Document:

exh101051309.htm

    Exhibit
10.1

      AMENDMENT
NO. 2

       

      TO

       

      LOAN
AND SECURITY AGREEMENT AND CONSENT

       

      This Amendment
No. 2 to
Loan and Security Agreement and Consent (this
“Amendment”)
is entered into May 7, 2009, by and among MIPS
Technologies, Inc., a Delaware corporation (“Borrower”),
MIPS
Technologies Holding LLC, a Delaware limited liability company (“Guarantor”),
and Silicon
Valley Bank, (“Bank”).  Capitalized
terms used herein without definition shall have the same meanings given them in
the Loan Agreement (as defined below).

       

      Recitals

       

      
        	
                A.  

              	
                Borrower
      and Bank have entered into that certain Loan and Security Agreement dated
      as of July 3, 2008, as amended by that certain Amendment No. 1 to Loan and
      Security Agreement dated December 18, 2008 (as so amended and as may be
      further amended, restated or modified, the “Loan
      Agreement”), pursuant to which the Bank has agreed to extend and
      make available to Borrower certain advances of
  money.

              

      

       

      
        	
                B.  

              	
                In
      support of Borrower’s Obligations under the Loan Agreement, (i) Guarantor
      and Bank have entered into that certain Unconditional Guaranty and
      Security Agreement dated as of July 3, 2008 (the “Guaranty”),
      and Guarantor, Borrower, and Bank have entered into that certain
      Uncertificated Security Control Agreement dated as of July 3, 2008 (the
      “USCA”).

              

      

       

      
        	
                C.  

              	
                Borrower
      has informed Bank that Borrower wishes to sell its analog business group,
      comprised of Guarantor and all of Guarantor’s Subsidiaries (such sale, the
      “Transaction”),
      to Synopsys, Inc., a Delaware corporation (the “Buyer”),
      pursuant to a Membership Interest Purchase Agreement substantially in the
      form of the document received by Bank via e-mail from Borrower on May 6,
      2009, at 12:32 p.m. (the “Transaction
      Document”).

              

      

       

      
        	
                D.  

              	
                Borrower
      and Guarantor acknowledge and confirm that Sections 7.1, 7.3, and 7.5 of
      the Loan Agreement and various sections of the Guaranty and the USCA
      prohibit Borrower from entering into the Transaction without Bank’s prior
      written consent.

              

      

       

      
        	
                E.  

              	
                Borrower
      and Guarantor desire that Bank (i) consent to the Transaction, (ii)
      terminate the Guaranty and the USCA, and (iii) amend the Loan Agreement to
      modify a financial covenant and make certain other changes, all upon the
      terms and conditions more fully set forth
  herein.

              

      

       

      
        	
                F.  

              	
                Subject
      to the representations and warranties of Borrower and Guarantor herein and
      upon the terms and conditions set forth in this Amendment, Bank is willing
      to consent to the Transaction, to terminate the USCA and the Guaranty, and
      to amend the Loan Agreement.

              

      

       

      Agreement

       

      NOW, THEREFORE, in
consideration of the foregoing Recitals and intending to be legally bound, the
parties hereto agree as follows:

       

      
        	
                1.  

              	
                Consent
      to Transaction.  Subject to Section 6, Bank hereby grants
      its consent (i) to Borrower entering into and consummating the Transaction
      in accordance with the Transaction Document and (ii) to the transfer of
      the membership interests of Guarantor to the Buyer in connection with the
      Transaction, free and clear of any security interest held by Bank under
      the Loan Documents.  Bank further agrees that the actions
      described in (i) and (ii) above, in and of themselves, shall not be deemed
      to be an Event of Default under the Loan Agreement.  The
      foregoing consent is conditioned on the Transaction closing not later than
      May 11, 2009.

              

      

       

      
        	
                2.  

              	
                Termination
      of Guaranty, USCA, and related UCC
  filings.

              

      

       

      
        	
                2.1  

              	
                Guaranty.  Subject
      to Section 6, Bank and Guarantor hereby agree that immediately upon the
      consummation of the Transaction as consented to by Bank, the Guaranty
      shall be terminated.  Following such termination of the
      Guaranty, Bank shall file (i) a UCC termination statement with regard to
      UCC financing statement 82300091 and (ii) a UCC amendment with regard to
      UCC financing statement 82300034 modifying the definition of Guarantor in
      such financing statement to be consistent with definition of Guarantor in
      the Loan Agreement, as amended pursuant to Section 3.3
    below.

              

      

       

      
        	
                2.2  

              	
                USCA.  Subject
      to Section 6 of this Amendment, Bank hereby gives notice pursuant to
      Section 8(a) of the USCA that immediately upon the consummation of the
      Transaction as consented to by Bank,  the USCA shall be
      terminated.

              

      

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      
        	
                3.  

              	
                Amendments
      to Loan Agreement.

              

      

       

      
        	
                3.1  

              	
                Section 6.7(c) (Adjusted Quick
      Ratio).  Section 6.7(c) of the Loan Agreement is amended
      in its entirety and replaced by the
following:

              

      

       

      “(c)  Adjusted Quick
Ratio.  As of the end of each fiscal quarter, a ratio of (x)
the sum of Quick Assets divided by
(y) Current Liabilities minus Deferred Revenue, which ratio shall be not less
than (a) 0.75 to 1.00, for the quarter ending March 31, 2009, and (b) 1.75 to
1.00 for the quarter ending June 30, 2009, and each quarter ending
thereafter.”

       

      
        	
                3.2  

              	
                Section 10
      (Notices).  Borrower’s notice address in Section 10 of
      the Loan Agreement is modified to read as
  follows:

              

      

       

      
        	
                 
      

              	
                “If
      to Borrower:

              	
                (before June 1,
      2009)

                MIPS
      Technologies, Inc.

                1225
      Charleston Road

                Mountain
      View, CA 94043

                Attn:
      General Counsel

                Fax:  (650)
      567-5154

                Email:
      gail@mips.com

                 

              

      

      
      

      
        	
                 
      

              	
                (on or after June 1,
      2009)

                MIPS
      Technologies, Inc.

                955
      E. Arques Avenue

                Sunnyvale,
      CA 94085-4521

                Attn:
      General Counsel

                Fax:  ______________

                Email: gail@mips.com”

                 

              

      

      

      
        	
                3.3  

              	
                Section 13
      (Definitions).  The definition of “Guarantor” in Section
      13.1 of the Loan Agreement is amended in its entirety by deleting it and
      replacing it with the following:

              

      

       

      ““Guarantor” is any present or
future guarantor of the Obligations.”

       

      
        	
                3.4  

              	
                Exhibit E to Loan Agreement
      (Compliance Certificate).  Exhibit E (“Compliance
      Certificate”) of the Loan Agreement is amended in its entirety by deleting
      it and replacing it with Exhibit A
      attached hereto.

              

      

       

      
        	
                4.  

              	
                Borrower’s
      Representations And Warranties.

              

      

       

      
        	
                4.1  

              	
                Borrower
      represents and warrants that:

              

      

       

      
        	
                (a)  

              	
                immediately
      upon giving effect to this Amendment (i) the representations and
      warranties contained in the Loan Documents are true, accurate and complete
      in all material respects as of the date hereof (except to the extent such
      representations and warranties relate to an earlier date, in which case
      they are true and correct as of such date), and (ii) no Event of
      Default has occurred and is
continuing;

              

      

       

      
        	
                (b)  

              	
                Borrower
      has the corporate power and authority to execute and deliver this
      Amendment and to perform its obligations under the Loan Agreement, as
      amended by this Amendment;

              

      

       

      
        	
                (c)  

              	
                the
      certificate of incorporation, bylaws and other organizational documents of
      Borrower delivered to Bank in connection with the execution of the Loan
      Agreement, remain true, accurate and complete and have not been amended,
      supplemented or restated and are and continue to be in full force and
      effect;

              

      

       

      
        	
                (d)  

              	
                the
      execution and delivery by Borrower of this Amendment and the performance
      by Borrower of its obligations under the Loan Agreement, as amended by
      this Amendment, have been duly authorized by all necessary corporate
      action on the part of Borrower;

              

      

       

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      
        	
                (e)  

              	
                this
      Amendment has been duly executed and delivered by the Borrower and is the
      binding obligation of Borrower, enforceable against it in accordance with
      its terms, except as such enforceability may be limited by bankruptcy,
      insolvency, reorganization, liquidation, moratorium or other similar laws
      of general application and equitable principles relating to or affecting
      creditors’ rights;

              

      

       

      
        	
                (f)  

              	
                as
      of the date hereof, it has no defenses against the obligations to pay any
      amounts under the Obligations.  Borrower acknowledges that Bank
      has acted in good faith and has conducted in a commercially reasonable
      manner its relationships with Borrower in connection with this Amendment
      and in connection with the Loan Documents;
and

              

      

       

      
        	
                (g)  

              	
                the
      Transaction, and the executed documents effecting the Transaction, shall
      not, on an individual basis or together with one or more other executed
      documents, (i) substantially differ from the Transaction Document or (ii)
      differ from the reasonable expectation of Bank in light of the
      Recitals.

              

      

       

      
        	
                4.2  

              	
                Borrower
      understands and acknowledges that Bank is entering into this Amendment in
      reliance upon, and in partial consideration for, the representations and
      warranties in Section 4.1, and agrees that such reliance is reasonable and
      appropriate.

              

      

       

      
        	
                5.  

              	
                Limitation.  The
      amendments and the consent set forth in this Amendment shall be limited
      precisely as written and shall not be deemed (a) to be a waiver or
      modification of any other term or condition of the Loan Agreement or of
      any other instrument or agreement referred to therein or to prejudice any
      right or remedy which Bank may now have or may have in the future under or
      in connection with the Loan Agreement or any instrument or agreement
      referred to therein; or (b) to be a consent to any future amendment or
      modification or waiver to any instrument or agreement the execution and
      delivery of which is consented to hereby, or to any waiver of any of the
      provisions thereof.  Except as expressly amended hereby, the
      Loan Agreement shall continue in full force and effect.  This
      Amendment is a Loan Document and any breach of this Amendment by Borrower
      shall be an immediate Event of Default under the Loan
      Agreement.

              

      

       

      
        	
                6.  

              	
                Effectiveness.  This
      Amendment shall become effective upon the satisfaction of all the
      following conditions precedent:

              

      

       

      
        	
                6.1  

              	
                Amendment.  Borrower
      and Bank shall have duly executed and delivered this Amendment to
      Bank.

              

      

       

      
        	
                6.2  

              	
                Transaction
      Document.  Borrower shall have delivered to Bank a true,
      accurate and complete copy of the executed document effecting the
      Transaction together with a redline comparison of the foregoing executed
      document to the Transaction
Document.

              

      

       

      
        	
                6.3  

              	
                Bank
      Expenses.  Borrower shall have paid all Bank Expenses
      incurred through the date of this
Amendment.

              

      

       

      
        	
                7.  

              	
                Counterparts.  This
      Amendment may be signed in any number of counterparts, and by different
      parties hereto in separate counterparts, with the same effect as if the
      signatures to each such counterpart were upon a single
      instrument.  All counterparts shall be deemed an original of
      this Amendment.

              

      

       

      
        	
                8.  

              	
                Integration.  This
      Amendment and any documents executed in connection herewith or pursuant
      hereto contain the entire agreement between the parties with respect to
      the subject matter hereof and supersede all prior agreements,
      understandings, offers and negotiations, oral or written, with respect
      thereto and no extrinsic evidence whatsoever may be introduced in any
      judicial or arbitration proceeding, if any, involving this Amendment;
      except that any financing statements or other agreements or instruments
      filed by Bank with respect to Borrower shall remain in full force and
      effect.

              

      

       

      
        	
                9.  

              	
                Governing
      Law; Venue.  THIS
      AMENDMENT SHALL BE GOVERNED BY AND SHALL BE CONSTRUED AND ENFORCED IN
      ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.  Borrower
      and Bank each submit to the exclusive jurisdiction of the State and
      Federal courts in Santa Clara County,
  California.

              

      

       

      [Signature page to Amendment No. 2 to
Loan and Security Agreement and Consent]

       

      IN WITNESS WHEREOF, the
parties hereto have caused this Amendment to be executed as of the date first
written above.

       

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      
        	
                Borrower:

              	
                
                  MIPS
      Technologies, Inc.

                

              	 
	 	 	 	 
	 	a Delaware corporation	 
	 	 	 	 
	
                 

              	
                By:
    

              	/s/  
      JOHN BOURGOIN	 
	 	 	Printed Name:  John
      Bourgoin	 
	 	 	Title:  Chief Executive
      Officer	 
	 	 	 	 

      

       

       

      
        	
                
                  Guarantor:

                

              	
                
                  MIPS
      Technologies Holding LLC

                

              	 
	 	 	 	 
	 	a Delaware limited liability
      company	 
	 	 	 	 
	 	By: 	MIPS Technologies, Inc., its sole
      member 	 
	 	 	 	 
	
                 

              	
                By:
    

              	/s/  
      MAURY AUSTIN	 
	 	 	Printed Name:  Maury
      Austin	 
	 	 	Title:  Chief Financial
      Officer	 
	 	 	 	 

         

      
        	
                
                  Bank:

                

              	
                
                  Silicon
      Valley Bank

                

              	 
	 	 	 	 
	
                 

              	
                By:
    

              	/s/  
      NICK TSIAGKAS	 
	 	 	Printed Name:  Nick
      Tsiagkas	 
	 	 	Title:  Relationship
      Manager	 
	 	 	 

      

      

       

      

       

       

      
        
          
             

             

          

           

        

        
          4

          
            

          

        

        
           

        

      

      EXHIBIT A TO AMENDMENT NO.
2

       

      EXHIBIT E TO LOAN AGREEMENT
- COMPLIANCE CERTIFICATE

      

      

      TO:                      SILICON
VALLEY
BANK                                                                                                Date:  ___________

      FROM:               MIPS
TECHNOLOGIES, INC.

      

      The
undersigned authorized officer of MIPS Technologies, Inc. (“Borrower”) certifies
that under the terms and conditions of the Loan and Security Agreement between
Borrower and Bank (the “Agreement ”), (1) Borrower is in complete compliance for
the period ending _______________ with all required covenants except as noted
below, (2) there are no Events of Default, (3) all representations and
warranties in the Agreement are true and correct in all material respects on
this date except as noted below; provided, however, that such materiality
qualifier shall not be applicable to any representations and warranties that
already are qualified or modified by materiality in the text thereof; and
provided, further that those representations and warranties expressly referring
to a specific date shall be true, accurate and complete in all material respects
as of such date, (4) Borrower, and each of its Subsidiaries, has timely filed
all required tax returns and reports (or has been granted an extension to file
such tax return and reports), and Borrower has timely paid all foreign, federal,
state and local taxes, assessments, deposits and contributions owed by Borrower
except as otherwise permitted pursuant to the terms of Section 5.9 of the
Agreement, and (5) no Liens have been levied or claims made against Borrower or
any of its Subsidiaries relating to unpaid employee payroll or benefits of which
Borrower has not previously provided written notification to
Bank.  Attached are the required documents supporting the
certification.  The undersigned certifies that these are prepared in
accordance with GAAP consistently applied from one period to the next except as
explained in an accompanying letter or footnotes.  The undersigned
acknowledges that no borrowings may be requested at any time or date of
determination that Borrower is not in compliance with any of the terms of the
Agreement, and that compliance is determined not just at the date this
certificate is delivered.  Capitalized terms used but not otherwise
defined herein shall have the meanings given them in the Agreement.

      

      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  	
                                          Please
      indicate compliance or qualification status by circling Yes/No under
      “Complies” or ”Qualifies” column.

                                        
	 
      
	
                                          Reporting
      Covenants

                                        	
                                          Required
      by*

                                        	
                                          Complies

                                        
	 
      	 
      	 
      
	
                                          Borrowing
      Base Certificate

                                        	
                                          If any amount is outstanding
      under the Revolving Line:

                                          30
      days after month end

                                          Otherwise:

                                          5
      days prior to borrowing under the Revolving Line

                                        	
                                          Yes   No

                                        
	
                                          A/R
      & A/P Agings plus Deferred Revenue

                                        	
                                          With
      every Borrowing Base Certificate

                                        	
                                          Yes   No

                                        
	
                                          10K
      (or link thereto)

                                        	
                                          5
      days after SEC filing or 90 days after FYE

                                        	
                                          Yes   No

                                        
	
                                          10Q
      (or link thereto)

                                        	
                                          5
      days after SEC filing or 45 days after FQE

                                        	
                                          Yes   No

                                        
	
                                          Compliance
      Certificate

                                        	
                                          With
      every 10K or 10Q report

                                        	
                                          Yes   No

                                        
	
                                          Consolidating
      Financial Statements

                                        	
                                          With
      every 10K or 10Q report

                                        	
                                          Yes   No

                                        
	
                                          Royalty
      Trend Report

                                        	
                                          30
      days after FQE

                                        	
                                          Yes   No

                                        
	
                                          Annual
      financial projections

                                        	
                                          90
      days after FYE or 10 days after Board  approval

                                        	
                                          Yes   No

                                        
	 
      
	
                                          FYE=Fiscal
      Year End     FQE=Fiscal Quarter
      End                                                                                     *
      If more than one deadline is indicated, the earlier deadline is the
      required
deadline.

                                        

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

      

      
        
          
            
              
                
                  
                    	
                            Financial
      Covenants

                          	
                            Required

                          	
                            Actual

                          	
                            Complies

                          
	
                            Maintain
      at the end of each quarter:

                          	 
      	 
      	 
      
	
                            Minimum Fixed Charge
      Coverage

                            (rolling
      two fiscal quarters’ basis)

                          	
                            FQE
      09/30/08:                                1.25
      to 1.00

                            FQE
      12/31/08:                                1.25
      to 1.00

                            Following
      FQEs:                         
       1.50 to 1.00

                          	
                            _____:1.00

                          	
                            Yes   No

                          
	
                             Maximum
      Senior Debt Leverage Ratio

                          	
                                                   
      2.00 to 1.00

                          	
                            _____:1.00

                          	
                            Yes   No

                          
	
                            Minimum
      Adjusted Quick Ratio

                          	
                            FQE
      03/31/09:                                0.75
      to 1.00

                            FQE
      06/30/09:                                1.75
      to 1.00

                            Following
      FQEs:                           1.75
      to 1.00

                          	
                            _____:1.00

                          	
                            Yes   No

                          

                  

                

              

            

          

        

      

      

      
        
          
            
              	
                      Other
      Items

                    	
                      Required
      to Qualify

                    	
                      Actual

                    	
                      Qualifies

                    
	
                      Increase
      in Permitted Investments (e)(ii)

                    	
                      Consolidated
      cash + Cash Equivalents at FQE >= $14,000,000

                    	
                      $___________

                    	
                      Yes   No

                    

            

          

        

      

      

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

      The
following financial covenant analys[is][es] and information set forth in
Schedule 1 attached hereto are true and accurate as of the date of this
Certificate.

      

      The
following are the exceptions with respect to the certification
above:  (if none, state “No exceptions to note.”)

      ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

      

      

      
        	
                MIPS
      Technologies, Inc.

                 

                 

                By:

                Name:

                Title:

                 

              	
                BANK
      USE ONLY

                 

                Received
      by: _____________________

                authorized
      signer

                Date:       ________________________

                 

                Verified:
      ________________________

                authorized
      signer

                Date:       _________________________

                 

                Compliance
      Status:                        Yes     No

              

      

      

      

      

      

      
        
           

        

        
          6

          
            

          

        

        
           

        

      

      Schedule 1 to Exhibit E to
Loan Agreement - Compliance Certificate

      

      Financial Covenants of
Borrower

      

      In the
event of a conflict between this Schedule and the Loan Agreement, the terms of
the Loan Agreement shall govern.

      

      Dated:                      ____________________

       

      I.           Calculation
of Quick Assets

       

      
        
          
            
              
                
                  
                    
                      
                        	
                                A.

                              	
                                Aggregate
      value of the unrestricted cash and Cash Equivalents of Borrower and its
      Subsidiaries (not less than 50% of which are held in the US)

                                 

                              	
                                    $____________

                              
	
                                B.

                              	
                                Aggregate
      value of the gross accounts receivable of Borrower and its
      Subsidiaries

                                 

                              	
                                    $____________

                              
	
                                C.

                              	
                                Aggregate
      value of the Investments with maturities of fewer than 12 months
      of
      Borrower and it Subsidiaries

                                 

                              	
                                    $____________

                              
	
                                D.

                              	
                                Quick
      Assets (the sum of lines A through C)

                              	
                                    $____________

                              

                      

                    

                  

                

              

            

          

        

      

      

      

      *           *           *           *           *

      

      II.           Calculation of EBITDA  (on a
rolling-2 quarter basis)

      

      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              	
                                      A.

                                    	
                                      Net
      Income

                                    	
                                      $____________

                                    
	
                                      B.

                                    	
                                      To
      the extent included in the determination of Net Income

                                    	 
      
	 
      	
                                      1.           Interest
      Expense

                                       

                                    	
                                      $____________

                                    
	 
      	
                                      2.           Consolidated
      income taxes

                                       

                                    	
                                      $____________

                                    
	 
      	
                                      3.           Amortization
      expense

                                       

                                    	
                                      $____________

                                    
	 
      	
                                      4.           Depreciation
      expense

                                       

                                    	
                                      $____________

                                    
	 
      	
                                      5.           
      All other non-cash charges (including non-cash stock compensation
      expense)

                                       

                                    	
                                      $____________

                                    
	 
      	
                                      6.           Non-cash
      charges for amortization of amounts in the Founders Deferral Escrow
      Account if constituting employee compensation

                                       

                                    	
                                      $____________

                                    
	 
      	
                                      7.           The
      sum of lines 1 through 6

                                       

                                    	
                                      $____________

                                    
	
                                      C.

                                    	
                                      EBITDA
      (line A plus line B.7)

                                    	
                                      $____________

                                    

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

      

      

      *           *           *           *           *

      

      
        
           

        

        
          7

          
            

          

        

        
           

        

      

      III.           Fixed Charge Coverage Ratio
Covenant (Section 6.7(a) of Loan Agreement)

      

      Required:

      Fixed
Charge Coverage Ratio as at the last day of any period of two consecutive fiscal
quarters ending with any fiscal quarters set forth below to be not less than the
ratio set forth below opposite such fiscal quarters:

      

      
        	
                Fiscal Quarter Ending

                 

              	
                Fixed Charge Coverage
  Ratio

              
	
                September
      30, 2008

              	
                1.25:1.00

              
	
                December
      31, 2008

              	
                1.25:1.00

              
	
                March
      31, 2009 and thereafter

              	
                1.50:1.00

              

      

      

      

      Actual:

      
        	
                A.

              	
                EBITDA
      (from Line II.C above)

                 

              	
                $____________

              
	
                B.

              	
                Unfunded
      capital expenditures

                 

              	
                    $____________

              
	
                C.

              	
                Line
      A minus Line B

                 

              	
                $____________

              
	
                D.

              	
                Scheduled
      payments of principal and interest on all Indebtedness (for the same two
      rolling quarters, but excluding the pay-off or pre-payment of Indebtedness
      to Jefferies Finance LLC on or before July 3, 2008)

                 

              	
                $____________

              
	
                E.

              	
                Fixed
      Charge Coverage Ratio

              	
                _____:1.00

                 

              

      

      

      

      Is line
III.E equal to or greater
than the required ratios set forth above? (please circle
answer)

      

        No, not in
compliance                                                                                                  Yes,
in compliance

      

      *           *           *           *           *

       

      IV.           Senior Debt Leverage Ratio
(Section 6.7(b) of Loan Agreement)

       

      Required:

      Senior
Debt Leverage Ratio of not more than 2.00:1.00 as of the last day of any fiscal
quarter

      

      Actual:

      
        	
                A.

              	
                All
      Indebtedness (including Advances and Term Loans)  owed to
      banks

                 

              	
                $____________

              
	
                B.

              	
                Capital
      lease obligations

                 

              	
                $____________

              
	
                C.

              	
                Sum
      of Line A plus Line B

                 

              	
                $____________

              
	
                D.

              	
                EBITDA
      (line II.C above) annualized

                 

              	
                    $____________

              
	
                E.

              	
                Senior
      Debt Leverage Ratio (line C divided by line D)

                 

              	
                _____:1.00

              

      

      

      

      Is line
IV.E equal to or less
than the required ratios set forth above? (please circle
answer)

      

        No, not in
compliance                                                                                                  Yes,
in compliance

      

      *           *           *           *           *

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

      

      V.           Adjusted Quick Ratio (Section
6.7(c) of Loan Agreement)

      

      Required:

      
        	
                Fiscal Quarter Ending

                 

              	
                Adjusted Quick Ratio

              
	
                March
      31, 2009

              	
                0.75:1.00

              
	
                June
      30, 2009 and thereafter

              	
                1.75:1.00

              

      

      

      

      

      Actual:

      

      
        
          
            
              
                
                  
                    	
                            A.

                          	
                            Quick
      Assets (Line I.D above)

                             

                          	
                            $____________

                          
	
                            B.

                          	
                            Current
      Liabilities (as defined in the Agreement)

                             

                          	
                            $____________

                          
	
                            C.

                          	
                            Deferred
      Revenue

                             

                          	
                            $____________

                          
	
                            D.

                          	
                            Line
      B minus line C

                             

                          	
                            $____________

                          
	
                            E.

                          	
                            Adjusted
      Quick Ratio (line A divided by line D)

                             

                          	
                            _____:1.00

                          

                  

                

              

            

          

        

      

      

      

      Is line
V.G equal to or greater
than the number required in the table above? (please circle
answer)

      

        No, not in
compliance                                                                                                  Yes,
in compliance

      

      

      *           *           *           *           *

       

      
        
           

        

        
          9Exhibit 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.

 

2

 

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.

 

3

 

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.

 

4

 

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)

 

5

 

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.

 

6

 

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).

 

7

 

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.

 

8

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