FORTUM’S BOARD OF DIRECTORS PROPOSES A NEW STOCK OPTION PROGRAMME

The Board of Directors of Fortum Corporation has in its meeting on 28 February 2002 resolved to propose to the Annual General Meeting to be held on 26 March 2002 that warrants be issued to the key personnel.

 

The number of stock options issued will be 25,000,000, which entitle subscription for a total of 25,000,000 shares in Fortum.

As a result of the subscriptions the share capital of Fortum may be increased by a maximum of 85,000,000 euro and the number of

shares by a maximum of 25,000,000 new shares.

 

The Board of Directors may annually distribute stock options to the key personnel only, if the increase in Fortum Group’s earnings

per share (EPS) is at least five (5) percent. The Board of Directors shall establish a maximum annual number of potentially

distributable stock options. The proportion of this annual maximum that actually becomes available for distribution, is influenced by

the Company’s relative share price development compared to theEuropean Utilities Index as defined in Appendix 2.

 

The share subscription periods shall be 1 October 2004 - 1 May 2007 and 1 October 2006 - 1 May 2009 and the respective share

prices are determined as described in Appendix II.

 

 

Fortum Corporation

 

Carola Teir-Lehtinen

Senior Vice President, Corporate Communications

 

Distribution:

Helsinki Stock Exchanges

Key media

 

Further information:

Harri Pynnä, Senior Vice President, Corporate Legal Affairs, tel.

+358 10 45 24825

 

Appendices:

Appendix 1: Proposal by the Board of Directors to the Annual

General Meeting of shareholders concerning the issue of stock

options

Appendix 2: Fortum Corporation 2002 stock option terms and

conditions

Appendix 3: Auditors’ report

 

 

 

 

APPENDIX 1

 

PROPOSAL BY THE BOARD OF DIRECTORS TO THE ANNUAL GENERAL MEETING

OF SHAREHOLDERS CONCERNING THE ISSUE OF STOCK OPTIONS

 

The Board of Directors proposes that stock options be issued by

the Annual General Meeting of Shareholders to the key personnel of

the Fortum Group, as well as to a wholly owned subsidiary of

Fortum Corporation, on the terms and conditions attached hereto.

 

The stock options shall, with deviation from the shareholders’ pre-

emptive right to subscription, be issued to the key personnel of

the Fortum Group and a wholly owned subsidiary of Fortum

Corporation. It is proposed that the shareholders’ pre-emptive

right to subscription be deviated from since the stock options are

intended to form part of the key personnel incentive and

commitment program. The purpose of the stock options is to

encourage the key personnel to work on a long-term basis toward

increasing the shareholder value. The purpose of the stock options

is also to commit the key personnel to the employer.

 

The stock options shall be divided into 2002A and 2002B stock

options and be gratuitously distributed, by the resolution of the

Board of Directors, to the key personnel employed by or to be

recruited by the Fortum Group. Stock options 2002B as well as

those 2002A stock options that are not distributed to the key

personnel, shall at issue be distributed to a wholly owned

subsidiary of Fortum Corporation.

 

The Board of Directors of Fortum Corporation can distribute stock

options to key personnel on an annual basis only if the earnings

per share (EPS) of Fortum Group exceed the level set in the stock

option terms and conditions. The number of stock options that can

be distributed annually will be determined on the basis of the

company’s relative share price development compared to that of the

European Utilities Index. The Board of Directors shall take into

account any possible structural changes that may affect the

evaluation.

 

The share subscription price shall for stock option 2002A be the

Fortum Corporation trade volume weighted average share price on

the Helsinki Exchanges between 1 January and 31 March 2002 and for

stock option 2002B the Fortum Corporation trade volume weighted

average share price on the Helsinki Exchanges between 1 January

and 31 March 2003.

 

From the share subscription price of stock options shall, as per

the dividend record date, be deducted the amount of the dividend

decided after the beginning of the period for determination of the

share subscription price and before the date of the share

subscription.

 

The share subscription period shall for stock option 2002A be 1

October 2004 - 1 May 2007 and for stock option 2002B the share

subscription period shall be 1 October 2006 - 1 May 2009.

 

The share capital of Fortum Corporation can, as a result of the

subscriptions with the 2002 stock options, increase by a maximum

of 85,000,000 euro and the number of shares can increase by a

maximum of 25,000,000 new shares.

 

A proportion of the potential stock option recipients belong to

the inner circle of the Company. The total share ownership of

these persons entitled to share subscription does not exceed 0.01%

of the Company’s shares and the voting rights of the shares.

 

The stock options now issued can be exchanged for shares

constituting a maximum of 2.9% of the Company’s shares and voting

rights after the potential share capital increase.

 

After the resolution by the Annual General Meeting of Shareholders

to issue stock options 2002, the stock options 2001 issued by the

Annual General Meeting of Shareholders of Fortum Corporation on 4

April 2001, which have not been distributed on the date of this

proposal by the Board of Directors, shall not be distributed.

2,525,000 stock options 2001A, 212,500 stock options 2001B and

8,000,000 stock options 2001C, which have not been distributed,

shall be annulled. The resolution concerning the annulment shall

be delivered for registration with the Trade Register. Those stock

options 2001, which shall not be annulled, entitle to share

subscription in accordance with the 2001 stock option terms and

conditions.

         

Espoo, 28 February 2002

The Board of Directors

 

 

APPENDIX 2

 

FORTUM CORPORATION 2002 STOCK OPTION TERMS AND CONDITIONS

 

In its meeting on 28 February 2002 the Board of Directors of

Fortum Corporation ("Board of Directors") has resolved to propose

to the Annual General Meeting of Shareholders to be held on 26

March 2002 that stock options be issued to the key personnel of

Fortum Corporation ("Fortum" or "Company") and its subsidiaries

("Fortum Group") and to a wholly owned subsidiary of Fortum,

determined by the Board of Directors, on the following terms and

conditions:

 

 

STOCK OPTION TERMS AND CONDITIONS

 

Number of Stock Options

 

The number of stock options issued will be 25,000,000, which

entitle subscription for a total of 25,000,000 shares in Fortum.

 

Stock Options

 

Of the stock options 12,500,000 will be marked with the symbol

2002A and 12,500,000 with the symbol 2002B. Recipients of the

stock options will be notified in writing by the Company about the

stock option offer. The stock options will be distributed to the

recipient when he/she has accepted the offer of the Company. Stock

option certificates shall upon request be delivered to the stock

option owner at the start of the relevant share subscription

period, unless the stock options have been transferred to the book-

entry securities system.

 

Right to Stock Options

 

The stock options shall, with deviation from the shareholders’ pre-

emptive right to subscription, be issued to the key personnel of

the Fortum Group and a wholly owned subsidiary of Fortum,

determined by the Board of Directors. It is proposed that the

shareholders’ pre-emptive right to subscription be deviated from

since the stock options are intended to form part of the key

personnel incentive and commitment program.

 

Distribution of Stock Options

 

The Board of Directors decides upon the distribution of the stock

options. Stock options shall be distributed to a wholly owned

subsidiary of Fortum to such extent that the stock options are not

distributed to key personnel of the Fortum Group. The Board of

Directors of Fortum shall later on decide upon the further

distribution of the stock options distributed to the subsidiary to

the key personnel employed by or to be recruited by the Fortum

Group.

 

Upon issuance, all stock options 2002B shall be distributed to a

wholly owned subsidiary of Fortum, which can, by the resolution of

the Board of Directors of Fortum, distribute stock options 2002B

to the key personnel employed by or to be recruited by the Fortum

Group.

 

The Board of Directors may annually distribute stock options to

the key personnel, only if the increase in Fortum Group’s earnings

per share (EPS) is at least five (5) percent. The EPS increase is

defined as the EPS growth of the latest accounting period compared

with the preceding period. The Board of Directors may in the

earnings calculation take into account changes in the price of raw

oil and the international refining margin.

 

The Board of Directors shall establish a maximum annual number of

potentially distributable stock options. The proportion of this

annual maximum that actually becomes available for distribution,

is influenced by the Company’s relative share price development

compared to the European Utilities Index during a period of twelve

(12) calendar months preceding the month that the stock options

are to be distributed:

 

- if Fortum’s share price development exceeds the development of

the European Utilities Index by a minimum of (8) percent, the

total maximum annual number of stock options can be distributed,

- if Fortum’s share price development is weaker than the

development of the European Utilities Index, none of the stock

options can be distributed,

- if Fortum’s share price development equals the development of

the European Utilities Index, one third (1/3) of the total maximum

annual number of stock options can be distributed,

- if Fortum’s share price development exceeds the development of

the European Utilities Index by zero to eight (0-8) percent, the

proportion of the annual maximum that becomes available for

distribution shall be determined  by multiplying with 8.33 the

percentage unit, by which the development of the Fortum share

price exceeds the development of the European Utilities Index, and

adding 0.33 (1/3) to the acquired number.

 

When calculating the number of distributable stock options, the

percentage units will be taken into account to two decimals and

the number of stock options will be rounded to the nearest full

figure.

 

The Board of Directors can estimate potential effects of corporate

acquisitions, arrangements or other comparable significant changes

on the Fortum Group earnings and on the relative development of

the Fortum share price and make corresponding adjustments to the

Fortum Group earnings and relative Fortum share price development

conditions that have been set in the stock option terms and the

conditions.

 

Transfer of Stock Options and Obligation to Offer Stock Options

 

The stock options are freely transferable, when the relevant share

subscription period has commenced. The Company shall hold the

stock options on behalf of the stock option owner until the

beginning of the share subscription period. The stock option owner

has the right to acquire the possession of the stock options when

the relevant share subscription period begins. Should the stock

option owner transfer his/her stock options, such person is

obliged to inform the Company about the transfer without delay.

The Board of Directors may, as an exception to the above, permit

the transfer of a stock option also before such date, given that

the reason is justifiable for the Company.

 

Should a stock option owner cease to be employed by or in the

service of the Fortum Group, for any other reason than the death

of the employee, or the statutory retirement of the employee in

compliance with the employment contract, or the retirement of the

employee as otherwise defined by the Company, such person shall

without delay offer to the Company or its order, free of charge,

the stock options for which the share subscription period had not

begun on the last day of such person’s employment or service. The

Board of Directors can, however, after the stock option owner has

offered his/her stock options, decide that the stock option owner

is entitled to keep offered stock options or a part of them, given

that the reason is justifiable for the Company.

 

Regardless of whether the stock option owner, under an obligation

to offer, has offered his/her stock options to the Company or not,

the Company is entitled to inform the stock option owner in

writing that the stock option owner has lost his/her stock options

on the basis of the above-mentioned reasons. Should the stock

options have been transferred to the book-entry securities system,

the Company has the right, whether or not the stock options have

been offered to the Company, to request and get transferred all

the stock options, for which the share subscription period had not

begun, from the stock option owner’s book-entry account to the

book-entry account appointed by the Company without the consent of

the stock option owner.  In addition, the Company is entitled to

register transfer restrictions and other corresponding

restrictions concerning the stock options to the stock option

owner’s book-entry account without the consent of the stock option

owner.

 

SHARE SUBSCRIPTION TERMS AND CONDITIONS

 

Right to Subscribe New Shares

 

Each stock option entitles its owner to subscribe for one (1)

share in Fortum. The nominal value of each share is 3.40 euro. As

a result of the subscriptions the share capital of Fortum may be

increased by a maximum of 85,000,000 euro and the number of shares

by a maximum of 25,000,000 new shares.

 

The wholly owned subsidiary of Fortum shall not be entitled to

subscribe shares in Fortum on the basis of the stock options.

 

Share Subscription and Payment

 

The share subscription period shall be:

 

for stock options 2002A    1 October 2004 - 1 May 2007 and

for stock options 2002B    1 October 2006 - 1 May 2009.

 

The share subscription shall take place at the head office of

Fortum or possibly at another location to be determined later. The

subscriber shall transfer the respective stock option certificates

with which he/she subscribes shares, to the Company, or if the

stock options have been transferred to the book-entry securities

system, the stock options with which shares have been subscribed

shall be deleted from the subscriber’s book-entry account.

Payment for shares subscribed shall be effected upon subscription

to the bank account appointed by the Company. The Company shall

decide on all measures concerning the share subscription.

 

3. Share Subscription Price

 

The share subscription price shall be:

 

for stock option 2002A the Fortum trade volume weighted average

share price on the Helsinki Exchanges between 1 January and 31

March 2002 and for stock option 2002B the Fortum trade volume

weighted average share price on the Helsinki Exchanges between 1

January and 31 March 2003.

 

From the share subscription price of stock options shall, as per

the dividend record date, be deducted the amount of the dividend

decided after the beginning of the period for determination of the

share subscription price and before share subscription.

 

The share subscription price will be rounded to the nearest full

cent. The share subscription price shall nevertheless always

amount to at least the nominal value of the share.

 

4. Registration of Shares

 

Shares subscribed for and fully paid shall be registered in the

book-entry account of the subscriber.

 

5. Shareholder Rights

 

Dividend rights of the shares and other shareholder rights shall

commence when the increase of the share capital has been

registered with the Trade Register.

 

6. Share Issues, Convertible Bonds and Stock Options before Share

Subscription

 

Should the Company, before the share subscription, increase its

share capital through an issue of new shares, or issue of new

convertible bonds or stock options, a stock option owner shall

have the same right as or an equal right to that of a shareholder.

Equality is reached in the manner determined by the Board of

Directors by adjusting the number of shares available for

subscription, the share subscription price or both of these.

 

Should the Company, before the subscription for shares, increase

its share capital by way of a bonus issue, the subscription ratio

shall be amended so that the ratio to the share capital of shares

to be subscribed by virtue of stock options remains unchanged. If

the number of shares that can be subscribed for by virtue of one

stock option should be a fraction, the fractional part shall be

taken into account by reducing the share subscription price.

 

7. Rights in Certain Cases

 

If the Company reduces its share capital before the share

subscription, the subscription right accorded by the stock option

terms and conditions shall be adjusted accordingly as specified in

the resolution to reduce the share capital.

 

If the Company is placed in liquidation before the share

subscription, the stock option owner shall be given an opportunity

to exercise his/her subscription right before the liquidation

begins within a period of time determined by the Board of

Directors.

 

If the Company resolves to merge in another company as the company

being acquired or in a company to be formed in a combination

merger, or if the Company resolves to be divided, the stock option

owner shall, before the merger or division, be given the right to

subscribe for the shares with his/her stock options within a

period of time determined by the Board of Directors. After such

date no subscription right shall exist.  In the above situations

the stock option owner has no right to require that the Company

redeem the stock options from him/her for market value.

 

If the Company, after the beginning of the period of share

subscription, resolves to acquire its own shares by an offer made

to all shareholders, the stock option owners shall be made an

equivalent offer. In other cases acquisition of the Company’s own

shares does not require the Company to take any action in relation

to the stock options.

 

In case, before the end of the subscription period, a situation,

as referred to in Chapter 14 Section 19 of the Companies Act, in

which a shareholder possesses over 90% of the shares of the

Company and therefore has the right and obligation to redeem the

shares of the remaining shareholders, or a situation, as referred

to in Chapter 6 Section 6 of the Securities Market Act, or a

situation, as referred to in Section 19 in the Articles of

Association arise, the stock option owners shall be entitled to

use their right of subscription by virtue of the stock option

within a period of time determined by the Board of Directors.

 

If the nominal value of the share is changed while the share

capital remains unchanged, the share subscription terms and

conditions shall be amended so that the total nominal value of the

shares available for subscription and the total share subscription

price remain the same.

 

Converting the Company from a public company into a private

company will not affect the stock option terms and conditions.

 

III OTHER MATTERS

 

The laws of Finland shall be applied to these terms and

conditions. Disputes arising in relation to the stock options

shall be settled by arbitration in accordance with the Arbitration

Rules of the Central Chamber of Commerce.

 

The Board of Directors may decide on the transfer of the stock

options to the book-entry securities system at a later date and on

the resulting technical amendments to these terms and conditions,

including those amendments and specifications to the terms and

conditions, which are not considered essential. Other matters

related to the stock options are decided on by the Board of

Directors. The stock option documentation is kept available for

inspection at the head office of Fortum in Espoo.

 

The Company is entitled to withdraw the stock options, which have

not been transferred, or with which shares have not been

subscribed, free of charge, if the stock option owner acts against

these terms and conditions, or against regulations given by the

Company on the basis of these terms and conditions, or against

applicable law, or against regulations by authorities.

 

These terms and conditions have been written in Finnish, Swedish

and in English. In case of any discrepancy between the Finnish,

Swedish and English terms and conditions, the Finnish terms and

conditions are decisive.

 

APPENDIX 3

 

AUDITORS’ REPORT

 

As auditors of Fortum Corporation, we give our statement according

to the Companies Act, section 4, paragraph 4 a, article 2 about

the Board of Directors’ proposal, dated 28 February 2002,

concerning the issue of stock options. In our view, the Board of

Directors’ proposal gives a true and fair view of the basis,

according to which the subscription price is determined and of the

reasons of deviating from the first option to subscribe.

 

Helsinki, 28 February 2002

 

SVH Pricewaterhouse Coopers Oy

Authorised Public Accountants

 

Pekka Kaasalainen

Authorised Public Accountant