On 7 May 2002, Fortfinlux S.A. issued undated floating rate equity-linked subordinated hybrid capital securities (‘FRESH’) with a nominal amount of EUR 1,250 million and a denomination of EUR 250,000 each. Coupons on the securities are payable quarterly, in arrears, at a variable rate of 3 month Euribor + 1.35%.

For regulatory purposes, the FRESH is treated as part of Tier 1 capital. The FRESH constitutes direct, secured and subordinated obligations of each of Fortfinlux S.A., Fortis SA/NV and Fortis N.V. as Co-obligors. The FRESH is subordinated to all other loans, subordinated loans and preference shares, but rank senior to ordinary shares. The principal amount of the securities will not be repaid in cash. The sole recourse of the holders of the FRESH against any of the co-obligors with respect to the principal amount is equal to 39,682,540 shares that Fortfinlux S.A. has pledged in favour of such holders.

The FRESH has no maturity date, but may be exchanged into Fortis shares at a price of EUR 31.50 per share at the discretion of the holder. From 7 May 2009, the bonds will be automatically exchanged into Fortis shares if the price of the Fortis share is equal to or higher than EUR 47.25 on twenty consecutive stock exchange business days.

The FRESH is recorded in the balance sheet as at 31 December as follows:

The net amounts collected were separated into a liability and an equity component at the date of issuance of the FRESH. The equity component is related to the embedded derivative included in the FRESH. The liability component was calculated based on the net discounted value of the expected cash flows related to the instrument. The difference between the amounts collected and the liability component forms the equity component and is reported net of deferred tax.