Annual Report 2010

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NOTES TO THE FINANCIAL STATEMENTS OF THE GROUP repurchase is, inter alia, to ﬁx the undertaking under the LTIP, including any applicable social charges. The repurchased shares could be sold in the market in conjunction with the payments under the LTIP, meaning that the actual cash payment by Lundin Petroleum under the LTIP would correspond to the total price paid for the repurchased shares. An increase of the undertaking under the LTIP due to a rise of the stock price would thus be secured by the corresponding increase of the value of the repurchased shares. 2,392,338 shares were repurchased during the ﬁnancial year ended 31 December 2010 such that Lundin Petroleum held 6,882,638 of its own shares as at 31 December 2010. The LTIP has previously included share and option based plans where, among other features, certain performance conditions were attached to the vesting of the options or shares. For further information regarding these plans, please see Note 46. Pension Arrangements The pension beneﬁts comprise a deﬁned contribution scheme with premiums calculated on the full basic salary. The pension contributions in relation to the basic salary are dependent upon the age of the executive. Non-Financial Benefits Non-ﬁnancial beneﬁts shall be based on market terms and shall facilitate the discharge of each executive’s duties. Severance Arrangements A mutual termination period of between one month and six months applies between the Company and executives, depending on the duration of the employment with the Company. In addition, severance terms are incorporated into the employment contracts for executives that give rise to compensation in the event of termination of employment due to a change of control of the Company. The Compensation Committee shall approve termination packages that exceed USD 150,000 in value per individual. Authorisation for the Board of Directors The Board of Directors is, following the decision of the 2010 AGM, authorised to deviate from the Policy on Remuneration in accordance with Chapter 8, section 53 of the Swedish Companies Act in case of special circumstances in a speciﬁc case. No such deviations were made in 2010. 2008 Unit Bonus Plan (second tranche) 115 92 57 57 321 Salaries and other remuneration to Executive Management (TUSD) C. Ashley Heppenstall Alexandre Schneiter Chris Bruijnzeels Geoﬀrey Turbott Total 1 Salary 773 530 426 472 2,201 Bonuses 1 2007 Performance Share Plan – – 19 – 19 Benefits 2 112 24 38 22 196 Total 2010 1,888 1,247 929 948 5,012 Total 2009 3 972 637 450 525 2,583 Pensions 2010 4 74 47 37 41 199 Pensions 2009 61 38 25 32 156 888 601 389 397 2,275 2 3 4 In December 2010 the Compensation Committee awarded a bonus for 2010 of one month’s salary to Executive Management (included in the bonus expense for 2010). In January 2011 the Compensation Committee met and reassessed the bonus payments made for 2010 considering the employees’ contributions to the results of the Group and the achievement of personal targets and awarded additional bonuses equal to 8 monthly salaries payable in January 2011. Included in the bonus expense for 2010 is also an amount of TUSD 988 (TUSD 483) relating to bonuses awarded in January 2010 relating to 2009. The Compensation Committee recommended to the Board of Directors and the Board of Directors approved an exceptional performance bonus of TUSD 1,104 following the EnQuest plc transaction as the Compensation Committee considered such bonuses warranted. Beneﬁts paid include school fees and health insurance. Total 2009 is including the payment of the ﬁrst tranche under the 2008 Unit Bonus Plan. Pension contributions relate to payments to non-contributory pension funds in excess of the minimum Swiss statutory levels. The normal retirement age for the CEO is 65 years. The pension contribution is 10% of the qualifying income for pension purposes, 40% of which is funded by the employee. Qualifying income is deﬁned as annual basic salary. Since December 2006 enhanced severance terms have been incorporated into the employment contracts for Executive Management. These provisions give rise to compensation in the event of termination of employment due to a company change of control. If the executive elects to resign or if the executive’s employment is terminated without cause within one year following the change of control, then the executive shall be entitled to receive the stated compensation. The associated compensation is two years’ basic salary for Executive Management. The Executive Management has no outstanding incentive warrants, however, the third and last tranche under the 2008 Unit Bonus Plan is outstanding, which will vest and be payable in 2011, see Note 46. NOTE 46 – LONG-TERM INCENTIVE PLANS The Company maintains the Long-term Incentive Plans described below. Share Option Plan and Performance Share Plan At the AGM held on 16 May 2007, the shareholders of Lundin Petroleum approved the implementation of a Long-term Incentive Plan (LTIP) consisting of a Share Option Plan and a Performance Share Plan. Employees had the choice to select either the Share Option Plan or the Performance Share Plan or a 50/50 allocation of both. The Share Option Plan included the conditional granting of options with a vesting period of 18 months and subject to the achievement of a performance condition measuring Total Shareholder Return (TSR) relative to a peer group of companies. The options were issued at a 10% premium to the average closing price of Lundin Petroleum shares for the ten days after the 2007 AGM. Employees could earn between 0 and 100% of the options depending upon the Company’s performance measured using a relative TSR. The period for the performance condition expired on 30 November 2008 at which time 50% of the options awarded were issued as incentive warrants. Movements in the number of incentive warrants outstanding and their related weighted average exercise prices are as follows: 2010 Average weighted exercise price in SEK per share At 1 January Granted Not vested Exercised Lapsed At 31 December 78.05 – – – 78.05 – Incentive warrants outstanding 1,410,750 – – – -1,410,750 – 2009 Average weighted exercise price in SEK per share 90.87 – – – 96.02 78.05 Incentive warrants outstanding 4,921,750 – – – -3,511,000 1,410,750 91

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