-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J/pIUNcagAYTiUI7EVLOAjhDHF4UP4ux+3TjpDTRKV5rwC9qecNAnfUKv4TQyYIt SKWMwIZBpJTn+ZGQ8WvJjw== 0001104659-06-033830.txt : 20060511 0001104659-06-033830.hdr.sgml : 20060511 20060511161533 ACCESSION NUMBER: 0001104659-06-033830 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20060509 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20060511 DATE AS OF CHANGE: 20060511 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOREST OIL CORP CENTRAL INDEX KEY: 0000038079 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 250484900 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13515 FILM NUMBER: 06830321 BUSINESS ADDRESS: STREET 1: 707 SEVENTEENTH STREET STREET 2: SUITE 3600 CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3038121400 MAIL ADDRESS: STREET 1: 707 SEVENTEENTH STREET STREET 2: SUITE 3600 CITY: DENVER STATE: CO ZIP: 80202 FORMER COMPANY: FORMER CONFORMED NAME: Forest Oil CORP DATE OF NAME CHANGE: 20040819 FORMER COMPANY: FORMER CONFORMED NAME: FOREST OIL CORP DATE OF NAME CHANGE: 19920703 8-K 1 a06-11439_28k.htm CURRENT REPORT OF MATERIAL EVENTS OR CORPORATE CHANGES

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of report (Date of earliest event reported):  May 9, 2006

 

FOREST OIL CORPORATION

(Exact name of registrant as specified in its charter)

 

New York

(State or other jurisdiction of incorporation)

 

1-13515

 

25-0484900

(Commission File Number)

 

(IRS Employer Identification No.)

 

 

 

707 17th Street, Suite 3600, Denver, Colorado

 

80202

(Address of principal executive offices)

 

(Zip Code)

 

 

 

303.812.1400

(Registrant’s telephone number, including area code)

 

 

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2.):

 

o  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 



 

Item 1.01.                      Entry into a Material Definitive Agreement.

 

(a)                   On May 9, 2006, the Compensation Committee (the “Compensation Committee”) of the Board of Directors (the “Board”) of Forest Oil Corporation (“Forest”) ratified and approved Forest’s 2006 Annual Incentive Plan (“Plan”), including the 2006 performance measures for  Forest’s executive officers and all other participants in the Plan. Under the Plan, any incentive rewards will be linked to several performance criteria, including total shareholder return, cash costs (such as lease operating expense, transportation expense, and total general and administrative expense), acquisition activities, production levels, and rate of return on capital investments. Each of the performance criteria is tied to a percentage of the participant’s target bonus, which is expressed as a percentage of a participant’s base salary. In addition to the target level, the Plan includes completion percentages for a range of performance levels, starting at a threshold level (25% of the target level) up to an outstanding level (200% of the target level). Determination of the completion percentages will be determined by the Compensation Committee and a minimum 25% completion threshold is required for the total plan.

 

The Plan is administered by the Compensation Committee and the President and Chief Executive Officer (for all participant awards other than his own award), although certain administrative elements may be delegated to Forest’s Vice President of Human Resources and participation in the Plan is determined by the President and Chief Executive Officer. All performance goals, performance standards, award determinations, and modifications to the Plan must be approved by the Compensation Committee, and the granting of any awards under the Plan is at the sole discretion of the Board. The Plan is attached to this report as Exhibit 10.1.

 

(b)                  On May 10, 2006, Forest was informed by the administrative agent bank that the required lenders under Forest’s $600,000,000 credit facilities, consisting of a U.S. facility through a syndicate of banks led by JPMorgan Chase and a Canadian credit facility through a syndicate of banks led by JPMorgan Chase Bank, Toronto Branch, had approved an increase to the global borrowing base (the “Global Borrowing Base”) to $850,000,000 from $600,000,000 effective immediately. Subject to the agreement of Forest and the applicable lenders, the size of the credit facilities may be increased by $200,000,000 in the aggregate; however, Forest does not currently plan to ask the lenders to increase the size of the credit facilities and therefore borrowing under the facilities will continue to be limited to the current commitments totaling $600,000,000. The increase to the Global Borrowing Base was a result of the lenders’ semi-annual scheduled determination in accordance with the terms of the credit facilities. Forest did not elect to change the Global Borrowing Base allocation and the U.S. allocated borrowing base will remain at $500,000,000 and the Canadian allocated borrowing base will remain at $100,000,000. The credit facilities mature in September 2009.

 

The determination of the Global Borrowing Base is made by the lenders in their sole discretion taking into consideration the estimated value of Forest’s oil and gas properties in accordance with the lenders’ customary practices for oil and gas loans. This process involves reviewing Forest’s estimated proved reserves and their valuation. While the Global Borrowing Base is in effect, it is re-determined semi-annually and the available borrowing amount could be increased or decreased as a result of such re-determinations. In addition, Forest and the lenders each have discretion at any time, but not more often than once during any calendar year, to have the Global Borrowing Base re-determined.

 

2



 

The credit facilities are collateralized by Forest’s assets. Forest is required to mortgage, and grant a security interest in, 75% of the present value of the proved oil and gas properties and related assets of Forest and its subsidiaries. Forest has also pledged the stock of several subsidiaries to the lenders to secure the credit facilities.

 

From time to time, Forest and the lenders engage in other transactions. These activities include securities offerings where a lender or an affiliate of the lender may serve as an underwriter or initial purchaser of the securities and hedging arrangements where a lender may be a counterparty to the arrangement.

 

Item 9.01.                      Financial Statements and Exhibits.

 

(d)                  Exhibits

 

10.1                Forest Oil Corporation 2006 Annual Incentive Plan.

 

3



 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

FOREST OIL CORPORATION

 

 

(Registrant)

 

 

 

 

 

 

Dated: May 11, 2006

By

/s/ CYRUS D. MARTER IV

 

 

 

Cyrus D. Marter IV

 

 

Vice President –

 

 

General Counsel and Secretary

 

4



 

INDEX TO EXHIBITS FILED WITH THE CURRENT REPORT ON FORM 8-K

 

Exhibit

 

Description

 

 

 

10.1

 

Forest Oil Corporation 2006 Annual Incentive Plan

 

5


EX-10.1 2 a06-11439_2ex10d1.htm EX-10

Exhibit 10.1

 

Forest Oil Corporation

2006 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 2006 Company performance measures and their respective weightings are described in detail on Attachment I.

 

Award Opportunities

 

The 2006 Plan target awards for Plan participants by position (expressed as a percentage of annual salary) are set forth on Attachment II.

 



 

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 on the page 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 CEO is authorized to establish and adjust at his discretion the target award percentages for 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 individual 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 (for 2006, $30.523 on December 30, 2005).

 

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.

 

Completion Percentage

 

The completion percentage shall be as detailed below.

 

Peer Group

 

The peer group shall be defined as the following list of companies, which currently comprises 10 companies including Forest Oil Corporation. A listing of peer group companies is as follows:

 

1.               Delta Petroleum Corp.

2.               Forest Oil Corporation

3.               Bill Barrett Corp.

4.               St. Mary’s Land & Exploration

5.               Cabot Oil & Gas

6.               Range Resources

7.               KCS Energy, Inc.

8.               Cimarex Energy Co.

9.               Whiting Petroleum

10.         Encore Acquisition Corporation

 



 

Completion Percentages

 

The Completion Percentages will be based on a ranking of Total Shareholder Return over one year for the 10 companies as follows:

 

1st

 

200% Completion

2nd

 

175% Completion

3rd

 

150% Completion

4th

 

100% Completion

5th

 

75% Completion

6th

 

50% Completion

7th

 

0% Completion

8th

 

0% Completion

9th

 

0% Completion

10th

 

0% Completion

 



 

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.

 

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

 

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

 



 

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 2006 Acquisitions is to replace the 2006 Production target of 114.0 Bcfe.

 

Acquisitions are calculated by adding the volumetric amount of estimated proved reserves acquired by any method by the Company in 2006. Acquisition metrics shall not be less favorable than an average of $2.00 per Mcfe (prior to deferred tax gross-up) for total acquired proved reserves in 2006.

 

Targets

 

                  Threshold is an amount shown on Attachment 1B.

 

                  Target is an amount shown on Attachment 1B.

 

                  Outstanding is an amount shown on Attachment 1B.

 



 

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.

 

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 2006.

 

Targets

 

Measured against an approved annual Plan with:

 

                  Threshold is equal to the ROR indicated on Attachment 1D.

 

                  Target is equal to the ROR indicated on Attachment 1D.

 

                  Outstanding is equal to the ROR indicated on Attachment 1D.

 


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