Further clarification regarding proposed long-term incentive stock plan and resolution to issue free-standing warrants

ASKER, NORWAY (16 May 2014) - Item 13 in the Notice of Ordinary General Meeting to be held on 3 June 2014 proposes the approval of a Long-Term Incentive Stock Plan and Resolution to issue Free-Standing Warrants.  Information regarding this proposal is repeated herein with further clarification of plan targets.

In previous years, the General Meeting has approved stock option plans secured by either free standing warrants or treasury shares.

From these earlier plans there are currently outstanding 1,709,500 stock options / free standing warrants (as of May 8, 2014) that have been granted but not yet exercised.

The proposed 2014 plan provides for the grant of restricted stock units (RSUs) and performance stock units (PSUs) instead of stock options. Upon vesting, the RSUs and PSUs will represent the right to receive shares of TGS stock as described below. The plan is limited to a maximum of 213,000 shares issuable upon vesting of the RSUs and PSUs. The plan will be administered by the Board of Directors. In the event of any merger, reorganization, recapitalization, stock dividend, stock split, combination of shares, share exchange, or other change in shares of the Company, the number of shares then subject to the plan, including shares subject to outstanding awards, shall be adjusted in proportion to the change in outstanding shares.

Pursuant to the proposed 2014 long-term incentive stock plan, RSUs will be granted to certain non-executive key employees and will vest three years after the date of grant if the employee remains employed at vesting. Upon vesting, the holder of the RSUs will receive an equivalent number of TGS shares. PSUs will be granted to members of the executive team and will also vest three years after the date of grant if the executive remains employed at vesting. Upon vesting, the holder of the PSUs will receive TGS shares (if any), with the number of shares issuable determined by multiplying the number of PSUs granted by a factor of 0% to 200%. The factor is determined by performance against a target metric, which is based on total shareholder return (TSR) for the three-year performance period commencing on the date of grant. The holders of the RSUs and PSUs will be required to pay the par value, NOK 0.25, for each share of TGS stock issued pursuant to the RSU or PSU, as applicable.

In conjunction with this new program, the Board of Directors is introducing minimum Executive Stock Ownership Guidelines based on a multiple of salary for the CEO (3X), CFO (2X) and the rest of the Executive Team members (1X).

The Board proposes that the Company shall secure the long-term incentive stock plan by the issuance of free-standing warrants, to be subscribed for at the time of grant by employees who are granted RSUs and PSUs.

Further Clarification of Plan Targets 

The TSR performance requirement for PSUs is based on the total shareholder return of TGS-NOPEC for the three-year period beginning on the date of grant of the award and ending on the third anniversary of such date, according to the following schedule and based on the target number of PSUs granted.

For purposes of this performance target:

"TSR" is calculated by (i) subtracting the Beginning Share Price from the Ending Share Price, (ii) adding to the result in (i) the dividends paid per share for all record dates occurring during the performance period and (iii) dividing the amount in (ii) by Beginning Share Price.

Beginning Share Price means the average of the closing prices of TGS shares on the Oslo Stock Exchange for the 20 trading days immediately prior to the beginning of the performance period.

Ending Share Price means the average of the closing prices of TGS shares on the Oslo Stock Exchange for the 20 trading days immediately prior to the end of the performance period.

Any dividend paid in cash shall be valued at its cash amount.  Any dividend paid in securities shall be valued at fair market value

The number of shares issuable pursuant to any PSU shall be determined by multiplying the number of PSUs subject to the award by the Multiple earned based on actual performance (pro-rating for TSR falling between two performance levels), then rounding down to the nearest whole share, with cash paid in lieu of fractional shares.