currency swaps are valued at the balance sheet date by using foreign exchange
rates prevailing at the balance sheet date. Interest rate payables and
receivables under currency swaps are accrued and recorded under interest income
and expense.
The Group enters into derivative financial instruments such as forward
interest rate agreements and interest rate swap agreements to hedge its
exposure to interest rate risk.
Profits and losses on interest rate forward rate agreements are recorded when
cash flows are realized.
Interest payable and receivable under interest rate swaps is accrued at the
balance sheet date and included in interest income or expense.
Revenue recognition
Sales are recorded upon shipment of products or rendering services to
customers in accordance with agreed terms of sales.
Sales include the sale of products, raw material, energy supplies, services
and energy less indirect sales tax, sales discounts and exchange differences on
sales in foreign currencies.
Other operating income includes rental income, subsidies and gains from sale
of fixed assets.
Provisions
Provisions are recognized when the Group has a present legal or constructive
obligation as a result of past events, it is probable that an outflow of
resources embodying an economic benefit will be requested to settle the
obligation and a reliable estimate of the amount of the obligation can be made.
Research and development
Research and development costs are expensed as incurred. Research and
development expenses totaled (Euro)32.8 million and (Euro)33.5 million for the
years ended December 31, 1997 and 1998, respectively. Research and development
expenses are included in other operating expenses in the consolidated income
statement.
F-83
<PAGE>
ENSO GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Computer software development costs
Development costs or acquisition cost of new software that are clearly
associated with an identifiable and unique product which will be controlled by
the Group and has probable benefit exceeding the cost beyond one year are
recognized as an intangible asset and depreciated over the software's expected
useful life. Associated costs include staff costs of the development team and
an appropriate portion of overhead. The cost to maintain software is expensed
as incurred. Costs associated with the development or adjustment of software
for the euro conversion and year 2000 are expensed as incurred.
Environmental remediation costs
Environmental expenditures that result from remediation of an existing
condition caused by past operations, and that do not contribute to current or
future revenues, are expensed as incurred. Environmental liabilities are
recorded based on current interpretations of environmental laws and regulations
when it is probable that a present obligation has arisen and the amount of such
liability can be reliably estimated. Amounts accrued are not discounted and do
not include third-party recoveries.
Impairment
The carrying amounts of assets are reviewed at each balance sheet date to
determine whether there is any indication of impairment. If any such indication
exists, the recoverable amount is estimated as the higher of the net selling
price and the value in use. An impairment loss is recognized whenever the
carrying amount exceeds the recoverable amount.
A previously recognized impairment loss is reversed if there has been a
change in the estimates used to determine the recoverable amount, however not
to an extent higher than the carrying amount that would have been determined
had no impairment loss been recognized in prior years. For goodwill a
recognized impairment loss is not reversed, unless (a) the impairment loss was
caused by a specific external event of an exceptional nature that is not
expected to recur; and (b) subsequent external events have occurred that
reverse the effect of that event.
Property, plant and equipment
Property, plant and equipment are stated at historical cost less straight-
line accumulated depreciation. Interest cost on borrowings to finance the
construction of property, plant and equipment are capitalized during the period
of time that is required to complete and prepare the property for its intended
use, as part of the asset. Land includes charges arising from the planting and
care of fast growing forest holdings outside Finland. Depreciation is based on
the following expected useful lives:
<TABLE>
<S> <C>
Buildings
Industrial................................................... 10-40 years
Hydroelectric power.......................................... 40-50 years
Office & residential......................................... 20-50 years
Heavy machinery
Pulp and paper machines...................................... 20 years
Sawmills..................................................... 12-15 years
Light machinery................................................ 10 years
Computer equipment, vehicles, office equipment and light
forestry machinery............................................ 4-10 years
</TABLE>
Land is not depreciated as it is deemed to have an indefinite life.
F-84
<PAGE>
ENSO GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Ordinary maintenance and repair charges are expensed as incurred. However,
the cost of significant improvements and renewals is capitalized and
depreciated over the remaining useful life of the related asset. Retirements,
sales and disposals of property, plant and equipment are recorded by removing
the cost and accumulated depreciation from the accounting records with any
resulting gain or loss reflected in the income statement.
Assets to be disposed of are reported at the lower of the carrying amount and
fair value less cost to sell.
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair
value of the Group's share of the net assets of the acquired
subsidiary/associated undertaking at the date of the acquisition. Goodwill is
reported using the exchange rate at the date of the acquisition. Goodwill is
amortized on a straight-line basis over its expected useful life. Useful lives
vary from 5 to 20 years, depending on the nature of the acquisition. Expected
useful lives are reviewed at each balance sheet date and where these differ
from previous estimates, amortization periods are adjusted accordingly.
Intangible assets
Intangible assets include trademarks, patents, copyrights and software
licenses. Intangible assets are amortized on a straight-line basis over
expected useful lives. Useful lives vary from between 5 to 10 years.
Accounting for leases
Leases of property, plant and equipment where the Group assumes substantially
all benefits and risks of ownership are classified as finance leases. Finance
leases are capitalized at the inception of the lease at the lower of the fair
value of the leased property or at the estimated present value of the
underlying lease payments. Each lease payment is allocated between the
liability and finance charges so as to achieve a constant rate on the finance
balance outstanding. The corresponding rental obligations, net of finance
charges are included in interest-bearing liabilities. The interest element of
the finance charge is charged to the income statement over the lease period.
Property, plant and equipment acquired under finance leasing contracts are
depreciated over the lesser of the useful life of the asset or lease period.
Leases of assets under which all the risks and benefits of ownership are
retained by the lessor are classified as operating leases. Payments made under
operating leases and rental agreements are expensed on a straight-line basis
over the period of the lease.
When an operating lease is terminated before the lease period has expired,
any payment required to be made to the lessor by way of penalty is recognized
as an expense in the period in which termination takes place.
Inventories
Inventories are reported at the lower of cost and net realizable value. Cost
is determined by the first-in, first-out (FIFO) method. The cost of finished
goods and work in progress comprises raw material, direct labor, other direct
costs and related production overhead but excludes interest expense.
Trade receivables
Trade receivables are carried at anticipated realizable value. An estimate is
made for doubtful receivables based on a review of all outstanding amounts at
year-end.
F-85
<PAGE>
ENSO GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, deposits held at call with
banks, and other liquid investments with original maturity less than three
months, net of bank overdrafts. Bank overdrafts are included in short-term
borrowings under current liabilities.
Investments
Investments in marketable equity securities are carried at the lower of cost
and market value determined on a portfolio basis. The Group evaluates the
carrying amounts of its long-term investments and recognizes declines other
than temporary in the value of the investments on an individual basis.
Employee benefits
The Group operates a number of defined benefits and defined contribution
plans throughout the world, the assets of which are generally held in separate
trustee administered funds. The pension plans are generally funded by payments
from employees and by the relevant Group companies, taking into account the
recommendations of independent qualified actuaries. The Group's contributions
to the defined contribution pension plans are charged to the income statement
in the year to which they relate.
Government grants
Government grants relating to the purchase of property, plant and equipment
are included in non-current liabilities as deferred income. The grants are
credited to the income statement on a straight-line basis over the expected
lives of the related assets.
Income Taxes
The Group's income tax expense includes taxes of Group companies based on
taxable profit for the period together with tax adjustments for previous
periods, the change in deferred income taxes and share of tax of associated
companies.
Deferred income taxes are provided using the liability method to reflect the
net tax effects of all temporary differences between the financial reporting
and tax bases of assets and liabilities and are measured using the enacted tax
rates. Principal temporary differences arise from intercompany profit in
inventory, depreciation on property, plant and equipment, untaxed reserves, and
tax losses carried forward. Deferred tax assets relating to the carryforward of
unused tax losses are recognized to the extent that it is probable that future
taxable profit will be available against which unused tax losses can be
utilized.
Temporary differences for accumulated depreciation and untaxed reserves
(appropriations) are recorded in shareholders' equity and deferred tax
liability in the consolidated balance sheet. Under Finland's Companies Act, the
temporary differences for untaxed reserves and accumulated depreciation
difference included in shareholders' equity are excluded from distributable
funds.
Dividends
The dividend proposed by the Board is not deducted from the distributable
shareholders' equity until the shareholders' decision at the Annual General
Meeting.
F-86
<PAGE>
ENSO GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Earnings per share
Earnings per share are computed by dividing net profit for the year by the
weighted average number of shares outstanding during each period. The average
number of treasury shares has been deducted from the number of outstanding
shares.
The diluted earnings per share have been computed by applying the "treasury
stock" method, under which earnings per share data is computed as if the
warrants and options were exercised at the beginning of the period, or on
issuance, if later, and as if the funds obtained thereby were used to purchase
common stock at the average market price during the period. In addition to the
weighted average number of shares outstanding, the denominator includes the
incremental shares obtained through the assumed exercise of the warrants and
options.
The assumption of exercise is not reflected in earnings per share when the
exercise price of the warrants and options exceeds the average market price of
the common stock during the period. The warrants and options have a dilutive
effect only when the average market price of the common stock during the period
exceeds the exercise price of the warrants and options.
3. Product area information
Enso's businesses on a worldwide basis are organized by product areas into
four industry segments--base industries, packaging boards, fine paper, and
publication paper. The base industries segment is responsible for producing and
maintaining resources both for internal and external purposes. It comprises
wood procurement, production of chemical pulp, sawmilling, and energy.
Packaging boards manufactures and supplies consumer packaging boards,
corrugated boards, corrugated board raw materials, coreboard, and paperboard
tubes. The fine paper segment manufactures and supplies graphic paper, office
paper, specialty paper, and digital printing paper. The publication paper
segment manufactures newsprint, magazine paper, and specialties.
The accounting policies of the reportable segments are the same as those
described in Note 2 to the Consolidated Financial Statements. Segment sales
include intersegment sales valued at arm's length transfer prices. The Group
evaluates the performance of its operating segments and allocates resources to
them based on operating performance.
Information about Enso's segments for the years ended December 1997 and 1998
is shown in the following tables:
Sales, Operating profit and Capital employed by segment
<TABLE>
<CAPTION>
Operating Capital
Sales profit employed (1)
------------------ -------------- ---------------
Year ended December 31,
---------------------------------------------------
1997 1998 1997 1998 1997 1998
-------- -------- ------ ------ ------- -------
(Euro) (Euro) (Euro) (Euro) (Euro) (Euro)
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Base industries.......... 2,222.2 2,223.0 128.6 89.0 1,605.4 1,766.5
Packaging boards......... 1,423.5 1,385.0 203.9 156.3 1,128.5 1,073.9
Fine papers.............. 1,070.5 1,252.7 74.1 119.2 1,401.2 1,547.8
Publication papers....... 1,359.2 1,650.7 118.5 265.4 1,344.2 1,623.2
Other operations and
elimination............. (1,152.9) (1,213.0) (23.5) (22.1) 84.5 (269.3)
-------- -------- ----- ----- ------- -------
Group total............ 4,922.5 5,298.4 501.6 607.8 5,563.8 5,742.1
======== ======== ===== ===== ======= =======
</TABLE>
--------
(1) Total capital employed represents operating capital less net tax
liabilities.
F-87
<PAGE>
ENSO GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Depreciation, amortization and impairment charges by segment
<TABLE>
<CAPTION>
Year ended
December 31,
-------------
1997 1998
------ ------
(Euro) (Euro)
(in millions)
<S> <C> <C>
Base industries................................................... 49.6 54.8
Packaging boards.................................................. 84.2 97.6
Fine papers....................................................... 91.5 104.8
Publication papers................................................ 127.1 154.6
Other operations.................................................. 22.9 15.5
----- -----
Group total..................................................... 375.3 427.3
----- -----
</TABLE>
Sales by Destination
<TABLE>
<CAPTION>
Year ended
December 31,
---------------
1997 1998
------- -------
(Euro) (Euro)
(in millions)
<S> <C> <C>
Germany......................................................... 657.7 815.7
UK.............................................................. 695.5 776.2
France.......................................................... 385.1 450.5
Sweden.......................................................... 150.0 179.2
Finland......................................................... 719.0 702.6
Netherlands..................................................... 294.2 336.1
Italy........................................................... 164.6 191.8
Belgium......................................................... 139.5 162.7
Spain........................................................... 258.3 266.5
Denmark......................................................... 86.9 95.3
Other EU........................................................ 174.1 172.6
Total EU........................................................ 3,724.9 4,149.3
Other Europe.................................................... 256.1 323.9
North America................................................... 134.1 171.4
Asia Pacific.................................................... 441.7 272.8
Others.......................................................... 365.7 381.0
------- -------
Total......................................................... 4,922.5 5,298.4
======= =======
</TABLE>
4. Effect of major acquisitions and disposals
Acquisitions
Enso acquired E. Holtzmann AG & Cie AG in several steps between April 1997
and November 1998. The total acquisition cost of the shares amounted to
(Euro)599.6 million. The acquisition resulted in goodwill of (Euro)165.2
million.
The Group acquired Holzindustrie Schweighofer GmbH in December 1998. A
portion of the purchase price was paid in cash and the remainder was paid in
shares of Enso Timber Oy, giving the Schweighofer family a 33% interest in Enso
Timber Oy. The acquisition resulted in goodwill of (Euro)82.9 million.
Disposal
Enso Paperikemia Oy sold its business activity, fixed assets and inventories
in February 1997.
F-88
<PAGE>
ENSO GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Other operating income
<TABLE>
<CAPTION>
Year ended
December 31,
-------------
1997 1998
------ ------
(Euro) (Euro)
(in millions)
<S> <C> <C>
Gains on sale of fixed assets and other long-term
investments................................................. 15.4 7.8
Rent......................................................... 7.6 10.1
Subsidies.................................................... 3.1 4.2
---- ----
Total...................................................... 26.1 22.1
==== ====
Losses on sale of fixed assets and other long-term
investments included in other operating expenses............ (7.5) (1.4)
</TABLE>
6. Personnel expenses
<TABLE>
<CAPTION>
Year ended December 31,
------------------------
1997 1998
----------- -----------
(Euro) (Euro)
(in millions)
<S> <C> <C>
Wages and salaries............................... 609.2 672.1
Pensions and other statutory employers'
contributions................................... 187.9 193.4
----------- -----------
Total.......................................... 797.1 865.5
=========== ===========
Pension expense and other statutory employer's contributions:
<CAPTION>
Year ended December 31,
------------------------
1997 1998
----------- -----------
(Euro) (Euro)
(in millions)
<S> <C> <C>
Pension expenses paid to pension funds
Obligatory..................................... 31.9 40.6
Voluntary...................................... 4.7 7.4
Pension expenses paid to insurance companies
Obligatory..................................... 58.9 58.3
Voluntary...................................... 0.5 2.8
Accrued pension liabilities in the period........ 10.7 (0.1)
Top management pension arrangements.............. 0.9 0.9
Training......................................... 0.4 1.0
Other personnel costs
Obligatory..................................... 78.7 81.5
Voluntary...................................... 1.3 1.0
----------- -----------
Total.......................................... 187.9 193.4
=========== ===========
7. Net financial items
<CAPTION>
Year ended December 31,
------------------------
1997 1998
----------- -----------
(Euro) (Euro)
(in millions)
<S> <C> <C>
Dividend income.................................. 2.1 2.3
Interest income.................................. 11.1 2.5
Other financial income........................... 9.5 26.8
Exchange gains and losses........................ 22.9 (30.0)
Interest expenses................................ (185.6) (183.0)
Other financial expenses......................... (10.9) (3.0)
----------- -----------
Total.......................................... (150.9) (184.4)
=========== ===========
</TABLE>
F-89
<PAGE>
ENSO GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Income taxes
The (expense) credit for income taxes consist of the following:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------
1997 1998
----------- -----------
(Euro) (Euro)
(in millions)
<S> <C> <C>
Tax (expense) credit
Current tax expense
Finnish Group companies........................ (42.0) (110.3)
Swedish Group companies........................ (1.5) (1.4)
German Group companies......................... (21.2) 2.1
Other Group companies.......................... (0.4) (7.6)
Change in deferred taxes
Finnish Group companies........................ (75.7) 4.6
Swedish Group companies........................ -- --
German Group companies......................... 10.3 (4.2)
Other Group companies.......................... 6.1 (30.4)
Taxes of associated companies.................... (4.6) (2.5)
----------- -----------
Total........................................ (129.0) (149.7)
=========== ===========
The following is a reconciliation of income taxes calculated at the 28% tax
rate:
<CAPTION>
Year ended December 31,
------------------------
1997 1998
----------- -----------
(Euro) (Euro)
(in millions)
<S> <C> <C>
Profit before tax and minority interests......... 367.2 433.4
Income tax at Finnish statutory rate of 28%...... 102.8 121.4
Impact of different tax rates outside Finland.... 18.4 12.4
Non-deductible expenses and tax exempt income,
net............................................. 4.3 9.8
Losses with no current tax benefit............... 0.6 22.6
Other items...................................... 2.9 (16.5)
----------- -----------
Income taxes in the consolidated income
statement....................................... 129.0 149.7
=========== ===========
</TABLE>
9. Depreciation, amortization and impairment charges
<TABLE>
<CAPTION>
Year ended
December 31,
--------------
1997 1998
------ ------
(Euro) (Euro)
(in millions)
<S> <C> <C>
Depreciation and amortization
Intangible assets............................................ (10.1) (9.6)
Buildings and structures..................................... (41.3) (44.9)
Machinery and equipment...................................... (297.2) (315.9)
Other tangible assets........................................ (12.9) (13.3)
Goodwill..................................................... (12.6) (26.4)
------ ------
Total depreciation and amortization........................ (374.1) (410.1)
====== ======
</TABLE>
F-90
<PAGE>
ENSO GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Year ended
December 31,
--------------
1997 1998
------ ------
(Euro) (Euro)
(in millions)
<S> <C> <C>
Impairment charges
Buildings and structures..................................... -- (0.1)
Machinery and equipment...................................... (1.2) (17.1)
------ ------
Total impairment charges................................... (1.2) (17.2)
====== ======
Depreciation, amortization and impairment charges............ (375.3) (427.3)
------ ------
</TABLE>
10. Earnings per share
Basic earnings per share is calculated as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1997 1998
----------- -----------
<S> <C> <C>
Net profit for the period, EUR, in millions......... 226.8 278.0
Weighted average number of Series A and R shares.... 311,085,229 311,085,229
Basic earnings per share, EUR....................... 0.73 0.89
</TABLE>
In 1997, the shareholders approved the plan to offer to 15 members of the
senior management bonds with warrants for a maximum amount of FIM 1,000,000
((Euro)168,187). Each FIM 1,000 ((Euro)168.19) bond carries one warrant
entitling the holder to subscribe to 3,000 of Series R shares at a subscription
price of FIM 45.57 ((Euro)7.66). The bonds accrue interest at 4.0% and mature
in five years.
Diluted earnings per share is calculated as follows:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Weighted average number of Series A and R shares... 311,085,229 311,085,229
Effect of warrants................................. 116,688 247,904
----------- -----------
Diluted number of shares........................... 311,201,917 311,333,133
</TABLE>
Diluted earnings per share
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Net profit for the period, EUR, in millions........ 226.8 278.0
Adjusted weighted average number of Series A and R
shares and assumed conversion..................... 311,201,917 311,333,133
Diluted earnings per share, EUR.................... 0.73 0.89
</TABLE>
11. Differences between International Accounting Standards and Generally
Accepted Accounting Standards in the United States
The Group's consolidated financial statements are prepared in accordance with
International Accounting Standards (IAS), which differ in a number of respects
from the accounting principles generally accepted in the United States (U.S.
GAAP). The principal differences between IAS and U.S. GAAP are presented and
described below, together with explanations of the adjustments that effect
consolidated net profit for the period indicated.
F-91
<PAGE>
ENSO GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Reconciliation of net profit
<TABLE>
<CAPTION>
Year ended
December 31, 1998
-----------------
(Euro)
(in millions,
except per share
amounts)
<S> <C>
Net profit in accordance with IAS............................ 278.0
U.S. GAAP adjustments:
a) Employee benefit plans.................................. 18.3
b) Forest accounting....................................... (2.8)
c) Derivative financial instruments........................ (20.3)
Deferred tax effect of U.S. GAAP adjustments................. 1.9
-----
Net income in accordance with U.S. GAAP.................... 275.1
=====
Basic and diluted earnings per share in accordance with
U.S. GAAP................................................. 0.88
</TABLE>
Consolidated Statement of Comprehensive Income
The Company has adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income", which establishes standards for the reporting
and presentation of comprehensive income and its components. The Company has
chosen to present the statement of comprehensive income in accordance with IAS.
Components of comprehensive income consist of the following:
Comprehensive income
<TABLE>
<CAPTION>
Year ended
December 31, 1998
-----------------
(Euro)
(in millions)
<S> <C>
Net profit in accordance with IAS............................. 278.0
Other comprehensive income, net of tax
Foreign currency translation adjustment...................... 7.2
-----
Comprehensive income in accordance with IAS................. 285.2
=====
</TABLE>
(a) Employee benefit plans
Under IAS, the determination of pension expense for defined benefit plans
differs from the methodology set forth in U.S. GAAP. Under U.S. GAAP, pension
expense is recorded on a full accrual basis and reflected in the income
statement over the working lives of the employees provided with such benefits.
The economic and demographic assumptions used in calculating pension expense
are required to be reviewed and updated periodically to the extent that local
market economic conditions and demographics change. Under U.S. GAAP, the Group
has estimated the effect on net income and shareholders' equity assuming the
adoption of SFAS No. 87 as of January 1, 1998. (The adoption of SFAS No. 87 on
the actual effective date of January 1, 1989 was not feasible). As of January
1, 1998, an unrecognized transition obligation was determined and is being
amortized over the then average future working lifetime of employee
participants commencing January 1, 1989.
F-92
<PAGE>
ENSO GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(b) Forest accounting
Under IAS accounts, forest assets are stated at historical acquisition cost.
Cost includes reforestation costs arising from the planting and care of fast-
growing forest holdings outside Finland. Reforestation costs related to the
forest holdings in Finland are expensed as incurred.
For purposes of U.S. GAAP, forests assets are stated at the lower of costs
and market value. Cost includes all expenditures incurred on the acquisition of
the forest (excluding land cost) plus reforestation cost less depletions.
Capitalized costs related to forest assets harvested each year are included in
the income statement as depletions.
Under U.S. GAAP, with regard to the forest holdings in Finland, capitalized
reforestation costs were (Euro)3.8 million and depletion of forests assets were
(Euro)6.6 million.
(c) Derivative financial instruments
Under U.S. GAAP, hedge (deferral) accounting is applied to qualifying
derivative financial instruments that are designated and effective as a hedge.
Unrealized gains and losses on such derivative financial instruments are
deferred until the gains and losses on the related underlying hedged items are
recognized. If the derivative financial instruments do not qualify as hedges,
unrealized gains and losses are recognized immediately in income.
The Group enters into forward exchange contracts and currency swaps to manage
its foreign exchange exposure related to some assets, liabilities and
anticipated future revenues and expenses denominated in foreign currencies
other than the euro. Some of these transactions are entered into in respect of
future revenues and expenses that are not covered by firm commitments. As
permitted under IAS, the Group defers the unrealized gains and losses on such
hedges until the related revenue and expense are realized. Under U.S. GAAP such
unrealized gains and losses must be included in the determination of net
income.
Under IAS, the Group records interest rate derivatives relating to interest
payments on its net debt in the profit and loss account along with the interest
payments on net debts according to the accrual method. Under U.S. GAAP, such
transactions do not qualify for hedge accounting treatment. Accordingly, the
Group's open interest rate derivatives are marked with the resulting gains and
losses currently recorded to the profit and loss account.
(d) Stock based compensation
Under IAS, no compensation is recognized for equity compensation benefits for
stock warrants or for cash payments that will depend on the future market price
of the Company's stock. As allowed by the Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation, " ("FAS 123"),
under U.S. GAAP, the Company has elected to apply Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," ("APB 25") and
related interpretations in accounting for its schemes. Under APB 25, when both
the number of shares to be issued and the exercise price are known,
compensation, if any, is recognized over the future service period when the
exercise price of employee stock options equals or exceeds the market price of
the underlying stock on the measurement date.
F-93
<PAGE>
ENSO GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Had compensation cost for the warrants issued been determined based on the
fair value at the grant date consistent with the provisions of FAS 123, the
Company's net income and earnings per share for the period ended December 31,
1998 would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year ended
December 31,
1998
--------------------
(Euro)
(in millions, except
per share amounts)
<S> <C>
Net income
as reported.............................................. 275.1
pro forma................................................ 271.8
Basic earnings per share
as reported.............................................. 0.88
pro forma................................................ 0.87
</TABLE>
The pro forma effects on net income in the table may not be representative of
the pro forma effects on net income of future years because the FAS 123
provisions used in these calculations were only applied to stock warrants
granted in 1997.
The weighted-average fair value of warrant grant of (Euro)2.01 has been
estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions: dividend yield of 2.30%;
expected volatility of 30.6%; risk-free interest rate of 4.56%; and expected
lives of 4.3 years. No warrants have been exercised as at year-end 1998.
F-94
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered into
as of the 22nd day of February, 2000, by and among Consolidated Papers, Inc., a
Wisconsin corporation ("Company"), Stora Enso Oyj, a Finnish corporation
("Acquiror"), and Stora Enso Acquisition, Inc., a Wisconsin corporation and a
wholly-owned Subsidiary of Acquiror ("MergerSub").
WHEREAS, the Boards of Directors of the Company and Acquiror each have
determined that a business combination between the Company and Acquiror is
advisable and in the best interests of their respective corporations and
shareholders and presents an opportunity for their respective corporations to
achieve long-term strategic and financial benefits;
WHEREAS, the parties intend that the merger qualify for U.S. federal income
tax purposes as a reorganization (a "368 Reorganization") within the meaning of
Section 368(a) of the U.S. Internal Revenue Code of 1986, as amended (together
with the rules and regulations promulgated thereunder, the "Code");
WHEREAS, by resolutions duly adopted, the respective Boards of Directors of
the Company, Acquiror and MergerSub have approved and adopted this Agreement
and the transactions contemplated hereby.
NOW, THEREFORE, in consideration of the premises and promises contained
herein, and intending to be legally bound, the parties hereto agree as set
forth below.
ARTICLE 1
Definitions
1.1 Definitions. (a) As used herein, the following terms have the meanings
set forth below.
"Acquiror Balance Sheet" means Acquiror's consolidated balance sheet included
in the Acquiror Annual Report relating to its fiscal year ended on December 31,
1998.
"Acquiror Public Documents" means (i) Acquiror's annual reports (the
"Acquiror Annual Reports"), for its fiscal years ended December 31, 1997 and
December 31, 1998 as filed with the National Board of Patents and Registration
(the "Finnish Trade Registry") (ii) Acquiror's quarterly reports (the "Acquiror
Quarterly Reports") for its fiscal quarters ended September 30, June 30 and
March 31, of fiscal years 1998 and 1999 as submitted to the Finnish Financial
Supervision, (iii) Acquiror's exchange offer/prospectus relating to the
combination of Enso Oyj and Stora Kopparbergs Bergslags Aktiebolag (publ) as
filed with the Finnish Financial Supervision, and (iv) all other reports,
filings, registration statements and other documents filed by it with the
Finnish Trade Registry or the Finnish Financial Supervision since December 31,
1997.
"Acquiror Share" means one share of Series R stock of Acquiror, nominal value
10 Finnish marks per share, and shall include American Depositary Receipts
evidencing any such share.
"Acquisition Proposal" means any offer or proposal for, a merger,
consolidation, share exchange, business combination, reorganization,
recapitalization, liquidation, dissolution or other similar transaction
involving the Company or any of its Significant Subsidiaries, or for any
purchase or other acquisition of 15% or more of the assets or any class of
equity securities of the Company or any of its Significant Subsidiaries, other
than the transactions contemplated by this Agreement.
"Affiliate" means, with respect to any Person, any other Person, directly or
indirectly, controlling, controlled by, or under common control with, such
Person. For purposes of this definition, the term "control" (including the
correlative terms "controlling," "controlled by" and "under common control
with") means
A-1
<PAGE>
the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract, or otherwise.
"Business Day" means any day, other than a Saturday, Sunday or one on which
banks are authorized by law to close in New York, New York or Helsinki,
Finland.
"Company Balance Sheet" means the Company's consolidated balance sheet
included in the Company 10-K relating to its fiscal year ended on December 31,
1998.
"Company Share" means one share of common stock of the Company, $1.00 par
value per share.
"Company SEC Documents" means (i) the annual reports on Form 10-K of the
Company (the "Company 10-Ks"), for the fiscal years ended December 31, 1997 and
December 31, 1998, (ii) the quarterly reports on Form 10-Q of the Company (the
"Company 10-Qs") for the fiscal quarters ended September 30, June 30 and March
31 of fiscal years 1998 and 1999, (iii) the Company's proxy statements relating
to meetings of, or actions taken without a meeting by, the Company
shareholders, held since December 31, 1998, and (iv) all other reports,
filings, registration statements and other documents filed by the Company with
the SEC since December 31, 1997.
"Exchange Act" means the United States Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Finnish Companies Act" means the Companies Act of 1978, as amended, in
Finland.
"Finnish Financial Supervision" means the Financial Supervision Authority of
Finland.
"Finnish Securities Act" means the Securities Markets Act of 1989, as
amended, in Finland.
"Governmental Entity" means any federal, state or local governmental
authority, any transgovernmental authority or any court, administrative or
regulatory agency or commission or other governmental authority or agency,
domestic or foreign.
"Helsinki Stock Exchange" means Helsinki Securities and Derivatives Exchange,
Clearing House Ltd.
"Knowledge" means, with respect to the matter in question, if any of the
executive officers of the Company or Acquiror, as the case may be, has, or
would reasonably be expected to have after conducting a reasonable
investigation, actual knowledge of the matter.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of an asset; provided,
however, that the term "Lien" shall not include (i) liens for utilities and
current taxes not yet due and payable, (ii) mechanics', carriers', workers',
repairers', materialmen's, warehousemen's and other similar liens arising or
incurred in the ordinary course of business, or (iii) liens being contested in
good faith and relating to liabilities for which proper reserve has been taken
in accordance with applicable accounting principles.
"Material Adverse Effect" means a material adverse effect on the properties,
assets, liabilities, financial condition, business or results of operations of
a Person and its Subsidiaries, taken as a whole, but shall exclude any material
adverse effect arising out of any change or development relating to (i) U.S. or
global economic or industry conditions, (ii) U.S. or global financial markets
or conditions or (iii) any generally applicable change in law, rule or
regulation or GAAP or interpretation of any thereof. "Acquiror Material Adverse
Effect" means a Material Adverse Effect in respect of Acquiror and "Company
Material Adverse Effect" means a Material Adverse Effect in respect of the
Company.
"MergerSub Share" means one share of common stock of MergerSub, $0.01 par
value per share.
A-2
<PAGE>
"NYSE" means The New York Stock Exchange, Inc.
"Person" means an individual, corporation, limited liability company,
partnership, association, trust or any other entity or organization, including
any Governmental Entity.
"Proxy Statement/Prospectus" means the proxy statement/prospectus included in
the Registration Statement relating to the Company Shareholder Meeting and the
Acquiror Shareholder Meeting, together with any amendments or supplements
thereto.
"Registration Statement" means the Registration Statement on Form F-4 or
comparable form registering the Acquiror Shares issuable in connection with the
Merger under the Securities Act.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the United States Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Significant Subsidiary" has the meaning specified in Rule 1-02 of Regulation
S-X of the SEC.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which securities or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other Persons performing
similar functions are directly or indirectly owned by such Person. "Acquiror
Subsidiary" means a Subsidiary of Acquiror and "Company Subsidiary" means a
Subsidiary of the Company.
"Superior Proposal" means a bona fide, written Acquisition Proposal for at
least a majority of the outstanding Company Shares that is on terms which a
majority of the Company's Board of Directors determines in good faith, after
consultation with an investment banker of nationally recognized reputation and
outside legal counsel, (i) would result in a transaction, if consummated, that
would be more favorable to the Company's shareholders (in their capacities as
shareholders), (taking into account all legal, financial, regulatory and other
aspects of the proposal and the identity of the offeror) than the transactions
contemplated hereby (after giving effect to any revised proposal made by or on
behalf of Acquiror prior to the end of the five Business-Day-period referred to
in Section 6.3(d)) and (ii) is reasonably capable of being consummated.
(b) Each of the following terms is defined in the Section set forth opposite
such term:
<TABLE>
<CAPTION>
Terms Section
----- --------
<S> <C>
Acquiror...................................... Preamble
Acquiror Acquisition Proposal................. 10.3(e)
Acquiror Business............................. 5.14
Acquiror Intellectual Property................ 5.14
Acquiror Recommendation....................... 7.2
Acquiror Returns.............................. 5.11
Acquiror Securities........................... 5.5(b)
Acquiror Series A Shares...................... 5.5(a)
Acquiror Series R Shares...................... 5.5(a)
Acquiror Shareholder Approval................. 5.17(a)
Acquiror Shareholder Meeting.................. 7.2
Acquiror Termination Fee...................... 10.3(e)
Acquiror Welfare Plan......................... 7.4(a)
Advance Notice................................ 7.4(b)
Agreement..................................... Preamble
Articles of Merger............................ 2.1(b)
Assumed Option................................ 3.6(a)
Average Acquiror Share Price.................. 3.4
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
Terms Section
----- ----------
<S> <C>
Cash Consideration.......................... 3.3(a)
Cash Election............................... 3.3(b)
Cash Election Number........................ 3.3(c)
Cash Election Shares........................ 3.3(d)
Cash Fraction............................... 3.3(d)
Certificates................................ 3.3(h)
Closing..................................... 2.1(d)
Closing Date................................ 2.1(d)
Code........................................ Recitals
Company..................................... Preamble
Company Affiliate........................... 6.4
Company Business............................ 4.16
Company Employee Plans...................... 4.13(a)
Company Intellectual Property............... 4.16
Company Option.............................. 3.6(a)
Company Option Plan......................... 3.6(a)
Company Recommendation...................... 6.2
Company Returns............................. 4.12
Company Securities.......................... 4.5(b)
Company Shareholder Approval................ 4.19(a)
Company Shareholder Meeting................. 6.2
Department.................................. 2.1(b)
Effective Time.............................. 2.1(b)
Election Deadline........................... 3.3(i)
Election Form Record Date................... 3.3(h)
End Date.................................... 10.1(b)(i)
Environmental Laws.......................... 4.17(b)
ERISA....................................... 4.13(a)
ERISA Affiliate............................. 4.13(a)
Exchange Agent.............................. 3.5(a)
Exchange Fund............................... 3.5(a)
Form of Election............................ 3.3(h)
FPA......................................... 4.3
GAAP........................................ 4.8(a)
HSR Act..................................... 4.3
IAS......................................... 5.7(a)
Indemnified Parties......................... 7.3(b)
Intellectual Property....................... 4.16
Merger...................................... 2.1(a)
Merger Consideration........................ 3.3(a)
MergerSub................................... Preamble
Multiemployer Plan.......................... 4.13(b)
Non-Election................................ 3.3(b)
Non-Election Shares......................... 3.3(d)
Non-Election Fraction....................... 3.3(f)
PUHCA....................................... 4.3
Random Trading Days......................... 3.4(a)
Retirement Plan............................. 4.13(b)
Stock Consideration......................... 3.3(a)
Stock Election.............................. 3.3(b)
Stock Election Number....................... 3.3(c)
</TABLE>
A-4
<PAGE>
<TABLE>
<CAPTION>
Terms Section
----- --------
<S> <C>
Stock Election Shares......................... 3.3(d)
Stock Fraction................................ 3.3(e)
Surviving Corporation......................... 2.1(a)
Termination Fee............................... 10.3(b)
Third Party Acquisition Event................. 10.3(c)
368 Reorganization............................ Recitals
Transfer Taxes................................ 7.7
Wisconsin BCL................................. 2.1(a)
WPUHCA........................................ 4.3
</TABLE>
ARTICLE 2
The Merger
2.1 The Merger.
(a) At the Effective Time, the Company shall be merged with and into
MergerSub (the "Merger") in accordance with the terms and conditions of this
Agreement and the Wisconsin business corporation law (the "Wisconsin BCL"), at
which time the separate corporate existence of the Company shall cease and
MergerSub shall continue its existence. In its capacity as the corporation
surviving the Merger, this Agreement sometimes refers to MergerSub as the
"Surviving Corporation."
(b) As soon as practicable after satisfaction or waiver of all conditions to
the Merger set forth herein, the Company and MergerSub will file articles of
merger or other appropriate documents (the "Articles of Merger") with the
Wisconsin Department of Financial Institutions (the "Department") and make all
other filings or recordings required by the Wisconsin BCL in connection with
the Merger. The Merger shall become effective at the time when the Articles of
Merger are duly filed with and accepted by the Department, or at such later
time as is agreed upon by the parties and specified in the Articles of Merger
(such time as the Merger becomes effective is referred to herein as the
"Effective Time").
(c) From and after the Effective Time, the Merger shall have the effects set
forth in Section 180.1106 of the Wisconsin BCL.
(d) The closing of the Merger (the "Closing") shall be held at the offices of
McDermott, Will & Emery, 227 West Monroe Street, Chicago, IL 60606 (or such
other place as agreed by the parties) on a date to be specified by the parties,
which shall be no later than the third Business Day after satisfaction or, to
the extent permitted hereby, waiver of the conditions set forth in Article 9,
unless the parties hereto agree to another date. The date upon which the
Closing occurs is hereinafter referred to as the "Closing Date."
2.2 Organizational Documents. The Articles of Merger shall provide that at
the Effective Time (i) MergerSub's articles of incorporation in effect
immediately prior to the Effective Time shall be the Surviving Corporation's
articles of incorporation; provided that Article I of the articles of
incorporation shall be amended as of the Effective Time to read as follows:
"The name of the corporation is Stora Enso Consolidated Papers, Inc." and (ii)
MergerSub's bylaws in effect immediately prior to the Effective Time shall be
the Surviving Corporation's bylaws, in each case until amended in accordance
with applicable law.
2.3 Directors and Officers.
(a) Acquiror agrees to take all necessary actions so that the agenda for the
Acquiror Shareholder Meeting shall include a proposal for, and to use its
reasonable best efforts to obtain the approval of, the election of George W.
Mead (or, if unavailable, another member of the Company's current Board of
Directors reasonably acceptable to Acquiror) to serve, from and after the
Effective Time, on Acquiror's Board of Directors for a period of at least two
(2) years following the Effective Time.
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<PAGE>
(b) From and after the Effective Time (until successors are duly elected or
appointed and qualified), (i) MergerSub's directors at the Effective Time shall
be the Surviving Corporation's directors and (ii) the Company's officers
immediately prior to the Effective Time shall be the Surviving Corporation's
officers.
ARTICLE 3
Conversion of Securities and Related Matters
3.1 Capital Stock of MergerSub. As of the Effective Time, each MergerSub
Share outstanding immediately prior to the Effective Time shall remain
outstanding and continue to represent one fully paid and nonassessable (except
as provided in Section 180.0622(2)(b) of the Wisconsin BCL) common share of the
Surviving Corporation.
3.2 Cancellation of Treasury Stock and Acquiror Owned Shares. As of the
Effective Time, by virtue of the Merger and without any action on the part of
the holder of any Company Shares or MergerSub Shares, each Company Share held
by the Company as treasury stock or owned by Acquiror, any Acquiror Subsidiary
or any Company Subsidiary immediately prior to the Effective Time shall be
canceled and retired, and no payment shall be made or consideration delivered
in respect thereof.
3.3 Conversion of Company Shares.
(a) As of the Effective Time, by virtue of the Merger and without any action
on the part of the holder of any Company Shares or MergerSub Shares, except as
otherwise provided in this Section 3.3, each Company Share issued and
outstanding immediately prior to the Effective Time (other than shares to be
canceled in accordance with Section 3.2) shall be converted into, at the
election of the holder thereof, one of the following or a combination of
Acquiror Shares and cash determined in accordance with this Section 3.3 (the
"Merger Consideration"):
(i) the right to receive a number of Acquiror Shares determined by
dividing $44.00 by the Average Acquiror Share Price and rounding the result
to the nearest one thousandth of a share (the "Stock Consideration");
provided that, (x) if the Average Acquiror Share Price is less than $12.15,
the Stock Consideration shall be 3.621 Acquiror Shares and (y) if the
Average Acquiror Share Price is greater than $16.43, the Stock
Consideration shall be 2.678 Acquiror Shares; or
(ii) the right to receive in cash from Acquiror, without interest, an
amount equal to $44.00 (the "Cash Consideration");
provided, however, that if (A) the Registration Statement covering the Acquiror
Shares has not been declared effective by September 30, 2000 or (B) the
Acquiror Shares have not been approved for listing, subject only to official
notice of issuance, by the NYSE (or, failing that, by NASDAQ) by October 31,
2000, the Merger Consideration shall consist of all Cash Consideration, and as
of the Effective Time, by virtue of the Merger and without any action on the
part of the holder of any Company Shares or MergerSub Shares, each Company
Share issued and outstanding immediately prior to the Effective Time (other
than shares to be canceled in accordance with Section 3.2) shall be converted
into the right to receive the Cash Consideration. In such event, the provisions
of Sections 3.3(b)--(k), 3.4, 7.5, 8.6, 9.1(a)(ii), 9.1(b), 9.2(b) and 9.3(b)
shall be of no further force or effect.
(b) Elections. Subject to the election and allocation procedures set forth in
this Section 3.3, each holder of Company Shares will be entitled, with respect
to the Merger Consideration to be received for each Company Share held by the
holder, to (i) elect to receive the Stock Consideration (a "Stock Election"),
or (ii) elect to receive the Cash Consideration (a "Cash Election"), or (iii)
indicate that the holder has no preference as to the receipt of Stock
Consideration or Cash Consideration (a "Non-Election").
(c) Election Numbers. The number of Company Shares to be converted into the
right to receive the Cash Consideration in the Merger shall be equal to 50% of
the number of Company Shares outstanding immediately
A-6
<PAGE>
prior to the Effective Time (the "Cash Election Number"). The number of Company
Shares to be converted into the right to receive the Stock Consideration in the
Merger (the "Stock Election Number") shall be equal to 50% of the number of
Company Shares outstanding immediately prior to the Effective Time.
(d) Cash Election Adjustments. If the aggregate number of Company Shares
covered by Cash Elections (the "Cash Election Shares") exceeds the Cash
Election Number, all Company Shares covered by Stock Elections (the "Stock
Election Shares") and all Company Shares covered by Non-Elections (the "Non-
Election Shares") shall be converted into the right to receive the Stock
Consideration, and the Cash Election Shares shall be converted into the right
to receive Acquiror Shares and cash in the following manner: each Cash Election
Share shall be converted into the right to receive (i) an amount in cash,
without interest, equal to the product of (x) the Cash Consideration and (y) a
fraction (the "Cash Fraction"), the numerator of which shall be the Cash
Election Number and the denominator of which shall be the total number of Cash
Election Shares, and (ii) a number of Acquiror Shares equal to the product of
(x) the Stock Consideration and (y) one minus the Cash Fraction.
(e) Stock Election Adjustments. If the aggregate number of Stock Election
Shares exceeds the Stock Election Number, all Cash Election Shares and all Non-
Election Shares shall be converted into the right to receive the Cash
Consideration, and the Stock Election Shares shall be converted into the right
to receive Acquiror Shares and cash in the following manner: each Stock
Election Share shall be converted into the right to receive (i) a number of
Acquiror Shares equal to the product of (x) the Stock Consideration and (y) a
fraction (the "Stock Fraction"), the numerator of which shall be the Stock
Election Number and the denominator of which shall be the total number of Stock
Election Shares, and (ii) an amount in cash, without interest, equal to the
product of (x) the Cash Consideration and (y) one minus the Stock Fraction.
(f) Non-Election Adjustments. In the event that neither Section 3.3(d) nor
3.3(e) above is applicable, all Cash Election Shares shall be converted into
the right to receive the Cash Consideration, all Stock Election Shares shall be
converted into the right to receive the Stock Consideration, and the Non-
Election Shares, if any, shall be converted into the right to receive Acquiror
Shares and cash in the following manner: each Non-Election Share shall be
converted into the right to receive (i) an amount in cash, without interest,
equal to the product of (x) the Cash Consideration and (y) a fraction (the
"Non-Election Fraction"), the numerator of which shall be the excess of (A) the
Cash Election Number over (B) the total number of Cash Election Shares and the
denominator of which shall be the excess of (C) the number of Company Shares
outstanding immediately prior to the Effective Time over (D) the sum of the
total number of Cash Election Shares and Stock Election Shares and (ii) a
number of Acquiror Shares equal to the product of (x) the Stock Consideration
and (y) one minus the Non-Election Fraction.
(g) Adjustments Relating to Tax Opinions. If either the tax opinion referred
to in Section 9.2(b) or the tax opinion referred to in Section 9.3(b) cannot be
rendered (as reasonably determined, in each case, by the counsel charged with
giving the opinion) as a result of the Merger potentially failing to satisfy
continuity of interest requirements under applicable federal income tax
principles relating to reorganizations under Section 368(a) of the Code, then
Acquiror shall reduce to the minimum extent necessary to enable the relevant
tax opinion to be rendered, the Cash Election Number and correspondingly
increase the Stock Election Number.
(h) Exercise of Election. All Cash Elections, Stock Elections and Non-
Elections shall be made on a form designed for that purpose and mutually
acceptable to the Company and Acquiror (a "Form of Election") and mailed to
holders of record of Company Shares as of the record date for the Company
Shareholders' Meeting or such other date as Acquiror and the Company shall
mutually agree (the "Election Form Record Date"). Acquiror and the Company
shall make available one or more Election Forms as may be reasonably requested
by all persons who become holders (or beneficial owners) of Company Shares
between the Election Form Record Date and the close of business on the
Effective Time. Elections shall be made by submitting to the Exchange Agent a
duly completed Form of Election. To be effective, a Form of Election must be
properly completed, signed and submitted to the Exchange Agent in accordance
with Section 3.3(i) and, in the case of Company Shares that are not held in
book entry form, accompanied by the certificates representing the
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<PAGE>
Company Shares (the "Certificates") as to which the election is being made (or
an appropriate guarantee of delivery by an appropriate commercial bank or trust
company in the United States or a member of a registered national securities
exchange or the National Association of Securities Dealers, Inc.); provided
that such Certificates are in fact delivered to the Exchange Agent within three
trading days after the date of execution of such guarantee of delivery. For
Company Shares that are held in book entry form, Acquiror shall establish
procedures for the delivery of such Company Shares, which procedures shall be
reasonably acceptable to the Company. Acquiror will have the discretion, which
it may delegate in whole or in part to the Exchange Agent, to reasonably
determine whether Forms of Election have been properly completed, signed and
submitted or revoked and to disregard immaterial defects in Forms of Election.
The decision of Acquiror (or the Exchange Agent) shall be conclusive and
binding. Neither Acquiror nor the Exchange Agent will be under any obligation
to notify any person of any defect in a Form of Election submitted to the
Exchange Agent. The Exchange Agent shall also make all computations
contemplated by this Section 3.3 and all computations shall be conclusive and
binding on the holders of Company Shares.
(i) Election Deadline. A Form of Election must be received by the Exchange
Agent by the close of business on the fifth Business Day following the Closing
Date (which date shall be publicly announced by Acquiror as soon as
practicable, but in no event less than three trading days prior to the Closing
Date, and which shall, in any event, be no fewer than 20 Business Days from the
mailing of the Form of Election) (such time hereinafter referred to as the
"Election Deadline") in order to be effective. Any holder of Company Shares who
has made an election may at any time prior to the Election Deadline change its
election by submitting a properly completed revised Form of Election, to the
Exchange Agent prior to the Election Deadline. Any holder of Company Shares may
at any time prior to the Election Deadline revoke the election and withdraw the
Certificates deposited with the Exchange Agent by written notice to the
Exchange Agent received prior to the Election Deadline. As soon as practicable
after the Election Deadline, the Exchange Agent shall determine the allocation
of the cash portion of the Merger Consideration and the stock portion of the
Merger Consideration and shall notify Acquiror of its determination. Promptly
after notification, Acquiror shall issue a press release announcing in
reasonable detail the results of the Exchange Agent's allocation of the Merger
Consideration.
(j) Deemed Non-Election. A holder of Company Shares who does not submit a
Form of Election which is received by the Exchange Agent prior to the Election
Deadline shall be deemed to have made a Non-Election. If Acquiror or the
Exchange Agent shall determine that any purported Cash Election or Stock
Election was not properly made, the purported Cash Election or Stock Election
shall be deemed to be of no force and effect and the holder making such
purported Cash Election or Stock Election shall be deemed to have made a Non-
Election.
(k) Fractional Shares. No fractional shares shall be issued in the Merger.
All fractional shares that a holder of any Company Shares would otherwise be
entitled to receive as a result of the Merger shall be aggregated. If a
fractional Acquiror Share results from the aggregation, the holder shall be
entitled to receive, in lieu thereof, a cash amount, without interest,
determined by multiplying the Average Acquiror Share Price by the fraction of
an Acquiror Share to which the holder would otherwise have been entitled. As
promptly as practicable after the determination of the amount of cash, if any,
to be paid to holders of fractional share interests, the Exchange Agent shall
so notify Acquiror, and Acquiror shall deposit that amount with the Exchange
Agent and shall cause the Exchange Agent to forward payments to the holders of
fractional share interests, subject to and in accordance with the terms of this
Section 3.3.
3.4 Average Acquiror Share Price. (a) "Average Acquiror Share Price" means
the average for the Random Trading Days of the closing price per Acquiror Share
in Euros on the Helsinki Stock Exchange as so reported in the Financial Times,
U.S. Edition, or, if not reported therein, another authoritative source
(converting each of such daily closing prices per share to U.S. dollars based
upon the "closing mid-point" exchange rate published in respect of each such
Random Trading Day in the "Currencies and Money" segment in the "Companies &
Markets" section of the Financial Times, U.S. Edition). "Random Trading
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Days" means the ten trading days selected by lot out of the twenty trading days
ending on and including the fifth trading day preceding the Effective Time. The
Random Trading Days shall be selected by lot by Acquiror and the Company at
5:00 p.m. New York time on the fourth trading day preceding the Closing Date.
(b) If at any time during the period between the date of this Agreement and
the Effective Time, any change in the outstanding shares of capital stock of
Acquiror or securities convertible or exchangeable into capital stock of
Acquiror shall occur, including by reason of any reclassification,
recapitalization, stock split or combination, exchange or readjustment of
shares, or any dividend or distribution thereon (other than regular cash
dividends) or a record date with respect to any of the foregoing shall occur
during such period, the number of Acquiror Shares constituting part of the
Merger Consideration shall be appropriately adjusted to provide to the holders
of the Acquiror Shares and the Company Shares the same economic effect as
contemplated by this Agreement prior to the consummation of such event.
3.5 Exchange of Certificates. (a) Exchange Agent. Promptly after the date
hereof, Acquiror shall appoint Harris Trust and Savings Bank or a bank or trust
company reasonably acceptable to the Company as an agent (the "Exchange Agent")
for the benefit of holders of Company Shares for the purpose of exchanging,
pursuant to this Article 3, Certificates. Acquiror will make available to the
Exchange Agent, as needed, the Merger Consideration, together with any
dividends or distributions with respect thereto, if any, to be paid in respect
of Company Shares pursuant to this Article 3 (the "Exchange Fund"), and except
as contemplated by Section 3.5(f) or Section 3.5(g) hereof, the Exchange Fund
shall not be used for any other purpose.
(b) Exchange Procedures. As promptly as practicable after the Effective Time,
Acquiror shall send, or shall cause the Exchange Agent to send, to each record
holder of Certificates, who has not previously submitted a valid Form of
Election, a letter of transmittal and instructions (which shall be in customary
form and specify that delivery shall be effected, and risk of loss and title
shall pass, only upon delivery of the Certificates to the Exchange Agent), for
use in the exchange contemplated by this Section 3.5. Upon surrender of a
Certificate to the Exchange Agent, together with a duly executed letter of
transmittal, the holder shall be entitled to receive in exchange therefor the
Merger Consideration and any unpaid dividends and distributions thereon as
provided in this Article 3 in respect of the Company Shares represented by the
Certificate (after giving effect to any required withholding tax). Until
surrendered as contemplated by this Section 3.5, each Certificate shall be
deemed after the Effective Time to represent only the right to receive the
Merger Consideration and any unpaid dividends and distributions thereon as
provided in this Article 3. If any portion of the Merger Consideration is to be
paid to a Person other than the registered holder of the Certificate, it shall
be a condition to payment that the Certificate so surrendered shall be properly
endorsed or otherwise be in proper form for transfer and that the Person
requesting payment shall pay to the Exchange Agent any transfer or other taxes
required as a result of payment to a Person other than the registered holder of
the Certificate or establish to the satisfaction of the Exchange Agent that the
tax has been paid or is not payable.
(c) Distributions with Respect to Unexchanged Shares. Whenever a dividend or
other distribution is declared by Acquiror in respect of the Acquiror Shares,
the record date for which is at or after the Effective Time, that declaration
shall include dividends or other distributions in respect of all Acquiror
Shares issuable pursuant to this Agreement. No dividends or other distributions
declared or made after the Effective Time with respect to Acquiror Shares
constituting part of the Merger Consideration shall be paid to the holder of
any unsurrendered Certificate, and no cash payment in lieu of fractional shares
shall be paid to any holder, until the Certificate is surrendered as provided
in Section 3.3(h) or this Section 3.5. Following surrender, there shall be
paid, without interest, to the Person in whose name the Acquiror Shares have
been registered (i) at the time of surrender, the amount of dividends or other
distributions with a record date after the Effective Time previously paid or
payable on the date of surrender with respect to whole Acquiror Shares, less
the amount of any withholding taxes that may be required thereon, and (ii) at
the appropriate payment date subsequent to surrender, the amount of dividends
or other distributions with a record date after the Effective Time but prior to
surrender and a payment date subsequent to surrender payable with respect to
whole Acquiror Shares, less the amount of any withholding taxes which may be
required thereon.
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(d) No Further Rights in Company Shares. All Acquiror Shares issued or cash
paid upon surrender of Certificates in accordance with the terms hereof shall
be deemed to have been issued in full satisfaction of all rights pertaining to
Company Shares represented thereby. From and after the Effective Time, the
holders of Certificates shall cease to have any rights with respect to Company
Shares, except as otherwise provided herein or by law. As of the Effective
Time, the stock transfer books of the Company shall be closed and there shall
be no further registration of transfers on the Company's stock transfer books
of any Company Shares. If, after the Effective Time, Certificates are presented
to the Surviving Corporation for any reason, they shall be canceled and
exchanged as provided in this Section 3.5.
(e) Return of Merger Consideration. Upon demand by Acquiror, the Exchange
Agent shall deliver to Acquiror any portion of the Merger Consideration made
available to the Exchange Agent pursuant to this Section 3.5 that remains
undistributed to holders of Company Shares one year after the Effective Time.
Holders of Certificates who have not complied with this Section 3.5 prior to
the demand by the Acquiror shall thereafter look only to Acquiror for payment
of any claim to the Merger Consideration and dividends or distributions, if
any, in respect thereof.
(f) No Liability. None of Acquiror, the Surviving Corporation or the Exchange
Agent shall be liable to any Person in respect of any Company Shares (or
dividends or distributions with respect thereto) for any amounts paid to a
public official pursuant to any applicable abandoned property, escheat or
similar law. If any Certificates shall not have been surrendered immediately
prior to such earlier date on which any payment pursuant to this Article III
would otherwise escheat to or become property of any Governmental Entity, the
payment in respect of such Certificate shall, to the extent permitted by
applicable law, become the property of the Surviving Corporation, free and
clear of all claims or interests of any Person previously entitled thereto.
(g) Withholding Rights. Each of the Surviving Corporation and Acquiror shall
be entitled to deduct and withhold from the Merger Consideration (and any
dividends or distributions thereon) otherwise payable hereunder to any Person
any amounts which it is required to deduct and withhold with respect to payment
under any provision of federal, state, local or foreign income tax law. To the
extent that the Surviving Corporation or Acquiror withholds those amounts, the
withheld amounts shall be treated for all purposes of this Agreement as having
been paid to the holder of Company Shares in respect of which deduction and
withholding was made by the Surviving corporation or Acquiror, as the case may
be.
(h) Lost Certificates. If any Certificate has been or has claimed to have
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the person claiming that Certificate has been lost, stolen or destroyed and, if
required by Acquiror, the posting by such Person of a bond, in such reasonable
amount as Acquiror may direct, as indemnity against any claim that may be made
against it with respect to that Certificate, the Exchange Agent will deliver in
exchange for such lost, stolen or destroyed Certificate, the proper amount of
the Merger Consideration, together with any unpaid dividends and distributions
on any Acquiror Shares, as contemplated by this Article 3.
3.6 Company Stock Options. (a) At the Effective Time, each option to purchase
Company Shares (each, a "Company Option") outstanding under any stock option or
compensation plan or other plan, agreement or arrangement of the Company (each,
a "Company Option Plan"), whether or not vested or exercisable, shall be
assumed by Acquiror (each such option an "Assumed Option") and thereafter be
deemed to constitute an option to purchase, on the same terms and conditions
(including such terms relating to the acceleration of vesting and
exercisability of such option, the term of such option and the adjustment of
such option in the event of certain corporate transactions) as were applicable
to such Assumed Option as of the Effective Time, the greatest number of
Acquiror Shares that equals the product of (A) the number of Company Shares
that were subject to such Assumed Option immediately prior to the Effective
Time multiplied by the (B) Stock Consideration, at an exercise price per
Acquiror Share equal to the quotient of (x) the exercise price per Company
Share subject to such Assumed Option immediately prior to the Effective Time
divided by (y) the Stock Consideration. The adjustments provided herein with
respect to any Assumed Option that is an
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"incentive stock option" (as defined in Section 422 of the Code) shall be
effected in a manner consistent with Section 424(a) of the Code.
(b) Prior to the Effective Time, the Company shall take all actions
(including, if appropriate, amending the terms of any Company Option Plan or
related agreement) that are necessary or appropriate to give effect to the
transactions contemplated by Section 3.6(a), including, without limitation to
(A) effectuate the assumption and conversion of the Assumed Options by the
Acquiror and the assignment to Acquiror of the authorities and responsibilities
of the Board of Directors of the Company or any committee thereof under the
relevant Company Option Plan, (B) preclude the grant of any additional Company
Option under any of the Company Option Plans and (C) make such other amendments
as Acquiror shall determine are necessary to comply with any securities or
other laws that will become applicable to such Company Option Plan or Assumed
Option at or after the Effective Time or otherwise by reason of the Merger or
by reason of this Section 3.6. Prior to the Effective Time, each of the Company
and the Acquiror shall take appropriate action to approve the deemed grant of
options and/or cancellation of options, as applicable, for purposes of Section
16(b) of the Exchange Act.
(c) By way of example and without limiting the foregoing: assuming an Average
Acquiror Share Price of $12.00, a Company Option to purchase 10,000 Company
Shares at an exercise price of $26.3125 per share would become an Assumed
Option to purchase 36,210 Acquiror Shares at an exercise price of $7.2666 per
share; assuming an Average Acquiror Share Price of $14.29, that Company Option
would become an Assumed Option to purchase 30,790 Acquiror Shares at an
exercise price of $8.5458 per share; and assuming an Average Acquiror Share
Price of $16.50, that Company Option would become an Assumed Option to purchase
26,780 Acquiror Shares at an exercise price of $9.8254.
(d) Notwithstanding the foregoing, if the Merger Consideration consists of
all Cash Consideration pursuant to the proviso in Section 3.3(a), then each
Company Option, whether or not vested or exercisable, shall be converted into
the right to receive cash in an amount equal to the difference between the
value of the Cash Consideration and the aggregate exercise price for the
Company Shares otherwise purchasable pursuant to the Company Option (rounded
down to the nearest whole cent). Such amount shall be payable by the Acquiror
at the Effective Time.
ARTICLE 4
Representations and Warranties of the Company
Except as disclosed in (i) the Company Disclosure Schedule attached hereto
(which disclosure schedule shall make a specific reference to the particular
Section or Subsection of this Agreement to which exception is being taken) or
(ii) the Company SEC Documents filed or made prior to the date hereof, the
Company represents and warrants to Acquiror as set forth below.
4.1 Corporate Existence and Power. The Company is a corporation validly
existing and in good standing under the laws of the State of Wisconsin, and has
all corporate powers required to carry on its business as now conducted. The
Company is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction where the character of the property owned or
leased by it or the nature of its activities makes qualification necessary,
except where the failure to be qualified would not, individually or in the
aggregate, be reasonably likely to have a Company Material Adverse Effect. The
articles of incorporation and bylaws of the Company have not been amended since
the filing of the Company 10-K relating to its fiscal year ended December 31,
1998.
4.2 Corporate Authorization. The execution, delivery and performance by the
Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby are within the Company's corporate powers and,
except for the Company Shareholder Approval (as defined herein), have been duly
authorized by all necessary corporate action. Assuming that this Agreement
constitutes the valid and
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binding obligation of Acquiror and MergerSub, this Agreement constitutes a
valid and binding agreement of the Company, enforceable in accordance with its
terms.
4.3 Governmental Authorization. The execution, delivery and performance by
the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby require no action by or in respect of, or
filing with, any Governmental Entity, other than (a) the filing of (i) articles
of merger in accordance with the Wisconsin BCL and (ii) appropriate documents
with the relevant authorities of other states or jurisdictions in which the
Company is qualified to do business; (b) compliance with any applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"HSR Act") and any comparable foreign filings or approvals (including any
filing required under the Canadian Competition Act and compliance with, and the
filing (if necessary) of a notification with the European Commission under,
Council Regulation (EEC) No. 4064/89); (c) compliance with any requirements,
and receipt of applicable approvals or exemptions, under the Public Utility
Holding Company Act of 1935, as amended ("PUHCA"), the Federal Power Act
("FPA"), and the Wisconsin Public Utility Holding Company Act ("WPUHCA"); (d)
compliance with any applicable requirements of the Securities Act and the
Exchange Act; (e) such as may be required under any applicable state securities
or blue sky laws; and (f) other consents, approvals, actions, orders,
authorizations, registrations, declarations and filings which, if not obtained
or made, would not, individually or in the aggregate, (x) be reasonably likely
to have a Company Material Adverse Effect or (assuming for this purpose the
Effective Time has occurred) an Acquiror Material Adverse Effect, or (y)
materially impair the ability of the Company to consummate the transactions
contemplated by this Agreement.
4.4 Non-Contravention. The execution, delivery and performance by the Company
of this Agreement and the consummation by the Company of the transactions
contemplated hereby do not and will not (a) contravene or conflict with the
Company's articles of incorporation or bylaws, (b) assuming compliance with the
matters referred to in Section 4.3, contravene or conflict with or constitute a
violation of any provision of any law, regulation, judgment, injunction, order
or decree binding upon or applicable to the Company, (c) result in any
violation or breach of, or constitute (with or without notice or lapse of time
or both) a default under (or give rise to a right of termination, cancellation
or acceleration of any obligation or loss of any material benefit under) any
agreement, contract or other instrument or obligation binding upon the Company
or any Company Subsidiary or any property, asset, license, franchise, permit or
other authorization held by the Company or any Company Subsidiary, or (d)
result in the creation or imposition of any Lien on any asset of the Company or
any Company Subsidiary other than, in the case of each of (b), (c) and (d), any
items that would not, individually or in the aggregate (x) be reasonably likely
to have a Company Material Adverse Effect or (y) materially impair the ability
of the Company to consummate the transactions contemplated by this Agreement.
4.5 Capitalization. (a) The authorized capital stock of the Company consists
of 200,000,000 Company Shares and 15,000,000 shares of preferred stock, par
value $.01 per share. As of January 31, 2000, 91,140,982 Company Shares were
issued (304,025 Shares of which were held in treasury) and stock options to
purchase an aggregate of 2,525,627 Company Shares (of which options to purchase
an aggregate of 1,489,948 Company Shares were exercisable) were outstanding
with additional options on approximately 600,000 Company Shares granted as set
forth on Schedule 4.5. No shares of preferred stock have been issued. All
outstanding Company Shares have been duly authorized and validly issued and are
fully paid and nonassessable, except as provided under Section 180.0622(2)(b)
of the Wisconsin BCL.
(b) As of the date hereof, except (i) as set forth in this Section 4.5 and
(ii) for changes since January 31, 2000 resulting from the exercise of stock
options outstanding on the date hereof or as described on Schedule 4.5, there
are no outstanding (x) shares of capital stock or other voting securities of
the Company, (y) securities of the Company convertible into or exchangeable for
shares of capital stock or voting securities of the Company, and (z) options,
warrants, securities, calls, commitments, agreements or other rights of any
character obligating the Company or any Company Subsidiary to issue, deliver or
sell or cause to be issued, delivered or sold any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of the Company or obligating the Company or any Company
Subsidiary to grant, extend, accelerate
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the vesting of or enter into any such option, warrant, security, call,
commitment, agreement or other right (the items in clauses (x), (y) and (z)
being referred to collectively as the "Company Securities"). There are no
outstanding obligations of the Company or any Company Subsidiary to repurchase,
redeem or otherwise acquire any Company Securities.
4.6 Subsidiaries. (a) Each Subsidiary of the Company is a corporation duly
incorporated or an entity duly organized, and is validly existing and in good
standing under the laws of its jurisdiction of incorporation or organization,
has all powers and authority and all material governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted and is duly qualified to do business as a foreign corporation and is
in good standing in each jurisdiction where the character of the property owned
or leased by it or the nature of its activities makes such qualification
necessary, in each case with exceptions which would not, individually or in the
aggregate, be reasonably likely to have a Company Material Adverse Effect. The
Company Disclosure Schedule sets forth a list of all Subsidiaries of the
Company and their respective jurisdictions of incorporation or organization and
identifies the Company's (direct or indirect) percentage equity ownership
interest therein.
(b) All of the outstanding shares of capital stock of, or other ownership
interest in, each Company Subsidiary have been validly issued and are fully
paid and nonassessable (except as provided under Section 180.0622(2)(b) of the
Wisconsin BCL for subsidiaries incorporated in Wisconsin). All of the
outstanding capital stock of, or other ownership interests in, each Company
Subsidiary is owned, directly or indirectly, by the Company free and clear of
any Lien and free of any other limitation or restriction (including any
limitation or restriction on the right to vote, sell or otherwise dispose of
the stock or other ownership interests) with exceptions which would not,
individually or in the aggregate, be reasonably likely to have a Company
Material Adverse Effect. There are no outstanding (i) securities of the Company
or any of its Subsidiaries convertible into or exchangeable or exercisable for
shares of capital stock or other voting securities or ownership interests in
any of its Subsidiaries, (ii) options, warrants, securities, calls,
commitments, agreements or other rights of any character obligating the Company
or any of its Subsidiaries to issue, deliver or sell or cause to be issued,
delivered or sold any capital stock, voting securities or other ownership
interests in, or any securities convertible into or exchangeable or exercisable
for any capital stock, voting securities or ownership interests in, any of its
Subsidiaries or obligating the Company or any Company Subsidiary to grant,
extend, accelerate the vesting of or enter into any such option, warrant,
security, call, commitment, agreement or other right or (iii) obligations of
the Company or any of its Subsidiaries to repurchase, redeem or otherwise
acquire any outstanding securities of any of its Subsidiaries or any capital
stock of, or other ownership interests in, any of its Subsidiaries. Except as
set forth on Schedule 4.6, the Company does not own, directly or indirectly,
any equity securities of any Person, other than a Company Subsidiary.
4.7 Company SEC Documents. (a) The Company has made available to Acquiror the
Company SEC Documents. The Company has filed all reports, filings, registration
statements and other documents required to be filed by it with the SEC since
December 31, 1997. No Company Subsidiary is required to file any form, report,
registration statement or prospectus or other document with the SEC.
(b) As of its filing date, each Company SEC Document was filed on a timely
basis and complied as to form in all material respects with the applicable
requirements of the Securities Act, the Exchange Act and/or PUHCA, as the case
may be.
(c) No Company SEC Document filed since December 31, 1997 contained, as of
its filing date or effective date, as applicable, any untrue statement of a
material fact or omitted to state any material fact necessary in order to make
the statements made therein, in the light of the circumstances under which they
were made, not misleading.
4.8 Financial Statements; No Material Undisclosed Liabilities. (a) The
audited consolidated financial statements and unaudited consolidated interim
financial statements of the Company included in the Company 10-Ks and the
Company 10-Qs fairly present in all material respects, in conformity with U.S.
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generally accepted accounting principles applied on a consistent basis ("GAAP")
(except as may be indicated in the notes thereto), the consolidated financial
position of the Company and its consolidated Subsidiaries as of the dates
thereof and their consolidated results of operations and changes in financial
position for the periods then ended (subject to normal year-end adjustments in
the case of any unaudited interim financial statements).
(b) There are no liabilities of the Company or any Company Subsidiary of any
kind whatsoever, whether accrued, contingent, absolute, determined,
determinable or otherwise, in each case, that are required by GAAP to be set
forth on a consolidated balance sheet of the Company, other than:
(i) liabilities or obligations disclosed or provided for in the Company
Balance Sheet or disclosed in the notes thereto;
(ii) liabilities or obligations under this Agreement or incurred in
connection with the transactions contemplated hereby; and
(iii) other liabilities or obligations, which would not, individually or
in the aggregate, be reasonably likely to have a Company Material Adverse
Effect.
4.9 Information to Be Supplied. (a) The information to be supplied by the
Company expressly for inclusion or incorporation by reference in the Proxy
Statement/Prospectus will (i) in the case of the Registration Statement, at the
time it becomes effective, not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
in order to make the statements therein not misleading and (ii) in the case of
the remainder of the Proxy Statement/Prospectus, at the time of the mailing
thereof, at the time of the Company Shareholder Meeting and at the time of the
Acquiror Shareholder Meeting, not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Proxy
Statement/Prospectus will comply (with respect to information relating to the
Company) as to form in all material respects with the provisions of the
Securities Act and the Exchange Act.
(b) Notwithstanding the foregoing, the Company makes no representation or
warranty with respect to any statements made or incorporated by reference in
the Proxy Statement/Prospectus based on information supplied by Acquiror or
MergerSub.
4.10 Absence of Certain Changes. Since December 31, 1998, except as otherwise
expressly contemplated by this Agreement or disclosed in the Company SEC
Documents, the Company and each of its Subsidiaries have conducted their
business in the ordinary course consistent with past practice and there has not
been (a) any damage, destruction or other casualty loss (whether or not covered
by insurance) affecting the business or assets of the Company or any of its
Subsidiaries that, individually or in the aggregate, has had or would be
reasonably likely to have a Company Material Adverse Effect or (b) any action,
event, occurrence, development or state of circumstances or facts that,
individually or in the aggregate, has had or would be reasonably likely to have
a Company Material Adverse Effect.
4.11 Litigation. There is no action, suit, investigation, arbitration or
proceeding pending, or to the Knowledge of the Company threatened, against or
affecting the Company or any of its Subsidiaries or any of their respective
assets or properties before any arbitrator or Governmental Entity that would,
individually or in the aggregate, be reasonably likely to have a Company
Material Adverse Effect.
4.12 Taxes. Except as set forth in the Company Balance Sheet (including the
notes thereto), (i) all material tax returns, statements, reports and forms
(collectively, the "Company Returns") required to be filed with any taxing
authority by, or with respect to, the Company and the Company Subsidiaries have
been filed in accordance with all applicable laws; (ii) the Company and the
Company Subsidiaries have timely paid all taxes shown as due and payable on the
Company Returns that have been so filed, and, as of the time of filing, the
Company Returns correctly reflected the facts regarding the income, business,
assets, operations, activities and the status of the Company and the Company
Subsidiaries (other than taxes which are being contested in good
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faith and for which adequate reserves are reflected on the Company Balance
Sheet); (iii) the Company and the Company Subsidiaries have made reasonable
provision for all taxes payable by them for which no Company Return has yet
been filed; (iv) the charges, accruals and reserves for taxes with respect to
the Company and its Subsidiaries reflected on the Company Balance Sheet are
adequate under GAAP to cover the tax liabilities accruing through the date
thereof; (v) except as disclosed on Schedule 4.12, there is no action, suit,
proceeding, audit or claim now proposed or pending against or with respect to
the Company or any of the Company Subsidiaries in respect of any tax where
there is a reasonable possibility of a materially adverse determination; and
(vi) except as disclosed on Schedule 4.12, neither the Company nor any of the
Company Subsidiaries has been a member of an affiliated, consolidated, combined
or unitary group, other than one of which the Company was the common parent.
4.13 Employee Benefits. (a) Schedule 4.13(a) of the Company Disclosure
Schedule contains a correct and complete list identifying each material
"employee benefit plan," as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), each material employment,
consulting, severance, retention, change-in-control or similar contract, plan,
arrangement, commitment or policy and each other contract, plan, arrangement,
commitment or policy (written or oral) providing for compensation, bonuses,
profit-sharing, stock option or other equity related rights or other forms of
incentive or deferred compensation, vacation benefits, insurance coverage
(including any self-insured arrangements), health, medical or life benefits,
disability benefits, workers' compensation, supplemental unemployment benefits,
severance benefits or post-employment or retirement benefits (including
compensation, pension, health, medical or life insurance benefits) which is
maintained, administered or contributed to by the Company or any ERISA
Affiliate (as defined below) and covers any employee or former employee of the
Company or any Company Subsidiary or to which the Company or any Company
Subsidiary is a party or has any obligation to contribute. The material plans
are referred to collectively herein as the "Company Employee Plans." Copies of
the Company Employee Plans (and, if applicable, related trust agreements,
insurance contracts and other funding arrangements) and all amendments thereto
and written interpretations and/or summary plan descriptions thereof have been
furnished to Acquiror together with the most recent annual report (Form 5500
including, if applicable, Schedule B thereto) and financial reports, if any,
prepared in connection with any such Plan. For purposes of this Section 4.13,
"ERISA Affiliate" of any Person means any other Person which, together with
such Person, would be treated as a single employer under Section 414 of the
Code.
(b) Schedule 4.13(b) of the Company Disclosure Schedule separately identifies
each Company Employee Plan that constitutes a "multiemployer plan," as defined
in Section 3(37) of ERISA (a "Multiemployer Plan"), or that is subject to Title
IV of ERISA (a "Retirement Plan"). No "accumulated funding deficiency," as
defined in Section 412 of the Code or Section 302 of ERISA, has been incurred
with respect to any Company Employee Plan which is a Retirement Plan, whether
or not waived. To the Knowledge of the Company, no condition exists and no
event or transaction has occurred that would be reasonably likely to constitute
grounds for, or result in, the termination of or the appointment of a trustee
to administer any Company Employee Plan which is a Retirement Plan or, with
respect to any Company Employee Plan which is a Multiemployer Plan, presents a
material risk of a complete or partial withdrawal under Title IV of ERISA and
neither the Company nor any of its ERISA Affiliates has incurred any liability
under Title IV of ERISA arising in connection with the termination of, or
complete or partial withdrawal from, any plan covered or previously covered by
Title IV of ERISA that would, individually or in the aggregate, be reasonably
likely to have a Company Material Adverse Effect. To the Knowledge of the
Company, no condition exists and nothing has been done or omitted to be done
and no transaction or holding of any asset under or in connection with any
Company Employee Plan has occurred that would be reasonably likely to cause the
Company or any Company Subsidiary, or any officer or director of the Company or
any Company Subsidiary, to be subject to any liability under Title I or IV of
ERISA or liable for any tax or penalty pursuant to Section 4975 of the Code
(assuming the taxable period of any such transaction expired as of the date
hereof) that would be reasonably likely to have a Company Material Adverse
Effect. No proceedings have been instituted by any Governmental Entity, and
none of the Company, any Company Subsidiary, any ERISA Affiliate or any
Multiemployer Plan has taken any action, to terminate any Retirement Plan or
Multiemployer Plan and no proceedings have been instituted by any
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Governmental Entity to appoint a trustee to administer any Retirement Plan. No
"reportable event," within the meaning of Section 4043 of ERISA has occurred or
is reasonably expected to occur (other than the transactions contemplated
hereby) with respect to any Company Employee Plan that, individually or in the
aggregate, has had or would be reasonably likely to have a Company Material
Adverse Effect.
(c) Each Company Employee Plan which is intended to be qualified under
Section 401(a) of the Code is so qualified and has been so qualified during the
period from its adoption to date, and each trust forming a part thereof is
exempt from tax pursuant to Section 501(a) of the Code. The Company has
furnished to Acquiror copies of the most recent Internal Revenue Service
determination letters with respect to each Company Employee Plan. Each Company
Employee Plan has been maintained in substantial compliance with its terms and
with the requirements prescribed by any and all statutes, orders, rules and
regulations, including ERISA and the Code, which are applicable to such Company
Employee Plan.
(d) Except as disclosed on Schedule 4.13(d), there is no contract, agreement,
plan or arrangement covering any employee or former employee of the Company or
any Company Subsidiary that, individually or collectively, would be reasonably
likely to give rise to the payment of any amount that would not be deductible
pursuant to the terms of Sections 162(m) or 280G of the Code. Except as
disclosed on Schedule 4.13(d), the consummation of the transactions
contemplated hereby, either alone or in combination with any other event that
has occurred or is expected to occur, will not (i) entitle any employee or
former employee of the Company or any Company Subsidiary to any payment, (ii)
increase the amount of compensation due any such employee or (iii) accelerate
the time of vesting of any compensation, equity incentive or other benefit.
(e) Except as disclosed on Schedule 4.13(e) there has been no amendment to,
written interpretation or announcement (whether or not written) relating to, or
change in employee participation or coverage under, any Company Employee Plan
which would increase materially the expense of maintaining such Company
Employee Plan above the level of the expense incurred in respect thereof for
the fiscal year ended December 31, 1999. Except as disclosed on Schedule
4.13(e), neither the Company nor any Company Subsidiary has announced any plan
or commitment (whether or not legally binding) to create any new or additional
Company Employee Plan, or amend, modify or terminate any Company Employee Plan.
(f) Except as disclosed on Schedule 4.13(f), neither the Company nor any
Company Subsidiary has any obligations to provide retiree health and life
insurance or other retiree death benefits under any Company Employee Plan,
other than benefits mandated by Section 4980B of the Code or under applicable
State law, and each such Company Employee Plan may be amended or terminated
without incurring liability thereunder.
(g) Except as disclosed on Schedule 4.13(g), no Company Employee Plan is
under audit or is the subject of an audit or investigation by the Internal
Revenue Service, the Department of Labor, the Pension Benefit Guaranty
Corporation or any other Governmental Entity, nor, to the Knowledge of the
Company, is any such audit or investigation threatened or pending.
4.14 Compliance with Laws; Licenses, Permits and Registrations. (a) To the
Knowledge of the Company, neither the Company nor any of its Subsidiaries is in
violation of, or has violated, any applicable provisions of any laws, statutes,
ordinances, regulations, rules, writs, judgments, injunctions, orders, consent
decrees, permits, licenses or other authorizations applicable to it or its
business or operations, except for violations which would not, individually or
in the aggregate, be reasonably likely to have a Company Material Adverse
Effect.
(b) The Company and each of its Subsidiaries has all permits, licenses,
approvals, authorizations of and registrations with and under all federal,
state, local and foreign laws, and from all Governmental Entities required by
the Company and each of its Subsidiaries to carry on their respective
businesses as currently conducted, except where the failure to have the
permits, licenses, approvals, authorizations or registrations would not,
individually or in the aggregate, be reasonably likely to have a Company
Material Adverse Effect.
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4.15 Title to Properties. (a) The Company and each of its Subsidiaries have
good and marketable title to, or valid leasehold interests in, all their
properties and assets except for those which are no longer used or useful in
the conduct of their businesses and except for defects in title, easements,
restrictive covenants and similar Liens, encumbrances or impediments that, in
the aggregate, do not materially interfere with the ability of the Company and
its Subsidiaries to conduct their business, taken as a whole, as currently
conducted. All of these assets and properties, other than assets and properties
in which the Company or any of its Subsidiaries has leasehold interests, are
free and clear of all Liens, except for Liens that, in the aggregate, do not
and will not materially interfere with the ability of the Company and its
Subsidiaries to conduct their business, taken as a whole, as currently
conducted.
(b) Except as would not, individually or in the aggregate, be reasonably
likely to have a Company Material Adverse Effect, (i) the Company and each of
its Subsidiaries are in compliance with the terms of all leases to which they
are a party and under which they are in occupancy, and all such leases are in
full force and effect and (ii) the Company and each of its Subsidiaries enjoy
peaceful and undisturbed possession under all such leases.
4.16 Intellectual Property. Except as would not, individually or in the
aggregate, be reasonably likely to have a Company Material Adverse Effect, the
Company and each of its Subsidiaries own or have a valid license to use each
trademark, service mark, trade name, mask work, invention, patent, trade
secret, copyright, know-how (including any registrations or applications for
registration of any of the foregoing) or any other similar type of proprietary
intellectual property right (collectively, the "Intellectual Property")
necessary to carry on the business (the "Company Business") of the Company and
the Company Subsidiaries, taken as a whole, as currently conducted (the
"Company Intellectual Property"). To the Knowledge of the Company, neither the
Company nor any of its Subsidiaries has received any challenge to any Company
Intellectual Property, nor has there been, or is there, any claim alleging that
the conduct of the Company Business by the Company and its Subsidiaries, or the
use by the Company and its Subsidiaries of any Company Intellectual Property,
infringes, violates or misappropriates the Intellectual Property of any other
Person, that, in any such case would, individually or in the aggregate, be
reasonably likely to have a Company Material Adverse Effect.
4.17 Environmental Matters. (a) Except as disclosed on Schedule 4.17 and as
would not, individually or in the aggregate, be reasonably likely to have a
Company Material Adverse Effect, to the Knowledge of the Company, (i) no
written notice, notification, demand, request for information, citation,
summons, complaint or administrative or judicial order has been received by,
and no investigation, action, claim, suit, proceeding or review is pending or
threatened by any Person against, the Company or any of its Subsidiaries, with
respect to any applicable Environmental Law and (ii) the Company and its
Subsidiaries are and have been in compliance with all applicable Environmental
Laws.
(b) For purposes of this Section 4.17 and Section 5.15, the term
"Environmental Laws" means any federal, state or foreign statutes, laws,
judicial decisions, regulations, ordinances, rules, judgments, orders, codes,
injunctions, permits or governmental agreements relating to human health and
safety, the environment, natural resources, the release or threatened release
of hazardous substances or to pollutants, contaminants, wastes or chemicals.
4.18 Finders' Fees; Opinions of Financial Advisor. (a) Except for Goldman,
Sachs & Co., there is no investment banker, broker, finder or other
intermediary which has been retained by, or is authorized to act on behalf of,
the Company or any of its Subsidiaries which might be entitled to any fee or
commission from Acquiror or any of its Affiliates upon consummation of the
transactions contemplated by this Agreement.
(b) The Company has received the opinion of Goldman, Sachs & Co., dated as of
the date hereof, to the effect that, as of such date, the Merger Consideration
is fair to the holders of Company Shares (other than Acquiror and any Acquiror
Subsidiary) from a financial point of view.
4.19 Required Vote; Board Approval. (a) The only vote of the holders of any
capital stock of the Company required by law, rule or regulation to approve
this Agreement, the Merger and/or any of the other
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transactions contemplated hereby is the affirmative vote ("Company Shareholder
Approval") of the holders of two-thirds of the outstanding Company Shares in
favor of the adoption of this Agreement and the Merger.
(b) The Company's Board of Directors has unanimously (i) determined that this
Agreement and the transactions contemplated hereby, including the Merger, are
in the best interests of the Company and its shareholders, (ii) approved this
Agreement and the transactions contemplated hereby and (iii) resolved to
recommend to such shareholders that they vote in favor of adopting and
approving this Agreement and the Merger in accordance with the terms hereof.
4.20 State Takeover Statutes. Sections 180.1130 to 180.1133 of the Wisconsin
BCL, Sections 180.1140 to 180.1144 of the Wisconsin BCL, Section 180.1150 of
the Wisconsin BCL, Section 6.05 of Chapter DFI of the Wisconsin Administrative
Code and Chapter 552 of the Wisconsin Statutes are inapplicable to the Merger,
this Agreement and the transactions contemplated hereby. No other "control
share acquisition," "fair price" or other anti-takeover laws or regulations
enacted under state or federal laws in the United States apply to this
Agreement or any of the transactions contemplated hereby.
4.21 Tax Treatment. To the Company's Knowledge, there is no reason why the
Merger will not be able to qualify as a 368 Reorganization.
4.22 Employee Relations. (a) Except as set forth on Schedule 4.22(a), since
January 1, 1998, there has not occurred or, to the Company's Knowledge, been
threatened, any strikes, slowdowns, picketing, work stoppages, concerted
refusals to work overtime or other similar labor activities with respect to any
employee of the Company or any Company Subsidiary. Except as set forth on
Schedule 4.22(a), no grievance, arbitration, unfair labor practice charge or
other proceeding relating to any employees of the Company or any Company
Subsidiary is pending, and, to the Company's knowledge, no such grievance,
arbitration, charge or proceeding is threatened that, in any such case, would,
individually or in the aggregate, be reasonably likely to have a Company
Material Adverse Effect.
(b) Except as set forth on Schedule 4.22(b), the employees employed by the
Company and the Subsidiaries are not represented by any labor union or other
labor representative. Except as set forth on Schedule 4.22(b), there are no
collective bargaining agreements or other similar arrangements in effect with
respect to such employees, and to the Company's knowledge, there are no persons
attempting to represent or organize or purporting to represent for bargaining
purposes any employees employed by the Company or any of its Subsidiaries.
ARTICLE 5
Representations and Warranties of Acquiror
Except as disclosed in (i) the Acquiror Disclosure Schedule attached hereto
(which disclosure schedule shall make a specific reference to the particular
Section or Subsection of this Agreement to which exception is being taken) or
(ii) the Acquiror Public Documents filed or made prior to the date hereof,
Acquiror represents and warrants to the Company that:
5.1 Corporate Existence and Power. Each of Acquiror and MergerSub is a
corporation duly incorporated, validly existing and, if applicable, in good
standing under the laws of its jurisdiction of incorporation and has all
corporate powers required to carry on its business as now conducted. Acquiror
is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where the character of the property owned or
leased by it or the nature of its activities makes qualification necessary,
except where the failure to qualify would not, individually or in the
aggregate, be reasonably likely to have an Acquiror Material Adverse Effect.
Acquiror has heretofore made available to the Company true and complete copies
of Acquiror's articles of association as currently in effect. Since the date of
its incorporation, MergerSub has not engaged in any activities other than in
connection with or as contemplated by this Agreement.
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5.2 Corporate Authorization. The execution, delivery and performance by
Acquiror and MergerSub of this Agreement and the consummation by Acquiror and
MergerSub of the transactions contemplated hereby are within the corporate
powers of Acquiror and MergerSub and, except for the Acquiror Shareholder
Approval, have been duly authorized by all necessary corporate action. Assuming
that this Agreement constitutes the valid and binding obligation of the
Company, this Agreement constitutes a valid and binding agreement of each of
Acquiror and MergerSub, enforceable in accordance with its terms.
5.3 Governmental Authorization. The execution, delivery and performance by
Acquiror and MergerSub of this Agreement and the consummation by Acquiror and
MergerSub of the transactions contemplated hereby require no action by or in
respect of, or filing with, any Governmental Entity other than (a) those set
forth in clauses (a) through (e) of Section 4.3 and (b) other consents,
approvals, actions, orders, authorizations, registrations, declarations and
filings which, if not obtained or made, would not, individually or in the
aggregate, (i) be reasonably likely to have an Acquiror Material Adverse Effect
or (assuming for this purpose that the Effective Time had occurred) a Company
Material Adverse Effect, or (ii) prevent or materially impair the ability of
Acquiror and MergerSub to consummate the transactions contemplated by this
Agreement.
5.4 Non-Contravention. The execution, delivery and performance by Acquiror
and MergerSub of this Agreement and the consummation by Acquiror and MergerSub
of the transactions contemplated hereby do not and will not (a) contravene or
conflict with the articles of association of Acquiror or the articles of
incorporation or bylaws of MergerSub, (b) assuming compliance with the matters
referred to in Section 5.3, contravene or conflict with any provision of law,
regulation, judgment, injunction, order or decree binding upon or applicable to
Acquiror or any Acquiror Subsidiary, (c) result in any violation or breach of,
or constitute (with or without notice or lapse of time or both) a default under
(or give rise to a right of termination, cancellation or acceleration of any
obligation or loss of any material benefit under) any agreement, contract or
other instrument or obligation binding upon Acquiror or any Acquiror Subsidiary
or any property, asset, license, franchise, permit or other authorization held
by Acquiror or any Acquiror Subsidiary, or (d) result in the creation or
imposition of any Lien on any asset of Acquiror or any Acquiror Subsidiary
other than, in the case of each of (b), (c) and (d), any items that would not,
individually or in the aggregate, (x) be reasonably likely to have an Acquiror
Material Adverse Effect or (y) materially impair the ability of Acquiror or
MergerSub to consummate the transactions contemplated by this Agreement.
5.5 Capitalization of Acquiror and MergerSub. (a) Under the Articles of
Association of Acquiror, Acquiror's issued share capital may not be less than
FIM 2,500,000,000 nor more than FIM 10,000,000,000. As of the date hereof, the
issued capital stock of Acquiror consists of 208,933,041 Series A Shares,
nominal value 10 Finnish marks per share (the "Acquiror Series A Shares"), and
550,870,356 Series R Shares (the "Acquiror Series R Shares"). As of the date
hereof, there are outstanding warrants to purchase 2,724,000 Acquiror Series R
Shares at a subscription price of FIM 45.57 each.
(b) As of the date hereof, except as set forth in this Section 5.5 and except
for changes since December 31, 1999 resulting from the exercise of stock
options outstanding on that date, there are no outstanding (i) shares of
capital stock or other voting securities of Acquiror, (ii) securities of
Acquiror convertible into or exchangeable for shares of capital stock or voting
securities of Acquiror and (iii) options, warrants, securities, calls,
commitments, agreements or other rights of any character obligating Acquiror or
any Acquiror Subsidiary to issue, deliver or sell or cause to be issued,
delivered or sold any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of
Acquiror or obligating the Acquiror or any Acquiror Subsidiary to grant,
extend, accelerate the vesting of or enter into any such option, warrant,
security, call, commitment, agreement or other right (the items in clauses (i),
(ii) and (iii) being referred to collectively as the "Acquiror Securities").
There are no outstanding obligations of Acquiror or any Acquiror Subsidiary to
repurchase, redeem or otherwise acquire any Acquiror Securities.
(c) The Acquiror Shares to be issued as part of the Merger Consideration when
issued and delivered in accordance with the terms of this Agreement, will have
been duly authorized, validly issued, fully paid and nonassessable and free of
any preemptive or other similar right.
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(d) The authorized capital stock of MergerSub consists solely of 1,000
MergerSub Shares, par value $0.01 per share, of which, as of the date hereof,
1,000 were issued and outstanding. All outstanding MergerSub Shares have been
duly authorized and validly issued and are fully paid and nonassessable, free
of any preemptive or other similar right, except as provided by Section
180.0622(2)(b) of the Wisconsin BCL.
5.6 Acquiror Public Documents. (a) Acquiror has filed all reports, filings,
registration statements and other documents required to be filed by it with
the Finnish Trade Registry and the Finnish Financial Supervision since
December 31, 1997.
(b) As of its filing date, each Acquiror Public Document complied as to form
in all material respects with the applicable requirements of the Finnish
Securities Act and/or the Finnish Companies Act, as the case may be.
(c) No Acquiror Public Document filed since December 31, 1997 contained, as
of its filing date or effective date, as applicable, any untrue statement of a
material fact or omitted to state any material fact necessary in order to make
the statements made therein, in the light of the circumstances under which
they were made, not misleading.
5.7 Financial Statements; No Material Undisclosed Liabilities. (a) The
audited consolidated financial statements and unaudited consolidated interim
financial statements of Acquiror included in the Acquiror Annual Reports and
the Acquiror Quarterly Reports fairly present in all material respects, in
conformity with International Accounting Standards ("IAS") (except as may be
indicated in the notes thereto and except for the Acquiror Annual Report
relating to the fiscal year ended December 31, 1997 and the Acquiror Quarterly
Reports relating to the first three quarters of 1998, which were prepared
using Finnish generally accepted accounting principles), the consolidated
financial position of Acquiror and its consolidated Subsidiaries as of the
dates thereof and their consolidated results of operations and changes in
financial position for the periods then ended (subject to normal year-end
adjustments in the case of any unaudited interim financial statements).
(b) There are no liabilities of Acquiror or any Acquiror Subsidiary of any
kind whatsoever, whether accrued, contingent, absolute, determined,
determinable or otherwise that are required by IAS to be set forth on a
consolidated balance sheet of Acquiror, other than:
(i) liabilities or obligations disclosed or provided for in the Acquiror
Balance Sheet (including the notes thereto);
(ii) liabilities or obligations under this Agreement or incurred in
connection with the transactions contemplated hereby; and
(iii) other liabilities or obligations, which would not, individually or
in the aggregate, be reasonably likely to have an Acquiror Material Adverse
Effect.
5.8 Information to Be Supplied. (a) The information to be supplied by
Acquiror expressly for inclusion or incorporation by reference in the Proxy
Statement/Prospectus will (i) in the case of the Registration Statement, at
the time it becomes effective, not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading and (ii) in
the case of the remainder of the Proxy Statement/Prospectus, at the time of
the mailing thereof, at the time of the Company Shareholder Meeting and at the
time of the Acquiror Shareholder Meeting, not contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Proxy
Statement/Prospectus will comply (with respect to information relating to
Acquiror) as to form in all material respects with the provisions of the
Securities Act and the Exchange Act.
(b) Notwithstanding the foregoing, Acquiror makes no representation or
warranty with respect to any statements made or incorporated by reference in
the Proxy Statement/Prospectus with respect to information supplied by the
Company.
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5.9 Absence of Certain Changes. Since December 31, 1998, except as otherwise
expressly contemplated by this Agreement, Acquiror and the Acquiror
Subsidiaries have conducted their business in the ordinary course consistent
with past practice and there has not been (a) any damage, destruction or other
casualty loss (whether or not covered by insurance) affecting the business or
assets of Acquiror or any Acquiror Subsidiary that, individually or in the
aggregate, has had or would be reasonably likely to have an Acquiror Material
Adverse Effect or (b) any action, event, occurrence, development or state of
circumstances or facts that, individually or in the aggregate, has had or would
be reasonably likely to have an Acquiror Material Adverse Effect.
5.10 Litigation. There is no action, suit, investigation, arbitration or
proceeding pending against, or to the Knowledge of Acquiror threatened against,
Acquiror or any Acquiror Subsidiary or any of their respective assets or
properties before any arbitrator or Governmental Entity that would,
individually or in the aggregate, be reasonably likely to have an Acquiror
Material Adverse Effect.
5.11 Taxes. Except as set forth in the Acquiror Balance Sheet (including the
notes thereto), (i) all tax returns, statements, reports and forms
(collectively, the "Acquiror Returns") required to be filed with any taxing
authority by, or with respect to, Acquiror and the Acquiror Subsidiaries have
been filed in accordance with all applicable laws, (ii) Acquiror and the
Acquiror Subsidiaries have timely paid all taxes shown as due and payable on
the Acquiror Returns that have been so filed, and, as of the time of filing,
the Acquiror Returns correctly reflected the facts regarding the income,
business, assets, operations, activities and the status of Acquiror and the
Acquiror Subsidiaries (other than taxes which are being contested in good faith
and for which adequate reserves are reflected on the Acquiror Balance Sheet),
(iii) Acquiror and the Acquiror Subsidiaries have made reasonable provision for
all taxes payable by them for which no Acquiror Return has yet been filed, (iv)
the charges, accruals and reserves for taxes with respect to Acquiror and its
Subsidiaries reflected on the Acquiror Balance Sheet are adequate under IAS to
cover the tax liabilities accruing through the date thereof, (v) there is no
action, suit, proceeding, audit or claim now proposed or pending against or
with respect to Acquiror or any of the Acquiror Subsidiaries in respect of any
tax where there is a reasonable possibility of a materially adverse
determination and (vi) neither Acquiror nor any of the Acquiror Subsidiaries
has been a member of an affiliated, consolidated, combined or unitary group,
other than one of which Acquiror was the common parent.
5.12 Compliance with Laws; Licenses, Permits and Registrations. (a) To the
Knowledge of Acquiror, neither Acquiror nor any Acquiror Subsidiary is in
violation of, or has violated, any applicable provisions of any laws, statutes,
ordinances, regulations, rules, writs, judgments, injunctions, orders, consent
decrees, permits, licenses or other authorizations applicable to it or its
business or operations, except for violations which would not, individually or
in the aggregate, be reasonably likely to have, an Acquiror Material Adverse
Effect.
(b) Each of Acquiror and the Acquiror Subsidiaries has all permits, licenses,
approvals, authorizations of and registrations with and under all federal,
state, local and foreign laws, and from all Governmental Entities required by
Acquiror and the Acquiror Subsidiaries to carry on their respective businesses
as currently conducted, except where the failure to have any such permits,
licenses, approvals, authorizations or registrations would not, individually or
in the aggregate, be reasonably likely to have an Acquiror Material Adverse
Effect.
5.13 Title to Properties. (a) Acquiror and each Acquiror Subsidiary have good
and marketable title to, or valid leasehold interests in, all their properties
and assets except for those which are no longer used or useful in the conduct
of their businesses or as have been disposed of in the ordinary course of
business and except for defects in title, easements, restrictive covenants and
similar Liens, encumbrances or impediments that, in the aggregate, do not
materially interfere with the ability of Acquiror and the Acquiror Subsidiaries
to conduct their business, taken as a whole, as currently conducted. All of
these assets and properties, other than assets and properties in which Acquiror
or any Acquiror Subsidiary has leasehold interests, are free and clear of all
Liens, except for Liens that, in the aggregate, do not and will not materially
interfere with the ability of Acquiror and the Acquiror Subsidiaries to conduct
their business, taken as a whole, as currently conducted.
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(b) Except as would not, individually or in the aggregate, be reasonably
likely to have an Acquiror Material Adverse Effect, (i) Acquiror and each
Acquiror Subsidiary are in compliance with the terms of all leases to which
they are a party and under which they are in occupancy, and all of these leases
are in full force and effect and (ii) Acquiror and each Acquiror Subsidiary
enjoy peaceful and undisturbed possession under all such leases.
5.14 Intellectual Property. Except as would not, individually or in the
aggregate, be reasonably likely to have an Acquiror Material Adverse Effect,
Acquiror and the Acquiror Subsidiaries own or have a valid license to use all
Intellectual Property necessary to carry on the business (the "Acquiror
Business") of Acquiror and the Acquiror Subsidiaries, taken as a whole, as
currently conducted (collectively, the "Acquiror Intellectual Property"). To
the Knowledge of Acquiror, neither Acquiror nor any Acquiror Subsidiary has
received any challenge to any Acquiror Intellectual Property, nor has there
been, or is there, any claim alleging that the conduct of the Acquiror Business
by Acquiror and the Acquiror Subsidiaries, or the use by the Acquiror and the
Acquiror Subsidiaries of any Acquiror Intellectual Property, infringes,
violates or misappropriates the Intellectual Property of any other Person,
that, in any case, would, individually or in the aggregate, be reasonably
likely to have an Acquiror Material Adverse Effect.
5.15 Environmental Matters. Except as would not, individually or in the
aggregate, be reasonably likely to have an Acquiror Material Adverse Effect, to
the Knowledge of Acquiror, (i) no written notice, notification, demand, request
for information, citation, summons, complaint or administrative or judicial
order has been received by, and no investigation, action, claim, suit,
proceeding or review is pending or threatened by any person against, Acquiror
or any Acquiror Subsidiary, with respect to any applicable Environmental Law
and (ii) Acquiror and the Acquiror Subsidiaries are and have been in compliance
with all applicable Environmental Laws.
5.16 Finders' Fees. Except for Salomon Smith Barney Inc., whose fees will be
paid by Acquiror, there is no investment banker, broker, finder or other
intermediary who might be entitled to any fee or commission from Acquiror or
any of its Affiliates upon consummation of the transactions contemplated by
this Agreement.
5.17 Required Vote; Board Recommendation. (a) The only vote of the holders of
any class or series of capital stock of Acquiror required by law, rule or
regulation to approve this Agreement, the Merger and/or any of the other
transactions contemplated hereby are the affirmative vote of the holders of
two-thirds by number and voting power of the Acquiror Series A Shares and the
Acquiror Series R Shares present and voting as a single class at the Acquiror
Shareholder Meeting (as defined in Section 7.2) in favor of the issuance of the
Acquiror Shares pursuant to the Merger and the other transactions contemplated
hereby, including the actions described in Section 2.3(a) (the "Acquiror
Shareholder Approval").
(b) Acquiror's Board of Directors has unanimously (i) determined that this
Agreement and the transactions contemplated hereby, including the Merger and
the issuance of the Acquiror Shares pursuant to the Merger, are in the best
interests of Acquiror and its shareholders, (ii) approved this Agreement, and
the transactions contemplated hereby and (iii) resolved to recommend to such
shareholders that they vote in favor of the issuance of the Acquiror Shares
pursuant to the Merger, in accordance with the terms hereof.
5.18 Availability of Funds. Purchaser has available, and will have available
on the Closing Date, sufficient funds to enable Purchaser to consummate the
transactions contemplated by this Agreement.
5.19 Tax Treatment. To Acquiror's Knowledge, there is no reason why the
Merger will not be able to qualify as a 368 Reorganization.
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ARTICLE 6
Covenants of the Company
The Company agrees as set forth below.
6.1 Company Interim Operations. Except as set forth in the Company Disclosure
Schedule or as otherwise expressly contemplated hereby, without the prior
written consent of Acquiror (which consent shall not be unreasonably withheld
or delayed), from the date hereof until the Effective Time, the Company shall,
and shall cause each of its Subsidiaries to, conduct their business in all
material respects in the ordinary course consistent with past practice and
shall use commercially reasonable efforts to (i) preserve intact its present
business organization, (ii) maintain in effect all material foreign, federal,
state and local licenses, approvals and authorizations, including, all material
licenses and permits that are required for the Company or any of its
Subsidiaries to carry on its business and (iii) preserve existing relationships
with its material customers, lenders, suppliers and others having material
business relationships with it. Without limiting the generality of the
foregoing, except as set forth in the Company Disclosure Schedule or as
otherwise expressly contemplated by this Agreement, from the date hereof until
the Effective Time, without the prior written consent of Acquiror (which
consent shall not be unreasonably withheld or delayed), the Company shall not,
nor shall it permit any of its Subsidiaries to:
(a) amend the Company's or any Company Subsidiary's articles of
incorporation or by-laws or equivalent documents;
(b) split, combine, subdivide, redeem or reclassify any shares of capital
stock of the Company or declare, set aside or pay any dividend or other
distribution (whether in cash, stock or property or any combination
thereof) in respect of its capital stock, or redeem, repurchase or
otherwise acquire or offer to redeem, repurchase, or otherwise acquire any
of its securities, except (i) for regular quarterly cash dividends (having
customary record and payment dates not in excess of $0.22 per Company
Share, (ii) for regular dividends by wholly owned Company Subsidiaries or
(iii) pursuant to the existing terms of any award under an existing Company
Employee Plan;
(c) (i) issue, deliver or sell, or authorize the issuance, delivery or
sale of, any shares of its capital stock or any securities convertible into
or exercisable for, or any rights, warrants or options to acquire, any
capital stock, grant any additional options to purchase Company Shares, or
grant to any Person any right to acquire any shares of the Company's
capital stock or any right, the value of which is based on the value of
Company Shares, other than in connection with the Company Employee Plans or
other benefit plans or arrangements existing on the date hereof and other
than the issuance of Company Shares upon the exercise of stock options
outstanding on the date hereof in accordance with their present terms or
(ii) amend in any material respect any term of any outstanding security of
the Company or any Company Subsidiary;
(d) acquire (whether pursuant to merger, stock or asset purchase or
otherwise) in one transaction or series of related transactions (i) except
in the ordinary course of business consistent with past practice, any
assets (including any equity interests) having a fair market value in
excess of $10 million or (ii) all or substantially all of the equity
interests of any Person or any business or division of any Person having a
fair market value in excess of $10 million;
(e) sell, lease, encumber or otherwise dispose of any assets, other than
(i) sales in the ordinary course of business consistent with past practice,
(ii) equipment and property no longer used in the operation of the
Company's business and (iii) assets related to discontinued operations;
(f) incur (which shall not include entering into credit agreements, lines
of credit or similar arrangements until the Company or any of its
Subsidiaries becomes liable with respect to any indebtedness for borrowed
money thereunder or guarantees thereof) any indebtedness for borrowed
money, guarantee any indebtedness, issue or sell any debt securities or
warrants or rights to acquire any debt securities of the Company or any of
its Subsidiaries or guarantee any debt securities of others, except in the
ordinary course of business consistent with past practice (which shall
include borrowings under the Company's
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existing credit agreements and, consistent with past practice, the
Company's existing unrated commercial paper program and overnight
borrowings);
(g) except in the ordinary course of business, amend, modify or terminate
any material contract, agreement or arrangement of the Company or any of
its Subsidiaries or otherwise waive, release or assign any material rights,
claims or benefits of the Company or any of its Subsidiaries thereunder;
(h) (i) except in the ordinary course of business consistent with past
practice or as required by law or the current terms of an existing
agreement or other authorization disclosed in Schedule 4.13 of the Company
Disclosure Schedule, increase the amount of compensation of any current or
former director, officer or employee or make any increase in or commitment
to increase any employee benefits or vest, fund or pay any pension or
retirement allowance other than as required by the current terms of a
Company Employee Plan, (ii) except as required by law, the current terms of
an agreement or other authorization existing on the date hereof or of the
Company severance policy disclosed in Schedule 4.13 of the Company
Disclosure Schedule, grant any severance or termination pay to any
director, officer or employee of the Company or any Company Subsidiary,
(iii) adopt, amend, modify (except as may be required by law), enter into
or commit to any additional employee benefit plan or, except in the
ordinary course of business, make any contribution to any existing plan,
(iv) increase the benefits payable under any existing severance or
termination pay policies or employment agreements or (v) take any
affirmative action to accelerate the vesting of any stock-based
compensation;
(i) change the Company's methods of accounting in effect at December 31,
1998, except as required by changes in GAAP or by Regulation S-X of the
Exchange Act, as concurred in by its independent public accountants;
(j) other than in connection with transactions otherwise permitted by
this Section 6.1, incur any capital expenditures or any obligations or
liabilities in respect thereof, except for those (i) contemplated by the
capital expenditures budgets for the Company and the Company Subsidiaries
made available to Acquiror, (ii) incurred in the ordinary course of
business of the Company and the Company Subsidiaries or (iii) not otherwise
described in clauses (i) and/or (ii) which, in the aggregate, do not exceed
$10 million;
(k) (i) enter into any agreement or arrangement that limits or otherwise
restricts the Company, any Company Subsidiary or any of their respective
Affiliates or any successor thereto from engaging or competing in any line
of business or in any location, which agreement or arrangement would be
material to the business of the Company and the Company Subsidiaries taken
as a whole or (ii) except in the ordinary course of business consistent
with past practice, amend, modify or terminate any material contract,
agreement or arrangement of the Company or any Company Subsidiary or
otherwise waive, release or assign any material rights, claims or benefits
of the Company or any Company Subsidiary thereunder;
(l) settle, or propose to settle, any litigation, investigation,
arbitration, proceeding or other claim that is material to the business of
the Company and the Company Subsidiaries, taken as a whole, other than the
payment, discharge or satisfaction, in the ordinary course of business
consistent with past practice, of liabilities (i) recognized or disclosed
in the most recent consolidated financial statements (or notes thereto) of
the Company included in the Company SEC Documents or (ii) incurred since
the date of such financial statements in the ordinary course of business
consistent with past practice;
(m) create or incur any material Lien on any material asset other than in
the ordinary course of business consistent with past practice or other than
in connection with the purchase of such asset;
(n) make any material loan, advance or capital contribution to or
investment in any Person, other than loans, advances or capital
contributions to, or investments in, wholly owned Company Subsidiaries made
in the ordinary course of business consistent with past practice;
(o) other than in the ordinary course of business consistent with past
practice, (i) make any tax election or take any position on any tax return
filed on or after the date of this Agreement or adopt any
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method thereof that is inconsistent with elections made, positions taken or
methods used in preparing or filing similar returns in prior periods or
(ii) enter into any settlement or compromise of any tax liability that in
either case is material to the business of the Company and the Company
Subsidiaries, taken as a whole; or
(p) agree, resolve or commit to do any of the foregoing;
provided that the limitations set forth in Sections 6.1(a) through 6.1(p) shall
not apply to any action, transaction or event occurring exclusively between the
Company and any wholly owned Company Subsidiary or between any wholly owned
Company Subsidiaries.
6.2 Shareholder Meeting. The Company shall cause a meeting of its
shareholders (the "Company Shareholder Meeting") to be duly called and held as
soon as reasonably practicable for the purpose of obtaining the Company
Shareholder Approval. Unless otherwise required by its fiduciary duties (as
determined in good faith by a majority of its members after consultation with
outside legal counsel to the Company) (i) the Company's Board of Directors
shall recommend approval and adoption by its shareholders of this Agreement
(the "Company Recommendation"), (ii) neither the Company's Board of Directors
nor any committee thereof shall amend, modify, withdraw, condition or qualify
the Company Recommendation in a manner adverse to Acquiror or take any action
or make any statement inconsistent with the Company Recommendation and
(iii) the Company shall take all lawful action to solicit the Company
Shareholder Approval.
6.3 Acquisition Proposals; Board Recommendation.
(a) The Company agrees that it shall not, nor shall it permit any Company
Subsidiary to, nor shall it authorize or knowingly permit any officer,
director, employee, investment banker, attorney, accountant, agent or other
advisor or representative of the Company or any Company Subsidiary, directly or
indirectly, to (i) solicit or initiate the submission of any Acquisition
Proposal, (ii) participate in any discussions or negotiations regarding, or
furnish to any Person any information with respect to, or take any other action
knowingly to facilitate any inquiries or the making of any proposal that
constitutes or that would reasonably be expected to lead to any Acquisition
Proposal, (iii) grant any waiver or release under any standstill or similar
agreement with respect to any class of the Company's equity securities or (iv)
enter into any agreement with respect to any Acquisition Proposal, other than
in the manner contemplated by Section 6.3(d); provided, however, that the
Company may take any action(s) described in any of the foregoing clauses in
respect of a Person, if it receives from such Person an unsolicited bona fide
written Acquisition Proposal that the Company's Board of Directors determines
in good faith (after consultation with an investment bank of nationally
recognized reputation) is reasonably likely to lead to the delivery of a
Superior Proposal and if the Company's Board of Directors determines in good
faith, after consultation with outside legal counsel to the Company, that it is
obligated to take such action(s) in order to comply with its fiduciary duties
under applicable law; provided, further, that, the Company shall have provided
the notice contemplated by Section 6.3(c) and shall comply with Section 6.3(d).
The Company shall cease and cause to be terminated immediately all existing
discussions or negotiations with any Persons conducted heretofore with respect
to, or that could be reasonably expected to lead to, any Acquisition Proposal.
(b) Unless the Company's Board of Directors has previously withdrawn, or is
concurrently therewith withdrawing, the Company Recommendation in accordance
with Section 6.2, neither the Company's Board of Directors nor any committee
thereof shall recommend any Acquisition Proposal to the Company shareholders.
Notwithstanding the foregoing, nothing contained in this Section 6.3(b) or
elsewhere in this Agreement shall prevent the Company's Board of Directors from
complying with Rule 14e-2 under the 1934 Act with respect to any Acquisition
Proposal or making any disclosure required by applicable law.
(c) The Company shall notify Acquiror promptly (but in no event later than
the second Business Day) after receipt by the Company or any Company Subsidiary
(or any of their respective directors, officers, agents or advisors) of any
Acquisition Proposal or any request for nonpublic information or for access to
the properties, books or records of the Company or any request for a waiver or
release under any standstill or
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similar agreement, by any person that has made an Acquisition Proposal. The
notice shall indicate the identity of the offeror and the terms and conditions
of the proposal or request. The Company shall keep Acquiror informed, on a
reasonably current basis, of the status (including amendments or proposed
amendments) of any Acquisition Proposal or request.
(d) Pursuant to the terms of Section 10.1, either Acquiror or the Company may
terminate this Agreement, if the Company's Board of Directors shall have
determined (i) to approve or recommend an Acquisition Proposal after concluding
that the Acquisition Proposal constitutes a Superior Proposal and (ii) to enter
into a binding agreement concerning the Acquisition Proposal; provided,
however, that the Company may not exercise its right to terminate this
Agreement under this Section 6.3(d) and Section 10.1(c)(ii), unless (i) the
Company shall have provided to Acquiror at least five Business Days' prior
written notice that its Board of Directors has authorized the termination and
intends to terminate this Agreement pursuant to this Section 6.3(d) and Section
10.1(c)(ii), specifying the material terms and conditions of the Acquisition
Proposal, (ii) Acquiror does not make, within five Business Days of receiving
the notice, an offer such that a majority of the Company's Board of Directors
determines that (x) the foregoing Acquisition Proposal no longer constitutes a
Superior Proposal or (y) its fiduciary duties no longer require it to take such
action(s) and (iii) on or prior to such termination, the Company shall have
paid to Acquiror the Termination Fee (as defined in Section 10.3(b)); provided,
further, that Acquiror may exercise its right to terminate under this Section
6.3(d) and Section 10.1(d)(iii) within five Business Days after receiving the
notice contemplated by this Section 6.3(d). In connection with the foregoing,
the Company agrees that it will (A) not enter into a binding agreement with
respect to such an Acquisition Proposal until the termination of this Agreement
in accordance with its terms and (B) notify the Acquiror promptly, if its
intention to enter into such an agreement shall change at any time after such
notification.
6.4 Affiliate Agreements. Not later than the 15th day prior to the mailing of
the Proxy Statement/Prospectus, the Company shall deliver to Acquiror a
schedule of each person, that, to its Knowledge, is or is reasonably likely to
be, as of the date of the Company Shareholder Meeting, deemed to be an
"affiliate" of it (each, a "Company Affiliate") as that term is used in Rule
145 under the Securities Act. The Company shall use its best efforts to cause
each person who may be deemed to be a Company Affiliate to execute and deliver
to Acquiror on or before the date of mailing of the Proxy Statement/Prospectus
an agreement in a form reasonably acceptable to Acquiror.
6.5 Termination of DRIP. Promptly following the date hereof, the Company
shall take all steps necessary to suspend the operation of, or to terminate,
its Dividend Reinvestment and Share Purchase Plan, so that no additional
Company Shares are issued thereunder prior to the Effective Time.
ARTICLE 7
Covenants of Acquiror
The Acquiror agrees as set forth below.
7.1 Acquiror Interim Operations. Except as set forth in the Acquiror
Disclosure Schedule or as otherwise expressly contemplated hereby, without the
prior consent of the Company (which consent shall not be unreasonably withheld
or delayed), from the date hereof until the Effective Time, Acquiror shall and
shall cause each of the Acquiror Subsidiaries to, conduct their business in all
material respects in the ordinary course consistent with past practice and
shall use commercially reasonable efforts to (i) preserve intact its present
business organization, (ii) maintain in effect all material foreign, federal,
state and local licenses, approvals and authorizations, including, without
limitation, all material licenses and permits that are required for Acquiror or
any Acquiror Subsidiary to carry on its business and (iii) preserve existing
relationship with its material customers, lenders, suppliers and others having
material business relationships with it. Without limiting the generality of the
foregoing, except as otherwise expressly contemplated by this Agreement, from
the date hereof until the Effective Time, without the prior consent of the
Company (which consent shall not be unreasonably withheld or delayed), Acquiror
shall not, nor shall it permit any Acquiror Subsidiary to:
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(a) make any amendment to Acquiror's articles of association that changes
any material term or provision of the Acquiror Shares;
(b) make any material changes to MergerSub's articles of incorporation;
(c) engage in any material repurchase at a premium, recapitalization,
restructuring or reorganization with respect to Acquiror's capital stock,
including, without limitation, by way of any extraordinary dividend on, or
other extraordinary distributions with respect to, Acquiror's capital
stock;
(d) acquire by merging or consolidating with, or by purchasing a
substantial portion of the assets of or equity in, or by any other manner,
any Person or any business or division thereof, or otherwise acquire any
assets, unless Acquiror concludes in good faith that such acquisition or
the entering into of a definitive agreement relating to or the consummation
of such transaction would not (i) impose any material delay in the
obtaining of, or significantly increase the risk of not obtaining, any
authorizations, consents, orders, declarations or approvals of any
Governmental Entity necessary to consummate the Merger or the expiration or
termination of any applicable waiting period, (ii) significantly increase
the risk of any Governmental Entity entering an order prohibiting the
consummation of the Merger or (iii) significantly increase the risk of not
being able to remove any such order on appeal or otherwise; or
(e) agree, resolve or otherwise commit to do any of the foregoing.
7.2 Shareholder Meeting; Board Recommendation. Subject to the proviso in
Section 3.3(a), Acquiror shall cause a meeting of its shareholders (the
"Acquiror Shareholder Meeting") to be duly called and held as soon as
reasonably practicable for the purpose of obtaining the Acquiror Shareholder
Approval. Pursuant thereto, (i) Acquiror's Board of Directors shall recommend
(the "Acquiror Recommendation") approval and adoption by its shareholders of
the issuance of Acquiror Shares pursuant to the Merger and the election of
George W. Mead as a member of Acquiror's Board of Directors as contemplated by
Section 2.3(a), (ii) neither Acquiror's Board of Directors nor any committee
thereof shall amend, modify, withdraw, condition or qualify the Acquiror
Recommendation in a manner adverse to the Company or take any action or make
any statement inconsistent with the Acquiror Recommendation and (iii) Acquiror
shall take all lawful action to solicit the Acquiror Shareholder Approval. In
the event that the Merger Consideration consists of all Cash Consideration
pursuant to the proviso in Section 3.3(a), this provision shall be of no
further force or effect, and Acquiror's obligation under Section 2.3(a) shall
cease.
7.3 Director and Officer Liability. (a) Acquiror and the Surviving
Corporation agree that the Surviving Corporation shall adopt prior to the
Effective Time, in its Articles of Incorporation and bylaws, the same
indemnification obligations as those set forth in the Company's articles of
incorporation and bylaws, in each case as of the date of this Agreement, and
that such provisions shall not be amended, repealed or otherwise modified for a
period of six years after the Effective Time in any manner that would adversely
affect the rights thereunder of the individuals who on or prior to the
Effective Time were directors, officers, employees or agents of the Company or
the Company Subsidiaries.
(b) To the fullest extent permitted under applicable law, after the Effective
Time, MergerSub and Acquiror shall, and Acquiror shall cause the Surviving
Corporation to, indemnify, defend and hold harmless, to the fullest extent
permitted under applicable law, each present and former director or officer of
the Company and each Company Subsidiary and each person who served at the
request of the Company or any Company Subsidiary as a director, officer,
trustee, partner or fiduciary of another Person, pension or other employee
benefit plan or enterprise (collectively, the "Indemnified Parties") against
all costs and expenses (including reasonable attorneys' fees), judgments,
fines, losses, claims, damages, liabilities and settlement amounts paid in
connection with any claim, action, suit, proceeding or investigation (whether
arising before or after the Effective Time), arising out of or pertaining to
any action or omission in their capacity as director, officer, trustee, partner
or fiduciary in each case occurring on or before the Effective Time (including
the transactions contemplated by this Agreement). Without limiting the
foregoing, in the event of any claim, action, suit, proceeding or
investigation, (i) Acquiror and the Surviving Corporation shall (x)
periodically advance
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reasonable fees and expenses (including attorneys fees) with respect to the
foregoing and (y) pay the reasonable fees and expenses of counsel selected by
each Indemnified Party, which counsel shall be reasonably satisfactory to
Acquiror and the Surviving Corporation, promptly after statements therefor are
received (unless the Surviving Corporation shall elect to defend such action)
and (ii) Acquiror and the Surviving Corporation, as applicable, shall cooperate
in the defense of any matter; provided, however, that neither Acquiror nor the
Surviving Corporation shall be liable for any settlement effected without its
prior written consent (which consent shall not be unreasonably withheld or
delayed).
(c) For six years from the Effective Time, the Surviving Corporation shall
provide to the Company's and each Company Subsidiary's directors and officers
liability insurance protection of the same kind and scope as that provided by
the Company's directors' and officers' liability insurance policies in effect
on the date hereof; provided, however, that in no event shall the Surviving
Corporation be required to expend in any one year an amount in excess of 200%
of the annual premiums currently paid by the Company for such insurance, which
current annual premium the Company represents and warrants to be $103,000; and
provided, further, that if the annual premiums of such insurance exceed such
amount, the Surviving Corporation shall obtain a policy with the greatest
coverage available for a cost not exceeding such amount.
(d) If Acquiror or the Surviving Corporation or any of their respective
successors or assigns (i) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity in a
consolidation or merger or (ii) transfers all or substantially all its
properties and assets to any Person, then, and in each case, proper provision
shall be made so that the successors and assigns of Acquiror or the Surviving
Corporation, as the case may be, honor the indemnification obligations set
forth in this Section 7.3.
(e) The obligations of the Surviving Corporation and Acquiror under this
Section 7.3 shall not be terminated or modified in a manner which will
adversely affect any director, officer or other person to whom this Section 7.3
applies without the consent of the affected director, officer or other person
(it being expressly agreed that each director, officer or other person to whom
this Section 7.3 applies shall be third-party beneficiaries of this Section
7.3).
7.4 Employee Benefits. (a) During the period commencing at the Effective Time
and ending on the second anniversary thereof, Acquiror shall cause the
Surviving Corporation and the Company Subsidiaries to provide eligible
employees of the Company and the Company Subsidiaries, during the period of
employment of such employees with the Surviving Corporation or Company
Subsidiaries, with salary and benefits under employee benefit plans that are no
less favorable in the aggregate than those currently provided by the Company
and the Company Subsidiaries under the Company Employee Plans disclosed on the
Company Disclosure Schedule to their respective employees. For purposes of any
employee benefit plan or arrangement maintained by Acquiror, the Surviving
Corporation or any Acquiror Subsidiary in which employees of the Company or a
Company Subsidiary become eligible to participate, Acquiror and the Surviving
Corporation shall recognize (or cause to be recognized) the service of such
employees with the Company and its Subsidiaries and any predecessor entities
(and any other service credited by the Company under similar benefit plans) for
purposes of vesting, eligibility to participate and severance to the extent
such service was recognized under a comparable Company Employee Plan provided,
however, that solely to the extent necessary to avoid duplication of benefits,
amounts payable under employee benefit plans provided by Acquiror, the
Surviving Corporation or an Acquiror Subsidiary may be reduced by amounts
payable under similar Company Employee Plans with respect to the same periods
of service). From and after the Effective Time, in the case of any employee
benefit plan of Acquiror or any Acquiror Subsidiary that is an employee health
or life insurance plan and in which employees of the Company or any Company
Subsidiary become eligible to participate (any such plan, an "Acquiror Welfare
Plan"), Acquiror shall cause such Acquiror Welfare Plan to (i) waive any pre-
existing conditions of any such employee that was covered under the Company
Employee Plan in which such employee was a participant immediately prior to
commencement of participation in the Acquiror Welfare Plan and (ii) recognize
any deductibles or out-of-pocket expenses paid by any such employee pursuant to
the Company Employee Plan in which such employee was a participant immediately
prior to commencement of participation in the Acquiror Welfare Plan in the
calendar year in which such commencement of participation
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occurs. The provisions of this Section 7.4 shall not create in any employee or
former employee of the Company or any Company Subsidiary any rights to
employment or continued employment with Acquiror, the Surviving Corporation or
the Company or any of their respective Subsidiaries or Affiliates or infringe
upon the right of any such entity to terminate the employment of any such
employee for any reason or no reason.
(b) During the six-month period following the Effective Time, Acquiror shall
cause the Surviving Corporation and the Company Subsidiaries to provide at
least 30 days' advance written notice of the termination of employment
("Advance Notice") of any employees of the Company or any Company Subsidiary
other than any such termination for cause.
(c) During the period commencing at the Effective Time and ending on the
first anniversary thereof, Acquiror shall cause the Surviving Corporation and
the Acquiror Subsidiaries to honor, in accordance with its terms, the Company's
Human Resources Policy-Severance disclosed on the Company Disclosure Schedule.
In addition, Acquiror shall cause the Surviving Corporation and the Acquiror
Subsidiaries to honor, in accordance with their terms, as in effect on the date
hereof any employment, change of control, severance, retirement or termination
agreement between the Company or any Company Subsidiary, and any officer,
director or employee of the Company or any Company Subsidiary disclosed on the
Company Disclosure Schedule, including the Company's retention incentive
program and the Change in Control Agreements, dated October 26, 1999, as
amended, between the Company and certain of its officers.
(d) Prior to the Effective Time, the Company shall take all appropriate
actions to ensure that no "restricted date" will be deemed to occur for
purposes of Appendix F to the Consolidated Salaried Employees' Retirement Plan
or Appendix E to the Consolidated Employees' Retirement Plan by reason of the
transactions contemplated hereby, alone or in conjunction with another event.
7.5 Stock Exchange Listing. Acquiror shall use its reasonable best efforts to
cause the Acquiror Shares to be issued in connection with the Merger to be
approved for listing on the NYSE, subject to official notice of issuance.
7.6 Conduct of MergerSub. Acquiror will take all action necessary to cause
MergerSub to perform its obligations under this Agreement and to consummate the
Merger on the terms and conditions set forth in this Agreement, including,
without limitation, voting all of the MergerSub Shares in favor of adoption of
this Agreement and the Merger.
7.7 Transfer Taxes. All state, local or foreign sales, use, real property
transfer, stock transfer or similar taxes (including any interest or penalties
with respect thereto) attributable to the Merger (collectively, the "Transfer
Taxes") shall be timely paid by Acquiror.
ARTICLE 8
Covenants of Acquiror and the Company
The parties hereto agree as set forth below.
8.1 Reasonable Best Efforts. (a) Subject to the terms and conditions hereof,
each party will use reasonable best efforts to take, or cause to be taken, all
actions, to file, or caused to be filed, all documents, including without
limitation the notification form under the HSR Act, an application for an
exemption under PUHCA and an application for consent under WPUHCA, and to do,
or cause to be done, all things necessary, proper or advisable to consummate
and make effective the transactions contemplated by this Agreement as promptly
as practicable. Acquiror and the Company shall have the right to review in
advance, and to the extent reasonably practicable each will consult the other
on, all the information relating to the other and its subsidiaries, that appear
in any filing made with, or written materials submitted to, any third party or
any Governmental Entity in connection with the Merger; provided, however, that
with respect to documents that
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one party reasonably believes should not be disclosed to the other party, such
party shall instead furnish those documents to counsel for the other party
pursuant to a mutually satisfactory confidentiality agreement. In exercising
the foregoing right, each of the Company and Acquiror shall act reasonably and
as promptly as reasonably practicable.
(b) Acquiror and the Company shall promptly respond to any request for
additional information pursuant to the HSR Act. Upon the terms and subject to
the provisions hereof, Acquiror and the Company shall each use all reasonable
best efforts to resolve objections, if any, as may be asserted by any
Governmental Entity with respect to the Merger under any antitrust or trade or
regulatory laws or regulations of any Governmental Entity, which, in the case
of Acquiror, will, except as set forth below, include if necessary to resolve
such objections, offering, and agreeing to enter into necessary agreements, to
sell, license or otherwise dispose of, or hold separate or otherwise divest
itself of, all or any portion of Acquiror's businesses or assets or any portion
of the businesses or assets of any of its subsidiaries or any portion of the
businesses or assets of the Company or the Company's subsidiaries; provided,
however, that nothing in this Section 8.1 or otherwise shall require Acquiror
to agree to divest the assets of Consolidated Water Power Company other than
the retail sales assets; and provided, however, that nothing in this Section
8.1 shall require Acquiror to agree to (i) the imposition of conditions or (ii)
the requirement of divestiture that, in the case of clauses (i) and (ii),
would, in Acquiror's reasonable judgment, be reasonably likely to have an
Acquiror Material Adverse Effect or a Company Material Adverse Effect or to
materially adversely impact the economic, strategic or business benefits of the
transactions contemplated hereby, it being understood that a divestiture of the
retail sales assets of Consolidated Water Power Company would not have such an
impact or otherwise be deemed likely to have a Material Adverse Effect.
Acquiror shall reasonably consult with the Company and, subject to being
permitted by the Governmental Entity to do so, the Company shall have the right
to attend and participate in any telephone calls or meetings that Acquiror or
MergerSub have with any person with regard to this Agreement.
8.2 Certain Filings; Cooperation in Receipt of Consents. (a) Promptly after
the date hereof, Acquiror and the Company shall prepare and Acquiror shall file
with the SEC the Registration Statement, in which the Proxy
Statement/Prospectus will be included as Acquiror's prospectus. Each of the
Company and Acquiror shall use reasonable best efforts to have the Registration
Statement declared effective under the Securities Act as promptly as
practicable after the filing and to keep the Registration Statement effective
as long as is necessary to consummate the Merger. Each of the Company and
Acquiror shall mail the Proxy Statement/Prospectus to their respective
shareholders as promptly as practicable after the Registration Statement is
declared effective under the Securities Act and, if necessary, after the Proxy
Statement/Prospectus shall have been so mailed, promptly circulate amended,
supplemental or supplemented proxy material, and, if required in connection
therewith, resolicit proxies. Acquiror shall also take any action required to
be taken under any applicable state securities or blue sky laws in connection
with the issuance of Acquiror Shares in the Merger.
(b) No amendment or supplement to the Proxy Statement/Prospectus will be made
by the Company or Acquiror without the approval of the other party, which
approval will not be unreasonably withheld or delayed. Each party will advise
the other party, promptly after it receives notice thereof, of the time when
the Registration Statement has become effective or any supplement or amendment
has been filed, the issuance of any stop order, the suspension of the
qualification of the Acquiror Shares issuable in connection with the Merger for
offering or sale in any jurisdiction, or any request by the SEC for amendment
of the Proxy Statement/Prospectus or comments thereon and responses thereto or
requests by the SEC for additional information. If at any time prior to the
Effective Time, the Company or Acquiror discovers any information relating to
either party, or any of their respective Affiliates, officers or directors,
that should be set forth in an amendment or supplement to the Proxy
Statement/Prospectus, so that the document will not include any misstatement of
a material fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, then the party that discovers any misleading information shall
promptly notify the other parties hereto and an appropriate amendment or
supplement describing the information shall be promptly filed with the SEC and,
to the extent required by law or regulation, disseminated to the shareholders
of the Company and Acquiror.
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(c) The Company and Acquiror shall cooperate with one another in (i)
determining whether any other action by or in respect of, or filing with, any
Governmental Entity is required, or any actions, consents, approvals or waivers
are required to be obtained from parties to any material contracts, in
connection with the consummation of the transactions contemplated hereby, (ii)
seeking any consents, approvals or waivers, taking any actions, or making any
filings, furnishing information required in connection therewith and seeking
promptly to obtain any consents, approvals or waivers and (iii) setting a
mutually acceptable date for the Company Shareholder Meeting and the Acquiror
Shareholder Meeting so as to enable them to occur, to the extent practicable,
on the same date. Each party shall permit the other party to review any
communication given by it to, and consult with each other in advance of any
meeting or conference with, any Governmental Entity or, in connection with any
proceeding by a private party, with any other Person, and to the extent
permitted by the applicable Governmental Entity or other Person, give the other
party the opportunity to attend and participate in the meetings and
conferences, in each case in connection with the transactions contemplated
hereby.
8.3 Public Announcements. The parties shall consult with each other before
issuing any press release or making any public statement with respect to this
Agreement and the transactions contemplated hereby and, except as may be
required by applicable law or any listing agreement with any national
securities exchange, will not issue any such press release or make any public
statement prior to such consultation.
8.4 Access to Information; Notification of Certain Matters. (a) From the date
hereof until the Effective Time and subject to applicable law, the Company and
Acquiror shall (i) give to the other party, its counsel, financial advisors,
auditors and other authorized representatives reasonable access to its offices,
properties, books and records, (ii) furnish or make available to the other
party, its counsel, financial advisors, auditors and other authorized
representatives any financial and operating data and other information as those
Persons may reasonably request and (iii) instruct its employees, counsel,
financial advisors, auditors and other authorized representatives to cooperate
with the reasonable requests of the other party in its investigation. Any
investigation pursuant to this Section shall be conducted in a manner which
will not to interfere unreasonably with the conduct of the business of the
other party. Unless otherwise required by law, each of the Company and Acquiror
will hold, and will cause its respective officers, employees, counsel,
financial advisors, auditors and other authorized representatives to hold any
nonpublic information obtained in any investigation in confidence in accordance
with Section 8.8. No information or knowledge obtained in any investigation
pursuant to this Section 8.4 shall affect or be deemed to modify any
representation or warranty made by any party hereunder.
(b) Each party hereto shall give prompt notice to the other of (i) any
communication received by such party from, or given by such party to, any
Governmental Entity in connection with any of the transactions contemplated
hereby and (ii) any actions, suits, claims, investigations or proceedings
commenced or, to its Knowledge, threatened against, relating to or involving or
otherwise affecting such party or any of its Subsidiaries that, if pending on
the date of this Agreement, would have been required to have been disclosed
pursuant to Article IV or Article V, as the case may be, or that relate to the
consummation of the transactions contemplated by this Agreement; provided, in
each case, however, that delivery of any notice pursuant to this Section 8.4(b)
shall not limit or otherwise affect the remedies available hereunder to the
party receiving such notice.
8.5 Further Assurances. At and after the Effective Time, the officers and
directors of the Surviving Corporation will be authorized to execute and
deliver, in the name and on behalf of the Company or MergerSub, any deeds,
bills of sale, assignments or assurances and to take and do, in the name and on
behalf of the Company or MergerSub, any other actions and things to vest,
perfect or confirm of record or otherwise in the Surviving Corporation any and
all right, title and interest in, to and under any of the rights, properties or
assets of the Company acquired or to be acquired by the Surviving Corporation
as a result of, or in connection with, the Merger.
8.6 Tax Treatment. Each party shall use its reasonable best efforts to cause
the Merger to qualify as a 368 Reorganization, including the reporting
requirements contained in U.S. Treasury Regulation Section 1.367(a)-3(c)(6),
and will not take any action reasonably likely to cause the Merger not so to
qualify.
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8.7 Integration Committee. Acquiror recognizes that the Company has a
talented group of officers and employees that will be important to the future
growth of the combined companies. In recognition of the foregoing, promptly
after the date hereof, Acquiror will establish an Integration Committee
composed of senior executive officers of both Acquiror and the Company, as
selected by Acquiror's President, who will have direct access to him and will
be responsible for proposing alternatives and recommendations to him regarding
the matters and issues arising in connection with the integration of the two
companies and their respective businesses, assets and organizations (including
matters arising in connection with the matters contemplated by Section 7.3).
8.8 Confidentiality. Prior to the Effective Time and after any termination of
this Agreement, each party hereto will hold, and will use its reasonable best
efforts to cause its officers, directors, employees, accountants, counsel,
consultants, advisors and agents to hold, in confidence, unless compelled to
disclose by judicial or administrative process or by other requirements of law,
all confidential documents and information concerning the other parties hereto
furnished to the party in connection with the transactions contemplated by this
Agreement, except to the extent that the information can be shown to have been
(a) previously known on a nonconfidential basis by the party, (b) in the public
domain through no fault of the party or (c) later lawfully acquired by such
party from sources other than any of the other parties hereto; provided that a
party may disclose information to its officers, directors, employees,
accountants, counsel, consultants, advisors and agents in connection with the
transactions contemplated by this Agreement, so long as those Persons are
informed by the party of the confidential nature of information and are
directed by the party to treat such information confidentially. Each party's
obligation to hold any information in confidence shall be satisfied, if it
exercises the same care with respect to the information as it would take to
preserve the confidentiality of its own similar information. If this Agreement
is terminated, each party hereto will, and will use its reasonable best efforts
to cause its officers, directors, employees, accountants, counsel, consultants,
advisors and agents to, destroy or deliver to the party from whom the material
was obtained, upon request, all documents and other materials, and all copies
thereof, obtained from the other party from the other parties in connection
with this Agreement that are subject to this confidentiality requirement.
ARTICLE 9
Conditions to Merger
9.1 Conditions to the Obligations of Each Party. The obligations of the
Company, Acquiror and MergerSub to consummate the Merger are subject to the
satisfaction of the following conditions:
(a) each of (i) the Company Shareholder Approval and (ii) the Acquiror
Shareholder Approval shall have been obtained;
(b) (i) the Registration Statement shall have become effective in
accordance with the provisions of the Securities Act, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and no proceedings for that purpose shall have been
initiated by the SEC and not concluded or withdrawn and (ii) all state
securities or blue sky authorizations necessary to carry out the
transactions contemplated hereby shall have been obtained and be in effect;
(c) (i) any applicable waiting period under the HSR Act or Canadian
Competition Act or any other applicable comparable foreign merger control
authority relating to the Merger shall have expired or been earlier
terminated and (ii) if required by applicable law, the parties shall have
received a decision from the European Commission under Regulation 4064/89
that the proposed Merger and any matters arising therefrom fall within
either Article 6.1(a) or Article 6.1(b) of such Regulation and that, in any
event, the Merger will not be referred to any competent authority or dealt
with by the European Commission pursuant to Article 9.3 of such Regulation;
and
(d) no Governmental Entity of competent authority or jurisdiction shall
have issued any order, injunction or decree, or taken any other action then
in effect, which restrains, enjoins or otherwise prohibits the consummation
of the Merger.
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9.2 Conditions to the Obligations of the Company. The obligations of the
Company to consummate the Merger are subject to the satisfaction of the
following further conditions:
(a) (i) Acquiror and MergerSub each shall have performed in all material
respects all of its obligations hereunder required to be performed by it at
or prior to the time of the filing of the Articles of Merger, (ii) (A) the
representations and warranties of Acquiror contained in this Agreement that
are qualified by reference to an Acquiror Material Adverse Effect shall be
true and correct when made and at and as of the time of filing the Articles
of Merger, as if made at and as of such time and (B) all other
representations and warranties of Acquiror shall have been true and
correct, disregarding for these purposes any qualification or exception for
materiality, when made and at and as of the time of the filing of the
Articles of Merger as if made at and as of such time, except for
inaccuracies which, individually or in the aggregate, are not reasonably
likely to have an Acquiror Material Adverse Effect and (iii) the Company
shall have received a certificate signed by the Chief Executive Officer or
Chief Financial Officer of Acquiror to the foregoing effect;
(b) the Company shall have received an opinion of McDermott, Will & Emery
counsel to the Company, dated as of the Closing Date, to the effect that,
on the basis of facts, representations and assumptions set forth in such
opinion, (a) the Merger constitutes a reorganization within the meaning of
Section 368(a) of the Code, (b) Acquiror will be treated as a corporation
under Section 367(a)(1) of the Code with respect to each transfer of
property thereto pursuant to the Merger, and (c) accordingly, for U.S.
federal income tax purposes, (i) no gain or loss will be recognized by the
Company as a result of the Merger and (ii) no gain or loss will be
recognized by a stockholder of the Company in respect of the receipt of
Acquiror Shares pursuant to the Merger. In rendering its opinion, such
counsel may require and rely upon representations contained in letters from
the Company, Acquiror and MergerSub. Counsel's opinion shall not address
the tax consequences applicable to any stockholder of the Company who,
immediately after the Merger, will be a "five percent transferee
shareholder" with respect to Acquiror within the meaning of U.S. Treasury
Regulation Section 1.367(a)-3(c)(5); and
(c) the Parties shall have obtained or made all consents, approvals,
actions, orders, authorizations, registrations, declarations, announcements
and filings contemplated by Sections 4.3 and 5.3, which if not obtained or
made (i) would render consummation of the Merger illegal or (ii) (assuming
the Effective Time had occurred) would be reasonably likely to have an
Acquiror Material Adverse Effect.
9.3 Conditions to the Obligations of Acquiror and MergerSub. The obligations
of Acquiror and MergerSub to consummate the Merger are subject to the
satisfaction of the following further conditions:
(a) (i) the Company shall have performed in all material respects all of
its obligations hereunder required to be performed by it at or prior to the
Effective Time, (ii) (A) the representations and warranties of the Company
contained in this Agreement that are qualified by reference to a Company
Material Adverse Effect shall be true and correct when made and at and as
of the time of the filing of the Articles of Merger, as if made at and as
of such time and (B) all other representations and warranties of the
Company shall have been true and correct, disregarding for these purposes
any qualification or exception for materiality, when made and at and as of
the time of filing of the Articles of Merger, as if made as of such time,
except for such inaccuracies which, individually or in the aggregate, are
not reasonably likely to have a Company Material Adverse Effect, and (iii)
Acquiror shall have received a certificate signed by the Chief Executive
Officer, President or Chief Financial Officer of the Company to the
foregoing effect;
(b) Acquiror shall have received an opinion of Cleary, Gottlieb, Steen &
Hamilton, counsel to Acquiror, dated as of the Closing Date, to the effect
that, on the basis of facts, representations and assumptions set forth in
such opinion, (a) the Merger constitutes a reorganization within the
meaning of Section 368(a) of the Code, (b) Acquiror will be treated as a
corporation under Section 367(a)(1) of the Code with respect to each
transfer of property thereto pursuant to the Merger, and (c) accordingly,
for U.S. federal income tax purposes, (i) no gain or loss will be
recognized by Acquiror as a result of the Merger and (ii) no gain or loss
will be recognized by a stockholder of the Company in respect of the
receipt of
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Acquiror Shares pursuant to the Merger. In rendering its opinion, such
counsel may require and rely upon representations contained in letters from
the Company, Acquiror and MergerSub. Counsel's opinion shall not address
the tax consequences applicable to any stockholder of the Company who,
immediately after the Merger, will be a "five percent transferee
shareholder" with respect to Acquiror within the meaning of U.S. Treasury
Regulation Section 1.367(a)-3 (c)(5); and
(c) Acquiror shall have obtained all consents, or been granted all
exemptions, that it, in its reasonable judgment, determines are necessary
in connection with the transactions contemplated by this Agreement,
including the indirect acquisition of Consolidated Water Power Company, (i)
from or by the SEC under or with respect to PUHCA and (ii) from or by the
Wisconsin Public Service Commission under or with respect to WPUHCA,
including, in the case of (ii), as a result of the actions contemplated in
the first proviso to Section 8.1(b). The parties shall have obtained or
made all other consents, approvals, actions, orders, authorizations,
registrations, declarations, announcements and filings contemplated by
Sections 4.3 and 5.3 which if not obtained or made (i) would render
consummation of the Merger illegal or (ii) (assuming the Effective Time had
occurred) would be reasonably likely to have an Acquiror Material Adverse
Effect or a Company Material Adverse Effect.
ARTICLE 10
Termination
10.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time by written notice, whether before or after the Company
Shareholder Approval and/or the Acquiror Shareholder Approval shall have been
obtained:
(a) by mutual written agreement of Acquiror and the Company;
(b) by either Acquiror or the Company, if
(i) the Merger shall not have been consummated by December 31, 2000
(the "End Date"); provided, however, that the right to terminate this
Agreement under this Section 10.1(b)(i) shall not be available to any
party whose breach of any provision of this Agreement has resulted in
the failure of the Merger to occur on or before the End Date;
(ii) there shall be any law or regulation that makes consummation of
the Merger illegal or otherwise prohibited or any judgment, injunction,
order or decree of any Governmental Entity having competent
jurisdiction enjoining the Company, Acquiror or MergerSub from
consummating the Merger is entered and the judgment, injunction,
judgment or order shall have become final and nonappealable and, prior
to that termination, the parties shall have used reasonable best
efforts to resist, resolve or lift, as applicable, the law, regulation,
judgment, injunction, order or decree;
(iii) at the Acquiror Shareholder Meeting (including any adjournment
or postponement thereof), the Acquiror Shareholder Approval shall not
have been obtained; or
(iv) at the Company Shareholder Meeting (including any adjournment or
postponement thereof), the Company Shareholder Approval shall not have
been obtained.
(c) by the Company, (i) if a breach of or failure to perform any
representation, warranty, covenant or agreement on the part of Acquiror or
MergerSub set forth in this Agreement shall have occurred which would cause
the condition set forth in Section 9.2(a) not to be satisfied, and such
condition shall be incapable of being satisfied by the End Date; or (ii) as
contemplated by Section 6.3(d); or
(d) by Acquiror, (i) if the Company's Board of Directors shall have (A)
amended, modified, withdrawn, conditioned or qualified the Company
Recommendation in a manner adverse to Acquiror and/or (B) recommended any
Acquisition Proposal to the Company's shareholders; (ii) pursuant to the
terms of Section 6.3(d); or (iii) if a breach of or failure to perform any
representation, warranty, covenant
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or agreement on the part of the Company set forth in this Agreement shall
have occurred which would cause the condition set forth in Section 9.3(a)
not to be satisfied, and the condition is incapable of being satisfied by
the End Date.
10.2 Effect of Termination. If this Agreement is terminated pursuant to
Section 10.1 (including any termination by way of Section 6.3(d)), there shall
be no liability or obligation on the part of Acquiror, the Company, MergerSub,
or any of their respective officers, directors, shareholders, agents or
Affiliates, except (i) as set forth in Section 10.3 which (without limiting in
any respect the respective rights and obligations of the parties set forth in
Section 11.8 prior to any termination in accordance with the terms of this
Agreement) shall be the sole and exclusive remedy of the parties hereto in the
event of such termination and (ii) no such termination shall relieve any party
hereto of any liability or damages resulting from any breach of this Agreement
unless a Termination Fee or Acquiror Termination Fee has been paid pursuant to
Section 10.3; provided that the provisions of Sections 8.8, 10.2, 10.3, 11.1,
11.2, 11.4, 11.5, 11.7, 11.8, 11.9 and 11.10 of this Agreement shall remain in
full force and effect and survive any termination of this Agreement.
10.3 Fees and Expenses. (a) Except as set forth in this Section 10.3, all
fees and expenses incurred in connection herewith and the transactions
contemplated hereby shall be paid by the party incurring expenses, whether or
not the Merger is consummated.
(b) If this Agreement is terminated pursuant to Section 10.1(c)(ii), or
Section 10.1(d)(i)(B), or Section 10.1(d)(ii), or Section 10.1(d)(iii) (but
only if the breach shall have been a willful and material breach of Section 6.3
by the Company, any Company Subsidiary or any of their respective officers,
directors, employees, advisors or other agents) the Company shall (i) pay to
Acquiror a termination fee equal to $120,000,000 (the "Termination Fee") and
(ii) reimburse Acquiror for its actual, documented out-of-pocket expenses
incurred to third parties in connection with the transactions contemplated
hereby not to exceed $1,000,000.
(c) If this Agreement is terminated by either party pursuant to Section
10.1(b)(i) or Section 10.1(b)(iv) and (i) prior to such termination, any Person
or "group" (as defined in Section 13(d)(3) of the Exchange Act) shall have
publicly announced an intention (whether or not conditional) to make an
Acquisition Proposal and (ii) concurrently with or within 12 months after
termination, the Company enters into an agreement with respect to or
consummates a Third Party Acquisition Event, the Company shall (x) pay to
Acquiror the Termination Fee within one Business Day of the earlier of entering
into any such agreement and the consummation of a Third Party Acquisition Event
and (y) reimburse Acquiror at that time for Acquiror's actual, documented out-
of-pocket expenses incurred to third parties in connection with the
transactions contemplated hereby not to exceed $1,000,000.
A "Third Party Acquisition Event" means the consummation of an Acquisition
Proposal involving the purchase of a majority of either the equity securities
of the Company or of the consolidated assets of the Company and the Company
Subsidiaries, taken as a whole, or any transaction that, if it had been
proposed prior to the termination of this Agreement would have constituted an
Acquisition Proposal.
(d) If this Agreement is terminated pursuant to Section 10.1(d)(i)(A), (i)
the Company shall (A) pay to Acquiror 50% of the Termination Fee and (B)
reimburse Acquiror for Acquiror's actual, documented out-of-pocket expenses
incurred to third parties in connection with the transaction contemplated by
this Agreement not to exceed $1,000,000 and (ii) if concurrently with or within
12 months after termination the Company enters into an agreement with respect
to or consummates of a Third Party Acquisition Event, then the Company shall
pay to Acquiror 50% of the Termination Fee within one Business Day of the
earlier of entering into such agreement and the consummation of the transaction
contemplated by such Third Party Acquisition Event.
(e) If this Agreement is terminated pursuant to Section 10.1(b)(iii) and (x)
prior to such termination, any Person or "group" (as defined in Section
13(d)(3) of the Exchange Act) shall have publicly announced an intention
(whether or not conditional) to make a proposal for a merger, consolidation,
share exchange, business combination, reorganization, recapitalization,
liquidation, dissolution or other similar transaction involving
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Acquiror, or for any purchase or other acquisition of 15% or more of the assets
or any class of equity securities of Acquiror (an "Acquiror Acquisition
Proposal") and (y) concurrently with or within 12 months after termination,
Acquiror enters into an agreement with respect to, or a Person consummates, a
purchase of a majority of either the equity securities of Acquiror or of the
consolidated assets of Acquiror and the Acquiror Subsidiaries, taken as a
whole, Acquiror shall (A) pay to the Company a fee (the "Acquiror Termination
Fee") equal to $40,000,000 within one Business Day or the earlier of entering
into any such agreement and the consummation of any such purchase and (B)
reimburse the Company at that time for its actual, documented out-of-pocket
expenses incurred to third parties in connection with the transactions
contemplated hereby not to exceed $1,000,000.
(f) Any payment of the Termination Fee or the Acquiror Termination Fee (and
reimbursement of expenses) pursuant to this Section 10.3 shall be made in
immediately available funds to an account specified by the party entitled to
receipt thereof within one Business Day after termination of this Agreement (or
as otherwise expressly set forth in this Agreement). If one party fails to pay
to (or reimburse) the other promptly any fee or expense due hereunder
(including the Termination Fee or the Acquiror Termination Fee), the defaulting
party shall pay the costs and expenses (including legal fees and expenses) in
connection with any action, including the filing of any lawsuit or other legal
action, taken to collect payment, together with interest on the amount of any
unpaid fee and/or expense at the publicly announced "prime rate" as published
in The Wall Street Journal from time to time from the date the fee was required
to be paid to the date it is paid.
ARTICLE 11
Miscellaneous
11.1 Notices. Except as otherwise expressly set forth in Section 6.3(c), all
notices, requests and other communications to any party hereunder shall be in
writing (including facsimile or similar writing) and shall be given,
if to Acquiror or MergerSub, to:
Stora Enso Oyj
Kanavaranta 1
P.O. Box 309
FIN-00101 Helsinki
Finland
Attention: General Counsel
Facsimile: 011-358-20-46-21471
with a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006-1470
Attention: William A. Groll
Facsimile: (212) 225-3999
if to the Company, to:
Consolidated Papers, Inc.
231 First Avenue North
P.O. Box 8050
Wisconsin Rapids, Wisconsin 54495-8050
Attention: President
Facsimile: (715) 422-3203
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with a copy to:
McDermott, Will & Emery
227 West Monroe Street
Chicago, Illinois 60606
Attention: Robert A. Schreck, Jr., P.C.
Facsimile: (312) 984-7700
or such other address or facsimile number as a party may hereafter specify for
the purpose by notice to the other parties hereto. Each notice, request or
other communication shall be effective (a) if given by facsimile, when the
facsimile is transmitted to the facsimile number specified in this Section and
the appropriate facsimile confirmation is received or (b) if given by any other
means, when delivered at the address specified in this Section.
11.2 Survival of Representations, Warranties and Covenants after the
Effective Time. The representations and warranties contained herein and in any
certificate or other writing delivered pursuant hereto shall not survive the
Effective Time or the termination of this Agreement. The covenants contained in
Articles 2 and 3 and Sections 7.3, 7.4, 7.7, 8.5, 8.7, 11.2, 11.4, 11.5, 11.6,
11.7, 11.8, 11.9 and 11.10 shall survive the Effective Time.
11.3 Amendments; No Waivers. (a) Any provision of this Agreement may be
amended or waived prior to the Effective Time, if, and only if, the amendment
or waiver is in writing and signed, in the case of an amendment, by the
Company, Acquiror and MergerSub or, in the case of a waiver, by the party
against whom the waiver is to be effective; provided that (i) after the Company
Shareholder Approval, no such amendment or waiver shall, without the further
approval of the shareholders, be made that would require such approval under
any applicable law, rule or regulation and (ii) after the Acquiror Shareholder
Approval, no such amendment or waiver shall, without the further approval of
the shareholders, be made that would require such approval under any applicable
law, rule or regulation.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
11.4 Successors and Assigns. (a) The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other parties hereto, except that Acquiror or
MergerSub may transfer or assign to any wholly owned Acquiror Subsidiary the
right to enter into the transactions contemplated by this Agreement; provided
that no assignment shall be permitted if it would delay or impede the Merger or
any of the other transactions contemplated by this Agreement, and any transfer
or assignment will not relieve Acquiror or MergerSub of its obligations
hereunder. Any purported assignment in violation hereof shall be null and void.
11.5 Governing Law. Except to the extent that the laws of the State of
Wisconsin or any other jurisdiction are mandatorily applicable to the matters
arising under or in connection with this Agreement, this Agreement shall be
construed in accordance with and governed by the internal laws of the State of
New York.
11.6 Counterparts; Effectiveness; Third Party Beneficiaries. This Agreement
may be signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were
upon the same instrument. This Agreement shall become effective when each party
hereto shall have received counterparts hereof signed by all of the other
parties hereto. Except as set forth in Sections 3.5 and 7.3, no provision of
this Agreement is intended to confer upon any Person other than the parties
hereto any rights or remedies hereunder.
A-37
<PAGE>
11.7 Jurisdiction. Except as otherwise expressly provided in this Agreement,
the parties hereto agree that any suit, action or proceeding seeking to enforce
any provision of, or based on any matter arising out of or in connection with,
this Agreement or the transactions contemplated hereby shall be brought in the
United States District Court for the Southern District of New York or any New
York State court sitting in New York City, and each of the parties hereby
consents to the exclusive jurisdiction of those courts (and of the appropriate
appellate courts therefrom) in any suit, action or proceeding and irrevocably
waives, to the fullest extent permitted by law, any objection which it may now
or hereafter have to the laying of the venue of any suit, action or proceeding
in any of those courts or that any suit, action or proceeding which is brought
in any of those courts has been brought in an inconvenient forum. Process in
any suit, action or proceeding may be served on any party anywhere in the
world, whether within or without the jurisdiction of any of the named courts.
Without limiting the foregoing, each party agrees that service of process on it
by notice as provided in Section 11.1 shall be deemed effective service of
process.
11.8 Waiver of Jury Trial. Each of the parties hereto hereby irrevocably
waives any and all right to trial by jury in any legal proceeding arising out
of or related to this Agreement or the transactions contemplated hereby.
11.9 Enforcement. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms. It is accordingly agreed that the parties
shall be entitled to specific performance of the terms hereof, this being in
addition to any other remedy to which they are entitled at law or in equity.
11.10 Entire Agreement. This Agreement (together with the exhibits and
schedules hereto) constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, both oral and written, between the parties with respect to the
subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
Stora Enso Oyj Consolidated Papers, Inc.
/s/ Jukka Harmala /s/ Gorton M. Evans
By: _________________________________ By: _________________________________
Name: Jukka Harmala Name: Gorton M. Evans
Title:Chief Executive Officer Title:President and Chief
Executive Officer
Stora Enso Acquisition, Inc.
/s/ Magnus Diesen
By: _________________________________
Name: Magnus Diesen
Title:President
A-38
<PAGE>
ANNEX B
[Opinion of Goldman, Sachs & Co.]
PERSONAL AND CONFIDENTIAL
February 22, 2000
Board of Directors
Consolidated Papers, Inc.
P.O. Box 8050
Wisconsin Rapids, Wisconsin 54495
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders of the outstanding shares of Common Stock, par value $1.00
per share (the "Shares"), of Consolidated Papers, Inc. (the "Company") of the
Merger Consideration (as defined below) to be received in the aggregate for all
outstanding Shares pursuant to the Agreement and Plan of Merger, dated as of
February 22, 2000, among Stora Enso Oyj ("Stora Enso"), Stora Enso Acquisition,
Inc. ("Merger Sub"), a wholly owned subsidiary of Stora Enso, and the Company
(the "Agreement") upon the merger of the Company with and into Merger Sub (the
"Merger"). The "Merger Consideration" shall consist of all outstanding Shares
being converted on a per Share basis, at the election of the holders of Shares,
into one or a combination of (A) the right to receive a number of shares of
Series R stock, nominal value 10 Finnish Marks per share, which shall include
American Depositary Receipts evidencing such shares ("Stora Enso Shares"),
determined by dividing $44.00 by certain average closing prices of Stora Enso
Shares in Euros on the Helsinki Stock Exchange and converting such closing
prices to U.S. Dollars, all as more fully set forth in the Agreement (the
"Average Stora Enso Share Price") and rounding the result to the nearest one
thousandth of a share (the "Stock Consideration"); provided that (i) if the
Average Stora Enso Share Price is less than $12.15, the Stock Consideration
shall be 3.621 Stora Enso Shares and (ii) if the Average Stora Enso Share Price
is greater than $16.43, the Stock Consideration shall be 2.678 Stora Enso
Shares or (B) the right to receive in cash from Stora Enso, an amount equal to
$44.00 (the "Cash Consideration"); provided, that, notwithstanding the
foregoing, if the Registration Statement (as defined in the Agreement) covering
the Stora Enso Shares has not been declared effective by September 30, 2000 or
Stora Enso Shares have not been approved for listing, subject only to official
notice of issuance, by the NYSE (or, failing that, by NASDAQ) by October 31,
2000, the Merger Consideration shall consist of all Cash Consideration. The
right of holders of Shares to elect, in the aggregate, that (x) more than 50%
of the Shares outstanding immediately prior to the Merger be converted into the
right to receive Cash Consideration or (y) more than 50% of the Shares
outstanding immediately prior to the Merger be converted into the right to
receive Stock Consideration is subject to certain procedures and limitations
contained in the Agreement as to which procedures and limitations we express no
opinion.
Goldman, Sachs & Co. ("Goldman Sachs"), as part of its investment banking
business, is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate
and other purposes. We are familiar with the Company having acted as its
financial advisor in connection with, and having participated in certain of the
negotiations leading to, the Agreement. We have provided certain investment
banking services to Stora Enso from time to time, including advising Stora
Kopparbergs Bergslags Aktiebolag in its merger with Enso Oyj in December 1998
and may provide investment banking services to Stora Enso in the future. The
Chairman of Stora Enso serves as an International Advisor to Goldman Sachs.
Goldman Sachs provides a full range of financial advisory and securities
services and, in the course of its normal trading activities, may from time to
time effect transactions in and hold securities, including derivative
securities, of the Company and Stora Enso for its own account and
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<PAGE>
the accounts of customers. As of the date hereof, Goldman Sachs accumulated a
net long position of 800 Shares. As of the date hereof, Goldman Sachs
accumulated a net short position of 215,287 Stora Enso Shares and a net short
position of 9,113 Stora Enso Series A stock.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Stockholders' Agreement; Annual Reports to Stockholders and
Annual Reports on Form 10-K of the Company and Annual Reports of Stora Enso for
the five years ended December 31, 1998; certain interim reports to stockholders
of Stora Enso and the Company and Quarterly Reports on Form 10-Q of the
Company; certain other communications from the Company and Stora Enso to their
respective stockholders; and certain internal financial analyses and forecasts
for the Company and Stora Enso prepared by their respective managements. We
also have held discussions with members of the senior management of the Company
and Stora Enso regarding their assessment of the strategic rationale for, and
the potential benefits of, the transaction contemplated by the Agreement and
the past and current business operations, financial condition and future
prospects of their respective companies. In addition, we have reviewed the
reported price and trading activity for the Shares and Stora Enso Shares,
compared certain financial and stock market information for the Company and
Stora Enso with similar information for certain other companies the securities
of which are publicly traded, reviewed the financial terms of certain recent
business combinations in the paper and forest products industry specifically
and in other industries generally and performed such other studies and analyses
as we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial and
other information discussed with or reviewed by us and have assumed such
accuracy and completeness for purposes of rendering this opinion. In addition,
we have not made an independent evaluation or appraisal of the assets and
liabilities of the Company or Stora Enso or any of their subsidiaries and we
have not been furnished with any such evaluation or appraisal. Our advisory
services and the opinion expressed herein are provided for the information and
assistance of the Board of Directors of the Company in connection with its
consideration of the transaction contemplated by the Agreement and such opinion
does not constitute a recommendation as to how any shareholder should vote with
respect to such transaction.
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that as of the date hereof the Merger
Consideration to be received in the aggregate by the holders of Shares is fair
from a financial point of view to such holders.
Very truly yours,
/s/ Goldman, Sachs & Co.
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<PAGE>
ANNEX C
(English Translation)
ARTICLES OF ASSOCIATION OF STORA ENSO OYJ
I.NAME AND DOMICILE OF THE COMPANY AND ITS FIELD OF OPERATIONS
(S)1. The name of the Company is Stora Enso Oyj, and its domicile the City
of Helsinki.
(S)2. The Company operates directly or through subsidiaries and associated
companies in the forest, engineering and chemical industries and
other manufacturing industries; engages in agriculture, forestry and
merchant shipping, as well as in mining industry, supply of hydro-
power, building of hydro-electric facilities and financing. The
Company may also engage in the sale of know-how and services in its
own field of operations and carry out construction, operational,
marketing and other corresponding assignments both in Finland and
abroad.
II.SHARE CAPITAL AND SHARES
(S)3. The minimum share capital of the Company is eight hundred fifty
million (850,000,000) euros and the maximum three thousand four
hundred million (3,400,000,000) euros, within the limits of which the
share capital may be increased or reduced without amending the
Articles of Association.
The minimum number of shares may not be less than five hundred million
(500,000,000) and the maximum not more than two thousand million
(2,000,000,000) shares.
The shares shall be divided into class A shares and class R shares.
The number of class A shares may not be more than five hundred million
(500,000,000) and class R shares not more than one thousand six hundred
million (1,600,000,000) shares, provided, however, that the total
number of shares may not be more than two thousand million
(2,000,000,000) shares.
The shares of the Company shall be incorporated in the book-entry
system.
The right to receive funds distributed by the Company and to subscribe
for shares when increasing the share capital shall be restricted to
persons:
1. who have been registered as shareholders in the Shareholders'
Register on the record date;
2. whose right to payment has been registered on the record date on
the book-entry account of a registered shareholder and entered
into the Shareholders' Register; or
3. in case a share is nominee registered, on whose book-entry
account the share has been registered on the record date and
whose nominee has been registered in the Shareholders' Register
of the Company on the record date as the nominee of the shares.
III.MANAGEMENT OF THE COMPANY
(S)4. The Board of Directors and the Chief Executive Officer shall be
responsible for the management of the Company. The duties of the
various bodies of the Company shall be determined by the laws of
Finland and by a separate Corporate Governance Policy determined by
the Board of Directors.
(S)5. The Board of Directors shall consist of not less than six (6) and not
more than ten (10) ordinary members.
The Board of Directors shall elect one of its members chairman and one
of its members vice chairman.
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The term of office of a member of the Board of Directors shall expire
at the end of the following Annual General Meeting of Shareholders.
The Board of Directors shall appoint the Chief Executive Officer and
the Executive Vice President, who shall also act as Deputy Chief
Executive Officer of the Company, as well as other senior managers.
(S)6. Authorized to sign for the Company are:
--the Chairman of the Board of Directors, CEO, and Deputy CEO each
alone
--the ordinary members of the Board of Directors, two jointly
--persons heretofore authorized to sign alone by the Board of Directors
--each of the persons heretofore authorized by the Board of Directors,
two jointly with each other or with a member of the Board of
Directors.
The Board of Directors shall decide on authorizing persons to sign for
the Company per procuram.
IV.CLOSING OF ACCOUNTS AND ANNUAL AUDIT
(S)7. The financial year of the Company shall be the calendar year. The
annual accounts shall be prepared in good time and handed over to the
Auditors for annual audit at least one month before the Annual
General Meeting of Shareholders.
(S)8. The Company shall have one (1) or two (2) Auditors, who shall be
entities of Certified Public Accountants or individuals approved by
the Finnish Central Chamber of Commerce.
The Auditors shall be appointed by a General Meeting of Shareholders
for a term of office expiring at the close of the following Annual
General Meeting of Shareholders.
The Auditors shall submit a report of their audit to the Board of
Directors two (2) weeks before the Annual General Meeting of
Shareholders, at the latest.
V.ANNUAL GENERAL MEETING
(S)9. Shareholders present at a General Meeting of Shareholders or their
legally qualified representatives or their legally qualified proxies
shall have the right to exercise their power to decide on matters
pertaining to the Company.
A shareholder wishing to attend a General Meeting of Shareholders shall
notify the Company by the date mentioned in the notice to the meeting,
which may not be more than five days before the meeting.
Since the shares of the Company are incorporated in the book-entry
system, the provisions of the Finnish Companies Act regarding the right
to participate in a General Meeting of Shareholders must also be taken
into account.
(S)10. At votings and elections, each class A share and each ten class R
shares entitle the holder to one vote. Each shareholder shall,
however, have at least one vote.
(S)11. The Board of Directors shall convene a General Meeting of
Shareholders by publishing a notice to the meeting in newspapers, as
determined by the Board of Directors, but at least in two Finnish
and
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<PAGE>
two Swedish newspapers, not more than two (2) months and not less than
fourteen (14) days before the last day for advance notice of attendance
mentioned in the notice to the meeting.
Other notices to the shareholders shall be delivered in the same way.
(S)12. The General Meeting of Shareholders shall be held in Helsinki.
(S)13. The Annual General Meeting of Shareholders shall be held within six
(6) months from the end of the financial year.
An Extraordinary General Meeting of Shareholders shall be convened when
considered necessary by the Board of Directors or when requested in
writing by an Auditor or shareholders holding together a minimum of one
tenth of all the shares to discuss a specified matter which they have
indicated.
(S)14. At the Annual General Meeting of Shareholders shall be:
presented
1. the annual accounts, which shall comprise the income statement, the
balance sheet and the report of operations;
2. the Auditors' report;
decided
3. the adoption of the income statement and the balance sheet;
4. the measures to which the profit or loss of the adopted balance
sheet may give cause, and upon the date and manner for a possible
distribution of dividend;,
5. the granting of discharge from responsibility to the members of the
Board of Directors, and the Chief Executive Officer;
6. the number of the members of the Board of Directors;
7. the number of Auditors;
8. the remuneration of the members of the Board of Directors and the
Auditors;
elected
9. the members of the Board of Directors; and
10. the Auditors; and
dealt with
11. any other matters notified separately in the notice to the meeting.
VI.CONVERSION OF SHARES
(S)15. The Company's A shares can be converted into R shares subject to the
stipulations of this Section.
The conversion shall always take place within the maximum limits for
each share class as stipulated in the Articles of Association. No
monetary consideration shall be payable for the conversion.
An A share may be converted into an R share at the request of a
shareholder, or, in case the shares are registered in the name of a
nominee, at the request of the nominee indicated in the book-entry
register. The Board of Directors of the Company shall each year
determine a period not exceeding
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<PAGE>
one (1) month, during which the conversion request may be presented to
the Company. The Board of Directors shall inform the shareholders of
the conversion possibility eight (8) days before the beginning of the
conversion period, at the latest, by a notice given in the manner
prescribed at the time for notices to General Meetings of Shareholders.
A shareholder's request for conversion of shares shall be presented to
the Company in writing. The request shall mention the number of shares
to be converted as well as the book-entry account on which the book-
entries corresponding to the shares are recorded.
The Company may request that an entry be made on the shareholder's
book-entry account restricting the shareholder's right of transfer
during the conversion procedure. The Company shall without delay notify
the Trade Register of the changes in the numbers of shares following
the conversion.
A request for conversion of shares may be canceled before the change
has been notified to the Trade Register. Upon cancellation, the Company
shall request that any entry restricting the shareholder's right of
transfer shall be removed from the shareholder's book-entry account.
The conversion of A shares into R shares shall become effective upon
registration in the Trade Register. The party who requested the
conversion and the book-entry registrar shall be notified of the
registration.
In the event a General Meeting of Shareholders is convened during a
period of conversion determined by the Board of Directors, any
conversion requests made during such conversion period shall be deemed
to be received after the General Meeting of Shareholders. In such a
case, the Board of Directors may decide upon extension of the
conversion period to end after the General Meeting of Shareholders,
when necessary.
The Board of Directors shall, when necessary, decide on more detailed
procedures for the conversion of shares based on a request of a
shareholder or, in case of shares registered in the name of a nominee,
on the request of the nominee indicated in the book-entry register.
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<PAGE>
FOLD AND DETACH HERE
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CONSOLIDATED PAPERS, INC.
P.O. BOX 8050
Wisconsin Rapids, Wisconsin 54495-8050
This Proxy Solicited on Behalf of the Board of Directors
The undersigned hereby appoints GEORGE W. MEAD and GORTON M. EVANS as proxies,
with full power of substitution, to represent the undersigned and to vote, as
designated below, all shares of Common Stock of Consolidated Papers, Inc. which
the undersigned is entitled to vote at the special meeting to be held , 2000,
and any adjournment thereof.
This proxy when properly executed will be voted in the manner directed herein by
the shareholder. If no direction is made, this proxy will be voted "FOR"
Proposal 1.
The proxies appointed herein may act by one of said proxies at the meeting.
PLEASE MARK, SIGN, DATE AND MAIL THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)
<PAGE>
FOLD AND DETACH HERE
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[ X ] Please mark
votes as this
example
THE BOARD OF DIRECTORS OF CONSOLIDATED UNANIMOUSLY RECOMMENDS A VOTE FOR
PROPOSAL 1.
[CAPTION]
<TABLE>
FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C>
1. Approve and adopt the Agreement and Plan [ ] [ ] [ ] 2. In their discretion, the proxies are authorized
of Merger, dated as of February 22, 2000, by and to vote upon such other business as may properly
among Consolidated Papers, Inc., Stora Enso come before the meeting.
Oyj and Stora Enso Acquisition, Inc.
</TABLE>
Please mark box if you plan to attend the meeting. [ ]
Date: _______________________, 2000
________________________________________
Signature of Shareholder
________________________________________
For Joint Account Each Owner Should Sign
Please sign proxy as name appears. Joint
owners should each sign personally.
Trustees and others signing in a
representative capacity should indicate
the capacity in which they sign.
