Axcan Pharma Inc Incentive Compensation Plan for Executives



 Exhibit 10.18 
 

 
 INCENTIVE COMPENSATION PLAN 
  

	I.	PLAN PURPOSE 

 The purpose of the Axcan Pharma Inc.
(the “Company” or “Axcan”) Employee Incentive Compensation Plan (the “Plan”) is to maximize corporate and individual performance by establishing specific, aggressive operational and financial goals and providing
financial incentives to employees based on their level of achievement of these goals. The Plan is designed to: 
  

	 	•	 	 Motivate work performance and behavior that supports the corporate goals. 


  

	 	•	 	 Motivate employees to achieve high-quality, consistent, and balanced business results over the long term. 


  

	 	•	 	 Reward employees based on their contributions to the overall success of Axcan Pharma Inc. 


  

	 	•	 	 Increase each employee’s understanding of the business and his/her role and contribution to the Company’s success. 


  

	 	•	 	 Provide a very competitive overall compensation opportunity so the Company can attract, retain and motivate top performing employees. 



 

	II.	PARTICIPATION 

  

	 	•	 	 Participation in the Plan is limited to benefit eligible employees who are not covered by any other incentive or bonus plans, e.g., field sales incentive plan, etc.



  

	 	•	 	 A new participant who is hired into an eligible position within the first six months (no later than March 30) of the Plan year may participate, however, any
incentive award will be pro-rated based on the number of months actually worked during the incentive period. 


  

	 	•	 	 A Participant must be an employee in good standing. An employee with unsatisfactory job performance or who is in a probationary status is ineligible to participate
in any Company bonus, incentive, or awards program. 


  

	 	•	 	 All regular full-time employees are eligible to participate in this program. 


  

	III.	PLAN YEAR 

 The Plan year over which performance is
measured shall be the fiscal year of the Company, October 1 through September 30 of each year. 
  

	IV.	GENERAL PLAN DESIGN 

 The Plan provides a variable
pay component in the form of annual incentive pay, which is used in addition to the regular salary administration program. The combination of the base salary compensation and the incentive compensation plan is designed to yield a competitive total
cash compensation opportunity. 
 Management reserves the right to change any portion of this Plan due to changes in market conditions or
other factors affecting the Company. 
  

 Proprietary: Not for distribution outside of Axcan Pharma Inc. The information contained herein is confidential
information intended only for use by the employees of Axcan Pharma. Dissemination, distribution, copying or use of information contained in this document outside of Axcan Pharma are strictly prohibited. 
  

			
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	V.	QUALIFYING REQUIREMENTS 

 To earn and receive awards
under the Plan, the following basic requirements must be met: 
  

	 	1.	The Company must achieve 80% of its corporate financial objectives. 

  

	 	2.	The participant must achieve a “Needs Improvement” or better rating on his or her Total Objective Achievement Score as defined in the Axcan Performance Management Program
(APM) for the Plan year. If you have questions about the APM, please contact Human Resources or your supervisor. 

  

	 	3.	The participant must be employed on the date the incentive is paid, except in the event of retirement, disability, or death. 

  

	 	4.	If an employee moves into another position that is incentive eligible under a different Plan, the new Plan will govern. However the incentive payment will be prorated based on the
time served in each position. 

  

	VI.	CALCULATION OF INCENTIVE AWARDS 

 The Plan provides
an incentive award to participants based on corporate and individual performance. Each year, performance goals will be set at the corporate and individual levels. The following chart shows the criteria on which objectives are based at each level.
Both the Corporate and Individual performance objectives are measured on a fiscal year basis. 
 Level/Criteria 
 Corporate 
 Corporate Earnings Before
Interest, Taxes, Depreciation and Amortization (EBITDA) and Revenue Goals 
 Individual 
 APM Specific Objectives and general discharge of duties 
 Step 1: Calculate Percentage of Corporate Goals Attained 
 Corporate Performance - All
employees have a corporate component to their incentive target, and it is important to note that an incentive will be paid only if 80% or more of the corporate EBITDA and revenue goals are reached. If the Company does not meet its minimum
corporate performance requirements, then the incentive will not be paid. Corporate performance is determined by the Board of Directors’ evaluation of the year’s results against the annual goals approved by the Board for the
year. 
 The Corporate performance goals for the Plan consist of two factors: (1) the EBITDA of the Company and (2) Revenue.

  

 Proprietary: Not for distribution outside of Axcan Pharma Inc. The information contained herein is confidential
information intended only for use by the employees of Axcan Pharma. Dissemination, distribution, copying or use of information contained in this document outside of Axcan Pharma are strictly prohibited. 
  

			
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 Before any incentive compensation is considered, certain financial targets must be achieved. EBITDA
and Revenue will be measured against the Company’s Operating Plan for the year. These two factors will be weighted in proportion to their value in calculating incentive payments as follows: 
 TABLE 1: 
  

				
	 Factor
	  	Weight	 
	 EBITDA
	  	75	%
	 Revenue
	  	25	%

 Example 
  

			
	 Pre-established Targets:

	 EBITDA
	  	$122,000,000
	 Revenue
	  	$359,232,000
	
	 Actual Fiscal Year-End Results:

	 EBITDA
	  	$115,000,000
	 Revenue
	  	$370,000,000
	
	 Calculation of Percent of Plan Attained:

	 EBITDA
	  	115 ÷ 122 = 94.26% x 75% (EBITDA Weight) = 70.7%
	 Revenue
	  	370 ÷ 359.232 =103% x 25% (Revenue Weight) = 25.8%
	 Total 70.70% + 25.8% = 96.5%

	
	 Percent of Corporate Goals Attained = 96.5%


  

 Proprietary: Not for distribution outside of Axcan Pharma Inc. The information contained herein is confidential
information intended only for use by the employees of Axcan Pharma. Dissemination, distribution, copying or use of information contained in this document outside of Axcan Pharma are strictly prohibited. 
  

			
	Incentive Compensation Plan	  	Page 3
	July 2002, revised March 2007, revised February 2008	  	










 

 
  

 Step 2: Determine Percent of Incentive Target Paid for Corporate Performance 
 Once the Percent of Corporate Goals Attained is calculated, the Percent of Incentive Target Paid for Corporate Performance can be determined using Table
2. 
 TABLE 2: 
 Schedule for Percent of Incentive Target Paid for 
 Corporate Performance 
 Based on Percent of Plan Attained 
  

			
	 Percent (%) of
 Corporate
 Goals Attained
	  	 Percent (%) of Incentive
 Target Paid for
 Corporate
Performance

	    Less than 80	  	    0.0
	    80 – 84.9999	  	  50.0
	    85 – 89.9999	  	  62.5
	    90 – 94.9999	  	  75.0
	    95 – 99.9999	  	  87.5
	100 – 104.9999	  	100.0
	105 – 109.9999	  	112.5
	110 – 114.9999	  	125.0
	115 – 119.9999	  	137.5
	120 – 124.9999	  	150.0
	125 – 129.9999	  	162.5
	130 – 134.9999	  	175.0
	135 – 139.9999	  	187.5
	140 – 900.0000	  	200.0

 From the example in Step 1 where Percent of Corporate Goals Attained = 96.5%, the Percent of
Incentive Target Paid for Corporate Performance would be 87.5%. 
 Step 3: Individual Incentive Component 
 Individual Performance - The first component of the incentive compensation calculation process is related to performance of individuals versus
specific, pre-established objectives as set in Axcan’s Performance Management (APM) Program. Performance objectives will be set at all levels of the organization each year using the APM. At year-end, supervisors will evaluate participants’
annual achievement of objectives and determine an Achievement of Objectives Score. This score will be used in calculating the Individual Incentive Component (Step 3) & Incentive Recommendation (Step 4). 
 Each Participant will be assigned an Individual Incentive Percent, based on a combination of his or her salary grade and performance for the year. That
performance and corresponding Individual Incentive Percent are used to determine each participant’s Individual Incentive Component. To calculate this Component, multiply the Individual Incentive Percent by the individual’s base salary for
the year. 
 Based on the Participant’s Year-End Performance Objective Rating Score attained on his/her APM annual evaluation, the
individual is assigned an incentive level. The four incentive levels are Needs Improvement, Fully Effective, Exceeds Expectations and Excellent. 
  

 Proprietary: Not for distribution outside of Axcan Pharma Inc. The information contained herein is confidential
information intended only for use by the employees of Axcan Pharma. Dissemination, distribution, copying or use of information contained in this document outside of Axcan Pharma are strictly prohibited. 
  

			
	Incentive Compensation Plan	  	Page 4
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 A definition of each level is provided below: 
  

	 	1.	Needs Improvement - Minimum incentives are paid through the Plan if the individual meets minimum performance goals. This corresponds with a score between 2.0 - 2.99.


  

	 	2.	Fully Effective - This incentive is a percentage of base salary intended to be paid each year. It is the amount received through the Plan if each performance goal is met
completely. This corresponds to scores of 3.0—3.99 as defined in the APM for the Plan year. 

  

	 	3.	Exceeds Expectations - A higher than target percentage to be paid to individuals whose performance exceeds expectations and scores between 4.0 – 4.49 on his or her APM
evaluation. 

  

	 	4.	Excellent - This incentive will be paid if the individual’s performance exceeds performance goals. An individual attaining an “Excellent” rating (between 4.5
and 5.0) on his/her evaluation would receive the maximum incentive. 

 The following table shows the incentive
levels for each salary grade. 
 TABLE 3: 
 Individual Incentive Percent* 
 As A Percent of Base Salary Paid 
  

																			
	 	  	Needs Improvement	 	 	Fully Effective	 	 	Exceeds
Expectations	 	 	Excellent	 
	 Job Grade
	  	2.00 – 2.49	 	 	2.50 – 2.99	 	 	3.00 – 3.49	 	 	3.50 – 3.99	 	 	4.00 – 4.49	 	 	4.50 – 5.00	 
	 DL3
	  	14	%	 	18	%	 	20.00	%	 	22	%	 	23.5	%	 	25	%
	 DL2
	  	12	%	 	16	%	 	18.00	%	 	20	%	 	22.0	%	 	24	%
	 DL1
	  	11	%	 	15	%	 	16.50	%	 	18	%	 	19.0	%	 	20	%
	 MM5
	  	12	%	 	14	%	 	15.00	%	 	16	%	 	16.5	%	 	17	%
	 MM4
	  	11	%	 	13	%	 	14.00	%	 	15	%	 	15.5	%	 	16	%
	 MM3
	  	10	%	 	12	%	 	13.00	%	 	14	%	 	14.5	%	 	15	%
	 MM2
	  	9	%	 	11	%	 	12.00	%	 	13	%	 	13.5	%	 	14	%
	 MM1
	  	8	%	 	10	%	 	11.00	%	 	12	%	 	12.5	%	 	13	%
	 PR3
	  	10	%	 	12	%	 	13.00	%	 	14	%	 	14.5	%	 	15	%
	 PR2
	  	9	%	 	11	%	 	12.00	%	 	13	%	 	13.5	%	 	14	%
	 PR1
	  	8	%	 	10	%	 	11.00	%	 	12	%	 	12.5	%	 	13	%
	 SS5
	  	6	%	 	8	%	 	9.00	%	 	10	%	 	10.5	%	 	11	%
	 SS4
	  	5	%	 	7	%	 	8.00	%	 	9	%	 	9.5	%	 	10	%
	 SS3
	  	4	%	 	6	%	 	7.00	%	 	8	%	 	8.5	%	 	9	%

  

	*	For additional information on Position Grade, please contact the Human Resources Department. For Vice President level and above, please refer to the Executive Incentive
Compensation Plan. 

  

 Proprietary: Not for distribution outside of Axcan Pharma Inc. The information contained herein is confidential
information intended only for use by the employees of Axcan Pharma. Dissemination, distribution, copying or use of information contained in this document outside of Axcan Pharma are strictly prohibited. 
  

			
	Incentive Compensation Plan	  	Page 5
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 Exceptions to the above schedule can only be approved by the President and Chief Executive Officer or
Executive Vice President, Chief Operating Officer. 
 Step 4: Incentive Recommendation 
 Supervisors make Incentive Recommendations, in the form of a percent, based on employees’ APM Total Objective Achievement Scores for the year. Using
Table 4 below, Supervisors recommend percentages from the ranges that correspond with the individuals’ APM scores. 
 TABLE 4: 

 Incentive Recommendation 
  

					
	 Numerical
 Rating
	 	 APM Score
	 	 Incentive Range

	4.5 – 5.00	 	Excellent	 	110 – 115%
	4.0 – 4.49	 	Exceeds Expectations	 	105 – 109%
	3.5 – 3.99	 	Fully Effective	 	100 – 104%
	3.0 – 3.49	 	 	95 – 99%
	2.50 – 2.99	 	Needs Improvement	 	76 - 94%
	2.00 – 2.49	 	 	50 - 75%
	< 1.99	 	Far Below Expectations	 	0

 For example, if an employee scores “Exceeds Expectations” (between 4.0 and 4.49) on his
APM evaluation, the Incentive Recommendation would be between 105% - 109%. If the employee’s performance was on the high end of “Exceeds Expectations”, but not quite “Excellent” – the Incentive Recommendation would be
109%. 
 Step 5: Calculate Corporate and Individual Weighted Incentive 
 Depending on a participant’s job within the Company, the different performance goals—individual and corporate—will be weighted differently
in determining the Total Incentive Compensation. For participants, incentive awards are made up of corporate performance and individual performance, in the following percentages: 
 TABLE 5: 
  

							
	 Position Grade*
	  	Corporate Weighting	 	 	Individual Performance
Weighting	 
	 Directors
	  	70	%	 	30	%
	 Middle Management - Mgr./Sr. Mgr.
	  	60	%	 	40	%
	 Middle Management - Specialist
	  	50	%	 	50	%
	 Professional/Technical
	  	40	%	 	60	%
	 Support Services
	  	30	%	 	70	%

  

	*	For additional information on Position Grade, please contact the Human Resources Department. For Vice President level and above, please refer to the Executive Incentive
Compensation Plan. 

  

 Proprietary: Not for distribution outside of Axcan Pharma Inc. The information contained herein is confidential
information intended only for use by the employees of Axcan Pharma. Dissemination, distribution, copying or use of information contained in this document outside of Axcan Pharma are strictly prohibited. 
  

			
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 Every Participant has weighting for corporate performance, because everyone affects the
Company’s performance. 
 To calculate the Corporate Weighted Incentive, multiply the Individual Incentive Component (Step 3) by
the Percent of Incentive Target Paid for Corporate Performance (Step 2). Multiply this number by the Participant’s Corporate Weighting as determined in Table 5. 
 To calculate the Individual Weighted Incentive, multiply the Individual Incentive Component (Step 3) by the Incentive Recommendation (Step 4) attained on the APM evaluation. Multiply this amount by the
Individual Performance Weight as determined in Table 5. 
 Step 6: Total Incentive Award 
 The Total Incentive Award is the sum of the Corporate Weighted Incentive and Individual Weighted Incentive as calculated in Step 4. 
  

	VII.	PAYMENT OF AWARDS 

  

	 	A.	The Company’s President, Chief Executive Officer; Executive Vice President, Chief Operating Officer; and Vice President, Corporate Administration, must approve all incentive
award recommendations before any incentive payments will be made. 

  

	 	B.	Awards will be treated as one-time cash payments and will not affect the participant’s base salary. 

  

	 	C.	Awards will be paid as soon as practicable following the end of the performance period, once the corporate financial results are available and management has completed the
evaluation of the participant’s overall performance for the review period. 

  

	 	D.	Awards will be treated as regular compensation for determining benefits and the Company’s benefits program. 

  

	 	E.	Pro-rated awards may be granted at the sole discretion of the Company to participants who retire, die, or become disabled during the Plan year. 

  

	 	F.	Some latitude in judgment is required in determining what, if any, incentive award should be paid in the event of an elimination of a position, a change in job responsibilities, or
a reduction-in-force of a participant during the Plan year. Some of the factors that will be considered include the following: How far into the Plan year did the separation occur; how many of the individual objectives were met; and what is the
organization’s overall performance standing. 

  

 Proprietary: Not for distribution outside of Axcan Pharma Inc. The information contained herein is confidential
information intended only for use by the employees of Axcan Pharma. Dissemination, distribution, copying or use of information contained in this document outside of Axcan Pharma are strictly prohibited. 
  

			
	Incentive Compensation Plan	  	Page 7
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	 	G.	All awards are earned only when and if the Company’s annual performance is approved by the Board of Directors notwithstanding anything contained in the Program that may be
construed to the contrary. The Board of Directors, in its sole and absolute discretion, may decline to approve any award. Setting a target of performance for any participant does not constitute a promise to pay an award even if the participant meets
or exceeds the target of performance. 

  

	VIII.	EFFECT OF CHANGE IN EMPLOYMENT STATUS ON PLAN PARTICIPATION 

  

			
	 Change
	  	 Effect On Plan Participation

	 Voluntary resignation during Plan period or prior to payout
	  	Participant loses eligibility for any potential payment
		
	 Involuntary termination
	  	Participant loses eligibility for any potential payment
		
	 Transfer, demotion, or promotion
	  	Participant eligible for pro-rated incentive payable at the end of the plan period. Pro-ration to be determined by Corporate Management
		
	 Approved leave of absence
	  	Participant eligible for pro-rated incentive payable at the end of plan period or upon return to active work, whichever occurs later
		
	 Position Elimination, Reduction-in-Force
	  	See section VIII.F.

  

	IX.	PLAN APPROVAL AND ADMINISTRATION 

 The Plan shall be
approved by the Corporation’s Board of Directors. The Corporation’s President, Chief Executive Officer and Vice President, Corporate Administration will be responsible for the overall administration of the Plan except that: 
  

	 	•	 	 The Board of Directors must approve any actions affecting the President, Chief Executive Officer; Executive Vice President, Chief Operating Officer; Senior Vice
President, Chief Financial Officer, Senior Vice President, Chief Scientific Officer and other Senior Vice Presidents. 


  

	 	•	 	 The Board of Directors shall approve corporate incentive standards at the beginning of the fiscal year; and 


  

	 	•	 	 The Board of Directors shall approve any substantive changes or amendments to the Plan. 


  

	X.	MISCELLANEOUS 

  

	 	A.	The Plan operates at the sole discretion of Axcan Pharma and may be amended, suspended, or terminated for any reason at any time, with or without prior notification to the
participants. 

  

	 	B.	Nothing contained in the Plan creates a contractual commitment or guarantee of payment between the employee and Axcan Pharma. 

  

	 	C.	Participation in the Plan does not alter the “Employment at Will” status of an employee nor the right of the Company or the right of the employee to terminate his or her
employment at any time, with or without cause. 

  

	 	D.	The Company will budget for the incentive awards, based on expected performance levels, as part of the overall compensation expense for the Plan year. 

  

 Proprietary: Not for distribution outside of Axcan Pharma Inc. The information contained herein is confidential
information intended only for use by the employees of Axcan Pharma. Dissemination, distribution, copying or use of information contained in this document outside of Axcan Pharma are strictly prohibited. 
  

			
	Incentive Compensation Plan	  	Page 8
	July 2002, revised March 2007, revised February 2008