Exhibit 10.1


 


021910


 


Forest
Oil Corporation


 


Annual
Incentive Plan


 


2010


 





 




 





 





















 


Forest
Oil Corporation


2010
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 and department for 2010,
the achievement of which will be determined by 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 2010 Company
performance measures and their relative weightings are described below.


 


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

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Total Shareholder Return

  	
   

  	
  20

  	
  %

  
	
  Cash Cost

  	
   

  	
  15

  	
  %

  
	
  Business Unit/Department Performance Objectives

  	
   

  	
  20

  	
  %

  
	
  Production

  	
   

  	
  25

  	
  %

  
	
  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 the advice of senior
management) 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 and
Department 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 department with regard to its Business Unit/Department
Performance Objectives will be assigned at year end by the


 





















 


CEO following a thorough
review of its activities and accomplishments. 
The assigned Completion Percentage on Business Unit/Department
Performance Objectives for each business unit or department will be included in
the calculation of the Overall Completion Percentage for that business unit or
department in the same manner as is the Completion Percentage on other
performance measures.


 


Targets shall be adjusted
for material changes made during the year to the business plan or scope
thereof, including 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 terminates 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 during the Plan year 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 (2009).


 


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.


 





















 


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 the approved
2010 Business Plan with:


 


·                  Threshold equal to achievement of 105% of
Business Plan objective


 


·                  Target equal to achievement of 100% of
Business Plan objective


 


·                  Outstanding equal to achievement of 90%
of Business Plan objective


 





















 


  Forest Oil Corporation


Business
Unit and Department Performance Objectives


 


Objective


 


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


 


Definition


Objectives
that are key to the success of each business unit or department in support of
the 2010 Business Plan have been established by the CEO.  Established objectives are specific to each
business unit or department, well-defined and to the extent possible,
measurable.


 





















 


 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 2010 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


 


·                  Target equal to achievement of 100% of
Business Plan objective


 


·                  Outstanding equal to achievement of 110% of
Business Plan objective


 





















 


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 2010.


 


Targets


 


Measured against the
approved 2010 Business Plan.