AEZS Aeterna Zentaris Inc

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of May 2024

 

Commission File Number: 001-38064

 

Aeterna Zentaris Inc.

(Translation of registrant’s name into English)

 

c/o Norton Rose Fulbright Canada, LLP, 222 Bay Street, Suite 3000, PO Box 53, Toronto ON M5K 1E7

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F ☒ Form 40-F ☐

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

 

 

 

Explanatory Note

 

As previously announced, on December 14, 2023, Aeterna Zentaris Inc. (“Aeterna”, “we”, “our” or the “Company”) and Ceapro Inc. (“Ceapro”) entered into an Arrangement Agreement (as amended by the Amendment Agreement, dated January 16, 2024, and as may be further amended, supplemented or otherwise modified from time to time, the “Arrangement Agreement”), pursuant to which Aeterna and Ceapro undertook a business combination transaction (the “Arrangement”). Pursuant to the Arrangement Agreement, and subject to the terms and conditions therein, Aeterna will acquire all of the issued and outstanding common shares in the capital of Ceapro in a company-approved Plan of Arrangement (the “Plan of Arrangement”) under the Canada Business Corporations Act such that Ceapro will become a wholly-owned subsidiary of Aeterna and Aeterna will continue the operations of Aeterna and Ceapro on a combined basis (the “Arrangement”).

 

On May 17, 2024, Aeterna issued a news release announcing the record date for the distribution of warrants to purchase common shares of Aeterna to its shareholders and warrantholders in connection with the Arrangement. A copy of the news release is attached hereto as Exhibit 99.1 and incorporated herein by reference.

 

On the same date, Aeterna filed with the Canadian Securities Regulatory Authorities on SEDAR+ a Statement of Executive Compensation for the Year Ended December 31, 2023, a copy of which is attached hereto as Exhibit 99.2 and is incorporated herein by reference.

 

This Report on Form 6-K and Exhibits 99.1 and 99.2 included with this Report on Form 6-K are hereby incorporated by reference into Aeterna’s Registration Statements on Forms S-8 (No. 333-224737, No. 333-210561 and No. 333-200834) and Form F-3 (No. 333-254680) (collectively, the “Registration Statements”) and shall be deemed to be a part thereof from the date on which this Report on Form 6-K is furnished, to the extent not superseded by documents or reports subsequently filed or furnished. The information contained on any websites referenced in Exhibit 99.1 included with this Report on Form 6-K is not incorporated by reference or deemed to be a part of this Report on Form 6-K or any of the Registration Statements.

 

Aeterna has filed a Registration Statement on Form F-1 (including a prospectus) (File No. 333-277115) (the “Form F-1 Registration Statement”) with the U.S. Securities and Exchange Commission (the “SEC”) for the issuance of common share purchase warrants and Common Shares issuable upon exercise thereof in connection with the Plan of Arrangement. Before you invest in any Common Shares, you should read the prospectus in the Form F-1 Registration Statement and the other documents incorporated by reference therein for more complete information about Aeterna, Ceapro, the Arrangement and the common share purchase warrant offering.

 

You may get copies of the Form F-1 Registration Statement for free by visiting EDGAR on the SEC website at www.sec.gov or at SEDAR+ at www.sedarplus.ca. Alternatively, you may obtain copies of them by contacting the following:

 

Media Contact

Joel Shaffer

FGS Longview

joel.shaffer@fgslongview.com

416-670-6468

 

No Offer or Solicitation

 

This Report on Form 6-K and the exhibit attached hereto and incorporated by reference herein, and the information contained herein and therein are not, and do not, constitute an offer to sell any securities or a solicitation of an offer to buy any securities in the United States or any other state or jurisdiction, nor shall any securities of Aeterna be offered or sold in any jurisdiction in which such an offer, solicitation or sale would be unlawful. Neither the SEC nor any state securities commission has approved or disapproved of the transactions described herein or determined if this communication is truthful or complete. Any representation to the contrary is a criminal offense.

 

You should not construe the contents of this Report on Form 6-K or the exhibit attached hereto and incorporated herein by reference as legal, tax, accounting or investment advice or a recommendation. You should consult your own counsel and tax and financial advisors as to legal and related matters concerning the matters described herein.

 

Forward-Looking Statements

 

The information in this Report on Form 6-K and the exhibit attached hereto and incorporated herein by reference include forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, specifically Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended. These forward-looking statements involve a number of known and unknown risks, uncertainties and other factors that could actual results and outcomes to be materially different from historical results or from any future results expressed or implied by such forward-looking statements.

 

 

Forward-looking statements include, but are not limited to, the ability of Aeterna and Ceapro to successfully consummate the Plan of Arrangement pursuant to the Arrangement Agreement, dated as of December 14, 2023, between Aeterna and Ceapro with respect thereto within the time expected or at all and, if completed, the anticipated benefits and synergies as well as the assets, cost structure, financial position, cash flows and growth prospects of the combined company.

 

Risks and factors that could cause actual results or outcomes to differ materially from expectations include, among others, the following:

 

●	the failure of Aeterna or Ceapro to obtain regulatory approvals and securities exchange approvals, including from the Nasdaq Capital Market (“NASDAQ”) and the Toronto Stock Exchange (“TSX”);
●	Aeterna’s ability to raise capital and obtain financing to continue its currently planned operations;
●	Aeterna’s ability to maintain compliance with the continued listing requirements of the NASDAQ and to maintain the listing of its common shares on the NASDAQ;
●	Aeterna’s ability to continue as a going concern, which is dependent, in part, on its ability to transfer cash from Aeterna Zentaris GmbH to Aeterna and its U.S. subsidiary and to secure additional financing;
●	Aeterna’s now heavy dependence on the success of Macrilen™ (macimorelin) and related out-licensing arrangements and the continued availability of funds and resources to successfully commercialize the product, including its heavy reliance on the success of the license and assignment agreement with Novo Nordisk A/S;
●	Aeterna’s ability to enter into out-licensing, development, manufacturing, marketing and distribution agreements with other pharmaceutical companies and keep such agreements in effect;
●	Aeterna’s reliance on third parties for the manufacturing and commercialization of Macrilen™ (macimorelin);
●	potential disputes with third parties, leading to delays in or termination of the manufacturing, development, out-licensing or commercialization of Aeterna’s product candidates, or resulting in significant litigation or arbitration;
●	uncertainties related to the regulatory process;
●	unforeseen global instability, including the instability due to the global pandemic of the novel coronavirus;
●	Aeterna’s ability to efficiently commercialize or out-license Macrilen™ (macimorelin);
●	Aeterna’s reliance on the success of the pediatric clinical trial in the European Union (“E.U.”) and U.S. for Macrilen™ (macimorelin);
●	the degree of market acceptance of Macrilen™ (macimorelin);
●	Aeterna’s ability to obtain necessary approvals from the relevant regulatory authorities to enable it to use the desired brand names for its product;
●	Aeterna’s ability to successfully negotiate pricing and reimbursement in key markets in the E.U. for Macrilen™ (macimorelin);
●	any evaluation of potential strategic alternatives to maximize potential future growth and shareholder value may not result in any such alternative being pursued, and even if pursued, may not result in the anticipated benefits;
●	Aeterna’s ability to protect its intellectual property; and
●	the potential of liability arising from shareholder lawsuits and general changes in economic conditions.

 

Additional risk factors that could cause actual results to differ materially include those risks identified in Item 3. “Key Information – Risk Factors” contained in Aeterna’s most recent Annual Report on Form 20-F filed with the SEC and its other filings and submissions from time to time, including those containing its quarterly and annual results, with the SEC, which are available on Aeterna’s website located at www.aeterna.com.

 

Many of these risks and factors are beyond Aeterna’s control. Aeterna cautions you not to place undue reliance on these forward-looking statements. All written and oral forward-looking statements attributable to Aeterna and/or Ceapro, or persons acting on their behalf, are qualified in their entirety by these cautionary statements. Moreover, unless required by law to update these statements, Aeterna will not necessarily update any of these statements after the date hereof, either to conform them to actual results or to changes in their expectation.

 

DOCUMENTS INDEX

 

Exhibit		Description
99.1		News Release, dated May 17, 2024
99.2		Statement of Executive Compensation for the Year Ended December 31, 2023

 

 

SIGNATURE

 

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, thereunto duly authorized.

 

	AETERNA ZENTARIS INC.
Date: May 17, 2023	By:	/s/ Giuliano La Fratta
		Giuliano La Fratta
		Chief Financial Officer

 

 

Exhibit 99.1

 

 

Aeterna Zentaris Announces Details Regarding Transaction with Ceapro

 

TORONTO, ON, May 17, 2024 – Aeterna Zentaris Inc. (NASDAQ: AEZS) (TSX: AEZS) (“Aeterna” or the “Company”) announces that it has finalized certain details regarding the previously announced merger of equals transaction (the “Transaction”) with Ceapro Inc. (“Ceapro”).

 

On May 3, 2024, the Company completed a share consolidation (or reverse stock split) (the “Consolidation”) of its common shares (the “Common Shares”) on the basis of one post-Consolidation Common Share for every four pre-Consolidation Common Shares. As a result of the Consolidation, the exchange ratio to be used in connection with the issuance of Common Shares to Ceapro shareholders under the Transaction has been adjusted. On closing of the Transaction, Ceapro shareholders will now receive 0.02360 of a Common Share for each Ceapro share held.

 

As part of the Transaction, holders of Common Shares as of the close of business on May 29, 2024 (the “Record Date”) will receive 0.47698 of a Common Share purchase warrant (a “Transaction Warrant”) on May 31, 2024 (the “Payment Date”) for each post-Consolidation Common Share.

 

The Toronto Stock Exchange and Nasdaq have determined that the Common Shares will trade on a due bill basis from the opening of markets on May 29, 2024 to the Payment Date (i.e., May 31, 2024), inclusive. A due bill is an entitlement attached to listed securities undergoing a material corporate action, such as the issuance of the Transaction Warrants. Any trades that are executed during the due bill period will be flagged to ensure purchasers receive the entitlement to the Transaction Warrants. Ex-distribution trading in the Common Shares will commence as of the opening of markets on June 3, 2024, as of which date purchases of Common Shares will no longer have the attaching entitlement to Transaction Warrants. The due bill redemption date will be June 4, 2024.

 

Shareholders will not need to take any action in connection with the issuance of Transaction Warrants. Aeterna will use direct registration system (“DRS”) advice statements representing Transaction Warrants and will send out DRS advice statements to registered shareholders indicating the number of Transaction Warrants that they are receiving. In addition, Computershare Trust Company of Canada will electronically issue the appropriate number of Transaction Warrants to CDS and DTC for further distribution by CDS and DTC to their respective participants. Non-registered (beneficial) shareholders who hold their Common Shares in an account with their investment dealer or other intermediary will have their accounts automatically updated by such investment dealer or intermediary to reflect the Transaction Warrants in accordance with the applicable brokerage account providers’ usual procedures.

 

Subject to obtaining all required approvals and satisfying all required conditions, the Transaction is expected to close on or about June 3, 2024.

 

About Aeterna Zentaris Inc.

 

Aeterna is a specialty biopharmaceutical company developing and commercializing a diversified portfolio of pharmaceutical and diagnostic products focused on areas of significant unmet medical need. Aeterna’s lead product, macimorelin (Macrilen; Ghryvelin), is the first and only U.S. FDA and European Commission approved oral test indicated for the diagnosis of adult growth hormone deficiency (AGHD). Aeterna is leveraging the clinical success and compelling safety profile of macimorelin to develop it for the diagnosis of childhood-onset growth hormone deficiency (CGHD), an area of significant unmet need.

 

Aeterna is also dedicated to the development of its therapeutic assets and has established a pre-clinical development pipeline to potentially address unmet medical needs across a number of indications, including neuromyelitis optica spectrum disorder (NMOSD), Parkinson’s disease (PD), hypoparathyroidism and amyotrophic lateral sclerosis (ALS; Lou Gehrig’s disease). For more information, please visit www.zentaris.com and connect with Aeterna on LinkedIn and Facebook.

 

 

 

 

Forward-Looking Statements

 

The information in this news release has been prepared as of May 17, 2024. Certain statements in this news release, referred to herein as “forward-looking statements”, constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995 and “forward-looking information” under the provisions of Canadian securities laws. All statements, other than statements of historical fact, that address circumstances, events, activities, or developments that could or may or will occur are forward-looking statements. When used in this press release, words such as “anticipate”, “assume”, “believe”, “continue”, “could”, “expect”, “forecast”, “future”, “goal”, “guidance”, “indicate”, “intend”, “likely”, “maintain”, “may”, “objective”, “outlook”, “plan”, “potential”, “project”, “seek”, “strategy”, “synergies”, “view”, “will”, “would” or the negative or comparable terminology as well as terms usually used in the future and the conditional are generally intended to identify forward-looking statements, although not all forward-looking statements include such words.

 

Forward-looking statements in this news release include, but are not limited to statements and comments relating to: the Transaction Warrants, including the record date and distribution date thereof, the expected outcomes and benefits of the Transaction; the ability of Aeterna and Ceapro to complete the Transaction on the terms described herein, or at all; the anticipated timeline for the completion of the Transaction; and receipt of final regulatory and stock exchange approvals with respect to the Transaction (including approval of the continued listing of the Common Shares on the Nasdaq and the TSX, the issuance of the Transaction Warrants and the completion of the Consolidation).

 

Forward-looking statements are necessarily based upon a number of factors and assumptions that, while considered reasonable by Aeterna and Ceapro as of the date of such statements, are inherently subject to significant business, economic, operational and other risks, uncertainties, contingencies and other factors, including those described below, which could cause actual results, performance or achievements of Aeterna and Ceapro to be materially different from results, performance or achievements expressed or implied by such forward-looking statements and, as such, undue reliance must not be placed on them. Forward-looking statements are also based on numerous material factors and assumptions, including as described in this news release, with respect to, among other matters: Aeterna’s and Ceapro’s present and the combined company’s future business strategies; operations performance within expected ranges; anticipated future cash flows; local and global economic conditions and the environment in which the combined operations will operate in the future; anticipated capital and operating costs; and the availability and timing of required stock exchange, regulatory and other approvals for the completion of the Transaction.

 

Many factors, known and unknown, could cause actual results to be materially different from those expressed or implied by such forward-looking statements. Such risks include, but are not limited to: the ability to consummate the Transaction; the satisfaction of other conditions to the consummation of the Transaction on the proposed terms in the time assumed; the ability to obtain necessary stock exchange, regulatory or other approvals in the time assumed; the ability to realize the anticipated benefits of the Transaction or to implement the business plan for the combined company, including as a result of a delay in completing the Transaction or difficulty in integrating the businesses of the companies involved; significant Transaction costs or unknown liabilities; directors and officers of Aeterna and Ceapro may have interests in the Transaction that may be different from those of Aeterna and Ceapro shareholders generally; the focus of both management’s time and attention on the Transaction may detract from other aspects of their respective businesses; the tax treatment of the Transaction may be subject to uncertainties; risks relating to the retention of key personnel during the interim period; the ability to realize synergies and cost savings at the times, and to the extent anticipated; the potential impact on research and development activities; the potential impact of the announcement or consummation of the Transaction on relationships, including with regulatory bodies, employees, suppliers, customers, competitors and other key stakeholders; Aeterna’s and Ceapro’s economic model and liquidity risks; technology risks; changes in or enforcement of national and local government legislation, taxation, controls or regulations and/or changes in the administration of laws, policies and practices; legal or regulatory developments and changes; the impact of foreign exchange rates; pricing pressures; and local and global political and economic conditions.

 

 

 

Information contained in forward-looking statements is based upon certain material assumptions that were applied in drawing a conclusion or making a forecast or projection, including Aeterna’s and Ceapro’s respective management perceptions of historical trends, current conditions and expected future developments, as well as other considerations that are believed to be appropriate in the circumstances. Aeterna and Ceapro consider these assumptions to be reasonable based on all currently available information but caution the reader that these assumptions regarding future events, many of which are beyond their control, may ultimately prove to be incorrect since they are subject to risks and uncertainties that affect Aeterna and Ceapro and their businesses.

 

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. For a more detailed discussion of such risks and other factors that may affect Aeterna’s and Ceapro’s ability to achieve the expectations set forth in the forward-looking statements contained in this news release, see Aeterna’s Annual Report on Form 20-F and MD&A filed under Aeterna’s profile on SEDAR+ at www.sedarplus.ca and on EDGAR at www.sec.gov and Ceapro’s MD&A filed under Ceapro’s profile on SEDAR+ at www.sedarplus.ca, as well as Aeterna’s and Ceapro’s other filings with the Canadian securities regulators and the Securities and Exchange Commission. Other than as required by law, Aeterna and Ceapro do not intend, and do not assume any obligation to, update these forward-looking statements.

 

Information Concerning the Registration Statement

 

Aeterna filed a Registration Statement on Form F-1 (including a prospectus) (File No. 333-277115) (the “Registration Statement”) with the U.S. Securities and Exchange Commission (the “SEC”) to register the issuance of Transaction Warrants and Common Shares issuable upon exercise thereof in connection with the Transaction discussed in this communication under the U.S. Securities Act of 1933, as amended (the “U.S. Securities Act”). Before you invest in any Common Shares, you should read the prospectus in the Registration Statement and the other documents incorporated by reference therein for more complete information about Aeterna, Ceapro, the Transaction and the offering of Transaction Warrants and the Common Shares issuable upon exercise thereof.

 

You may get copies of the Registration Statement for free by visiting EDGAR on the SEC website at www.sec.gov or at SEDAR+ at www.sedarplus.ca. Alternatively, you may obtain copies of them by contacting Aeterna’s proxy solicitor at the details provided below.

 

Other than as noted above, none of the securities to be issued pursuant to or in connection with the Transaction have been or will be registered under the U.S. Securities Act, or any U.S. state securities laws, and such securities are anticipated to be issued in reliance on the exemption from the registration requirements of the U.S. Securities Act provided by Section 3(a)(10) thereof and similar exemptions under applicable state securities laws.

 

No Offer or Solicitation

 

This news release and the information contained herein are not, and do not, constitute an offer to sell any securities or a solicitation of an offer to buy any securities in the United States or any other state or jurisdiction, nor shall any securities of Aeterna be offered or sold in any jurisdiction in which such an offer, solicitation or sale would be unlawful. Neither the SEC nor any state securities commission has approved or disapproved of the transactions described herein or determined if this communication is truthful or complete. Any representation to the contrary is a criminal offense.

 

You should not construe the contents of this communication as legal, tax, accounting or investment advice or a recommendation. You should consult your own counsel and tax and financial advisors as to legal and related matters concerning the matters described herein.

 

For additional information regarding the Consolidation, the Transaction Warrants and the Transaction generally, please refer to the Company’s Registration Statement and the Notice of Special Meeting of Shareholders and Management Information Circular dated February 9, 2024, which are available on SEDAR+ at www.sedarplus.com or EDGAR at www.sec.gov.

 

For Further Information

 

Aeterna Investor Contact:
Aeterna, Investor Relations
AZinfo@aezsinc.com
+1 843-900-3223

 

Aeterna Media Contact:
Joel Shaffer
FGS Longview
joel.shaffer@fgslongview.com
416-670-6468

 

 

 

Exhibit 99.2

 

 

STATEMENT OF EXECUTIVE COMPENSATION FOR THE YEAR ENDED DECEMBER 31, 2023

 

Share Consolidation

 

Effective July 21, 2022, Aeterna Zentaris Inc. (the “Corporation” or “Aeterna Zentaris”) consolidated all of its outstanding common shares (the “Common Shares”) on a basis of one post-consolidation Common Share for every 25 pre-consolidation Common Shares (the “2022 Consolidation”). Further, on May 3, 2024, the Corporation consolidated all of its outstanding Common Shares on a basis of one post-consolidation Common Share for every four pre-consolidation Common Shares (the “2024 Consolidation”). Accordingly, all Common Shares, deferred share units (“DSUs”), warrants and stock options were adjusted to reflect the 2022 Consolidation and the 2024 Consolidation. All figures used in this document reflect the 2022 Consolidation and the 2024 Consolidation unless otherwise stated.

 

Unless otherwise indicated, all compensation information included in this document is presented in U.S. dollars and, to the extent a director or officer has been paid in a currency other than U.S. dollars, the amounts have been converted from such person’s home country currency to U.S. dollars based on the following annual average exchange rates: for the financial year ended December 31, 2023: €1.000 = U.S.$1.082 and CAN$1.000 = U.S.$0.741; for the financial year ended December 31, 2022: €1.000 = U.S.$1.053 and CAN$1.000 = U.S.$0.759; and for the financial year ended December 31, 2021: €1.000 = U.S.$1.182 and CAN$1.000 = U.S.$0.797.

 

Remuneration of Directors

 

The compensation paid to members of the Corporation’s Board of Directors (the “Board”) who are not our employees (our “Outside Directors”) is designed to (i) attract and retain the most qualified people to serve on the Board and its committees, (ii) align the interests of the Outside Directors with those of our shareholders, and (iii) provide appropriate compensation for the risks and responsibilities related to being an effective Outside Director. This compensation is recommended to the Board by the Nominating, Governance and Compensation Committee (the “NGCC”). The NGCC is currently composed of three Outside Directors, each of whom is independent, namely Ms. Carolyn Egbert (Chair), Mr. Peter G. Edwards and Mr. Gilles Gagnon.

 

The Board has adopted a formal mandate for the NGCC. The mandate of the NGCC provides that it is responsible for, among other matters, assisting the Board in developing our approach to corporate governance issues, proposing new Board nominees, overseeing the assessment of the effectiveness of the Board and its committees, their respective chairs and individual directors, making recommendations to the Board with respect to directors’ compensation and generally serving in a leadership role for our corporate governance practices.

 

Compensation of Outside Directors

 

Our Outside Directors are paid an annual cash retainer, the amount of which depends on the position held on the Board. Our Outside Directors will not be paid fees for attending Board meetings, unless some circumstance dictates that an unusual and burdensome number of meetings must be held. If such circumstance occurs, the Board may institute meeting payments. The annual retainers are paid in quarterly instalments on or about the last day of each calendar quarter. All payments are calculated in U.S. dollars. The amount of each payment is converted to the Outside Director’s home currency based on the exchange rate prevailing on the date of payment. Each Outside Director is paid the equivalent value of the payment in his or her home currency, net of any withholdings or deductions required by applicable law.

 

 

In 2023, the Board retained Bowers Consulting LLC (“Bowers”), an independent consulting firm, to assist the Board and the NGCC with establishing and reviewing goals and performance objectives for the executive officers. For services provided in 2023, the Corporation paid Bowers $6,600.

 

See the table below under the heading “Total Compensation of Outside Directors” for details on the actual amounts paid to each Outside Director during the 2023 financial year.

 

The annual cash retainers for the Outside Directors are as follows:

 

Type of Compensation		Annual Retainer for the year 2023 ($)
Chair of the Board Retainer			80,000
Board Member Retainer			50,000
Audit Committee Chair Retainer			30,000
Audit Committee Member Retainer			7,500
NGCC Chair Retainer			15,000
NGCC Member Retainer			5,000
Strategic Committee			78,000

 

In addition to the annual cash retainers above for each of the standing committees of the Board, effective as of October 1, 2022, the members of the Strategic Committee received a monthly fee of $6,500. The Strategic Committee was formed in December 2021 as an ad hoc committee to consider and evaluate potential strategic transactions that could be undertaken by the Corporation. The Board elected to defer any decision on whether and what to pay as a fee or retainer to members of the Strategic Committee so that the Board could evaluate the amount of effort required of those members. In 2022, Bowers was engaged to consider and advise on the appropriate compensation for members of the Strategic Committee. The Board considered the recommendations of Bowers on an amount of compensation designed to reflect the significant time and effort required as the Board accelerated its strategic activities. After considering the recommendations of Bowers, the Board approved a monthly cash retainer of $6,500 for members of the Strategic Committee, payable commencing as of October 1, 2022. Prior to November 2, 2022, the Strategic Committee was comprised of Carolyn Egbert (Chair), Peter Edwards and Gilles Gagnon. On November 2, 2022, Dennis Turpin replaced Gilles Gagnon as a member of the Strategic Committee.

 

All Directors are reimbursed for travel and other out-of-pocket expenses incurred in attending Board or committee meetings. Retainers are prorated when an Outside Director joins the Board during a financial year.

 

 

Outstanding Option-Based Awards and Share-Based Awards

 

The following table shows all awards outstanding to each Outside Director as at December 31, 2023:

 

Name		Issuance Date (mm/dd-yyyy)				Number of Securities Underlying Unexercised Options(1) (#)				Option Exercise Price(1) ($)				Option Expiration Date(1) (mm-dd-yyyy)				Value of Unexercised In-the-money Options(1)(2) ($)				Issuance Date   (mm-dd-yyyy)				Number of Shares or Units of Shares that have Not Vested(3) (#)				Market or Payout Value of Share-based Awards that have Not Vested(3)(4) ($)				Market or payout value of vested share-based awards not paid out or distributed(3)(4) ($)
Edwards, Peter G.			—				—				—				—				—				05/15/2020				300				—				2,232
			—				—				—				—				—				05/05/2021				700				—				5,208
			—				—				—				—				—				08/03/2022				5,000				—				37,200
			—				—				—				—				—				06/14/2023				6,250				—				46,500
Egbert, Carolyn			08/15/2017				600				200.00				08/15/2024				—				—				—				—				—
			—				—				—				—				—				05/08/2018				230				—				1,711
			—				—				—				—				—				05/22/2019				300				—				2,232
			—				—				—				—				—				05/15/2020				300				—				2,232
			—				—				—				—				—				05/15/2021				700				—				5,208
			—				—				—				—				—				08/03/2022				5,000				—				37,200
			—				—				—				—				—				06/14/2023				6,250				—				46,500
Gagnon, Gilles			—				—				—				—				—				05/15/2020				300				—				2,232
			—				—				—				—				—				05/19/2021				700				—				5,208
			—				—				—				—				—				08/03/2022				5,000				—				37,200
			—				—				—				—				—				06/14/2023				6,250				—				46,500
Turpin, Dennis			—				—				—				—				—				05/19/2021				700				—				5,208
			—				—				—				—				—				08/03/2022				5,000				—				37,200
			—				—				—				—				—				06/14/2023				6,250				—				46,500

 

(1)

Refers to an option-based award.

 

(2)

“Value of unexercised in-the-money options” at financial year-end is calculated based on the difference between the closing prices of the Common Shares on the Nasdaq Capital Market (“NASDAQ”) on the last trading day of the fiscal year (December 31, 2023) of $1.86 (figure does not reflect the 2024 Consolidation) and the exercise price of the options, multiplied by the number of unexercised options.

 

(3)

Refers to a share-based award.

 

(4)

The Corporation used the closing price of its Common Shares on the NASDAQ as at the last trading day of the fiscal year (December 31, 2023) of $1.86 (figure does not reflect the 2024 Consolidation).

 

 

Total Compensation of Outside Directors

 

The table below summarizes the total compensation paid to our Outside Directors during the financial year ended December 31, 2023. Our Outside Directors are generally paid in their home currency. Mr. Gagnon and Mr. Turpin were paid in Canadian dollars. Ms. Egbert and Mr. Edwards were paid in U.S. dollars.

 

Name		Fees earned(1) ($)				Share-based Awards(2) ($)				Option-based Awards ($)				Non-Equity Incentive Plan Compensation ($)				Pension Value ($)				All Other Compensation ($)				Total ($)
Edwards, Peter G.			140,500				71,000				—				—				—				—				211,500
Egbert, Carolyn			173,000				71,000				—				—				—				—				244,000
Gagnon, Gilles			62,500				71,000				—				—				—				—				133,500
Turpin, Dennis			158,000				71,000				—				—				—				—				229,000

 

(1) In respect of our financial year ended December 31, 2023, we paid an aggregate amount of $534,000 in fees to all of our Outside Directors for services rendered in their capacity as directors, excluding reimbursement of out-of-pocket expenses and the value of share-based and option-based awards granted in 2023.

 

(2) Amounts shown represent the value of the DSUs on the grant date ($2.84; figure does not reflect the 2024 Consolidation). The value of one DSU on the grant date is the closing price of one Common Share on the NASDAQ on the last trading day preceding the date of grant.

 

Compensation of Executive Officers

 

The following is disclosure of information related to the compensation that we paid to our named executive officers (“Named Executive Officers”) during 2023. For 2023, our Named Executive Officers were as follows:

 

	●	Dr. Klaus Paulini, who is serving as President and Chief Executive Officer of the Corporation, as well as Managing Director, Aeterna Zentaris GmbH (“AEZS Germany”);
	●	Mr. Giuliano La Fratta, who, since January 24, 2022 has served as the Senior Vice President, Finance and Chief Financial Officer of the Corporation;
	●	Dr. Matthias Gerlach, who serves as Senior Vice President, Manufacturing & Managing Director, AEZS Germany;
	●	Dr. Eckhard Guenther, who formerly served as Vice President, Business Development & Alliance Management and Managing Director, AEZS Germany; and
	●	Dr. Michael Teifel who serves as Senior Vice President, Non-Clinical Development and Chief Scientific Officer.

 

Determining Compensation

 

NGCC

 

The compensation of executive officers of the Corporation and its subsidiaries is recommended to the Board by the NGCC. The NGCC is responsible for, among other matters: (i) assisting the Board in developing our approach to corporate governance issues; (ii) proposing new Board nominees; (iii) overseeing the assessment of the effectiveness of the Board and its committees, their respective chairs and individual directors; and (iv) making recommendations to the Board with respect to Board member nominees and directors’ compensation, as well as serving in a leadership role for our corporate governance practices. It is also responsible for taking all reasonable actions to ensure that appropriate human resources policies, procedures and systems, e.g., recruitment and retention policies, competency and performance metrics and measurements, training and development programs, and market-based, competitive compensation and benefits structures, are in place so that we can attract, motivate and retain the quality of personnel required to achieve our business objectives. The NGCC also assists the Board in discharging its responsibilities relating to the recruitment, retention, development, assessment, compensation and succession planning for our executive and senior management members.

 

 

Thus, the NGCC recommends the appointment of senior officers, including the terms and conditions of their appointment and termination, and reviews the evaluation of the performance of our senior officers, including recommending their compensation and overseeing risk identification and management in relation to executive compensation policies and practices. The Board, which includes the members of the NGCC, reviews the Chief Executive Officer’s corporate strategy, goals and performance objectives and evaluates and measures his or her performance and compensation against the achievement of such goals and objectives.

 

The NGCC recognizes that the industry, regulatory and competitive environment in which we operate requires a balanced level of risk-taking to promote and achieve the performance expectations of executives of a specialty biopharmaceutical company. The NGCC is of the view that our executive compensation program should not encourage senior executives to take inappropriate or unreasonable risk. In this regard, the NGCC recommends the implementation of compensation methods that appropriately connect a portion of senior executive compensation with our short-term and longer-term performance, as well as that of each individual executive officer and that take into account the advantages and risks associated with such compensation methods. The NGCC is also responsible for establishing compensation policies that are intended to reward the creation of shareholder value while reflecting a balance between our short-term and longer-term performance and that of each executive officer.

 

The NGCC is currently composed of Ms. Carolyn Egbert (Chair), Mr. Peter G. Edwards and Mr. Gilles Gagnon, each of whom is independent. The Board believes that the members of the NGCC collectively have the knowledge, experience and background required to fulfill its mandate:

 

Carolyn Egbert has served as a director on our Board since August 2012 and as Chair of our Board since May 2016. After enjoying the private practice of law as a defense litigator in Michigan and Washington, D.C., she joined Solvay America, Inc. (“Solvay”) (a chemical and pharmaceutical company) in Houston, Texas. Over the course of a twenty-year career with Solvay, she held the positions of Vice President, Human Resources, President of Solvay Management Services, Global Head of Human Resources and Senior Executive Vice President of Global Ethics and Compliance. During her tenure with Solvay, she served as a director on the Board of Directors of seven subsidiary companies and as Chair of one subsidiary board. After retiring in 2010, she established Creative Solutions for Executives, a consulting business providing expertise in corporate governance, ethics and compliance, organizational development, executive compensation, and strategic human resources. She holds a Bachelor of Sciences degree in Biological Sciences from George Washington University, Washington D.C. and a Juris Doctor degree from Seattle University, Seattle, Washington. Carolyn was also a Ph.D. candidate in Pharmacology at both Georgetown University Medical School at Washington, D.C. and Northwestern University Medical School at Chicago, Illinois. She remains an active member of both the Michigan State Bar and the District of Columbia Bar, Washington, D.C.

 

Peter G. Edwards joined the Board on May 15, 2020 and is a member of the Audit Committee and of the NGCC. Mr. Edwards most recently served as General Counsel of Aziyo Biologics from September 2021 to October 2022. Before that, he served as Executive Vice President and General Counsel of Celanese Corporation from January 2017 to January 2019. Previously, Mr. Edwards was the Executive Vice President and General Counsel of Baxalta Incorporated, a biopharmaceutical spin-off from Baxter, from June 2015 until its merger with Shire plc in July 2016. Before that, he was Senior Vice President and General Counsel of the global specialty pharmaceuticals company, Mallinckrodt plc, from July 2013 to June 2015 and served as its Vice President and General Counsel from May 2010 to its spin-off from Covidien plc in June of 2013. Additionally, Mr. Edwards formerly served as Executive Vice President and General Counsel for Solvay Pharmaceuticals in Brussels, Belgium from June 2007 until April 2010 and as its Senior Vice President and General Counsel in the US from October 2005 to June 2007. Prior to that, he held in-house positions of increasing responsibility within Mettler-Toledo, Inc. and Eli Lilly and Company. Mr. Edwards began his career in 1990 as an associate in the Kansas City, Missouri office of Shook, Hardy & Bacon L.L.P. Mr. Edwards received his J.D., cum laude, from Brigham Young University.

 

 

Gilles Gagnon joined the Board on January 1, 2020 and is a member of the Audit Committee and of the NGCC. Mr. Gagnon is currently the President and Chief Executive Officer of Ceapro Inc., a biotechnology company. Prior to that, he was President and CEO of Aeterna Zentaris Inc. During the past 35 years, Mr. Gagnon has worked at several management levels within the field of health, especially in the hospital environment and pharmaceutical industry. Mr. Gagnon has participated in several international committees and strategic advisory boards. He served nine years on the board of directors of Canada’s Research Based Pharmaceutical Companies (Rx&D—now Innovative Medicine Canada) where he represented members from the biopharmaceutical sector and pioneered the Rx&D’s Canadian Bio partnering initiative. He currently serves as the President and Chief Executive Officer of Ceapro Inc. He is a member of the CEO Council of Innovative Medicine Canada. He is a certified corporate Director having completed the Directors Education Program at the Rotman School of Management at the University of Toronto, and he has served on several boards of both private and publicly listed companies in the biopharmaceutical sector.

 

Compensation Discussion & Analysis

 

Compensation Philosophy and Objectives

 

Our Board, through the NGCC, establishes our executive compensation program that is market-based and at a competitive percentile grouping for both total cash and total direct compensation. The NGCC has established a compensation program that is designed to attract, motivate and retain high-performing senior executives, encourage and reward superior performance and align the executives’ interests with those of our shareholders by:

 

●	providing the opportunity for an executive to earn compensation that is competitive with the compensation received by executives serving in the same or measurably similar positions within comparable companies;

 

●	providing the opportunity for executives to participate in equity-based incentive compensation plans;

 

●	aligning executive compensation with our corporate objectives; and

 

●	attracting and retaining highly qualified individuals in key positions.

 

Compensation Elements

 

Our executive compensation is targeted at the 50th percentile for small cap biopharmaceutical companies within both the local and national markets and is comprised of both fixed and variable components. The variable components include equity and non-equity incentive plans. Each compensation component is intended to serve a different function, but all elements are intended to work in concert to maximize both corporate and individual performance by establishing specific, competitive operational and corporate goals and by providing financial incentives to employees based on their level of attainment of these goals.

 

Our current executive compensation program is comprised of the following four basic components: (i) base salary; (ii) an annual bonus linked to both individual and corporate performance; (iii) equity incentives, including stock options, previously granted under our second amended and restated stock option plan adopted by the Board on March 29, 2016, and ratified by the shareholders of Aeterna Zentaris on May 10, 2016 (the “Stock Option Plan”), and presently granted under the Corporation’s long-term incentive plan adopted by the Board on March 27, 2018 and ratified by the shareholders of Aeterna Zentaris on May 8, 2018, (the “Long-Term Incentive Plan”), established for the benefit of our directors, certain executive officers and other Participants (as defined below under the heading “Summary of the Stock Option Plan”) as may be designated from time to time by either the Board or the NGCC; and (iv) other elements of compensation, consisting of benefits, perquisites and retirement benefits.

 

Base Salary. Base salaries are intended to provide a steady income to our executive officers regardless of share price. In determining individual base salaries, the NGCC takes into consideration individual circumstances that may include the scope of an executive’s position, the executive’s relevant competencies or experience and retention risk. The NGCC also takes into consideration the fulfillment of our corporate objectives, as well as the individual performance of the executive.

 

 

Short-Term, Non-Equity Incentive Compensation. Our short-term, non-equity incentive compensation plan sets a target cash bonus for each executive officer, expressed as a percentage of the executive officer’s base salary. The amount of cash bonus paid to an executive officer depends on the extent to which he or she contributed to the achievement of the annual performance objectives established by the Board for the year. The annual performance objectives are specific operational, clinical, regulatory, financial, commercial and corporate goals that are intended to advance our product pipeline, to promote the success of our commercial efforts and to enhance our financial position. The annual performance objectives are set at the end of each financial year as part of the annual review of corporate strategies. The performance objectives are not established for individual executive officers but rather by functional area(s), many of which are carried out by or fall within the responsibility of our President and Chief Executive Officer, Chief Financial Officer (or principal financial officer) and our other executive officers, including our Named Executive Officers. The award of a cash bonus requires the approval of both the NGCC and the Board and is based upon an assessment of each individual’s performance, as well as our overall performance at a corporate level. The determination of individual performance does not involve quantitative measures using a mathematical calculation in which each individual performance objective is given a numerical weight. Instead, the NGCC’s determination of individual performance is a subjective determination as to whether a particular executive officer substantially achieved the stated objectives or over-performed or under-performed with respect to corporate objectives that were deemed to be important to our success.

 

Long-Term Equity Compensation Plan of Executive Officers. The long-term component of the compensation of our executive officers is based exclusively on the Long-Term Incentive Plan, which permits the issuance of a number of equity-based awards based on the contribution of the officers and their responsibilities. The Board adopted a policy regarding stock option grants in December 2014, which provides that each Named Executive Officer is eligible to receive options to acquire our Common Shares having a value, based on the Black-Scholes option pricing model, equal to a specified multiple of his or her salary. The specified multiple for the President and Chief Executive Officer is 1.5. The specified multiple for each other Named Executive Officer is 0.75. To encourage retention and focus management on developing and successfully implementing our continuing growth strategy, stock options vest over a period of three years, with the first third vesting on the first anniversary of the date of grant. Since the adoption of the Long-Term Incentive Plan in 2018, we have broadened the types of equity-based awards which we may issue beyond stock options (to include, among other types, restricted stock units (“RSUs”), DSUs and others).

 

Other Forms of Compensation. Our executive employee benefits program also includes life, medical, dental and disability insurance to the same extent and in the same manner as all other employees as either enrollment in the payroll system benefits program or by additional percentage compensation to self-enroll in private insurance policies. These benefits and perquisites are designed to be competitive overall with equivalent positions in comparable North American organizations in the life sciences industry. We also contribute to our North American employees’ retirement plans up to an annual maximum amount of $19,500 for employees in the United States and Canada. The contribution amounts for our United States and Canadian employees are subject to limitations imposed by the United States Internal Revenue Service and the Canada Revenue Agency respectively, on contributions to our most highly compensated employees. Employees based in Frankfurt, Germany also benefit from certain employer contributions into the employees’ pension funds. Our executive officers, including the Named Executive Officers, are eligible to participate in such employer-contribution plans to the same extent and in the same manner as all other employees.

 

Positioning

 

The NGCC is authorized to engage its own independent consultant to advise it with respect to executive compensation matters. While the NGCC may rely on external information and advice, all of the decisions with respect to executive compensation are made by the Board upon the recommendation of the NGCC and may reflect factors and considerations other than, or that may differ from, the information and recommendations provided by any external compensation consultants that may be retained from time to time.

 

 

Risk Assessment of Executive Compensation Program

 

The Board, through the NGCC, oversees the implementation of compensation methods that tie a portion of executive compensation to our short-term and long-term performance and that of each executive officer and that take into account the advantages and risks associated with such compensation methods. In addition, the Board oversees the creation of compensation policies that are intended to reward the creation of shareholder value while reflecting a balance between our short-term and long-term performance and that of each executive officer. The NGCC has considered in general terms the concept of risk as it relates to our executive compensation program.

 

Base salaries are fixed in amount to provide a steady income to the executive officers regardless of share price and thus do not encourage or reward risk-taking to the detriment of other important business, operational, commercial or clinical metrics or milestones. The variable compensation elements (annual bonuses and equity-based awards) are designed to reward each of short-term, mid-term and long-term performance. For short-term performance, a discretionary annual bonus may be awarded based on the timing and level of attainment of specific operational and corporate goals that the NGCC believes to be challenging yet does not encourage unnecessary or excessive risk-taking. While our bonus payments are generally based on annual performance, a maximum bonus payment is pre-fixed for each senior executive officer and represents only a portion of each individual’s overall total compensation opportunities. In exceptional circumstances, a particular executive officer may be awarded a bonus that exceeds his or her maximum pre-fixed or target bonus amount. Finally, a significant portion of executive compensation is provided in the form of equity-based awards, which is intended to further align the interests of executives with those of shareholders. The NGCC believes that these awards do not encourage unnecessary or excessive risk-taking since the ultimate value of the awards is tied to our share price, and in the case of grants under the long-term incentive compensation plan, are generally subject to mid-term and long-term vesting schedules to help ensure that executives generally have significant value tied to long-term share price performance.

 

The NGCC believes that the variable compensation elements (annual bonuses and equity-based awards) represent a percentage of overall compensation that is sufficient to motivate our executive officers to produce superior short-term, mid-term and long-term corporate results, while the fixed compensation element (base salary) is also sufficient to discourage executive officers from taking unnecessary or excessive risks. The NGCC and the Board also generally have the discretion to adjust annual bonuses and equity-based awards based on individual performance and any other factors they may determine to be appropriate in the circumstances. Such factors may include, where necessary or appropriate, the level of risk-taking a particular executive officer may have engaged in during the preceding year.

 

Based on the foregoing, the NGCC has not identified any specific risks associated with our executive compensation program that are reasonably likely to have a material adverse effect on us. The NGCC believes that our executive compensation program does not encourage or reward any unnecessary or excessive risk-taking behavior.

 

Our directors, executive officers and employees are prohibited from purchasing, selling or otherwise trading in derivative securities relating to our Common Shares. Derivative securities are securities whose value varies in relation to the price of our securities. Examples of derivative securities include warrants to purchase our Common Shares, and put or call options written on our Common Shares, as well as individually arranged derivative transactions, such as financial instruments, including, for greater certainty, prepaid variable forward contracts, equity swaps, collars, or units of exchange funds, which are designed to hedge or offset a decrease in market value of our equity securities granted as executive compensation or directors’ remuneration. Options to acquire our Common Shares and other equity-based awards issued pursuant to the Stock Option Plan or Long-Term Incentive Plan are not derivative securities for this purpose.

 

2023 Compensation

 

Base Salary. The primary element of our compensation program is base salary. Our view is that a competitive base salary is a necessary element for retaining qualified executive officers. In determining individual base salaries, the NGCC takes into consideration individual circumstances that may include the scope of an executive’s position, the executive’s relevant competencies or experience and retention risk. The NGCC also takes into consideration the fulfillment of our corporate objectives, as well as the individual performance of the executive.

 

 

Short-Term, Non-Equity Incentive Compensation. The Board, based on the NGCC’s recommendation, adopted the following performance objectives for 2023:

 

Objective		Result
Drive financial performance with a high degree of disclosure quality and receiving clean audited reports and reducing our close to 5-6 days instead of 10-14 days.		Objective met: We received a clean audit opinion for the 2022 year end, reduced our monthly close to 6 days and greatly improved the quality of our internal and external financial reporting. This was accomplished by implementing additional processes, leveraging existing technology, utilizing new applications, and greater collaboration across the finance team.
Streamlining back-office process related to month end close; further improving interaction with operations to ensure accuracy by rolling out an R&D accrual process tool in Q1 and implementing a new reporting tool in Q1.		Objective met: We have streamlined monthly calls with operations to review progress of projects and ensure accurate R&D accruals. We also completed our initial implementation of the new Insight reporting tool in Q1. Through Q2 the team continues to refine the reporting tool and expects it to be fully operational at the end of Q2.
Identify at least $1M in additional savings or gains vs. budget by end of Q2.		Objective met: As of April 30th, we are $2.6M in favorable cash savings versus budget, and projections indicate that we will exceed this goal by June.
Transition from Novo: Ensure in Q2 the $9.4M are received together with all other deliverables (Product; API, equipment, documentation) at minimal cost.		Objective met: All expected payments ($9.4M) received from Novo; API received at no cost; NDA and documents transferred.
Continue to prioritize operational strategies within our pipeline to ensure high quality of work and success of hitting milestones: 1.     Completion of the DETECT trial (l.p.l.v.) by end of 2023. 2.     Securing neuromyelitis optica spectrum disorder (“NMOSD”) efficacy data from patient blood in Q1. 3.     Defining NMOSD development candidate in Q4.		1.     Objective not met: Completed in Q1, 2024. 2.     Objective met: AIM efficacy data received (T cell effects in blood). 3.     Objective on track: to define development candidates for AIMs.
Ensure Go/No-Go decision of amyotrophic lateral sclerosis (“ALS”) project by end of Q1		Objective met: Positive ALS data warrants continuation, a go decision.
Enable evaluation of success probability of ALS vs. delayed clearance parathyroid hormone (“DC-PTH”) project before ASM meeting.		Objective met: ALS and DC-PTH seem feasible and we are looking to identify partners for both projects.
Ensure timely product supplies with adequate quality oversight to prevent any re-calls throughout 2023.		Objective met.
Meet or beat the YTD performance of the XBI index on Dec. 1st, 2023.		Objective not met: Due to delays in achieving certain business and operational milestones.

 

 

Objective		Result
Revise IR strategy and planning from the restrained approach during H1 2023:   1.      Constant review of retail investors chat rooms. 2.      More public appearances in person and virtually. 3.      Tailored outreach to our known (main) investors. 4.      Increased outreach to potential institutional investors.		1.     Objective ongoing – Review of investor feedback from chat rooms is included as a recurrent item for internal investor relations meetings. 2.     Objective ongoing – The Corporation made appearances at two events: the JTC Virtual Investor Summer Spotlight Series (July 13) and the H.C. Wainwright 25th Annual Global Investment Conference (Sept. 11-13). 3.     Objective ongoing – Regular outreach program to our known investor base was implemented and is ongoing. 4.     Objective ongoing – The Corporation’s M&A process during the year resulted in tailoring back outreach to selected activities.
MACRILEN partnering in US – Identify a new US and Canadian partner for Macrilen® by the end of 2023.		Objective ongoing.

 

The NGCC considered the goals set out above in determining the cash bonus amounts awarded to the management team for 2023. The NGCC recognized that delays were experienced due to external factors, primarily that the war in Ukraine impacted the conduct of the DETECT study at clinical trial sites initiated in Ukraine and Russia and delayed the planned progress of the Corporation’s pre-clinical program. As a result, some of the goals for 2023 were not fully achieved. After considering the extent to which the goals for 2023 were achieved and, where not achieved, the degree to which that was within the control of management, the NGCC recommended that cash bonuses awarded to the management team be paid but at a significantly reduced amount from both the target amounts and the amounts awarded in 2022. The amounts and comparisons with those paid in prior years are reflected in the Summary Compensation Table set out below under the heading “Summary Compensation Table”.

 

Long-Term Equity Compensation

 

For the financial year ended December 31, 2023, the Board did not approve any issuance of stock option awards to any of the Named Executive Officers.

 

Summary of the Stock Option Plan

 

We established the Stock Option Plan in order to attract and retain directors, officers, employees and suppliers of ongoing services, who will be motivated to work towards ensuring our success. The Board has full and complete authority to interpret the Stock Option Plan, to establish applicable rules and regulations and to make all other determinations it deems necessary or useful for the administration of the Stock Option Plan, provided that such interpretations, rules, regulations and determinations are consistent with the rules of all stock exchanges and quotation systems on which our securities are then traded and with all relevant securities legislation.

 

There were 600 options outstanding under the Stock Option Plan representing approximately 0.0% of all issued and outstanding Common Shares as of December 31, 2023. The proposed number of Common Shares issuable pursuant to the Long-Term Incentive Plan is fixed at 11.4% of the issued and outstanding Common Shares at any given time less the number of Common Shares issuable pursuant to stock options granted at such time under the Stock Option Plan. See below for a complete description of the Long-Term Incentive Plan. As of December 31, 2023, there were 59,414 Common Shares unallocated and available for future grants of options under the Stock Option Plan; however, the Corporation does not intend on issuing any new stock options under the Stock Option Plan, and instead will issue any future stock options under the Long-Term Incentive Plan.

 

 

The burn rate for the Stock Option Plan for the most recently completed fiscal year is set out below:

 

Stock Option Plan
Year End		Options Granted				Weighted Average Shares Outstanding				Burn Rate(1)
December 31, 2023			0				1,213,942				0	%
December 31, 2022			0				1,213,942				0	%
December 31, 2021			0				1,149,245				0	%

 

(1)	Annual burn rate is expressed as a percentage and is calculated by dividing the number of securities granted under the Stock Option Plan by the weighted average number of securities outstanding for the applicable fiscal year.

 

Under the Stock Option Plan, (i) the number of securities issuable to insiders, at any time, or issued within any one-year period, under all of our security-based compensation arrangements, cannot exceed 10% of our issued and outstanding securities and (ii) no single person eligible to receive grants under the Stock Option Plan (each a “Participant”) may hold options to purchase, from time to time, more than 5% of our issued and outstanding Common Shares. In addition: (i) the aggregate fair value of options granted under all of our security-based compensation arrangements to any one of our Outside Directors entitled to receive a benefit under the Stock Option Plan, within any one-year period, cannot exceed $100,000 valued on a Black-Scholes basis and as determined by the NGCC; and (ii) the aggregate number of securities issuable to all of our Outside Directors entitled to receive a benefit under the Stock Option Plan, within any one-year period, under all of our security-based compensation arrangements, cannot exceed 1% of its issued and outstanding securities.

 

Options granted under the Stock Option Plan may be exercised at any time within a maximum period of seven or ten years following the date of their grant (the “Outside Expiry Date”), depending on the date of grant. The Board or the NGCC, as the case may be, designates, at its discretion, the specific Participants to whom stock options are granted under the Stock Option Plan and determines the number of Common Shares covered by each of such option grants, the grant date, the exercise price of each option, the Outside Expiry Date and any other matter relating thereto, in each case in accordance with the applicable rules and regulations of the regulatory authorities. The price at which the Common Shares may be purchased may not be lower than the greater of the closing prices of the Common Shares on the NASDAQ on the last trading day preceding the date of grant of the option. Options granted under the Stock Option Plan shall vest in equal tranches over a three-year period (one-third each year, starting on the first anniversary of the grant date) or as otherwise determined by the Board or the NGCC, as the case may be. Participants may not assign their options (nor any interest therein) other than by will or in accordance with the applicable laws of estates and succession.

 

Unless the Board or the NGCC decides otherwise, Participants cease to be entitled to exercise their options under the Stock Option Plan: (i) immediately, in the event a Participant who is an officer or employee resigns or voluntarily leaves his or her employment or his or her employment is terminated with cause and, in the case of a Participant who is a non-employee director of us or one of our subsidiaries, the date on which such Participant ceases to be a member of the relevant Board; (ii) six months following the date on which employment is terminated as a result of the death of a Participant who is an officer or employee and, in the case of a Participant who is an Outside Director, six months following the date on which such Participant ceases to be a member of the Board by reason of death; (iii) 90 days following the date on which a Participant’s employment is terminated for a reason other than those mentioned in (i) or (ii) above including, without limitation, upon the disability, long-term illness, retirement or early retirement of the Participant; and (iv) where the Participant is a service supplier, 30 days following the date on which such Participant ceases to act as such, for any cause or reason (each, an “Early Expiry Date”).

 

 

The Stock Option Plan also provides that, if the expiry date of one or more options (whether an Early Expiry Date or an Outside Expiry Date) occurs during a Blackout Period (as defined below) or within the seven business days immediately after a blackout period imposed by us, the expiry date will be automatically extended to the date that is seven business days after the last day of the blackout period. For the purposes of the foregoing, “Blackout Period” means the period during which trading in our securities is restricted in accordance with our corporate policies.

 

If (i) we accept an offer to amalgamate, merge or consolidate with any other entity (other than one of our wholly-owned subsidiaries) or to sell or license all or substantially all of our assets to any other entity (other than one of our wholly-owned subsidiaries); (ii) we sign a support agreement in customary form pursuant to which the Board agrees to support a takeover bid and recommends that our shareholders tender their Common Shares to such takeover bid; or (iii) holders of more than 50% of our then outstanding Common Shares tender all of their Common Shares to a takeover bid made to all of the holders of the Common Shares to purchase all of the then issued and outstanding Common Shares, then, in each case, all of the outstanding options shall, without any further action required to be taken by us, immediately vest. Each Participant shall thereafter be entitled to exercise all of such options at any time up to and including, but not after the close of business on that date which is ten days following the Closing Date (as defined below). Upon the expiration of such ten-day period, all rights of the Participant to such options or to the exercise of same (to the extent not already exercised) shall automatically terminate and have no further force or effect whatsoever. “Closing Date” is defined to mean (x) the closing date of the amalgamation, merger, consolidation, sale or license transaction in the case of clause (i) above; (y) the first expiry date of the takeover bid on which each of the offeror’s conditions are either satisfied or waived in the case of clause (ii) above; or (z) the date on which it is publicly announced that holders of greater than 50% of our then outstanding Common Shares have tendered their Common Shares to a takeover bid in the case of clause (iii) above.

 

The Stock Option Plan provides that the following amendments may be made to the plan only upon approval of each of the Board and our shareholders as well as receipt of all required regulatory approvals:

 

●

any amendment to Section 3.2 of the Stock Option Plan (which sets forth the limit on the number of options that may be granted to insiders) that would have the effect of permitting, without having to obtain shareholder approval on a “disinterested vote” at a duly convened shareholders’ meeting, the grant of any option(s) under the Stock Option Plan otherwise prohibited by Section 3.2 of the Stock Option Plan;

 

●	any amendment to the number of securities issuable under the Stock Option Plan (except for certain permitted adjustments, such as in the case of stock splits, consolidations or reclassifications);

 

●	any amendment that would permit any option granted under the Stock Option Plan to be transferable or assignable other than by will or in accordance with the applicable laws of estates and succession;

 

●	the addition of a cashless exercise feature, payable in cash or securities, which does not provide for a full deduction of the number of underlying securities from the Stock Option Plan reserve;

 

●	the addition of a deferred or restricted share unit component or any other provision that results in employees receiving securities while no cash consideration is received by us;

 

●	with respect to any Participant, whether or not such Participant is an “insider” and except in respect of certain permitted adjustments, such as in the case of stock splits, consolidations or reclassifications;

 

●	any reduction in the exercise price of any option after the option has been granted;

 

●	any cancellation of an option and the re-grant of that option under different terms;

 

 

●	any extension to the term of an option beyond its Outside Expiry Date to a Participant who is an “insider” (except for extensions made in the context of a Blackout Period);

 

●	any amendment to the method of determining the exercise price of an option granted pursuant to the Stock Option Plan;

 

●	the addition of any form of financial assistance or any amendment to a financial assistance provision which is more favorable to employees; and

 

●	any amendment to the foregoing amending provisions requiring Board, shareholder and regulatory approvals.

 

The Stock Option Plan further provides that the following amendments may be made to the Stock Option Plan upon approval of the Board and upon receipt of all required regulatory approvals, but without shareholder approval:

 

●	amendments of a “housekeeping” or clerical nature or to clarify the provisions of the Stock Option Plan;

 

●	amendments regarding any vesting period of an option;

 

●	amendments regarding the extension of an option beyond an Early Expiry Date in respect of any Participant, or the extension of an option beyond the Outside Expiry Date in respect of any Participant who is a “non-insider”;

 

●

adjustments to the number of issuable Common Shares underlying, or the exercise price of, outstanding options resulting from a split or a consolidation of the Common Shares, a reclassification, the payment of a stock dividend, the payment of a special cash or non-cash distribution to our shareholders on a pro rata basis provided such distribution is approved by our shareholders in accordance with applicable law, a recapitalization, a reorganization or any other event which necessitates an equitable adjustment to the outstanding options in proportion with corresponding adjustments made to all outstanding Common Shares; and

 

●	discontinuing or terminating the Stock Option Plan; and any other amendment which does not require shareholder approval under the terms of the Stock Option Plan.

 

Summary of the Long-Term Incentive Plan

 

The purpose of the Long-Term Incentive Plan is to (i) promote our long-term financial interests and growth by attracting and retaining management and other personnel and key service providers with the training, experience and ability to enable them to make a substantial contribution to the success of our business; (ii) motivate management personnel by means of growth-related incentives to achieve long-range goals; and (iii) further the alignment of interests of participants with those of our shareholders through opportunities for increased share ownership in the Corporation.

 

The NGCC is the administrator of the Long-Term Incentive Plan (the “Administrator”). At any time, the Board may serve as the Administrator of the Long-Term Incentive Plan, in lieu of, or in addition, to the NGCC. Except as provided otherwise under the Long-Term Incentive Plan, the Administrator has plenary authority to grant awards pursuant to the terms of the Long-Term Incentive Plan to eligible individuals, determine the types of awards and the number of shares to be covered by the awards, establish the terms and conditions for awards, including the exercise price and term of awards, and take all other actions necessary or desirable to carry out the purpose and intent of the Long-Term Incentive Plan.

 

Participation in the Long-Term Incentive Plan is generally open to all officers, employees and other individuals, including Outside Directors. However, any individual whose services to the Corporation or any of its subsidiaries are limited to capital-raising transactions, or the promotion and maintenance of a market for the Corporation securities, are ineligible to participate in the Long-Term Incentive Plan. Prospective officers, employees and other service providers who have accepted offers to provide services to the Corporation may also participate in the Long-Term Incentive Plan.

 

 

The Long-Term Incentive Plan enables the grant of stock options, stock appreciation rights (“SARs”), stock awards, stock unit awards, performance shares, cash-based performance units, deferred share units and other stock-based awards, each of which may be granted separately or in tandem with other awards.

 

The maximum number of Common Shares issuable under the Long-Term Incentive Plan is fixed at 11.4% of the issued and outstanding Common Shares at any given time, less the number of Common Shares issuable pursuant to stock options granted at such time under the Stock Option Plan. There were 61,980 awards outstanding under the Long-Term Incentive Plan representing approximately 2.8% of all issued and outstanding Common Shares as of December 31, 2023. As of December 31, 2023, there were 75,813 Common Shares unallocated and available for future grants of awards that are settled in Common Shares under the Long-Term Incentive Plan. See above for a complete description of the Stock Option Plan.

 

The burn rate for the Long-Term Incentive Plan for the most recently completed fiscal year is set out below:

 

Long-Term Incentive Plan
Year End		Awards Granted				Weighted Average Shares Outstanding				Burn Rate(1)
December 31, 2023			28,500				1,213,969				2.3	%
December 31, 2022			20,500				1,213,969				1.7	%
December 31, 2021			8,600				1,149,245				0.7	%

 

(1) Annual burn rate is expressed as a percentage and is calculated by dividing the number of securities granted under the Long-Term Incentive Plan by the weighted average number of securities outstanding for the applicable fiscal year.

 

The number of securities issuable to insiders, at any time, or issued within any one-year period, under all of our security-based compensation arrangements, cannot exceed 10% of our issued and outstanding securities and no single participant may hold options to purchase, from time to time, more than 5% of our issued and outstanding Common Shares.

 

The aggregate fair value of options granted under all of our security-based compensation arrangements to any one of our Outside Directors entitled to receive a benefit under the Long-Term Incentive Plan, within any one-year period, cannot exceed $100,000 valued on a Black-Scholes basis and as determined by the NGCC; and the aggregate number of securities issuable to all of our Outside Directors entitled to receive a benefit under the Long-Term Incentive Plan, within any one-year period, under all of our security-based compensation arrangements, cannot exceed 1% of its issued and outstanding securities.

 

Except as provided below or within an award agreement, each award granted under the Long-Term Incentive Plan (other than a performance unit that cannot be paid in shares) will be subject to a minimum vesting period or minimum restriction period as follows: (i) each stock option or SAR will be subject to a minimum vesting period of 12 months from the date of grant, (ii) each award of stock, stock units, performance shares, performance units payable in shares and other stock- based awards (“Full Value Awards”) granted to non-employee directors will be subject to a minimum restriction period of 12 months from the date of grant, and (iii) each Full Value Award granted to a participant other than a non-employee director will be subject to a minimum restriction period of 12 months from the date of grant if vesting of or lapse of restrictions on such award is based on the satisfaction of performance goals and a minimum restriction period of 36 months from the date of grant, applied in either pro rata installments or a single installment, if vesting of or lapse of restrictions on such award is based solely on the participant’s satisfaction of specified service requirements with us (provided that no such Full Value Awards will vest or have its restrictions lapse during the first 12 months following the date of grant). If the grant of a performance award is conditioned on satisfaction of performance goals, the performance period must not be less than 12 months’ duration, but no additional minimum restriction period need apply to such award. The minimum vesting period or minimum restriction period will not apply in the case of death or disability of a participant or in the event of a change in control. Awards that result in the issuance of an aggregate of up to 5% of the share pool under the Long-Term Incentive Plan may be granted without regard to such minimum vesting period or minimum restriction period.

 

 

A SAR is the right to receive a payment equal to the excess of the Fair Market Value (as defined below) of a specified number of shares on the date the SAR is exercised over the base price per share specified in the award agreement. The base price for each SAR cannot be less than 100% of the Fair Market Value of Common Shares on the grant date and the term of a SAR cannot be more than 10 years from the grant date, unless required otherwise by applicable law. At the discretion of the Administrator, the payment upon a SAR exercise may be in cash, shares or a combination of the two. The “Fair Market Value” means the official closing price per Common Share for the regular market session on the day of determination.

 

Awards granted under the Long-Term Incentive Plan shall not be subject in any manner to alienation, anticipation, sale, transfer, assignment, pledge, or encumbrance, except as otherwise determined by the Administrator; provided, however, that this restriction shall not apply to the Common Shares received in connection with an award after the date that the restrictions on transferability of such shares set forth in the applicable award agreement have lapsed.

 

Except as provided in the applicable award agreement or otherwise determined by the Administrator, and subject to the minimum vesting period or minimum restriction period described above, upon termination of service (as defined in the Long-Term Incentive Plan):

 

●	Stock options or stock appreciation rights shall be forfeited, to the extent stock options or stock appreciation rights are not vested and exercisable;

 

●	During the applicable restriction period, restricted stock and any accrued but unpaid dividends that are at that time subject to restrictions shall be forfeited; and

 

●

During the applicable deferral period or portion thereof to which forfeiture conditions apply, or upon failure to satisfy any other conditions precedent to the delivery of Common Shares or cash to which RSUs, performance shares or performance units relate, all performance shares, performance units and RSUs and any other accrued but unpaid dividend equivalents with respect to such RSUs that are then subject to deferral or restriction shall be forfeited.

 

In the event of a change in control (as defined in the Long-Term Incentive Plan) of the Corporation, outstanding awards will terminate upon the effective time of the change in control unless provision is made for the continuation, assumption or substitution of awards by the surviving or successor entity or its parent. Unless an award agreement says otherwise, the following will occur with respect to awards that terminate in connection with a change in control of the Corporation:

 

●	stock options and SARs, whether vested or unvested, will become fully exercisable and holders of these awards will be permitted immediately before the change in control to exercise them;

 

●	restricted stock and RSUs with time-based vesting (i.e., not subject to achievement of performance goals) will become fully vested immediately before the change in control, and RSUs will be settled as promptly as is practicable in accordance with applicable law; and

 

 

●

restricted stock, RSUs, performance shares, and performance units that vest based on the achievement of performance goals will become fully vested and earned based on the target performance level as to the performance goals, such that 100% of the target award is earned as of the date of the change of control; and the RSUs and performance units will be settled as promptly as is practicable in accordance with applicable law. The Long-Term Incentive Plan will terminate on the earlier of (i) the earliest date as of which all awards granted under the Long-Term Incentive Plan have been satisfied in full or terminated and no shares approved for issuance under the Long-Term Incentive Plan remain available to be granted under new awards, or (ii) the tenth anniversary of date the Long-Term Incentive Plan, as amended and restated, is approved by our shareholders.

 

The Administrator may amend, alter or discontinue the Long-Term Incentive Plan, but no amendment, alteration or discontinuation will be made that would materially impair the rights of a participant with respect to a previously granted award without his or her consent, except such an amendment made to comply with applicable law or rule of any securities exchange or market on which our Common Shares are listed or admitted for trading or to prevent adverse tax or accounting consequences to the Corporation or the participant. In no event, however, will an amendment be made without the approval of our shareholders to the extent such amendment would (i) materially increase the benefits accruing to participants under the Long-Term Incentive Plan, (ii) increase the number of shares that may be issued under the Long-Term Incentive Plan or to a participant, (iii) materially expand the eligibility for participation in the Long-Term Incentive Plan, (iv) eliminate or modify the prohibition on repricing of stock options and SARs, (v) lengthen the maximum term or lower the minimum exercise price or base price permitted for stock options and SARs, (vi) modify the prohibition on the issuance of reload or replenishment options, (vii) amend the amendment provisions in the Long-Term Incentive Plan, or (viii) amend the Long-Term Incentive Plan to remove or exceed the 10% insider participation limit.

 

Outstanding Option-Based Awards and Share-Based Awards

 

The following table shows all awards outstanding to our Named Executive Officers as of December 31, 2023:

 

		Option-based Awards																Share-based Awards
Name		Issuance Date (mm/dd/yyyy)		Number of Securities Underlying Unexercised Options(1) (#)				Option Exercise Price ($)				Option Expiration Date (mm/dd/yyyy)		Value of Unexercised In-the- money Options(2) ($)				Issuance Date				Number of Shares or Units of shares that have Not Vested (#)				Market or Payout Value of Share- based Awards that have Not Vested ($)				Market or payout value of vested share-based awards not paid out or distributed ($)
Paulini, Klaus		08/15/2019			250				215.00			08/15/2026			—				—				—				—				—
		11/11/2019			350				103.00			11/11/2026			—				—				—				—				—
		12/14/2020			350				36.60			12/14/2027			—				—				—				—				—
		12/17/2021			1,000				42.04			12/17/2028			—				—				—				—				—
La Fratta, Giuliano		1/10/2022			500				35.52			01/10/2029			—				—				—				—				—
		12/04/2019			200				87.00			12/04/2026			—				—				—				—				—
Gerlach, Matthias		12/14/2020			250				36.60			12/14/2027			—				—				—				—				—
		12/17/2021			500				42.04			12/17/2028			—				—				—				—				—
Guenther, Eckhard		12/04/2019			250				87.00			12/04/2026			—				—				—				—				—
		12/14/2020			250				36.60			12/14/2027			—				—				—				—				—
		12/17/2021			500				42.04			12/17/2028			—				—				—				—				—
Teifel, Michael		12/17/2021			500				42.04			12/17/2028			—				—				—				—				—

 

	(1)	The number of securities underlying unexercised options represents all awards outstanding at December 31, 2023.
	(2)	“Value of unexercised in-the-money options” at financial year-end is calculated based on the difference between the closing price of the Common Shares on the NASDAQ on the last trading day of the fiscal year (December 31, 2023) of $1.86 (figure does not reflect the 2024 Consolidation) and the exercise price of the options, multiplied by the number of unexercised options.

 

 

For the financial year ended December 31, 2023, the Board did not approve any issuance of stock option awards to any of the Named Executive Officers. There were no share-based awards outstanding to our Named Executive Officers either at December 31, 2023 or at the date of this document.

 

Incentive Plan Awards – Value Vested or Earned During the Year

 

The following table shows the incentive plan awards value vested or earned for each Named Executive Officer for the financial year ended December 31, 2023:

 

		Option-based awards — Value vested during the year(1)				Share-based awards — Value vested during the year				Non-equity incentive plan compensation — Value earned during the year(2)
		$				$				$
Paulini, Klaus			—				—				46,543
La Fratta, Giuliano			—				—				37,045
Gerlach, Matthias			—				—				24,895
Guenther, Eckhard			—				—				19,483
Teifel, Michael			—				—				23,813

 

(1)

Represents the aggregate dollar value that would have been realized if the options had been exercised on the vesting date, based on the difference between the closing price of the Common Shares on the NASDAQ and the exercise price on such vesting date. If closing price of the Common Shares on the NASDAQ on the vesting date was lower than the exercise price, then $nil was considered realized.

(2)

During 2023, each of Dr. Paulini, Dr. Gerlach, and Dr. Guenther were paid bonuses granted in 2023 for activities related to 2022 and will be paid in 2024 bonuses granted in 2024 for activities related to 2023.

 

 

Summary Compensation Table

 

The Summary Compensation Table set forth below shows compensation information for each of the Named Executive Officers for services rendered in all capacities during each of the financial years ended December 31, 2023, 2022 and 2021. All amounts in the table below are in U.S. dollars. Mr. La Fratta’s cash payments were made in Canadian dollars. All cash amounts paid to Dr. Paulini, Dr. Guenther, Dr. Gerlach, and Dr. Teifel were made in Euros.

 

																		Non-equity incentive plan compensation(1)
Name and principal position		Years				Salary ($)				Share based awards ($)				Option based awards ($)				Annual incentive plan ($)				Long- term incentive plans ($)				Pension Value ($)(2)				All Other Compensation(4) ($)				Total Compensation ($)
Paulini, Klaus(3) Former President and Chief Executive Officer; Managing Director AEZS Germany			2023				324,097				—				—				46,543				—				593,905				—				964,545
			2022				319,614				—				—				45,461				—				218,798				—				583,972
			2021				374,496				—				35,298				162,530				—				213,700				—				786,024
La Fratta, Giuliano Senior Vice President, Chief Financial Officer			2023				206,805				—				—				37,045				—				—				10,340				254,190
			2022				208,262				—				14,944				31,192				—				—				12,921				267,319
			2021				—				—				—				—				—				—				—				—
Guenther, Eckhard Former Senior Vice President Business Development and Alliance Management; Former Managing Director AEZS Germany			2023				232,716				—				—				19,483				—				85,366				—				337,565
			2022				223,359				—				—				19,072				—				(146,455	)			—				95,976
			2021				238,737				—				17,649				67,021				—				5,019				—				328,426
Gerlach, Matthias Senior Vice President Manufacturing and Supply Chain			2023				188,532				—				—				24,895				—				49,683				—				263,110
			2022				200,316				—				—				24,370				—				(247,820	)			—				(23,115	)
			2021				203,276				—				17,649				55,319				—				16,314				—				292,558
			2023				188,757				—				—				23,813				—				35,672				—				248,242
Teifel, Michael Chief Science Officer and Senior Vice President			2022				153,558				—				—				23,310				—				(139,729	)			—				37,138
			2021				157,510				—				—				—				—				1,007				—				158,517

 

(1)	Non-equity incentive plan compensation includes cash bonuses. During 2023, each of Dr. Paulini, Dr. Guenther, and Dr. Gerlach were paid for bonuses granted in 2022 for activities related to 2022 and will be paid in 2024 bonuses granted in 2023 for activities related to 2023.
(2)	Dr. Paulini and Dr. Guenther participate in the DUPK (as defined below), a defined-contribution pension plan maintained by Unterstützungskasse Degussa e.V. that was introduced for employees who began their employment with AEZS Germany (or its predecessors) prior to December 31, 1999. The DUPK includes indirect obligations through a funded multi-employer contribution plan as well as direct unfunded defined benefit plans obligations. Dr. Gerlach participated in RUK 1 (as defined below), a defined-contribution pension plan maintained by Unterstützungskasse Degussa e.V. The pension value represents the change in the pension liability between December 31, 2022 and 2023 for each Named Executive Officer. In 2023, there was a decrease in the discount rate actuarial assumption from 3.75% in 2022 to 3.30% in 2023, that is used to estimate the pension plan obligation. For several of the Named Executive Officers, this has resulted in an increase in their pension value and is reflected in the above table.
(3)	Dr. Paulini did not receive any compensation in his role as a managing director of AEZS Germany or as an executive director.
(4)	Represents amounts contributed to registered retirement savings plans or 401K accounts.

 

 

The value of option-based awards set out in the table above represents the closing price of the Common Shares on the NASDAQ on the last trading day preceding the date of grant multiplied by the Black-Scholes factor as at such date and the number of stock options granted on such date. For 2023, the Black-Scholes valuation model values the options based on the following assumptions: a 5.45-year expected life, 104.46% expected volatility, risk-free annual interest rate of 3.56% per annum and an expected dividend yield of 0%. See the consolidated financial statements for the Corporation for the years ended December 31, 2022, 2021 and 2020 and for the years ended December 31, 2021, 2020 and 2019 for the assumptions applied to the Black-Scholes option pricing model in previous years. The Corporation used the Black-Scholes valuation model as it most accurately captured the fair value of such options. The following table sets forth the value of the option-based awards and the corresponding Black-Scholes factor:

 

Date of Grant		Value of Grant				Black-Scholes Factor
August 15, 2017		$	205.00				79	%
August 15, 2019		$	215.00				79	%
November 11, 2019		$	105.00				67	%
December 4, 2019		$	87.00				68	%
December 14, 2020		$	36.60				74	%
December 17, 2021		$	42.00				84	%
January 10, 2022		$	35.52				84	%
January 17, 2023		$	15.00				80	%

 

Compensation of the Chief Executive Officer

 

The compensation of our President and Chief Executive Officer is governed by our executive compensation policy described below under the heading “Summary”, and the President and Chief Executive Officer participates, together with the other Named Executive Officers, in all our incentive plans.

 

Dr. Paulini’s total earnings during the financial year ended December 31, 2023 were $964,545, including an incentive bonus in the amount of $46,543.

 

For the financial year ended December 31, 2023, the Board did not approve an award of stock options to Dr. Paulini in accordance with the Long-Term Incentive Plan.

 

See “Summary of the Stock Option Plan” above for a complete description of the Stock Option Plan. See “Summary of the Long-Term Incentive Plan” above for a complete description of the Long-Term Incentive Plan.

 

 

Securities Authorized for Issuance under Equity Compensation Plans

 

The following table sets forth, as at December 31, 2023, the information with respect to all of our compensation plans pursuant to which our equity securities are authorized for issuance:

 

Plan Category

(a) Number of securities to be issued upon exercise of outstanding options, warrants and rights

(b) Weighted-average exercise price of outstanding options, warrants and rights ($)

(c) Number of securities remaining available for further issuance under equity compensation plans (excluding securities reflected in column (a))

Equity compensation plans approved by security holders

149,150

86.48

103,655

Equity compensation plans not approved by security holders

–

–

–

Total:

149,150

86.48

103,655

 

Performance Graph

 

On December 31, 2023, the closing price of a Common Share on the NASDAQ (prior to the 2024 Consolidation) was $1.86. The following graph shows the cumulative return of a $100 investment in the Common Shares made on December 31, 2018 on the NASDAQ, compared with the total return of the Nasdaq Capital Market Composite Index and the Nasdaq Biotechnology Index for each financial year shown on this graph.

 

 

		12/31/2018				12/31/2019				12/31/2020				12/31/2021				12/31/2022				12/31/2023
Aeterna Zentaris (NASDAQ)		$	297.00			$	91.00			$	43.00			$	36.00			$	12.72			$	7.44
Nasdaq Capital Market Composite Index (^RCMP)		$	150.76			$	178.35			$	267.01			$	242.26			$	134.42			$	120.48
Nasdaq Biotechnology Index (^NBI)		$	3,043.62			$	3,786.54			$	4,759.14			$	4,728.94			$	4,213.13			$	4,370.58

 

 

Our executive compensation is reviewed annually and approved by the Board upon the recommendation of the NGCC. The NGCC considers several factors in connection with its determination of appropriate levels of executive compensation, including, but not limited to, the demand for and supply of skilled professionals in the life sciences and biopharmaceutical sectors generally, an executive’s individual performance, our performance (which is not necessarily tied exclusively to the trading price of our Common Shares) and other factors discussed above under the heading “Compensation Discussion & Analysis”. In addition, during the five-year period ended December 31, 2023, we were a pre-profit biopharmaceutical company, and thus the market price of our publicly traded equity securities may not fully reflect the long-term value of our underlying assets.

 

The trading price of our Common Shares is subject to fluctuation based on several factors, many of which are beyond our control and some of which are disclosed and discussed in our annual information form, management’s discussion and analysis, Form 20-F and other documents that we file from time to time with securities regulatory authorities and which are available on our profile on SEDAR+ at www.sedarplus.ca or EDGAR at www.sec.gov.

 

The performance graph set forth above shows that holders of our Common Shares have lost a significant portion of the value of their investment since year-end 2019. During the period covered by the performance graph, we replaced our senior management team and began to implement our strategy of transforming our business from being totally focused on drug discovery and development to being a specialty biotechnology company developing and commercializing a diversified portfolio of pharmaceutical and diagnostic products focused on areas of significant unmet medical need. In 2021, we modified our business focus as follows: to investigate further therapeutic uses of Macimorelin, expand pipeline development activities, to further expand the commercialization of Macimorelin in available territories and to co-fund with Novo Nordisk Biopharm Ltd. of the pediatric clinical trial, Study P02, in the E.U. and U.S. for Macimorelin trial costs up to €9.4 million. By December 31, 2022, the Corporation had in-licensed and continued to progress four pre-clinical development programs relating to potential therapeutics (NMOSD, Parkinson’s Disease, Hypoparathyroidism and ALS), entered into license and supply agreements with NK Meditech Ltd, effective November 30, 2021, entered into a supply agreement with Atnahs Pharma UK Limited effective March 15, 2023 and continued its pivotal Study P02.

 

Therefore, the trend in the performance graph of our Common Shares on the NASDAQ does not correlate to the changes in compensation paid to our Named Executive Officers during the five-year period ended December 31, 2023.

 

Summary

 

In accordance with our executive compensation policy, a significant portion of the compensation of our executive officers is based upon an equitable balance between the Corporation’s performance and performance consistent with position responsibilities. During this period of transformation, while we implement our strategy of becoming a commercially operating specialty biopharmaceutical corporation, the NGCC’s rationale for executive compensation is to encourage and reward performance that positions us for both short-term and long-term success, while protecting and building shareholder value. The NGCC reviews the compensation programs of the executive officers annually in order to ensure their competitiveness and compliance with our objectives, values and strategies.

 

If the circumstances so require, the NGCC may recommend employment conditions that are different from the policies in effect as well as our execution of non-standard employment contracts.

 

By the Nominating, Governance and Compensation Committee:

Carolyn Egbert, Chair, Peter G. Edwards and Gilles Gagnon

 

 

PENSION PLAN BENEFITS

 

Each Named Executive Officer who is employed with AEZS Germany participates in one or more of the defined benefit and multi-employer defined contribution pension plans (the “Pension Plans”) as identified below. The information below is given as of December 31, 2023 unless otherwise stated.

 

Degussa Pensionskasse (“DUPK”)

 

Dr. Paulini and Dr. Guenther participate in the DUPK, a defined-contribution pension plan maintained by Unterstützungskasse Degussa e.V. that was introduced for employees who began their employment with AEZS Germany (or its predecessors) prior to December 31, 1999. The DUPK includes indirect obligations through a funded multi-employer contribution plan as well as direct unfunded defined benefit plans obligations.

 

Under the funded multi-employer contribution portion of the DUPK, the contributions by AEZS Germany and the employee are calculated based on the employee’s total salary during the prior year. The employee contributes 2% of his or her monthly average salary and AEZS Germany contributes an amount of 1.784 times the employee’s contribution. The contributions are limited to the social security contribution assessment ceiling. In 2023, the social security contribution assessment ceiling is $7,906 (€7,300) per month. Accordingly, the employee will contribute at most $158.12 (€146.00) monthly and AEZS Germany will contribute at most $282.08 (€260.46) monthly.

 

Under the unfunded defined benefit portion of the DUPK, the employee earns additional claims for future pension payments for the part of the employee’s salary that exceeds the social security contribution assessment ceiling (“Supplementary Pensions”) that are unfunded and are presented as a pensions benefit obligation on the balance sheet of the Corporation. The Supplementary Pensions amount to 1.25% annually of a fictional salary peak, which is a percentage of the social security contribution assessment ceiling. Further, the employee is entitled to annual Christmas benefits (“Christmas Benefits”), which amount to 1.4% of the last pensionable monthly income for each year of service, limited by the social security contribution assessment ceiling. The employee’s contribution and AEZS Germany’s contribution are transferred monthly to the pension fund, and AEZS Germany’s contribution is calculated with the salary payments and treated as provision for pension payment. We are liable to the employees for the pension benefits that have been promised if the private pension provider does not, or cannot, pay the promised pension payments. Employees will receive a pension payment based on the contributions that were made during their employment, and will also receive the Supplementary Pensions and Christmas Benefits, after they have reached the statutory retirement age, independent of whether they work with AEZS Germany until such age. All direct pension obligations as well as pension obligations from deferred compensation are included and have been included in the pensions benefit obligation of the Corporation.

 

Rückgedeckte Unterstützungskasse 1 (“RUK 1”)

 

Dr. Gerlach participates in RUK 1, a defined-contribution pension plan maintained by Unterstützungskasse Degussa e.V. Under RUK 1, AEZS Germany contributes 2.4% of Dr. Gerlach’s monthly gross salary and Dr. Gerlach contributes 2% of his monthly gross salary. The contributions are limited to the social security contribution assessment ceiling. However, AEZS Germany provides an additional contribution of 18% of his monthly pensionable salary for the part of his salary that exceeds the social security contribution assessment ceiling. In 2023, the social security contribution assessment ceiling is $7,905 (€7,300) per month. Accordingly, AEZS Germany will contribute at most $1,596.23 (€1,473.90) (which includes the additional contribution of 18%) monthly and Dr. Gerlach will contribute at most $158.12 (€146.00) monthly. Both contributions are calculated with the monthly salary accounting and transferred to the relief fund monthly. We are liable to Dr. Gerlach for the pension benefits that have been promised if the private pension provider does not, or cannot, pay the promised pension payments. Dr. Gerlach will receive a pension payment based on the contributions that were made during his employment after he has reached the statutory retirement age, independent of whether he works with AEZS Germany until such age.

 

 

Rückgedeckte Unterstützungskasse 2 (“RUK 2”)

 

Dr. Teifel participates in RUK 2, a defined-contribution pension plan maintained by Unterstützungskasse Degussa e.V. Under RUK 2, AEZS Germany contributes 2.4% of Dr. Teifel’s monthly gross salary and Dr. Teifel contributes 3% of his monthly gross salary. The contributions are limited to the social security contribution assessment ceiling. In 2023, the social security contribution assessment ceiling is $7,905 (€7,300) per month. Accordingly, AEZS Germany will contribute at most $189.74 (€175.20) monthly and Dr. Teifel will contribute at most $237.18 (€219.00) monthly. Both contributions are calculated with the monthly salary accounting and transferred to the relief fund monthly. We are liable to Dr. Teifel for the pension benefits that have been promised if the private pension provider does not, or cannot, pay the promised pension payments. Dr. Teifel will receive a pension payment based on the contributions that were made during her employment after he has reached the statutory retirement age, independent of whether he works with AEZS Germany until such age.

 

Benefit Summary Tables

 

The table below includes the following information about each Named Executive Officer participating in the pension, retirement or similar plans of the Corporation:

 

	●	years of credited service as at December 31, 2023;
	●	estimated annual benefit accrued, or earned, for service to December 31, 2023 and to the normal retirement age of 65; and
	●	a reconciliation of the accrued obligation from December 31, 2022 to December 31, 2023.

 

		Number of years				Annual benefits payable ($)(2)								Opening present value of defined								Non-				Closing present value of defined
Name		credited service (#)(1)				At year end				At age 65				benefit obligation ($)(3)				Compensatory change ($)(4)				compensatory change ($)(5)				benefit obligation ($)(3)
Paulini, Klaus			26				74,388				88,986				1,353,345				526,625				67,820				1,947,250
Guenther, Eckhard			33				37,901				37,901				946,298				38,322				47,044				1,031,663
Gerlach, Matthias			23				12,797				20,651				168,102				41,326				8,357				217,785
Teifel, Michael			19				14,570				15,518				210,532				25,205				10,466				246,204

 

(1)	The number of years of credited service as at December 31, 2023 corresponds to the actual years of service with AEZS Germany.

 

(2)

For each Named Executive Officer, the amount of annual benefits payable at December 31, 2023 is the pension the Named Executive Officer would be entitled to starting at age 65 based on termination of employment at December 31, 2023. For each Named Executive Officer, the annual benefits payable at age 65 is the annual benefits payable at December 31, 2023 increased to reflect estimated credited service at age 65.

 

(3)

The present value is the estimated value of the pension obligation to the date indicated using the actuarial assumptions and methods that are consistent with those used in determining pension liabilities as disclosed in the Corporation’s consolidated financial statements. In the past, certain Pension Plans were accounted for as defined contribution plans as sufficient information was not available for the Corporation to account for its proportionate share of the defined benefit obligation, plan assets and cost associated with such Pension Plans. In 2021, additional information became available to the Corporation, which began to account for its proportionate share of the defined benefit obligation and plan assets. The opening present value of defined benefit obligation for each Named Executive Officer was adjusted to reflect the revised accounting treatment.

 

 

(4)	Compensatory change represents the change in the pension liability between December 31, 2022 and 2023 for each Named Executive Officer.

 

(5)

The calculations of reported amounts use the same actuarial assumptions and methods that are used for calculating accrued benefit obligations and annual expenses, as disclosed in the Corporation’s 2023 and 2022 consolidated financial statements in Note 15, “Employee future benefits” and as prescribed by International Financial Reporting Standards. The methods and assumptions used to determine estimated amounts will not be identical to the methods and assumptions used by other issuers so, as a result, the figures may not be directly comparable across issuers. All amounts shown above are based on assumptions and represent contractual entitlements that may change over time.

 

The table below includes amounts from AEZS Germany’s defined contribution plans. Any difference between (i) the sum of the “accumulated value at start of year” column plus the “compensatory” column and (ii) the “accumulated value at end of year” column is attributable to the employee’s contributions to the pension plan during the year ended December 31, 2023, as well as changes in the foreign exchange rate, each employee’s contributions being made in Euros.

 

Name

Accumulated value at start of year ($)

Compensatory ($)

Accumulated value at year end ($)

Teifel, Michael

8,186

2,317

14,004

 

EMPLOYMENT, CHANGE OF CONTROL AND CONSULTING AGREEMENTS

 

Employment, Change of Control and Consulting Agreements

 

We had, or one of our subsidiaries had, entered into an employment agreement and, in some cases, a change of control agreement, with each of our Named Executive Officers. The applicable terms of the agreements that provide for payments to our Named Executive Officers upon termination, resignation, retirement, change of control of the Corporation or change in the Named Executive Officer’s responsibilities are described below.

 

Klaus Paulini

 

We entered into an employment agreement with Dr. Klaus Paulini, effective as of October 4, 2019 (the “Employment Agreement”) for his position as Chief Executive Officer of the Corporation. The Corporation, through AEZS Germany, also entered into a service agreement with Dr. Klaus Paulini effective as of July 26, 2019 (the “Services Agreement”) for his position as Managing Director of AEZS Germany. The Employment Agreement provides that we will pay Dr. Paulini (the “Executive”) an initial base salary of €260,000 per annum, which includes payment for his service as Managing Director of AEZS Germany. Additionally, pursuant to the Employment Agreement, we provided the Executive with an initial grant of 8,750 stock options in November 2019. Under the terms of the Services Agreement, the Executive may receive subsequent grants of stock options at the discretion of the Board or the NGCC, an annual bonus subject to the determination and approval of the NGCC and participation in an employer-sponsored pension scheme.

 

If there is a termination of the Executive’s employment by us without “Cause” (as defined in the Employment Agreement), then the Executive will be entitled to receive a severance payment in the amount equal to €300,000.

 

The Employment Agreement contains customary confidentiality, intellectual property and non-disparagement covenants.

 

For the purposes of the Employment Agreement, termination of employment for “Cause” includes (but is not limited to) (i) if the Executive commits any fraud, theft, embezzlement or other criminal act of a similar nature, and (ii) if the Executive has committed serious misconduct or willful negligence in the performance of his duties.

 

 

Giuliano La Fratta

 

We entered into an employment agreement in January 2022 with Giuliano La Fratta, Senior Vice President, Finance and Chief Financial Officer (“CFO”). In accordance with the terms of his employment agreement, Mr. La Fratta will receive a RRSP contribution equal to 5% of his base salary.

 

If there is a termination of the CFO’s employment by us without “Cause” (as defined in the relevant employment agreement), then the CFO will be entitled to receive a severance payment depending on the length of his service. At the end of December 31, 2023 the CFO will be entitled to receive a severance payment in the amount equal to $603,389 CAD.

 

AEZS entered into an amended change of control agreement with Mr. La Fratta on November 10, 2023. In the event of a “Change of Control” (as defined in the amended change of control agreement) occurring within a 24 month period of the date of such agreement, Mr. La Fratta will be entitled to receive:

 

-	all accrued obligations under his employment agreement;

 

-	a severance payment equal to 18 months of his base salary;

 

-	an amount equal to his annual bonus for the year in which the Change of Control occurs;

 

-	an amount equal to 1.5 times the annual bonus based on the target annual bonus for the year in which the Change of Control occurs; and

 

-	a cash amount equal to 1.5 times the annual premium cost to the Corporation of providing his insured health benefits;

 

and all outstanding options will automatically vest upon the Change of Control.

 

Matthias Gerlach

 

AEZS Germany entered into an employment agreement in January 2001 with Dr. Gerlach, Senior Vice President Manufacturing and Supply Chain and Managing Director of AEZS Germany. In accordance with the terms of his employment agreement, Dr. Gerlach will receive a pension payment after he has reached the statutory retirement age, independent of whether he works with AEZS Germany until such age, in an amount to be based on the contributions that were made during his employment with AEZS Germany.

 

Eckhard Guenther

 

AEZS Germany entered into an employment agreement in April 1990 with Dr. Eckhard Guenther, Senior Vice President Business Development and Alliance Management and Managing Director AEZS Germany. In accordance with the terms of his employment agreement, Dr. Guenther receives a pension payment after he has reached statutory retirement age, independent of whether he works with AEZS Germany until such age, in an amount to be based on the contributions that were made during the employment with AEZS Germany. Dr. Guenther had reached retirement age in 2022 and has since then received such pension payments. Until January 31, 2024, Dr. Guenther still served as Managing Director of AEZS Germany. Dr. Matthias Gerlach succeeded Dr. Guenther in his role as managing director AEZS Germany. See “Pension Plan Benefits” above for more information on Dr. Guenther’s pension benefits.

 

Michael Teifel

 

AEZS Germany entered into an employment agreement in May 2021 with Dr. Michael Teifel, Chief Science Officer and Senior Vice President Non-Clinical Development. In accordance with the terms of his employment agreement, Dr. Teifel will receive a pension payment after he has reached statutory retirement age, independent of whether he works with AEZS Germany until such age, in an amount to be based on the contributions that were made during the employment with AEZS Germany.

 

 

Summary Termination Value Table

 

The table below shows estimated incremental payments that would be triggered, pursuant to their individual employment contracts, in the event of a termination of employment of our Named Executive Officers who remained employed on December 31, 2023. The amounts shown are in U.S. dollars.

 

Name		Termination Provisions Value ($)(1) (2)
La Fratta, Giuliano			456,077
Gerlach, Matthias			—
Guenther, Eckhard			—
Paulini, Klaus			324,690
Teifel, Michael			—

 

(1)	The termination values assume that the triggering event took place on the last business day of our financial year-end (December 31, 2023).

 

(2)	Value of earned/unused vacation, if applicable, and amounts owing for expense reimbursement are not included as they are not considered as “incremental” payments made in connection with termination of employment.

 

***

 

 

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