Exhibit 10.6

 

FOREST OIL CORPORATION

2007 STOCK INCENTIVE PLAN

PERFORMANCE UNIT CASH AWARD AGREEMENT

 

                       , 20  

 

To:                                                          

 

Forest Oil Corporation, a New York corporation (the “Company”), is pleased to
grant you an award (the “Award”) to receive an aggregate of                   
performance units (each, a “Performance Unit”) in respect of the period
                           , 20     through                            , 20     
(the “Performance Period”). The Award is subject to your acceptance of and
agreement to all the applicable terms, conditions and restrictions described in
this Performance Unit Cash Award Agreement (this “Agreement”) and the Forest Oil
Corporation 2007 Stock Incentive Plan (as it may be amended from time to time,
the “Plan”). A copy of the Plan is available upon request. To the extent that
any provision of this Agreement conflicts with the expressly applicable terms of
the Plan, you acknowledge and agree that those terms of the Plan shall control
and, if necessary, the applicable provisions of this Agreement shall be deemed
amended so as to carry out the purpose and intent of the Plan. Terms that have
their initial letters capitalized, but that are not otherwise defined in this
Agreement, shall have the meanings given to them in the Plan in effect as of the
date of this Agreement. The Performance Units contemplated herein are granted as
Performance Awards under the Plan and are subject to the award limitations
applicable to both awards denominated in shares of the Company’s common stock
(the “Common Stock”) and awards denominated in cash that are set forth in
Paragraph V(a) of the Plan.

 

This Agreement sets forth the terms of the agreement between you and the Company
with respect to the Performance Units. By accepting this Agreement, you agree to
be bound by all of the terms hereof.

 

1.             Overview of Performance Units.  Each Performance Unit represents
a contractual right to receive, in cash, an amount equal to the Fair Market
Value of one share of Common Stock, subject to the terms and conditions of this
Agreement; provided that, based on the relative achievement against the
performance objective outlined in Section 2 below (the “Performance Objective”),
the number of Performance Units for which a payment may be made hereunder may
range from 0% to 200% of the number of Performance Units stated in the preamble
to this Agreement (such stated number of Performance Units hereafter called the
“Initial Performance Units”). Your right to receive payment in respect of
Performance Units is generally contingent, in whole or in part, upon (i) the
achievement of the Performance Objective and (ii) except as provided in
Section 4 or Section 5, your continued employment with the Company through the
date of the Committee’s certification as set forth in Section 2.

 

2.             Total Shareholder Return Objective.  The Performance Objective
with respect to the Initial Performance Units is based on Total Shareholder
Return. “Total

 

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Shareholder Return” shall mean, as to the Company and each of the Peer Companies
(as defined below), the annualized rate of return shareholders receive through
stock price changes and the assumed reinvestment of dividends paid over the
Performance Period. Dividends per share paid other than in the form of cash
shall have a value equal to the amount of such dividends reported by the issuer
to its shareholders for purposes of Federal income taxation. For purposes of
determining the Total Shareholder Return for the Company and each of the Peer
Companies, the change in the price of the Common Stock and of the common stock
of each Peer Company, as the case may be, shall be based upon the average of the
closing stock prices of the Company and such Peer Company over the 20 trading
days immediately preceding each of the start (the “Initial Value”) and the end
of the Performance Period. The Initial Value of the Common Stock to be used to
determine Total Shareholder Return over the Performance Period is
$               per share. Achievement with respect to this Performance
Objective shall be determined by the Committee based on the Company’s relative
ranking in respect of the Performance Period with regard to Total Shareholder
Return as compared to Total Shareholder Return of the Peer Companies, and shall
be determined in accordance with the applicable table as set forth in Appendix A
hereto (subject to adjustment as provided in Appendix A hereto). The applicable
table shall be determined based on the number of Peer Companies for the
Performance Period. A company shall be a “Peer Company” if it (i) is one of the
companies listed on Appendix A hereto and (ii) has a class of common equity
securities listed to trade under Section 12(b) of the Exchange Act during each
day of the Performance Period. As soon as administratively practicable following
the end of the Performance Period (but in no event later than the 15th day of
the third calendar month following the calendar month in which the Performance
Period ends), the Committee shall certify whether and to the extent that the
Performance Objective has been achieved and will determine, in the manner
described above, the number of Performance Units, if any, determined to be
earned pursuant to the applicable table under Appendix A (as adjusted in the
manner provided therein).  The number of Performance Units, if any, determined
by the Committee pursuant to the preceding provisions of this Section 2 shall be
referred to as the “Earned Performance Units.”

 

3.             Payment of Cash with respect to Performance Units.  Unless an
earlier date applies pursuant to Sections 4(a), 4(b) or 5(b), payment in respect
of Earned Performance Units shall be made not later than the 15th day of the
third calendar month following the calendar month in which the Performance
Period ends. All payments in respect of Earned Performance Units shall be made
in cash. Neither this Section 3 nor any action taken pursuant to or in
accordance with this Section 3 shall be construed to create a trust of any kind.

 

4.             Termination of Employment.

 

(a)           Death or Disability. In the event that your employment with the
Company terminates during the Performance Period due to your death or Disability
(as defined below), then the date of such termination of your employment shall
be deemed the end of the Performance Period and you will be paid an amount of
cash equal to the product of:

 

(i)            the Fair Market Value of a share of Common Stock on the date of
such termination multiplied by the number of Initial Performance Units,
multiplied by (ii) a fraction, the numerator of which shall be the number of
full months during the

 

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Performance Period during which you were employed by the Company (counting the
month in which your termination of employment occurs as a full month), and the
denominator of which is 36.

 

(b)           Involuntary Termination.  In the event that your employment with
the Company terminates during the Performance Period due to your Involuntary
Termination (as defined below), then you will be paid an amount of cash equal to
the product of the number of Performance Units that would have become Earned
Performance Units in accordance with the provisions of Section 2 and the Fair
Market Value on the date of your Involuntary Termination, assuming that:

 

(i)            the Performance Period ended on the date of your Involuntary
Termination; and

 

(ii)           the determination of whether, and to what extent, the Performance
Objective is achieved, is based on actual performance against the stated
performance criteria through the date of your Involuntary Termination.

 

Payments of Cash determined to be earned by reason of this Section shall be made
not later than the 15th day of the third calendar month following the
Involuntary Termination of your employment.

 

(c)           Other Termination of Employment. Unless otherwise determined by
the Committee at or after grant, in the event that your employment with the
Company terminates prior to the end of the Performance Period for any reason
other than those listed in Sections 4(a) or 4(b), all of your Performance Units
shall terminate and automatically be canceled upon such termination of
employment.

 

(d)           Definitions of Disability and Involuntary Termination.  As used in
this Agreement, the term “Disability” (i) shall have the meaning given such term
in the Severance Agreement between you and the Company in effect as of the grant
date specified above, as the same may be amended or superseded from time to time
(the “Severance Agreement”), or (ii) if there is no Severance Agreement or the
Severance Agreement contains no such definition, shall mean that as a result of
your incapacity due to physical or mental illness, you shall have been absent
from the full-time performance of your duties for six consecutive months, and
you shall not have returned to full-time performance of your duties within 30
days after written notice of termination is given to you by the Company
(provided, however, that such notice may not be given prior to 30 days before
the expiration of such six-month period).  As used in this Agreement, the term
“Involuntary Termination” (x) shall have the meaning given such term in the
Severance Agreement, or (y) if there is no Severance Agreement or the Severance
Agreement contains no such definition, shall mean any termination of your
employment with the Company which does not result from your resignation;
provided, however, that the term “Involuntary Termination” shall not include a
termination as a result of death, Disability, or a termination of your
employment by the Company by reason of your unsatisfactory performance of your
duties, to be determined by the Company in its sole discretion, or by reason of
your final conviction of a misdemeanor involving moral turpitude or a felony.

 

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(e)           Termination of Employment. For all purposes of this Agreement, you
will be considered to have terminated from employment with the Company when you
incur a “separation from service” within the meaning of
Section 409A(a)(2)(A)(i) of the Code and applicable administrative guidance
thereunder.

 

5.             Change in Control.

 

(a)           Continuous Employment.  Notwithstanding the provisions of
Section 1 through Section 4 hereof, if you have been continuously employed from
the grant date specified above until the date that a Change of Control (as
defined below) occurs (the “Change of Control Date”), and either (x) in
connection with the Change of Control, the Successor Corporation (as defined
below) does not assume, convert or replace this Agreement with an agreement
substantially the same in all material economic respects, or (y) this Agreement
is assumed, converted or replaced by the Successor Corporation in connection
with a Change of Control but you are Involuntarily Terminated at any time
following such Change of Control but before the 15th day of the third calendar
month following the calendar month in which the Performance Period ends, then,
you will be paid an amount of cash equal to the product of the Fair Market Value
of one share of Common Stock on the date of the Change of Control and the number
of Performance Units that would have become Earned Performance Units in
accordance with the provisions of Section 2 and determined as follows:

 

(i)            if the payment pursuant to this Section 5(a) is being made
because the Successor Corporation has not assumed, converted or replaced this
Agreement with an agreement substantially the same in all material respects, the
payment of cash shall be determined assuming that:

 

(A)          the Performance Period ended on the Change of Control Date; and

 

(B)          the determination of whether, and to what extent, the Performance
Objective is achieved, is based on actual performance against the stated
performance criteria through the Change of Control Date; or

 

(ii)           if the payment pursuant to this Section 5(a) is being made due to
you being Involuntarily Terminated following the Change of Control but before
the 15th day of the third calendar month following the calendar month in which
the Performance Period ends, the payment of cash shall be determined assuming
that:

 

(A)          the Performance Period ended on the date of your Involuntary
Termination; and

 

(B)          the determination of whether, and to what extent, the Performance
Objective is achieved, is based on actual performance against the stated
performance criteria through the date of your Involuntary Termination.

 

(b)           Time and Form of Payment.  Any amount payable pursuant to this
Section 5 shall be paid immediately following (and not later than five business
days after) (i) if the

 

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payment is made pursuant to Section 5(a)(i) above, the Change of Control Date,
or (ii) if the payment is made pursuant to Section 5(a)(ii) above, the date of
your Involuntary Termination. As used herein, the term “Successor Corporation”
shall mean the surviving corporation, other than the Company or any of its
affiliates, pursuant to a merger, reclassification, reorganization or other
similar transaction pursuant to which the Common Stock is exchanged for stock of
the surviving corporation in such merger, the successor to such corporation or
the direct or indirect parent of such a corporation.

 

(c)           Definition of Change of Control.  As used in this Agreement, the
term “Change of Control” (i) shall have the meaning given such term in the
Severance Agreement, or (ii) if there is no Severance Agreement, shall mean the
occurrence of any one or more of the following events:

 

(i)            The Company shall not be the surviving entity in any merger,
consolidation or other reorganization (or survives only as a subsidiary of an
entity other than a previously wholly-owned subsidiary of the Company);

 

(ii)           The Company sells, leases or exchanges all or substantially all
of its assets to any other person or entity (other than a wholly-owned
subsidiary of the Company);

 

(iii)          The Company is to be dissolved and liquidated;

 

(iv)          Any person or entity, including a “group” as contemplated by
Section 13(d)(3) of the Exchange Act, acquires or gains ownership or control
(including, without limitation, power to vote) of more than 30% of the
outstanding shares of the Company’s voting stock (based upon voting power); or

 

(v)           As a result of or in connection with a contested election of
directors, the persons who were directors of the Company before such election
shall cease to constitute a majority of the Board.

 

Notwithstanding the foregoing, the term “Change of Control” shall not include
any reorganization, merger or consolidation involving solely the Company and one
or more previously wholly-owned subsidiaries of the Company.

 

6.             Forfeiture under Certain Circumstances.  Notwithstanding any
provision herein to the contrary, the Committee may terminate your Award if it
determines that you have engaged in material misconduct. Material misconduct
includes conduct adversely affecting the Company’s reputation, financial
condition, results of operations or prospects, or which constitutes fraud or
theft of Company assets.  If such material misconduct results, directly or
indirectly, in any restatement of the Company’s financial information after an
amount has been paid to you with respect to the Award, then the Committee also
may require you to reimburse the Company for all or a portion of such payment
amount. In addition, if there is a material restatement of the Company’s
financial statements that affects the financial information used in the
determination of the amount paid to you under the Award, then the Committee may
take such action, in its sole discretion, as it deems necessary to adjust such
amount.

 

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7.             Nontransferability of Awards. The Performance Units granted
hereunder may not be sold, transferred, pledged, assigned, encumbered or
otherwise alienated or hypothecated, other than by will or by the laws of
descent and distribution. Following your death, any cash payable in settlement
of Performance Units will be paid at the time specified in Section 3, Section 4
or, if applicable, Section 5, to your beneficiary in accordance with, and
subject to, the terms and conditions hereof and of the Plan.

 

8.             Beneficiary Designation. You may from time to time name any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom shall be paid under this Agreement following your death any cash payable
hereunder in respect of your Performance Units at the time specified in
Section 3, Section 4 or, if applicable, Section 5. Each designation will revoke
all prior designations, shall be in a form prescribed by the Committee, and will
be effective only when filed in writing with the Committee during your lifetime.
In the absence of any such effective designation, cash payable in connection
with your death shall be paid to your surviving spouse, if any, or otherwise to
your estate.

 

9.             Adjustments in Respect of Performance Units. In the event of any
common stock dividend or common stock split, recapitalization (including, but
not limited to, the payment of an extraordinary dividend), merger,
consolidation, combination, spin-off, distribution of assets to stockholders
(other than cash dividends), exchange of shares, or other similar corporate
change with regard to the Company or any Peer Company, appropriate adjustments
shall be made by the Committee to the Initial Value of the corresponding common
stock, and, if any such event occurs with respect to the Company, in the
aggregate number of Performance Units subject to this Agreement. The Committee’s
determination with respect to any such adjustment shall be conclusive.

 

10.          Effect of Settlement. Upon the payment of cash in settlement of
your Performance Units pursuant to Section 3, Section 4 or Section 5, all of
your Performance Units subject to the Award shall be cancelled and terminated.
If and to the extent that you are still employed at the end of the Performance
Period, and none of your Performance Units shall have become earned in
accordance with the terms of this Agreement, all such Performance Units subject
to the Award shall be cancelled and terminated.

 

11.          Furnish Information. You agree to furnish to the Company all
information requested by the Company to enable it to comply with any reporting
or other requirements imposed upon the Company by or under any applicable
statute or regulation.

 

12.          Remedies. The parties to this Agreement shall be entitled to
recover from each other reasonable attorneys’ fees incurred in connection with
the enforcement of the terms and provisions of this Agreement whether by an
action to enforce specific performance or for damages for its breach or
otherwise.

 

13.          Information Confidential. As partial consideration for the granting
of the Award hereunder, you hereby agree with the Company that you will keep
confidential all information and knowledge, except that which has been disclosed
in any public filings required by law, that you have relating to the terms and
conditions of this Agreement; provided, however,

 

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that such information may be disclosed as required by law and may be given in
confidence to your spouse, tax and financial advisors, or to a financial
institution to the extent that such information is necessary to secure a loan.

 

14.                               Payment of Taxes.  The Company may from time
to time require you to pay to the Company (or an Affiliate if you are an
employee of an Affiliate) the amount that the Company deems necessary to satisfy
the Company’s or its Affiliate’s current or future obligation to withhold
federal, state or local income or other taxes that you incur as a result of the
Award. With respect to any required tax withholding, the Company shall withhold
from any amount payable to you hereunder an amount of cash necessary to satisfy
the Company’s obligation to withhold taxes.

 

15.                               Right of the Company and Affiliates to
Terminate Your Employment. Nothing contained in this Agreement shall confer upon
you the right to continue in the employ of the Company or any Affiliate, or
interfere in any way with the rights of the Company or any Affiliate to
terminate your employment at any time.

 

16.                               No Liability for Good Faith Determinations. 
Neither the Company nor the members of the Board and the Committee shall be
liable for any act, omission or determination taken or made in good faith with
respect to this Agreement or the Performance Units granted hereunder.

 

17.                               No Guarantee of Interests. The Board, the
Committee and the Company do not guarantee the Common Stock of the Company from
loss or depreciation.

 

18.                               Company Records. Records of the Company or its
Affiliates regarding your period of employment, termination of employment and
the reason therefore, leaves of absence, re-employment, and other matters shall
be conclusive for all purposes hereunder, unless determined by the Company to be
incorrect.

 

19.                               Severability.  If any provision of this
Agreement is held to be illegal or invalid for any reason, the illegality or
invalidity shall not affect the remaining provisions hereof, but such provision
shall be fully severable and this Agreement shall be construed and enforced as
if the illegal or invalid provision had never been included herein.

 

20.                               Notices. Whenever any notice is required or
permitted hereunder, such notice must be in writing and personally delivered or
sent by mail. Any such notice required or permitted to be delivered hereunder
shall be deemed to be delivered on the date on which it is personally delivered,
or, whether actually received or not, on the third business day after it is
deposited in the United States mail, certified or registered, postage prepaid,
addressed to the person who is to receive it at the address which such person
has theretofore specified by written notice delivered in accordance herewith.
The Company or you may change, at any time and from time to time, by written
notice to the other, the address which it or you had previously specified for
receiving notices.

 

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The Company and you agree that any notices shall be given to the Company or to
you at the following addresses:

 

Company:

 

Forest Oil Corporation

 

 

Attn: Corporate Secretary

 

 

707 17th Street, Suite 3600

 

 

Denver, Colorado 80202

 

 

 

Holder:

 

At your current address as shown in the Company’s records.

 

21.                               Waiver of Notice.  Any person entitled to
notice hereunder may waive such notice in writing.

 

22.                               Successor.  This Agreement shall be binding
upon you, your legal representatives, heirs, legatees and distributees, and upon
the Company, its successors and assigns.

 

23.                               Headings.  The titles and headings of Sections
and paragraphs are included for convenience of reference only and are not to be
considered in construction of the provisions hereof.

 

24.                               Governing Law. All questions arising with
respect to the provisions of this Agreement shall be determined by application
of the laws of the State of New York except to the extent New York law is
preempted by federal law. The obligation of the Company to sell and deliver
Common Stock hereunder is subject to applicable laws and to the approval of any
governmental authority required in connection with the authorization, issuance,
sale, or delivery of such Common Stock.

 

25.                               Execution of Receipts and Releases. Any
payment of cash to you, or to your legal representative, heir, legatee or
distributee, in accordance with the provisions hereof, shall, to the extent
thereof, be in full satisfaction of all claims of such persons hereunder. The
Company may require you or your legal representative, heir, legatee or
distributee, as a condition precedent to such payment or issuance, to execute a
release and receipt therefore in such form as it shall determine.

 

26.                               Amendment. This Agreement may be amended at
any time unilaterally by the Company provided that such amendment is consistent
with all applicable laws and does not reduce any rights or benefits you have
accrued pursuant to this Agreement. This Agreement may also be amended at any
time unilaterally by the Company to the extent the Company believes in good
faith that such amendment is necessary or advisable to bring this Agreement into
compliance with any applicable laws, including Section 409A of the Code.

 

27.                               The Plan. This Agreement is subject to all the
terms, conditions, limitations and restrictions contained in the Plan.

 

28.                               No Shareholder Rights.  The Performance Units
represent an unsecured and unfunded potential right to receive a cash payment,
which right is subject to the terms, conditions and restrictions set forth in
this Agreement and the Plan.  Accordingly, the Employee will have

 

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no rights as a shareholder with respect to any shares covered by Performance
Units granted under this Agreement.  Without limiting the scope of the preceding
sentence, the Employee will have no rights to vote or receive dividend
equivalents with respect to any shares covered by Performance Units granted
under this Agreement.

 

29.                               Parachute Payment.  If, in connection with a
Change of Control, the accelerated vesting of one or more Performance Units
pursuant to this Agreement comprises part of any “parachute payment” as defined
in Code Section 280G(a)(2), the number of Performance Units to which such
accelerated vesting would otherwise apply may be reduced in accordance with the
terms of the Severance Agreement, to the extent applicable.

 

If you accept this Performance Unit Cash Award Agreement and agree to its terms
and conditions, please so confirm by signing and returning the duplicate of this
Agreement enclosed for that purpose.

 

 

Very Truly Yours,

 

 

 

FOREST OIL CORPORATION

 

 

 

 

 

 

By:

 

 

Name:

 

Title:

 

Date:

 

 

 

 

ACKNOWLEDGED AND AGREED:

 

 

 

 

 

By:

 

 

Name:

 

 

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Appendix A

 

Determination of Performance Units Earned

 

Peer
Companies:                                                                                                   
SM Energy Company

Exco Resources, Inc.

Ultra Petroleum Corporation

Cimarex Energy Company

Range Resources Corporation

Cabot Oil & Gas Corporation

Comstock Resources, Inc.

Quicksilver Resources, Inc.

Bill Barrett Corporation

Rosetta Resources

Swift Energy Company

Carrizo Oil & Gas, Inc.

 

If during the Performance Period the number of companies qualifying as Peer
Companies for the Performance Period becomes less than seven, the Committee
shall, in good faith, determine the percentage of the Performance Units earned
in a manner consistent with the requirements to qualify the Performance Units as
performance-based compensation exempt from the limitations imposed by
Section 162(m) of the Code.

 

Percentage of Initial Performance Units Earned:

 

The

 

 

 

 

 

 

 

 

 

 

 

 

 

Company’s

 

 

 

 

 

 

 

 

 

 

 

 

 

Rank Among

 

No. of Peer Companies

 

Peers

 

12

 

11

 

10

 

9

 

8

 

7

 

1

 

200

%

200

%

200

%

200

%

200

%

200

%

2

 

183

%

182

%

180

%

178

%

175

%

171

%

3

 

167

%

164

%

160

%

156

%

150

%

143

%

4

 

150

%

145

%

140

%

133

%

125

%

114

%

5

 

133

%

127

%

120

%

111

%

100

%

86

%

6

 

117

%

109

%

100

%

89

%

75

%

57

%

7

 

100

%

91

%

80

%

67

%

50

%

28

%

8

 

83

%

73

%

60

%

45

%

25

%

0

%

9

 

67

%

55

%

40

%

22

%

0

%

 

 

10

 

50

%

36

%

20

%

0

%

 

 

 

 

11

 

33

%

18

%

0

%

 

 

 

 

 

 

12

 

17

%

0

%

 

 

 

 

 

 

 

 

13

 

0

%

 

 

 

 

 

 

 

 

 

 

 

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Adjustment Rules:

 

Notwithstanding the table above, the following additional rules shall apply in
determining the Percentage of Initial Performance Units Earned under the
applicable table:

 

1.                                      If the Total Shareholder Return of one
or more Peer Companies included in the applicable table above is within one
percentage point of the Company’s Total Shareholder Return, then such table
shall be applied by averaging the percentages that would apply under such table
based on the Company’s actual rank against the Peer Companies and as if the
Company’s ranking was switched with each such Peer Company that is within such
one percentage point range;

 

2.                                      If the Company’s Total Shareholder
Return is negative, then the percentage shall be the percentage determined under
the table above (determined after adjustment pursuant to clauses 1 and 2 of this
paragraph, as applicable).

 

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