Exhibit 10.1


 


 


 


 


 


 


Forest Oil Corporation


 


Annual Incentive Plan


 


2007


 


 
























 


Forest Oil Corporation


2007 Annual Incentive
Plan


 


Summary


 


 


Plan Objectives


 


The Annual Incentive Plan (the “Plan”) has been designed to meet the
following objectives:


 


•                  Provide an
annual incentive plan framework that is performance-driven and focused on
objectives that are critical to the Company’s success.


 


•                  Offer
competitive cash compensation opportunities to all key employees.


 


•                  Reward
outstanding achievement.


 


Basic Plan Concept


 


The Plan generally provides annual incentive awards, which will be
determined primarily on the basis of the Company’s consolidated results on
selected financial, operating and other performance measures.  However, business unit or department performance
and individual performance will also be considered in determining the actual
participant award payout.  Therefore, the
Company shall have the flexibility to adjust individual awards to reflect
individual or team performance.


 


Performance Measures and
Weights


 


Each year the Company will establish the threshold, target and
outstanding performance levels on each performance measure and its appropriate
weighting.  These performance measures
and their weighting will be reviewed (and modified, if appropriate) in light of
changing Company priorities and strategic objectives.


 


The recommended 2007 Company performance measures and
their respective weightings are described in detail in Attachment I.


 


Plan Administration


 


The Plan will be administered by the Compensation Committee (“Committee”)
of the Board of Directors and the President and Chief Executive Officer (“CEO”)
(for all positions except his own). 
Certain elements of the Plan administration will be delegated to the
senior Human Resources executive of the Company.  The Executive Vice President and Chief
Financial Officer will verify the performance calculation for the performance
and operating measures in consultation with the Senior Vice President,
Corporate Planning and Development who shall be responsible for the estimation
of the Company’s oil and gas reserves.


 





















 


 


Actual performance goals, standards, award determinations and
modifications to the Plan design must be approved by the Committee.


 




	
  Measure

  	
   

  	
  Weighting (Example)

  	
   

  
	
  Total Shareholder Return

  	
   

  	
  15

  	
  %

  
	
  Cash Cost

  	
   

  	
  15

  	
  %

  
	
  Acquisitions

  	
   

  	
  20

  	
  %

  
	
  Production

  	
   

  	
  30

  	
  %

  
	
  Rate of Return on Capital Investments

  	
   

  	
  20

  	
  %

  
	
  Total Financial
  and Operating

  	
   

  	
  100

  	
  %

  






 


Once the total bonus pool has been established
following the performance calculations, the President & CEO shall have the
discretion to distribute bonus monies within business units and the corporate
group or to move monies from one group to another, and to allocate incentive
monies to individuals, based on his assessment (with advice of other senior
managers) as to individual or group performance.


 


Targets


 


Targets for the total Plan will be set consistent with the following:


 


•                  Threshold —
Minimum level at which payout occurs. 
The threshold percentage is 25% of the target award percentage.


 


•                  Target — Level
at which the participant receives the target award percentage.


 


•                  Outstanding —
Level at which the participant receives 200% of the target award percentage.


 


Completion percentages between Threshold, Target and Outstanding will
be determined, with the exception of Total Shareholder Return, by
interpolation.  Completion for results
above Outstanding will be directly proportional to the change in completion
between Target and Outstanding.


 


The Completion Percentage for Total Shareholder Return is defined in
the section describing the Total Shareholder Return measure.  Targets shall be adjusted for material
changes made during the year to the business plan or scope thereof, or to the
capital expenditure budget.


 


Maximum Completion


 


Although there will be no limit on completion of individual financial
measures, completion for the total Plan will be limited to 200% of target.


 


Performance Levels


 


Performance levels will be set for individual measures.  Results below the Threshold will equate to a
zero completion percentage.


 





















 


 


A minimum 25% completion threshold is required for the total Plan.


 


Completion Calculation


 


Completion for total financial measures will be the sum of the weighted
completion for each individual measure. 
Completion for each individual measure will be equal to the completion
percentage of each measure times the weighting for that measure.


 


Property Sales


 


In computing results, non-budgeted property sales are not to be
considered.  To avoid non-budgeted
property sales from affecting results, they will be incorporated into
performance measures as though they had been budgeted.


 


Participants


 


The CEO shall determine which employees are to be participants in the
Plan.  If a participant’s employment with
the Company is terminated for any reason prior to payment, no bonus
award will be paid.


 


The target award percentage for the CEO is established by the
Committee. Target award percentages for Company officers are subject to the
approval of the Committee. The CEO is authorized to establish and adjust at his
discretion the target award percentages for non-officer Plan participants. Plan
participants who change positions and/or have their individual target incentive
levels changed during the Plan year will have their award prorated accordingly.  All awards paid will be rounded to the
nearest $100.


 


Incentive compensation awards will be calculated based upon the
participant’s base salary in effect at the end of the Plan year or earned
salary if the participant was a new hire during the year.


 


Board of Directors’
Discretion


 


The granting of any and
all incentive compensation awards is at the discretion of the Forest Oil
Corporation Board of Directors.


 





















 


 


Forest Oil Corporation


Financial Measure


Total Shareholder Return


 


 


Objective


 


Measure Total Return to Shareholders relative to a peer group.


 


Definition


 


Total Return to Shareholders equals year-end share price plus common
dividends per share paid (plus capital returned to shareholders through share
repurchase) during the Plan year minus the beginning share price divided by
beginning share price.


 


Share Price


 


Year-end share price shall be defined as the closing price on the last
trading day in December of each year. 
The beginning share price shall be defined as the closing price on the
last trading day in December of the prior year (2006).


 


In the event either the Company or a member of the peer group is
acquired for cash, the year-end share price shall be defined as the cash
purchase price per share.  If a member of
the peer group is acquired for stock, the year-end share price shall be defined
as the exchange ratio multiplied by the closing price of the acquirer on the
last trading day of the year.  In an
acquisition involving both cash and stock, each component of the purchase price
will be measured as described above to calculate a pro forma year-end stock
price.


 


Peer Group


 


The peer group shall comprise companies selected by the Committee that
reflect the size, operational complexities and business challenges faced by
Forest Oil.


 


Completion Percentage


 


The Completion Percentage will be determined based on the Company’s
ranking among the selected peer companies with regard to Total Shareholder
Return as detailed in Attachment 1A.


 





















 


 


 Forest Oil Corporation


Financial Measure


Cash Cost


 


 


Objective


 


Measure cash cost on an annual basis.


 


Definition


 


Corporate:  The
sum of direct operating expense and expensed workovers, but excluding ad
valorem taxes, transportation expense and total expensed G&A for the
Company, divided by total production for the Company measured in MCFE.


 


Business Unit:  The sum of direct
operating expense and expensed workovers, but excluding ad valorem taxes,
transportation expense, allocated corporate G&A expense for the business
unit, and total expensed G&A administrative costs for the Company, divided
by production for the business unit measured in MCFE.


 


Cash Cost excludes production severance
taxes.  Additionally, the calculation of
Cash Cost for the Canadian business unit shall be calculated at the Plan
exchange rate ignoring any variance between the actual exchange rate and the
exchange rate assumed in the Plan.


 


Targets


 


Measured against an approved Annual Plan with:


 


•                  Threshold equal
to achievement of 105% of Business Plan objective (Attachment 1B)


 


•                  Target equal to
achievement of 100% of Business Plan objective (Attachment 1B)


 


•                  Outstanding
equal to achievement of 90% of Business Plan objective (Attachment 1B)


 





















 


 


 Forest Oil Corporation


Financial Measure


Acquisitions


 


 


Objective


 


Measure on a yearly basis the amount of oil and gas, converted to Bcfe,
acquired by the Company.


 


Definition


 


The target objective for 2007 Acquisitions is
to replace the 2007 Production target.


 


Acquisitions are calculated by adding the volumetric
amount of estimated proved reserves acquired by any method by the Company in
2007.


 


Targets


 


•                  Threshold is an
amount shown on Attachment 1C.


 


•                  Target is an
amount shown on Attachment 1C.


 


•                  Outstanding is
an amount shown on Attachment 1C.


 





















 


 Forest Oil Corporation


Operating
Measure


Production


 


 


Objective


 


Measure net production on
an annual basis.


 


Definition


 


Net production equals
total net production (after royalty and other burdens) equal to that set forth
in the annual Business Plan.


 


Should a business unit
overspend budgeted Capex significantly, the Production target will either be
proportionately adjusted or the target level will become the threshold for
payout under this measure.


 


The calculation of net
production volumes for the Canadian business unit shall be calculated as if
Plan oil and gas prices were experienced, with no volume adjustments being made
for higher or lower prices.


 


Targets


 


Measured against an approved Annual Plan with:


 


•                  Threshold equal
to achievement of 95% of Business Plan objective (Attachment 1D).


 


•                  Target equal to
achievement of 100% of Business Plan objective (Attachment 1D).


 


•                  Outstanding
equal to achievement of 110% of Business Plan objective (Attachment 1D).


 





















 


 


Forest Oil Corporation


Financial Measure


Rate-of-Return on Capital
Investments


 


 


Objective


 


Measure on a yearly basis, the pre-tax rate-of-return (“ROR”) on all
capital projects.


 


Definition


 


Pre-tax rate-of-return on all capital projects during the year
including drilling projects, acquisitions, recompletions, land lease, seismic
and capitalized G&A.  The price
assumptions to be utilized will be those utilized for the Investment Results
Report (“IRR”) and any prices hedged (for the associated volumes) in direct
connection with an acquisition.  In
evaluating the accomplishment of this objective, the Compensation Committee
will take into account all revisions to estimated proved reserves made in 2007.


 


Targets


 


Measured against an approved annual Plan with:


 


•                  Threshold is
equal to the ROR indicated on Attachment 1E.


 


•                  Target is equal
to the ROR indicated on Attachment 1E.


 


•                  Outstanding is
equal to the ROR indicated on Attachment 1E.