Exhibit 10.1


 


Forest
Oil Corporation


 


Annual
Incentive Plan


 


2009


 





 

















 


Forest Oil Corporation


2009 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 Company has also
established performance objectives for each business unit for 2009, the
achievement of which will be determined by the Executive Vice President and
Chief Operating Officer (the “COO”) and the President and Chief Executive
Officer (the “CEO”) at year end, subject to the confirmation of the
Compensation Committee of the Board of Directors (the “Committee”).


 


The 2009 Company
performance measures and performance objectives and their respective weightings
are described in detail in Attachment I.


 


Plan Administration


 


The Plan will be
administered by the Committee and the 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, Business 


 

















 


Development &
Engineering, 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

  	
   

  	
  25

  	
  %

  
	
  Business Unit
  Performance Objectives

  	
   

  	
  20

  	
  %

  
	
  Production

  	
   

  	
  20

  	
  %

  
	
  Rate of Return
  on Capital Investments

  	
   

  	
  20

  	
  %

  
	
  Total Financial
  and Operating Objectives

  	
   

  	
  100

  	
  %

  






 


Once the total bonus pool
has been established following the performance calculations, the 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 those for Total Shareholder Return and Business Unit Performance
Objectives, 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.


 


A Completion Percentage
for each business unit and the Drilling Department with regard to its Business
Unit Performance Objectives will be assigned at year end by the COO and CEO
following a thorough review of its activities and accomplishments.  The assigned Completion Percentage on
Business Unit Performance Objectives for each business unit and the Drilling
Department will be included in the calculation of the Overall Completion
Percentage for that business unit or department as well as the Consolidated
Completion Percentage for the Company in the same manner as is the Completion Percentage
on other performance measures.


 


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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 percentage 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.


 


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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 (2008).


 


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.


 


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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)


 


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Forest
Oil Corporation


Business
Unit Performance Objectives


 


Objective


 


Measure the achievement
of key objectives that are established for each business unit for each year.


 


Definition


 


Objectives that are key
to the success of each business unit and the Drilling Department have been
established by the COO and the CEO and endorsed by the Committee. Established
objectives are specific to each business unit, well-defined and to the extent
possible, measurable.


 


Targets


 


·                  See Attachment 1C.


 


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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 Business 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).


 


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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 2009.


 


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.


 


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