Forward-Looking
Statements
This prospectus supplement, the accompanying
prospectus and documents incorporated by reference herein and therein contain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of
1934, as amended, or the Exchange Act. Many of the forward-looking statements contained in this prospectus supplement can be identified
by the use of words such as “anticipate,” “believe,” “could,” “expect,” “should,”
“plan,” “intend,” “will,” “estimate” and “potential,” among others,
or the negatives thereof.
Such forward-looking statements include,
but are not limited to, statements regarding our intent, belief or current expectations. Forward-looking statements are based on
our management’s beliefs and assumptions and on information currently available to our management. Such statements are subject
to risks and uncertainties, and actual results may differ materially from those expressed or implied in the forward-looking statements
due to various factors, including, but not limited to those identified under the section “Item 3. Key Information—D.
Risk factors” in our Annual Report on Form 20-F for the year ended December 31, 2015, incorporated by reference herein. These
risks and uncertainties include factors relating to:
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our operation as a development stage company with limited operating history and a history of operating losses;
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our need for substantial additional funding before we can expect to become profitable from sales of our product candidates;
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our dependence on the success of Keyzilen
®
(AM-101), AM-111 and AM-125, which are still in clinical development
and may eventually prove to be unsuccessful, including the likelihood that the efficacy and safety of AM-101 in the treatment of
Acute Peripheral Tinnitus 3, or TACTT3, clinical trial with Keyzilen
®
may not meet its endpoints;
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the chance that we may become exposed to costly and damaging liability claims resulting from the testing of our product candidates
in the clinic or in the commercial stage;
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the chance our clinical trials may not be completed on schedule, or at all, as a result of factors such as delayed enrollment
or the identification of adverse effects;
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uncertainty surrounding whether any of our product candidates will receive regulatory approval, which is necessary before they
can be commercialized;
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if our product candidates obtain regulatory approval, our being subject to expensive ongoing obligations and continued regulatory
overview;
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enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval and commercialization;
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the chance that we do not obtain orphan drug exclusivity for AM-111, which may subject us to earlier competition;
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dependence on governmental authorities and health insurers establishing adequate reimbursement levels and pricing policies;
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our products may not gain market acceptance, in which case we may not be able to generate product revenues;
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our reliance on our current strategic relationships with INSERM or Xigen and the potential failure to enter into new strategic
relationships;
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our reliance on third parties to conduct our nonclinical and clinical trials and on third-party single-source suppliers to
supply or produce our product candidates;
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our ability to comply with the requirement under our term loan facility with Hercules, including repayment of amounts outstanding
when due; and
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other risk factors discussed under “Risk Factors.”
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Although we believe that the expectations
reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct.
Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them in light
of new information or future developments or to release publicly any revisions to these statements in order to reflect later events
or circumstances or to reflect the occurrence of unanticipated events.
Summary
The following summary highlights certain
information contained elsewhere in this prospectus supplement and the accompanying prospectus or in the documents incorporated
by reference herein. It may not contain all of the information that you should consider before investing in the common shares and
warrants. For a more complete discussion of the information you should consider before investing in the common shares and warrants,
you should carefully read this entire prospectus supplement, the accompanying prospectus and the incorporated documents.
Our Business
We are a clinical-stage biopharmaceutical
company focused on the development of novel products for the treatment of inner ear disorders. Our most advanced product candidates
are: Keyzilen
®
(AM-101) for the treatment of acute inner ear tinnitus and AM-111 for acute sudden sensorineural
hearing loss, or ASNHL. Both acute inner ear tinnitus and hearing loss are conditions for which there is high unmet medical need,
and we believe that we have the potential to be the first to market in these indications.
We believe we are currently the clinically
most advanced company working on inner ear therapeutics. Our product candidates are protected through intellectual property rights
and, in addition, orphan drug designation has been granted to AM-111. In addition, AM-125 is being developed for the treatment
of vestibular disorders.
Our product candidates Keyzilen
®
and AM-111 are injected under local anesthesia into the middle ear by a technique called intratympanic injection. Once injected
into the middle ear, the active substance, which is formulated in a biocompatible gel, diffuses into the inner ear. The procedure
is short, safe, has a long history of use and allows for highly targeted drug delivery with minimal systemic exposure. It is performed
by an ear, nose and throat, or ENT, specialist on an outpatient basis over one or more visits.
Our product candidate AM-125 is administered
with a metered spray into the nose. Intranasal application allows for the active substance to reach the blood stream rapidly while
avoiding the substantial “first-pass” metabolism associated with the current standard oral intake of betahistine.
Our Product Candidates
Keyzilen
®
is targeting acute
inner ear tinnitus. Tinnitus, frequently perceived as a ringing in the ears, is the perception of sound when no external sound
is present. Similar to pain, it is an unwanted, unpleasant and thus distressing sensation. Tinnitus may result in further symptoms
such as inability to concentrate, irritability, anxiety, insomnia, and clinical depression. In many cases, tinnitus significantly
impairs quality of life and affects normal day-to-day activities.
Tinnitus is categorized as acute during
the three months after onset and chronic when it persists for more than three months. Approximately 25% of American adults (50
million people) have experienced tinnitus with nearly 8% of American adults (16 million people) having frequent occurrences. Epidemiological
studies reveal comparable prevalence rates for Europe. Among the tinnitus patients seen by general practitioners and ENT specialists
in the United States and the top five European markets who reported seeing at least one tinnitus patient in the previous three
months, approximately 36% of patients sought medical treatment during the first three months following tinnitus onset.
Possible causes of acute inner ear tinnitus
include traumatic insult such as exposure to excessive noise, or middle ear infection (otitis media, or OM). We have conducted
Phase 2 trials and a Phase 3 trial in this specific tinnitus population with Keyzilen
®
, which demonstrated a favorable
safety profile. Our Phase 3 clinical program is comprised of two Phase 3 trials, one in North America (Efficacy and Safety of AM-101
in the Treatment of Acute Peripheral Tinnitus 2, or TACTT2) and one in Europe (Efficacy and Safety of AM-101 in the Treatment of
Acute Peripheral Tinnitus 3, or TACTT3), and two open label follow-on studies, AM-101 in the Post-Acute Treatment of Peripheral
Tinnitus 1 and 2, or AMPACT1 and AMPACT2. On August 18, 2016, we announced that the TACTT2 clinical trial had failed to meet its
two co-primary efficacy endpoints. Based on this outcome, we amended the
protocol
for TACTT3 and, following approval, resumed enrollment for that trial in January 2017. See “—TACTT2 Results and Protocol
Amendment for TACTT3.”
Our second product candidate, AM-111, is
being developed for the treatment of ASNHL. In sensorineural hearing loss, which is also referred to as inner ear hearing loss,
there is damage to the sensory cells of the inner ear or the auditory nerve. Hearing loss is a heterogeneous disorder of many forms
with a variety of causes. ASNHL may be triggered by a variety of insults, such as exposure to excessively loud sound, infection,
inflammation or certain ototoxic drugs. These insults may also result in tinnitus. In the United States, more than 66,000 patients
covered by health insurance are treated for sudden deafness annually. There are no currently approved pharmaceutical treatments
for this patient population in the United States.
In our Phase 2 clinical trial, AM-111 showed
a favorable safety profile. Furthermore, in patients with severe to profound ASNHL, we observed a clinically relevant improvement
in hearing threshold, speech discrimination and a higher rate of complete tinnitus remission compared with placebo. We are conducting
two pivotal Phase 3 trials in the treatment of idiopathic inner ear hearing loss, or ISSNHL, a subset of ASNHL, titled Efficacy
and Safety of AM-111 in the Treatment of Acute Inner Ear Hearing Loss, or HEALOS, and Efficacy and Safety of AM-111 as Acute Sudden
Sensorineural Hearing Loss Treatment, or ASSENT.
HEALOS is enrolling patients in Europe
and Asia and reached the mid-point of enrollment in September 2016. ASSENT is being conducted in the U.S., Canada and South Korea
and commenced enrollment in summer 2016. Both Phase 3 trials with AM-111 are randomized, double-blind, placebo-controlled clinical
trials evaluating the efficacy, safety and tolerability of AM-111 in patients with severe to profound ISSNHL. The primary efficacy
endpoint is the improvement of pure tone hearing thresholds from baseline to Day 28 and Day 91, respectively.
We believe that, if approved, AM-111 could
become the first approved pharmaceutical treatment for ASNHL. AM-111 received orphan drug designation for the treatment of ASNHL
from both the FDA, and the European EMA.
With our third clinical-stage product candidate,
AM-125, we are developing betahistine in a spray formulation for the intranasal treatment of Ménière’s’s
disease and vestibular vertigo. Ménière’s disease is a chronic disorder of the inner ear characterized by episodes
of vertigo, tinnitus, hearing loss and fullness in the ear. Although the underlying pathology is still not fully understood, it
is commonly presumed that Ménière’s disease is caused by an imbalance in the production and absorption of endolymph,
one of two cochlear fluids. Vestibular vertigo refers to symptoms resulting from dysfunction within the body’s system of
balance, including the misperception of movement or dizziness. Vertigo can be caused by an imbalance in signaling, position and
acceleration to the brain between the left and right vestibular systems.
Data from the National Health and Nutrition
Examination Survey show that as many as 35% of adults over 40-years-old in the United States, which totals approximately 69 million
Americans, have experienced some form of vestibular dysfunction. There are almost 4 million emergency room visits per year in the
United States for problems of dizziness or vertigo. Approximately 615,000 Americans are currently diagnosed with Ménière’s
disease.
Betahistine is generally recognized as
a safe drug and there exists a large body of data on the pharmacology, pharmacokinetics and toxicology of the compound. It is approved
in more than 80 countries worldwide for the treatment of Ménière’s disease and vestibular vertigo, but not
in the United States. In 1970, the Commissioner of FDA withdrew approval of the NDA after the discovery that the submission contained
unsubstantiated information about some patients in the efficacy studies upon which approval was based..
On February 2, 2017, we entered into an
asset purchase agreement with Otifex Therapeutics Pty. Ltd, or Otifex, an Australian company, pursuant to which we agreed to purchase
certain preclinical and clinical assets related to AM-125 The assets include data from a randomized placebo controlled dose escalating
Phase 1 clinical trial in 40 healthy volunteers. The trial demonstrated good tolerability of intranasal betahistine and a significantly
higher bioavailability than reported for oral betahistine administration. We intend to discuss the regulatory requirements for
AM-125 with the FDA and other health authorities to further define the development program and plan to conduct an additional Phase
1 trial with repeated dosing. We believe that, if approved, AM-125 could become the first
betahistine
product for the treatment of Ménière’s disease and vestibular vertigo in the United States and offer larger
therapeutic benefits than oral betahistine in those markets where that compound is already approved today.
The following table summarizes our product
development pipeline
1
:
1. Dates
of key milestones are indicative and subject to change.
Strengths
We believe we are a leader in the development
of novel therapeutic products for inner ear disorders due to several factors.
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First mover advantage.
With two product candidates in late stage clinical development, we believe we are currently
the clinically most advanced company working on inner ear therapeutics. We believe that Keyzilen
®
and AM-111 are
the only drug candidates that have demonstrated positive efficacy in randomized placebo-controlled proof of concept clinical trials
in acute inner ear tinnitus and acute inner ear hearing loss. As a result, we believe that, if approved, we will be the first to
market with FDA or EMA-approved products for these indications.
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Barriers to entry.
Our product candidates are protected not only through intellectual property rights but also
potentially by the orphan drug status granted to AM-111 as well as by the know-how across several disciplines that is required
to formulate and reliably deliver drugs to the inner ear. Our proprietary gel formulation, its manufacturing and its application
are part of our intellectual property, know-how and competitive advantage. In addition, we believe that our intellectual property
broadly directed to polymer-based formulations for the treatment of middle or inner ear disorders will serve as barriers to entry
beyond our current product candidates.
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Efficient commercialization.
Given that the market for our therapeutic product candidates can be efficiently
accessed through a limited number of specialist ENT physicians and specialist neurotologists, we intend to build our own sales
force in order to commercialize our product candidates, if approved, in the United States and key European markets.
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Experienced management.
Having been focused on developing therapeutic products for inner ear indications for
over a decade, we believe that our senior management provides us with significant
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capabilities. Our Chief Executive
Officer and founder, Thomas Meyer, has played several pivotal roles in our development and evolution. Prior to Auris Medical, he
was the Chief Executive Officer of Disetronic, a fast growing Swiss diabetes care company sold to Roche in 2003. Other key members
of our management team bring significant experience in clinical, product development and regulatory affairs in biopharmaceutical
companies
Strategy
Our goal is to become the leading biopharmaceutical
company focused on developing and commercializing novel therapeutics to treat inner ear disorders. The key elements of our strategy
to achieve this goal are:
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Target inner ear disorders that have a defined pathophysiology and that are amenable to treatment.
We are focusing
on inner ear disorders for which the pathophysiology is defined, can be effectively targeted and where affected patients seek medical
attention proactively.
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Use drug delivery techniques and proprietary drug formulations for effective, safe and rapid local administration.
We are developing treatments for inner ear disorders based on intratympanic injections into the middle ear. This short outpatient
procedure allows us to deliver therapeutic concentrations of drug in a highly targeted fashion with only minimal systemic exposure.
We are using proprietary, fully biocompatible and biodegradable gel formulations for optimum middle ear tolerance and effective
diffusion of active substances into the inner ear. We are also developing spray formulations for intranasal delivery of drugs that
can reach the inner ear through the bloodstream more effectively than oral administration.
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Bring Keyzilen
®
(AM-101), AM-111 and AM-125 to market.
We plan to focus most of our resources
on the development and commercialization of our two lead product candidates: Keyzilen
®
and AM-111, which are in
Phase 3 clinical development. In addition, we are developing AM-125 for the treatment of vestibular disorders and we are working
on several early stage projects.
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Build an efficient commercial infrastructure to maximize the value of our product candidates.
We intend to build
commercial operations in select markets. In those markets, we expect our commercial operations to include specialty sales forces
targeting ENTs and specialists in neurotology both in hospitals and in private practice. In other markets, we expect to seek partnerships
that would maximize our products’ commercial potential.
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Expand our pipeline through internal development, academic collaborations, in-licensing and acquisitions.
Through
our work with academic research partners on the pathophysiology of tinnitus and hearing loss and clinical development we have gained
novel insights that will help us both to create new pipeline products that act by way of novel mechanisms as well as to expand
the therapeutic focus for our existing product candidates beyond their current indications. We plan to further maximize our commercial
potential through product life cycle management, and with licensing or acquisition of compounds that could augment our product
offering in ENT disorders.
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TACTT2 Results and Protocol Amendment for
TACTT3
On August 18, 2016, we announced that the
Phase 3 TACTT2 clinical trial with our lead product candidate, Keyzilen
®
(AM-101), did not meet the two co-primary
efficacy endpoints of statistically significant changes in tinnitus loudness and tinnitus burden compared to placebo. TACTT2 was
designed as a randomized, double-blind, placebo-controlled trial in acute inner ear tinnitus following traumatic cochlear injury
or otitis media. The trial was conducted primarily in North America and randomized 343 patients to receive either Keyzilen
®
0.87 mg/mL or placebo in a 3:2 ratio. The co-primary endpoints were the change in subjective tinnitus loudness, measured by the
tinnitus loudness question, or TLQ, and the change in tinnitus burden from baseline to Day 84, measured by the Tinnitus Functional
Index, or TFI.
Treatment with Keyzilen
®
did
not demonstrate a statistically significant difference in tinnitus improvement as compared to placebo for either co-primary efficacy
endpoint. In TACTT2, baseline values for TLQ and TFI were
6.44
and 52.4 points in the Keyzilen
®
group, and 6.47 and 50.2 points in the placebo group. Treatment with Keyzilen
®
resulted in a reduction in tinnitus loudness of 0.63 points, compared to a reduction of 0.80 points for placebo (p-value
of 0.321). With respect to tinnitus burden, treatment with Keyzilen
®
resulted in a 9.67 point reduction, as measured
by the TFI, compared to a reduction of 10.63 points for placebo (p-value of 0.565). A reduction of 13 points as measured by the
TFI was defined as clinically meaningful by the developers of the TFI. By convention, a p-value that is less than 0.05 is considered
statistically significant.
Keyzilen
®
was well tolerated
with no drug-related serious adverse events. The trial’s primary safety endpoint, incidence of clinically meaningful hearing
deterioration, was low with no statistically significant difference from the placebo group (p-value of 0.82), supporting the safety
profile of Keyzilen
®
.
While we are continuing to analyze the
TACTT2 results, we believe we have identified two principal sources for the outcome: (i) the high frequency of tinnitus loudness
ratings over an extended period of time and (ii) an unexpectedly high level of variability in outcomes among study sites. We believe
the daily capture of TLQ data may have caused a number of patients to excessively focus on their tinnitus symptoms. With respect
to variability, our analysis subsequent to the unblinding of the trial data has shown positive outcomes at numerous sites, including
many of the high enrolling study centers, but inconclusive or contradictory outcomes at other sites.
However, the TACTT2 trial data show treatment
effects on TFI in favor of Keyzilen
®
for specific subgroups. In the pre-specified subgroup of patients suffering
from tinnitus following otitis media, treatment with Keyzilen
®
resulted in a reduction of 14.76 points in the TFI
from baseline, as compared to 6.19 points for placebo (p-value of 0.048). In active-treated patients who suffered at baseline from
severe or extreme tinnitus (a subgroup independent of tinnitus etiology that was not pre-specified), as determined by the Patient
Global Impression of Severity, a 15.53 point reduction was observed , as compared to 11.48 points for placebo (p-value of 0.238).
Based on insights from our continuing analysis
of the TACTT2 trial, we amended the trial protocol for TACTT3, the ongoing second Phase 3 clinical trial with Keyzilen
®
.
Under the amended trial protocol, both the TLQ and the TFI will be alternate primary efficacy endpoints. In order to corroborate
the TACTT2 results showing clinically meaningful treatment effects based on the TFI for patients with otitis media-related tinnitus
and those with severe to extreme tinnitus at baseline, these two subgroups will be included in confirmatory statistical testing
in TACTT3 along with the overall clinical trial. Type I error (false positive) control will be provided across the three populations
(overall trial population, otitis media-related tinnitus and severe to extreme tinnitus) by application of the Hochberg procedure.
The Hochberg procedure, a method applied to statistical testing to control for multiplicity, avoids the need for pre-specification
of a hierarchy among the three populations for analysis, providing more flexibility than with other methods and allowing the possibility
of achieving success in a subpopulation. Additionally, the trial size will be increased by 60 patients in each of Stratum A (acute
tinnitus stage) and Stratum B (post-acute tinnitus stage) to enhance statistical sensitivity to the effects of treatment.
Prior to the protocol amendment, TACTT3
had enrolled more than 300 patients in Stratum A and approximately 330 patients in Stratum B. In January 2017 enrollment was resumed
under the new protocol. As in TACTT2, TLQ is determined based on averaged daily ratings around study visits; however, fewer additional
data will be captured from the newly enrolled patients in between study visits in order to lighten their burden. Top-line results
from the expanded TACTT3 trial are expected in early 2018.
In early December 2016, we had two meetings
with the FDA, relating to the Keyzilen
®
program. Through a Type C Meeting, the FDA confirmed that, as per standard
practice, two positive confirmatory trials would be required to submit a New Drug Application, or NDA. The FDA did not provide
feedback on the TACTT3 protocol amendment because the trial is being conducted in Europe and is not under the Investigational New
Drug, or IND Application. Data from trials that were not filed under the IND may be used for an NDA, provided they meet requisite
legal and regulatory requirements such as adherence to Good Clinical Practice, or GCP, regulations. In a separate meeting with
the FDA, alignment was achieved on key items of the Keyzilen
®
Chemistry, Manufacturing, and Controls section for
a future NDA.
Even if the protocol amendment for TACTT3
is approved by the applicable regulatory agencies, we cannot assure you that the TACTT3 clinical trial will be successful. Additionally,
we cannot be certain that Keyzilen
®
will be approved even if it the TACTT3 clinical trial is considered successful.
Recent Developments
Legal
Proceedings
On July
20, 2015, the United States Patent and Trademark Office (“USPTO”) declared Patent Interference No. 106,030 involving
our issued U.S. patent No. 9,066,865 (the “’865 Patent”) and Otonomy Inc.’s (“Otonomy”) U.S.
patent application No. 13/848,636 (the “’636 Application”). An interference is a proceeding within the
USPTO to determine the priority of an invention that is claimed in patents filed by different parties. Our ’865 Patent
discloses methods of treating inner or middle ear diseases with intratympanic injections of poloxamer-based compositions and its
claims are directed to the use of fluoroquinolone antibiotics in poloxamer 407 compositions under certain specifications.
The patent interference identified claims 1-9 in our ’865 Patent as interfering with claims 38, 43 and 46-50 of Otonomy’s
’636 Application.
On January
26, 2017, the USPTO issued a decision on the interference granting us benefit of priority, refusing all claims in Otonomy’s
’636 Application and entering judgment against Otonomy. In addition, claims 1-8 of our ’865 Patent were cancelled
because the USPTO determined that the written description of the patent specification lacked full scope support for treating middle
or inner ear disease with fluoroquinolone. However, claim 9 of our ’865 Patent, which is directed to a method of treating
viral and bacterial infections with intratympanic injection of a fluoroquinolone antibiotic in a poloxamer 407 composition under
certain specifications, was affirmed.
The USPTO’s decision is
not final and may be appealed. There can be no assurance that we will be successful on appeal or that the validity or enforceability
of our ’865 Patent will not be challenged in the future.
Risk Factors
An investment in our common shares and
warrants involves risk. You should carefully consider the information set forth in the section of this prospectus supplement entitled
“Risk Factors” beginning on page S-9, as well as other information included or incorporated by reference in this prospectus
supplement and the accompanying prospectus, before deciding whether to invest in our common shares and warrants.
Other Information
We are a stock corporation organized under
the laws of Switzerland. We began our current operations in 2003. On April 22, 2014, we changed our name from Auris Medical AG
to Auris Medical Holding AG and transferred our operational business to our newly incorporated subsidiary Auris Medical AG, which
is now our main operating subsidiary. Our principal office is located at Bahnhofstrasse 21, 6300 Zug, Switzerland, telephone number
+41 41 729 71 94. We maintain a website at www.aurismedical.com where general information about us is available. Investors can
obtain copies of our filings with the Securities and Exchange Commission, or SEC, from this site free of charge, as well as from
the SEC website at www.sec.gov. We are not incorporating the contents of our website into this prospectus supplement and the accompanying
prospectus.
The Offering
Issuer
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Auris Medical Holding AG
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Common shares offered by us
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10,000,000 common shares, nominal value CHF 0.40 per share.
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Warrants offered by us
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10,000,000 warrants, each warrant
entitling the holder to purchase 0.70 of
a common share at an exercise price of $1.20 per whole common share. The warrants will be
exercisable upon issuance and will expire five years after issuance. See “Description of Warrants.” We are also offering
the common shares that are issuable upon the exercise of the warrants offered pursuant to this prospectus supplement and the accompanying
prospectus.
The warrants are not and will not be listed for trading
on the NASDAQ Global Market, or any other securities exchange or nationally recognized trading system.
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Units
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The common shares and warrants will be sold in units, with each unit consisting of one common share and one warrant to
purchase 0.70 of a common share. Each unit will be sold at a price of $1.00 per
unit. The common shares and warrants will be mandatorily separable immediately upon issuance.
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Option to purchase additional common shares and/or warrants
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The underwriters have an option to purchase up to 1,500,000 additional common shares and/or 1,500,000 additional warrants
from us. The underwriters can exercise this option at any time within 30 days from the date of this prospectus
supplement.
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Common shares to be outstanding immediately after this offering
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44,329,704 common shares, nominal value CHF 0.40 per share.
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Use of proceeds
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We currently intend to use the net proceeds from this offering for working capital and general corporate purposes. See “Use of Proceeds” in this prospectus supplement.
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Risk factors
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An investment in our common shares and warrants involves a high degree of risk. Please refer to “Risk Factors” in this prospectus supplement, under “Item 3. Key Information—D. Risk factors” in our Annual Report on Form 20-F for the year ended December 31, 2015, incorporated by reference herein, and other information included or incorporated by reference in this prospectus supplement or the accompanying prospectus for a discussion of factors you should carefully consider before investing in our common shares and warrants.
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NASDAQ Global Market symbol
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“EARS.”
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The number of our common shares outstanding
after this offering is based on 34,329,704 common shares outstanding as of September 30, 2016 and excludes:
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4,974,187 of our common shares available for issuance pursuant to our conditional share capital for equity incentive plans
pursuant to our amended and restated articles of association;
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652,650 of our common shares issuable upon the exercise of options outstanding as of September 30, 2016 at a weighted average
exercise price of $4.68 per common share;
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12,150,000 common shares available for issuance for financing purposes pursuant to our amended and restated articles of association;
and
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241,117 common shares issuable upon the exercise of a warrant issued to Hercules Capital, Inc., or Hercules, at an exercise
price of $3.94.
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Unless otherwise indicated, all information
contained in this prospectus assumes:
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no exercise of the options or warrants described above; and
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no exercise of the option granted to the underwriters to purchase up to 1,500,000 additional common shares
and/or 1,500,000 additional warrants in connection with
the offering.
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Risk Factors
Any investment in our common shares
and warrants involves a high degree of risk. You should carefully consider the risks described below and in “Item 3. Key
Information—D. Risk factors” in our Annual Report on Form 20-F for the year ended December 31, 2015, incorporated by
reference herein and all of the information included or incorporated by reference in this prospectus supplement and the accompanying
prospectus before deciding whether to purchase our common shares and warrants. The risks and uncertainties described below are
not the only risks and uncertainties we face. Additional risks and uncertainties not presently known to us or that we currently
deem immaterial may also impair our business operations. If any of the events or circumstances described in the following risk
factors actually occur, our business, financial condition and results of operations would suffer. In that event, the price of our
common shares could decline, and you may lose all or part of your investment. The risks discussed below also include forward-looking
statements and our actual results may differ substantially from those discussed in these forward-looking statements. See “Forward-Looking
Statements.”
Risks
Related to the Development and Clinical Testing of Our Product Candidates
We depend entirely on the success of
Keyzilen® and AM-111, which are still in clinical development. If our clinical trials are unsuccessful, we do not obtain regulatory
approval or we are unable to commercialize Keyzilen® and AM-111, or we experience significant delays in doing so, our business,
financial condition and results of operations will be materially adversely affected.
We currently have no products approved
for sale and have invested a significant portion of our efforts and financial resources in the development of Keyzilen
®
and AM-111, which are still in clinical development. Our ability to generate product revenues, which we do not expect will occur
for at least the next couple years, if ever, will depend heavily on successful clinical development, obtaining regulatory approval
and eventual commercialization of these product candidates. We currently generate no revenues from sales of any drugs, and we may
never be able to develop or commercialize a marketable drug. The success of Keyzilen
®
and AM-111 will depend on
several factors, including the following:
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completing clinical trials that demonstrate the efficacy and safety of our product candidates;
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receiving marketing approvals from competent regulatory authorities;
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establishing commercial manufacturing capabilities;
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launching commercial sales, marketing and distribution operations;
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acceptance of our product candidates by patients, the medical community and third-party payors,
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a continued acceptable safety profile following approval;
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competing effectively with other therapies; and
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qualifying for, maintaining, enforcing and defending our intellectual property rights and claims.
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If we do not achieve one or more of these
factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize Keyzilen
®
or AM-111, which would materially adversely affect our business, financial condition and results of operations.
Clinical drug development involves a
lengthy and expensive process with uncertain timelines and uncertain outcomes, and results of earlier studies and trials may not
be predictive of future trial results. If clinical trials of our product candidates are prolonged or delayed, we may be unable
to obtain required regulatory approvals, and therefore be unable to commercialize our product candidates on a timely basis or at
all.
To obtain the requisite regulatory approvals
to market and sell any of our product candidates, we must demonstrate through extensive pre-clinical studies and clinical trials
that our products are safe and effective in humans. Clinical testing is expensive and can take many years to complete, and its
outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of pre-clinical studies
and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. For example,
positive results generated to date in clinical trials for our product candidates do not ensure that later clinical trials will
demonstrate similar results. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy
traits despite having progressed through pre-clinical studies and initial clinical trials. A number of companies in the biopharmaceutical
industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding
promising results in earlier trials. Our future clinical trial results may not be successful.
Clinical trials must be conducted in accordance
with FDA, EMA and comparable foreign regulatory authorities’ legal requirements, regulations or guidelines, and are subject
to oversight by these governmental agencies and Institutional Review Boards, or IRBs, at the medical institutions where the clinical
trials are conducted. In addition, clinical trials must be conducted with supplies of our product candidates produced under current
good manufacturing practices, or cGMP, and other requirements. We depend on medical institutions and clinical research organizations,
or CROs, to conduct our clinical trials in compliance with current good clinical practice, or cGCP, standards. To the extent the
CROs fail to enroll participants for our clinical trials, fail to conduct the trials to cGCP standards or are delayed for a significant
time in the execution of trials, including achieving full enrollment, we may be affected by increased costs, program delays or
both, which may harm our business.
To date, we have not completed all clinical
trials required for the approval of any of our product candidates. Keyzilen
®
and AM-111 are in Phase 3 clinical
development.
The completion of clinical trials for our
clinical product candidates may be delayed, suspended or terminated as a result of many factors, including but not limited to:
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the delay or refusal of regulators or IRBs to authorize us to commence a clinical trial at a prospective trial site and changes
in regulatory requirements, policies and guidelines;
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delays or failure to reach agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which
can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
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delays in patient enrollment and variability in the number and types of patients available for clinical trials;
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the inability to enroll a sufficient number of patients in trials to ensure adequate statistical power to detect statistically
significant treatment effects;
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negative or inconclusive results, which may require us to conduct additional pre-clinical or clinical trials or to abandon
projects that we expect to be promising;
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safety or tolerability concerns could cause us to suspend or terminate a trial if we find that the participants are being exposed
to unacceptable health risks;
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regulators or IRBs requiring that we or our investigators suspend or terminate clinical research for various reasons, including
noncompliance with regulatory requirements or safety concerns, among others;
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lower than anticipated retention rates of patients and volunteers in clinical trials;
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our CROs or clinical trial sites failing to comply with regulatory requirements or meet their contractual obligations to us
in a timely manner, or at all, deviating from the protocol or dropping out of a trial;
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delays relating to adding new clinical trial sites;
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difficulty in maintaining contact with patients after treatment, resulting in incomplete data;
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errors in survey design, data collection and translation;
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delays in establishing the appropriate dosage levels;
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the quality or stability of the product candidate falling below acceptable standards;
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the inability to produce or obtain sufficient quantities of the product candidate to complete clinical trials; and
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exceeding budgeted costs due to difficulty in accurately predicting costs associated with clinical trials.
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Any delays in completing our clinical trials
will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence
product sales and generate revenues. Any of these occurrences may harm our business, financial condition and prospects significantly.
In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also
ultimately lead to the denial of regulatory approval of our product candidates.
Positive or timely results from pre-clinical
or early stage trials do not ensure positive or timely results in late-stage clinical trials or product approval by the FDA, the
EMA or comparable foreign regulatory authorities. Product candidates that show positive pre-clinical or early clinical results
may not show sufficient safety or efficacy in later stage clinical trials and therefore may fail to obtain regulatory approvals.
For example, although Keyzilen
®
achieved favorable results in our Phase 2 efficacy trial, in August 2016, we announced
that the Phase 3 TACTT2 clinical trial of Keyzilen
®
did not meet its two co-primary efficacy endpoints of statistically
significant changes in tinnitus loudness and tinnitus burden compared to placebo. There can be no assurances that TACTT3, our ongoing
Phase 3 clinical trial with Keyzilen
®
will meet its primary efficacy endpoints. In addition, pre-clinical and clinical
data are often susceptible to varying interpretations and analyses. Many companies that believed their product candidates performed
satisfactorily in pre-clinical studies and clinical trials have nonetheless failed to obtain marketing approval for the product
candidates. The FDA, the EMA and comparable foreign regulatory authorities have substantial discretion in the approval process
and in determining when or whether regulatory approval will be obtained for any of our product candidates. Even if we believe the
data collected from clinical trials of our product candidates are promising, such data may not be sufficient to support approval
by the FDA, the EMA or any other regulatory authority.
In some instances, there can be significant
variability in safety and/or efficacy results between different trials of the same product candidate due to numerous factors, including
changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, adherence to the
dosing regimen and other trial protocols and the rate of dropout among clinical trial participants. In the case of our late stage
clinical product candidates, results may differ in general on the basis of the larger number of clinical trial sites and additional
countries and languages involved in Phase 3 clinical trials.
In the case of Keyzilen
®
our endpoints in Phase 3 clinical trials are based on patient reported outcomes, some of which are captured daily from trial participants
with electronic diaries. Based on insights from our continuing analysis of the TACTT2 trial, we believe the high frequency of tinnitus
loudness ratings over an extended period of time may have caused a number of patients to excessively focus on their tinnitus symptoms,
thereby influencing the measured outcome. In addition, low compliance with daily reporting requirements may impact the trials’
validity or statistical power.
Under the SPA with the FDA we agreed to
use the Tinnitus Functional Index, or TFI, as a co-primary efficacy endpoint in the TACTT2 trial and a secondary efficacy endpoint
in the TACTT3 trial. Based on our ongoing analysis of the TACTT2 clinical trial results, we are amending our protocol for the TACTT3
Phase 3 clinical trial of Keyzilen
®
to elevate the change in the TFI score from a key secondary endpoint to an alternate
primary efficacy endpoint. We used a different tinnitus questionnaire in the previous clinical trials with Keyzilen
®
(Tinnitus Handicap Inventory 12, THI-12, a 12-item short version of the 25-item Tinnitus Handicap Inventory, or THI). Unlike the
THI-12, the TFI was developed and validated broadly in accordance with the FDA’s guidance for patient-reported outcome measures
and with the explicit aim of measuring treatment-related changes in tinnitus. In addition, the TFI covers all important domains
of negative tinnitus impact including sleep difficulties, whereas the THI-12 does not include any sleep-related item. In spite
of the methodological superiority of the TFI and a 2011 study by Meikle et al. showing a high correlation between THI and TFI scores
with higher responsiveness to change of the latter, there is no assurance that outcomes with the TFI will be qualitatively and
quantitatively similar or the same as those that would result with the THI-12. In the TACTT2 trial, treatment with Keyzilen
®
did not result in a clinically meaningful change in TFI in the overall trial population.
For calculating the statistical power of
the extended TACTT3 trial, we made certain hypotheses regarding the size of the true treatment effect of Keyzilen
®
over placebo and the related standard deviations. For the TFI, those were based on actual outcomes for the subpopulations in the
TACTT2 trial, whereas the standard deviation was taken at the 80% confidence level (meaning that the probability is 80% that the
true standard deviation is not higher). The statistical power for detecting a true treatment effect of at least 5 TFI points in
the overall trial population or in the subpopulation with severe or extreme tinnitus or of at least 7 TFI points in the subpopulation
with otitis media related tinnitus was calculated at 87%; for true treatments effects of 0.5 in the TLQ the power is greater than
90%. We believe the underlying assumptions to be reasonable since they are based on actual patient data with Keyzilen
®
from TACTT2. However, we cannot know what the true effects of Keyzilen
®
will be in TACTT3; if the true effects
turn out to be less than hypothesized, then the trial's power (i.e., the chance of achieving a significant result in either the
overall population or in one or both of the defined subpopulations) would be reduced and if the true effects turn out to be greater
than hypothesized, then power would be increased. Further, the use of the Hochberg procedure to control for Type I error for testing
endpoints not only for the entire trial population, but also for two subpopulations, means that not all tested groups will be tested
at the same significance level; if the population with the least significant p-value does not reach the specified level of significance
(0.04 for the TFI and 0.01 for TLQ), then the other two populations with lower p-values will be tested at a more stringent significance
level. This means that the statistical hurdle could be highest for the best performing population. The Hochberg procedure, a method
applied to statistical testing to control for multiplicity, avoids the need for pre-specification of a hierarchy among the three
populations for analysis, providing more flexibility than with other methods and allowing the possibility of achieving success
in a subpopulation.
In the case of AM-111 we are evaluating
the safety and efficacy in an idiopathic condition which implies a considerable heterogeneity in the etiology and natural history
of the condition. This may have an impact on the safety and efficacy outcomes of our Phase 3 clinical trials. In addition, in HEALOS
and ASSENT, we extended the time window for enrollment into each clinical trial, from up to 48 hours to up to 72 hours, in response
to results from the Phase 2 trial showing an increasing treatment effect the later the treatment was given. This was due to declining
spontaneous recovery rates while the effects with active treatment held steady. Although spontaneous recovery is expected to decline
further between 48 and 72 hours, we have no assurance that improvement achieved with the active treatment will remain stable. Based
on discussions with the FDA and EMA, we moved the primary endpoint from Day 7 in the Phase 2 trial to later time points in the
Phase 3 trials: to Day 28 in HEALOS and to Day 91 in ASSENT. In the Phase 2 trial, a therapeutic effect of AM-111 was observed
in a clinically meaningful and statistically significant way in the relevant patient population on Day 3, and the majority of the
effect was achieved by Day 7; however, superior results were also observed at later time points. Therefore, we expect to be able
to demonstrate a therapeutic effect at the later time points in the Phase 3 trials. However, this expectation is based on the assumption
that hearing recovery patterns will be similar to the Phase 2 trial, and there is no assurance that this will be the case.
Whereas in our Phase 2 trial we had full
placebo control for the primary endpoint at Day 7 and an oral corticosteroid could only be administered as a reserve therapy in
case of insufficient hearing recovery to that point, such trial design is not feasible in certain countries due to the use of oral
corticosteroids as standard of care. Hence,
in
the planned ASSENT trial oral corticosteroids will be offered as background therapy to all trial participants. Although there
is no clear evidence for the efficacy of oral corticosteroids in the treatment of idiopathic sudden sensorineural hearing loss,
or ISSNHL, we have assumed a small impact of background therapy on hearing recovery when calculating the number of patients that
are required to demonstrate AM-111’s efficacy in a statistically significant and clinically meaningful way. We cannot rule
out the possibility that the background therapy will enhance hearing recovery more substantially, and that in consequence the
trial may not demonstrate the therapeutic benefit of AM-111. We will conduct an interim analysis at the midpoint of enrollment,
and the clinical trial protocol allows for adjusting the size of the trial if suggested by the interim analysis; however, the
required adjustment may be too large to be considered feasible and we may have to change the trial design significantly or stop
the trial altogether.
Orphan drug designation for AM-111 was
granted by the FDA and EMA for the treatment of acute sensorineural hearing loss, or ASNHL, an umbrella term that comprises hearing
loss from acute acoustic trauma, or AAT, surgery-induced trauma or ISSNHL. We estimate ISSNHL to be the largest of the three subgroups.
The broader, more general designation of ASNHL is based on the common pathophysiologic pathway shared by the three subgroups. Although
we expect to obtain regulatory approval for the entire indication of ASNHL based on confirmatory efficacy and safety data that
covers only one or two rather than all three of the subgroups, there can be no assurance that regulatory agencies will concur with
this assumption at the time of the marketing approval procedure. In that case, it may not be sufficient to conduct HEALOS and ASSENT
in the subgroup of ISSNHL, as is currently planned.
Based on our ongoing analysis of the TACTT2
clinical trial results, we are amending our protocol for the ongoing TACTT3 Phase 3 clinical trial of Keyzilen
®
and
intend to enroll an additional 120 patients, which will cause our product development costs to increase. If we are required to
make further changes to the trial design of, or conduct additional clinical trials or other testing of Keyzilen
®
,
AM-111, or any other product candidate that we develop beyond the trials and testing that we contemplate, if we are unable to successfully
complete clinical trials of our product candidates or other testing, if the results of these trials or tests are unfavorable or
are only modestly favorable or if there are safety concerns associated with Keyzilen
®
, AM-111 or our other product
candidates, we may:
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be delayed in obtaining marketing approval for our product candidates;
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not obtain marketing approval at all;
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obtain approval for indications or patient populations that are not as broad as intended or desired;
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obtain approval with labeling that includes significant use or distribution restrictions or significant safety warnings, including
boxed warnings;
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be subject to additional post-marketing testing or other requirements; or
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remove the product from the market after obtaining marketing approval.
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Our product development costs will also
increase if we experience delays in testing or marketing approvals or if we are required to conduct additional clinical trials
or other testing of Keyzilen
®
and we may be required to obtain additional funds to complete clinical trials. We
cannot assure you that our clinical trials will begin as planned or be completed on schedule, if at all, or that we will not need
to restructure our trials after they have begun. Significant clinical trial delays also could shorten any periods during which
we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before
we do or shorten any periods during which we have the exclusive right to commercialize our product candidates, which may harm our
business and results of operations. In addition, some of the factors that cause, or lead to, clinical trial delays may ultimately
lead to the denial of regulatory approval of Keyzilen
®
, AM-111 or any other product candidate.
If serious adverse, undesirable or unacceptable
side effects are identified during the development of our product candidates or following approval, if any, we may need to abandon
our development of such product
candidates, the commercial profile of
any approved label may be limited, or we may be subject to other significant negative consequences following marketing approval,
if any.
If our product candidates are associated
with serious adverse, undesirable or unacceptable side effects, we may need to abandon their development or limit development to
certain uses or sub-populations in which such side effects are less prevalent, less severe or more acceptable from a risk-benefit
perspective. Many compounds that initially showed promise in pre-clinical or early-stage testing have later been found to cause
side effects that restricted their use and prevented further development of the compound for larger indications.
In our clinical trials of Keyzilen
®
and AM-111 to date, adverse events have included procedure-related transient changes in tinnitus loudness, muffled hearing, ear
discomfort or pain, incision site complications and middle ear infections. A limited number of serious adverse events were observed
(in 2.4% of patients enrolled in the Keyzilen
®
Phase 2 program, in 2.5% in the TACTT2 clinical trial with Keyzilen
®
and in 4.5% of patients in the AM-111 Phase 2 clinical trial); all (Keyzilen
®
) or most (AM-111) were considered
unrelated or unlikely related to the treatment. Occurrence of serious procedure- or treatment-related side effects could impede
clinical trial enrollment and receipt of marketing approval from the FDA, the EMA and comparable foreign regulatory authorities.
They could also adversely affect physician or patient acceptance of our product candidates.
Additionally, if one or more of our product
candidates receives marketing approval, and we or others later identify undesirable side effects caused by such products, a number
of potentially significant negative consequences could result, including:
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regulatory authorities may withdraw approvals of such product;
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regulatory authorities may require additional warnings on the label;
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we may be required to create a medication guide outlining the risks of such side effects for distribution to patients;
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we could be sued and held liable for harm caused to patients; and
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our reputation and physician or patient acceptance of our products may suffer.
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Any of these events could prevent us from
achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our business,
results of operations and prospects.
We depend on enrollment of patients in
our clinical trials for our product candidates. If we are unable to enroll patients in our clinical trials, our research and development
efforts could be materially adversely affected.
Successful and timely completion of clinical
trials will require that we enroll a sufficient number of patient candidates. Trials may be subject to delays as a result of patient
enrollment taking longer than anticipated or patient withdrawal. Patient enrollment depends on many factors, including the size
and nature of the patient population, eligibility criteria for the trial, the proximity of patients to clinical sites, the design
of the clinical protocol, the availability of competing clinical trials, the availability of new drugs approved for the indication
the clinical trial is investigating, and clinicians’ and patients’ perceptions as to the potential advantages of the
drug being studied in relation to other available therapies. In our Phase 3 clinical trials of Keyzilen
®
, we enroll
patients with acute inner ear tinnitus, meaning patients with symptom duration of three months or less, due to traumatic injury
to their cochlea or otitis media. Thus, we must identify, recruit, enroll and dose patients with tinnitus caused by a pre-determined
universe of factors in a limited time frame. Our product candidate AM-111, which is intended for patients with acute inner ear
hearing loss, which is also known as acute sensorineural hearing loss or ASNHL, has orphan drug designation for the treatment of
ASNHL, which means that the potential patient population is more limited. In our late-stage clinical program with AM-111 the enrollment
window is 72 hours from onset, meaning that we must enroll patients in a short time frame. This short enrollment window may negatively
impact our enrollment rate.
The specific target population of patients
and therapeutic time windows may make it difficult for us to enroll enough patients to complete our clinical trials in a timely
and cost-effective manner. Delays in the completion of any
clinical
trial of our product candidates will increase our costs, slow down our product candidate development and approval process and
delay or potentially jeopardize our ability to commence product sales and generate revenue. In addition, many of the factors that
cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory
approval of our product candidates.
We may become exposed to costly and damaging
liability claims, either when testing our product candidates in the clinic or at the commercial stage; and our product liability
insurance may not cover all damages from such claims.
We are exposed to potential product liability
and professional indemnity risks that are inherent in the research, development, manufacturing, marketing and use of pharmaceutical
products. Currently we have no products that have been approved for commercial sale; however, the current and future use of product
candidates by us in clinical trials, and the sale of any approved products in the future, may expose us to liability claims. These
claims might be made by patients that use the product, healthcare providers, pharmaceutical companies or others selling such products.
Any claims against us, regardless of their merit, could be difficult and costly to defend and could materially adversely affect
the market for our product candidates or any prospects for commercialization of our product candidates.
Although the clinical trial process is
designed to identify and assess potential side effects, it is always possible that a drug, even after regulatory approval, may
exhibit unforeseen side effects. If any of our product candidates were to cause adverse side effects during clinical trials or
after approval of the product candidate, we may be exposed to substantial liabilities. Physicians and patients may not comply with
any warnings that identify known potential adverse effects and patients who should not use our product candidates.
We purchase liability insurance in connection
with each of our clinical trials. It is possible that our liabilities could exceed our insurance coverage. We intend to expand
our insurance coverage to include the sale of commercial products if we obtain marketing approval for any of our product candidates.
However, we may not be able to maintain insurance coverage at a reasonable cost or obtain insurance coverage that will be adequate
to satisfy any liability that may arise. If a successful product liability claim or series of claims is brought against us for
uninsured liabilities or in excess of insured liabilities, our assets may not be sufficient to cover such claims and our business
operations could be impaired.
Should any of the events described above
occur, this could have a material adverse effect on our business, financial condition and results of operations.
We have obtained orphan drug designation
for AM-111 for the treatment of ASNHL from the FDA and the EMA, and we may rely on obtaining and maintaining orphan drug exclusivity
for AM-111, if approved. Orphan drug designation may not ensure that we will enjoy market exclusivity in a particular market, and
if we fail to obtain or maintain orphan drug exclusivity for AM-111, we may be subject to earlier competition and our potential
revenue will be reduced.
AM-111 has been granted orphan drug designation
for the treatment of ASNHL by the FDA and EMA. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if
it is intended to treat a rare disease or condition, defined as a patient population of fewer than 200,000 in the United States,
or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing
the drug will be recovered from sales in the United States. In the European Union, the EMA’s Committee for Orphan Medicinal
Products, or COMP, grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention,
or treatment of a life-threatening or chronically debilitating condition affecting not more than five in 10,000 persons in the
European Union. Additionally, designation is granted for products intended for the diagnosis, prevention, or treatment of a life-threatening,
seriously debilitating or serious and chronic condition when, without incentives, it is unlikely that sales of the drug in the
European Union would be sufficient to justify the necessary investment in developing the drug or biological product or where there
is no satisfactory method of diagnosis, prevention, or treatment, or, if such a method exists, the medicine must be of significant
benefit to those affected by the condition.
In the United States, orphan drug designation
entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and
user-fee waivers. In addition, if a product receives the first FDA approval for the indication for which it has orphan designation,
the product is entitled to orphan drug exclusivity, which means the FDA may not approve any other application to market the same
drug for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority
over the product with orphan exclusivity or where the manufacturer is unable to assure sufficient product quantity. In the European
Union, orphan drug designation entitles a party to financial incentives such as reduction of fees or fee waivers and ten years
of market exclusivity following drug or biological product approval. This period may be reduced to six years if the orphan drug
designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify
maintenance of market exclusivity.
Even though we have obtained orphan drug
designation for AM-111 for the treatment of ASNHL in the United States and Europe, we may not be the first to obtain marketing
approval for any particular orphan indication due to the uncertainties associated with developing pharmaceutical products. Further,
even if we obtain orphan drug designation for a product, that exclusivity may not effectively protect the product from competition
because different drugs with different active moieties can be approved for the same condition. Orphan drug designation neither
shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or
approval process.
The orphan drug designation for AM-111
relates to ASNHL, an umbrella term comprising acute acoustic trauma, ISSNHL and surgery-induced trauma based on a common pathophysiologic
pathway. Our Phase 3 late-stage program is only enrolling patients suffering from ISSNHL, which represent the largest of the three
ASNHL subgroups. Based on their outcomes, we may obtain marketing authorization only for the ISSNHL subgroup, and additional studies
or clinical trials may be required to obtain marketing authorization for the entire ASNHL indication.
Due to our limited resources and access
to capital, we must and have in the past decided to prioritize development of certain product candidates; these decisions may prove
to have been wrong and may adversely affect our revenues.
Because we have limited resources and access
to capital to fund our operations, we must decide which product candidates to pursue and the amount of resources to allocate to
each. As such, we are currently primarily focused on the development of Keyzilen
®
and AM-111 for the treatment of
acute inner ear tinnitus and acute inner ear hearing loss, respectively. Our decisions concerning the allocation of research, collaboration,
management and financial resources toward particular compounds, product candidates or therapeutic areas may not lead to the development
of viable commercial products and may divert resources away from better opportunities. Similarly, our potential decisions to delay,
terminate or collaborate with third parties in respect of certain product development programs may also prove not to be optimal
and could cause us to miss valuable opportunities. If we make incorrect determinations regarding the market potential of our product
candidates or misread trends in the biopharmaceutical industry, in particular for inner ear disorders, our business, financial
condition and results of operations could be materially adversely affected.
Our research and development activities
could be affected or delayed as a result of possible restrictions on animal testing.
Certain laws and regulations require us
to test our product candidates on animals before initiating clinical trials involving humans. Animal testing activities have been
the subject of controversy and adverse publicity. Animal rights groups and other organizations and individuals have attempted to
stop animal testing activities by pressing for legislation and regulation in these areas and by disrupting these activities through
protests and other means. To the extent the activities of these groups are successful, our research and development activities
may be interrupted, delayed or become more expensive.
Risks Related to Regulatory Approval of Our Product Candidates
We cannot give any assurance that any
of our product candidates will receive regulatory approval, which is necessary before they can be commercialized.
Our future success is dependent on our
ability to successfully develop, obtain regulatory approval for, and then successfully commercialize one or more product candidates.
We currently have two product candidates in late-stage clinical development. Keyzilen
®
is in Phase 3 clinical development
for the treatment of acute inner ear tinnitus under a SPA from the FDA (TACTT2) and based on scientific advice from the EMA (TACTT3).
AM-111 is in Phase 3 clinical development for the treatment of acute sensorineural hearing loss for which we received feedback
from the FDA and EMA on multiple occasions. We are not permitted to market or promote any of our product candidates before we receive
regulatory approval from the FDA, EMA or comparable foreign regulatory authorities, and we may never receive such regulatory approval
for any of our product candidates.
Although certain of our employees have
prior experience with submitting marketing applications to the FDA, EMA or comparable foreign regulatory authorities, we as a company
have not submitted such applications for our product candidates. We cannot be certain that any of our product candidates will be
successful in clinical trials or receive regulatory approval. Applications for our product candidates could fail to receive regulatory
approval for many reasons, including but not limited to the following:
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the FDA, EMA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;
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the population studied in the clinical program may not be sufficiently broad or representative to assure safety in the full
population for which we seek approval;
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the FDA, EMA or comparable foreign regulatory authorities may disagree with our interpretation of data from nonclinical trials
or clinical trials;
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the data collected from clinical trials of our product candidates may not be sufficient to support the submission of a new
drug application, or NDA, or other submission or to obtain regulatory approval in the United States or elsewhere;
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we may be unable to demonstrate to the FDA, EMA or comparable foreign regulatory authorities that a product candidate’s
risk-benefit ratio for its proposed indication is acceptable;
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the FDA, EMA or other regulatory authorities may fail to approve the manufacturing processes, test procedures and specifications,
or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and
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the approval policies or regulations of the FDA, EMA or comparable foreign regulatory authorities may significantly change
in a manner rendering our clinical data insufficient for approval.
|
In addition, no product for the treatment
of acute inner ear tinnitus or acute inner ear hearing loss has been approved by the FDA or the EMA. Accordingly, our current product
candidates or any of our other future product candidates could take a significantly longer time to gain regulatory approval than
expected or may never gain regulatory approval. This could delay or eliminate any potential product revenue by delaying or terminating
the potential commercialization of our product candidates.
We generally plan to seek regulatory approval
to commercialize our product candidates in the United States, the European Union and in additional foreign countries where we have
commercial rights. To obtain regulatory approval in other countries, we must comply with numerous and varying regulatory requirements
of such other countries regarding safety, efficacy, chemistry, manufacturing and controls, clinical trials, commercial sales, pricing,
and distribution of our product candidates. Even if we are successful in obtaining approval in one jurisdiction, we cannot ensure
that we will obtain approval in any other jurisdictions. Failure to obtain marketing authorization for
our
product candidates will result in our being unable to market and sell such products, which would materially adversely affect our
business, financial conditional and results of operations. If we fail to obtain approval in any jurisdiction, the geographic market
for our product candidates could be limited. Similarly, regulatory agencies may not approve the labeling claims that are necessary
or desirable for the successful commercialization of our product candidates.
Because we are developing therapies for
which there is little clinical experience and, in some cases, using new endpoints, there is more risk that the outcome of our clinical
trials will not be favorable. Even if the results of our trials are favorable, there is risk that they will not be acceptable to
regulators or physicians.
There are currently no drugs with proven
efficacy for acute inner ear tinnitus or acute inner ear hearing loss. In addition, there has been limited historical clinical
trial experience generally for the development of drugs to treat these conditions. Regulatory authorities in the United States
and European Union have not issued definitive guidance as to how to measure the efficacy of treatments for acute inner ear tinnitus
or acute inner ear hearing loss, and regulators have not yet established what is required to be demonstrated in a clinical trial
in order to signify a clinically meaningful result and/or obtain marketing approval. We have designed our Phase 3 trials for Keyzilen
®
and
AM-111 to include endpoints that we believe are clinically justified and meaningful. Specifically, with regard to Keyzilen
®
,
the EMA indicated that a statistically significant improvement in tinnitus loudness that is supported by several secondary variables
would demonstrate a clinically meaningful result. The FDA indicated that an improvement in tinnitus loudness supported by a co-primary
efficacy point, such as the TFI questionnaire, would be clinically meaningful. The TACTT2 clinical trial with Keyzilen
®
did not meet the two co-primary efficacy endpoints of statistically significant changes in tinnitus loudness and tinnitus burden
compared to placebo. Additionally, no product has been approved for marketing based upon such guidance and we cannot be certain
that Keyzilen
®
will be approved even if it were to demonstrate such results in TACTT3, its second Phase 3 trial,
in particular because of the results of TACTT2.
With regard to AM-111, the FDA and EMA
have indicated that a 10 dB improvement in hearing thresholds is clinically significant, in line with clinical practice. However,
no product has been approved for marketing based upon such guidance and we cannot be certain that AM-111 will be approved even
if it were to demonstrate such results in its Phase 3 trial.
Some of our conclusions regarding the
potential efficacy of Keyzilen
®
in our completed TACTT2 clinical trial of Keyzilen
®
for the treatment
of acute inner ear tinnitus in certain subgroups are based on retrospective analyses of the results of these trials, which are
generally considered less reliable indicators of efficacy than pre-specified analyses.
After determining that we did not achieve
the co-primary efficacy endpoints in our completed TACTT2 clinical trial of Keyzilen
®
for the treatment of acute
inner ear tinnitus, we performed retrospective analyses that we believe show treatment effects on TFI in favor of Keyzilen
®
in case of greater tinnitus severity at baseline. Although we believe that these additional analyses were warranted, a retrospective
analysis performed after unblinding trial results can result in the introduction of bias if the analysis is inappropriately tailored
or influenced by knowledge of the data and actual results. In particular, the analysis that resulted in a clinically meaningful
effect being observed in active-treated patients who suffered from severe or extreme tinnitus poses greater risk of bias as such
subgroup was not pre-specified in the trial design.
Because of these limitations, regulatory
authorities typically give greatest weight to results from pre-specified analyses and less weight to results from post-hoc, retrospective
analyses. As a result, even if TACTT3 provides confirmatory results for the subgroup of severe to extreme tinnitus, the TACTT2
results and the retrospective analysis could negatively impact the evaluation by the EMA or the FDA of our anticipated applications
for marketing approval for Keyzilen
®
.
If Keyzilen
®
is only shown
to be efficacious in certain subgroups, such as patients with otitis media-related tinnitus or greater tinnitus severity, we may
only be able to obtain approval for these limited patient populations, which would reduce the market potential for Keyzilen
®
and could materially adversely affect our business, financial condition and results of operations.
While our TACTT2 clinical trial with Keyzilen
®
did not meet the two co-primary efficacy endpoints of statistically significant changes in tinnitus loudness and tinnitus burden
compared to placebo, we believe that the trial data show treatment effects on TFI in favor of Keyzilen
®
for the
subgroups of patients with otitis media-related tinnitus or greater tinnitus severity. As a result, our amended trial protocol
for TACTT3 includes these two subgroups in confirmatory statistical testing along with the overall trial population.
If the TACTT3 results were to show clinically
meaningful treatment effects in these subgroups but fail to show efficacy in the overall trial population, we may not be able to
receive regulatory approval for a patient population that is as broad as originally intended. If Keyzilen
®
were
to receive marketing approval for these more limited patient populations, its market potential would be diminished. We currently
have no products approved for sale and have invested a significant portion of our efforts and financial resources in the development
of Keyzilen
®
, our lead product candidate. As a result, approval for a more limited patient population could materially
adversely affect our business, financial condition and results of operations.
Safety issues with isomers of our product
candidates or with approved products of third parties that are similar to our product candidates, could delay or prevent the regulatory
approval process or result in restrictions on labeling.
Discovery of previously unknown problems,
or increased focus on a known problem, with an approved product may result in restrictions on its permissible uses, including withdrawal
of the medicine from the market. Esketamine, the active pharmaceutical ingredient of Keyzilen
®
, is an isomer of
Ketamine, and may be affected by the safety of the drugs related to them. Although Ketamine has been used successfully in patients
for many years, newly observed toxicities or worsening of known toxicities, in pre-clinical studies of, or in patients receiving,
Ketamine, or reconsideration of known toxicities of Ketamine in the setting of new indications, could result in increased regulatory
scrutiny of Keyzilen
®
. For example, Ketamine is regulated by the Drug Enforcement Administration, or DEA, under
the Controlled Substances Act as a Schedule III drug. DEA scheduling is a separate process that can delay when a drug may become
available to patients beyond a New Drug Application, or NDA approval date, and the timing and outcome of such DEA process is uncertain.
Although we have observed no abuse liability associated with Keyzilen
®
to date, if Keyzilen
®
were
to be scheduled under the Controlled Substances Act, such scheduling could negatively impact the ability or willingness of physicians
to prescribe Keyzilen
®
and our ability to commercialize it.
Our special protocol assessment agreement
with the FDA for our Phase 3 clinical trial of Keyzilen
®
does not guarantee any particular outcome from regulatory
review, including ultimate approval and may not lead to a faster development or regulatory review or approval process.
We obtained agreement from the FDA on an
SPA for the design of our U.S. Phase 3 trial of Keyzilen
®
. We also designed our Phase 3 clinical trials for Keyzilen
®
based on scientific advice that we received from the EMA. The FDA’s SPA process is designed to facilitate the FDA’s
review and approval of drugs by allowing the FDA to evaluate the proposed design and size of Phase 3 clinical trials that are intended
to form the primary basis for determining a drug product’s efficacy. However, a SPA agreement does not guarantee approval
of a product candidate, and even if the FDA agrees to the design, execution, and analysis proposed in protocols reviewed under
the SPA process, the FDA may revoke or alter its agreement in certain circumstances. In particular, an SPA agreement is not binding
on the FDA if public health concerns emerge that were unrecognized at the time of the SPA agreement, other new scientific concerns
regarding product safety or efficacy arise, the sponsor company fails to comply with the agreed upon trial protocols, or the relevant
data, assumptions or information provided by the sponsor in a request for the SPA change or are found to be false or omit relevant
facts. In addition, even after an SPA agreement is finalized, the SPA agreement may be modified, and such modification will be
deemed binding on the FDA review division, except under the circumstances described above, if the FDA and the sponsor agree in
writing to modify the protocol and such modification is intended to improve the study. The FDA retains significant
latitude
and discretion in interpreting the terms of the SPA agreement and the data and results from any study that is the subject of the
SPA agreement.
On August 18, 2016, we announced that the
TACTT2 clinical trial with Keyzilen
®
did not meet the two co-primary efficacy endpoints of statistically significant
changes in tinnitus loudness and tinnitus burden compared to placebo. TACTT2 was designed as a randomized, double-blind, placebo-controlled
trial in acute inner ear tinnitus following traumatic cochlear injury or otitis media. The trial was conducted primarily in North
America and randomized 343 patients to receive either Keyzilen
®
0.87 mg/mL or placebo in a 3:2 ratio. Based on insights
from our continuing analysis of the TACTT2 trial, we amended the clinical trial protocol for TACTT3, the ongoing second Phase 3
clinical trial with Keyzilen
®
. TACTT3 was originally designed as congruent with the design of TACTT2 regarding outcome
measures and the patient population to be enrolled but it differed in that the improvement in the TFI score was not a co-primary
efficacy endpoint, that it had a slightly smaller size (300 instead of 330 patients) and it also includes a separate stratum of
patients suffering from post-acute inner ear tinnitus. In the amended trial protocol, the change in TFI score is elevated from
a key secondary endpoint to an alternate primary efficacy endpoint and the trial size has been increased by 60 patients in each
of Stratum A (acute tinnitus stage) and Stratum B (post-acute tinnitus stage) to enhance statistical sensitivity to the effects
of treatment. Additionally, in order to corroborate the TACTT2 results showing clinically meaningful treatment effect under the
TFI over placebo for patients with otitis media-related tinnitus and greater tinnitus severity, the severity subgroup will be included
in confirmatory statistical testing in TACTT3 along with the overall trial population and the already pre-specified subgroup of
patients with otitis media-related tinnitus.
We cannot be sure of how the FDA, EMA or
other regulatory authorities will view the TACTT2 results, including the results that we believe show treatment effects on TFI
in favor of Keyzilen
®
for specific subgroups. Additionally, we cannot assure you that the protocol amendments to
TACTT3 will be viewed favorably by the FDA, EMA or other regulatory authorities or that the TACTT3 clinical trial will succeed.
These uncertainties could significantly delay or prevent any potential approval for Keyzilen
®
.
In early December 2016, we had two meetings
with the FDA relating to the Keyzilen
®
program. Through a Type C Meeting, the FDA confirmed that, as per standard
practice, two positive confirmatory trials would be required to submit a NDA. The FDA did not provide feedback on the TACTT3 protocol
amendment because the trial is being conducted in Europe and is not under the IND Application. Data from trials that were not filed
under the IND may be used for an NDA, provided they meet requisite legal and regulatory requirements such as adherence to GCP regulations.
Even if we are able to include TACTT3 in
a NDA with the FDA, due to the fact that TACTT3 was not assessed by the FDA as part of the SPA process, and in spite of the congruence
between the trials, we cannot exclude that even if TACTT3 is successful, the differences in outcomes between the two pivotal trials
may affect the FDA’s assessment (for example, from cultural differences in patient attitudes or perceptions as TACTT3 is
being conducted outside North America). If the FDA revokes or alters its agreement under the SPA, or interprets the data collected
from the clinical trials differently than we do, the FDA may not deem the data sufficient to support an application for regulatory
approval. A revocation or alteration in our existing SPA could significantly delay or prevent approval of our application. Our
SPA with the FDA and the scientific advice from the EMA does not ensure that Keyzilen
®
will receive marketing approval
or that the approval process will be faster than conventional regulatory procedures.
As a result, if TACTT3 is not successful,
we may not be able to obtain marketing approval, and even if TACTT3 is successful, we may not be able to obtain marketing approval
without any further data, which could materially adversely affect our business, financial condition and results of operations.
The number of patients with safety data
from chronic intermittent use of Keyzilen® may fail to reach the levels specified and requested by the FDA.
The FDA has requested safety data from
chronic intermittent use of Keyzilen® by a minimum of 300 patients treated for six months and a minimum of 100 patients treated
for one year, to support a new drug application filing for Keyzilen® in the treatment of acute peripheral tinnitus. In order
to address this request, we offered all participants completing the TACTT2 and TACTT3 clinical trials that met certain criteria
the option to roll over into
an
open label follow-on safety study (AMPACT1 and AMPACT2, respectively) and receive up to three treatment cycles with Keyzilen®
over a period of up to nine months. Together with the three-month TACTT trial duration, this would cover up to 12 months of exposure.
Enrollment in AMPACT1 and AMPACT2 has been completed. Since a higher than expected number of TACTT trial participants was willing
and eligible for enrollment into the AMPACT studies, we reduced the number of available treatment cycles in AMPACT2 from three
to one by way of a protocol amendment in the first quarter 2016. We are confident of meeting the requested number of patients
with chronic intermittent use data. However, we have no control over the actual number of treatment cycles that the AMPACT participants
will have received as we remain blinded as to treatment allocation in TACTT3, AMPACT1 and AMPACT2. Hence, the number of patients
with safety data over six months and over 12 months may or may not reach the levels specified and requested by the FDA. In case
of insufficient numbers, this will become a review issue at the time of the NDA submission. Although we plan to apply for an indication
of acute inner ear tinnitus, rather than chronic inner ear tinnitus, we cannot ensure that the FDA will be satisfied with the
data supporting our NDA if we are not able to enroll sufficient numbers of patients in AMPACT1 and AMPACT2.
Even if our product candidates obtain
regulatory approval, we will be subject to ongoing obligations and continued regulatory review, which may result in significant
additional expense. Additionally, our product candidates, if approved, could be subject to labeling and other restrictions and
market withdrawal and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated
problems with our products.
If marketing authorization is obtained
for any of our product candidates, the product will remain subject to continual regulatory review and therefore authorization could
be subsequently withdrawn or restricted. Any regulatory approvals that we receive for our product candidates may also be subject
to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain
requirements for potentially costly post-marketing testing, including Phase 4 clinical trials and surveillance to monitor the safety
and efficacy of the product candidate. In addition, if the FDA or a comparable foreign regulatory authority approves any of our
product candidates, we will be subject to ongoing regulatory obligations and oversight by regulatory authorities, including with
respect to the manufacturing processes, labeling, packing, distribution, adverse event reporting, storage, advertising and marketing
restrictions, and recordkeeping and, potentially, other post-marketing obligations, all of which may result in significant expense
and limit our ability to commercialize such products. These requirements include submissions of safety and other post-marketing
information and reports, registration, as well as continued compliance with cGMPs, cGDPs and cGCPs for any clinical trials that
we conduct post-approval. In the European Union, the marketing authorization holder has to operate a pharmacovigilance system which
conforms with and is equivalent to the respective Member State’s pharmacovigilance system, requiring him to evaluate all
information scientifically, to consider options for risk minimization and prevention and to take appropriate measures as necessary.
As part of this system, we will have to, inter alia, have a qualified person responsible for pharmacovigilance, maintain a pharmacovigilance
system master file, operate a risk management system for each medicinal product, monitor the outcome of risk minimization measures,
and update continuously all pharmacovigilance data to update the risk assessment.
Later discovery of previously unknown problems
with a product, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing
processes, or failure to comply with regulatory requirements, may result in, among other things:
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restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory
product recalls;
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fines, warning letters or holds on clinical trials;
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refusal by the FDA to approve pending applications or supplements to approved applications filed by us, or suspension or revocation
of product license approvals;
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product seizure or detention, or refusal to permit the import or export of products; and
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injunctions or the imposition of civil or criminal penalties.
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If any of these events occurs, our ability
to sell such product may be impaired, and we may incur substantial additional expense to comply with regulatory requirements, which
could materially adversely affect our business, financial condition and results of operations. The FDA’s or any other regulatory
authority’s policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory
approval of our product candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new
requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may
have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability.
Enacted and future legislation may increase
the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and may affect the prices
we may set.
In the United States and the European Union,
there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system. These changes
could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our
ability to profitably sell any products for which we obtain marketing approval.
For example, in March 2010, President Obama
signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act,
or collectively, the Health Care Reform Law, a sweeping law intended to broaden access to health insurance, reduce or constrain
the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for health care
and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms.
The Health Care Reform Law, among other things, increased rebates a manufacturer must pay to the Medicaid program, addressed a
new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are
inhaled, infused, instilled, implanted or injected, established a Medicare Part D coverage gap discount program, in which manufacturers
must provide 50% point-of-sale discounts on products covered under Part D and implemented payment system reforms including a national
pilot program on payment bundling to encourage hospitals, physicians and other providers to improve the coordination, quality and
efficiency of certain healthcare services through bundled payment models. Further, the law imposed a significant annual fee on
companies that manufacture or import branded prescription drug products, expanded eligibility criteria for Medicaid programs, and
created a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical
effectiveness research, along with funding for such research. Substantial provisions affecting compliance were enacted, which may
affect our business practices with health care practitioners. Continued pressure on pharmaceutical pricing is expected and may
also increase our regulatory burdens and operating costs. There have been judicial and Congressional challenges to certain aspects
of the Health Care Reform Law, and we expect there will be additional challenges to the Health Care Reform Law in the future in
light of the new administration.
Moreover, other legislative changes have
also been proposed and adopted in the United States since the Health Care Reform Law was enacted. On August 2, 2011, the Budget
Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit
Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was
unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs.
This includes aggregate reductions to Medicare payments to providers of 2% per fiscal year, which went into effect on April 1,
2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2025 unless additional Congressional
action is taken. On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, or the ATRA, which,
among other things, further reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment
centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to
five years. These laws may result in additional reductions in Medicare and other health care funding, which could have a material
adverse effect on our customers and accordingly, our financial operations. Additionally, there has been increasing legislative
and enforcement interest in the United States with respect to specialty drug pricing practices. Specifically, there have been several
recent U.S. Congressional inquiries and proposed bills designed to, among other things, bring more transparency to drug pricing,
review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies
for drugs.
Furthermore, it is possible that legislation
will be introduced and passed by the Republican-controlled Congress repealing the Health Care Reform Law in whole or in part and
signed into law by President Trump, consistent with statements made by him during his presidential campaign and subsequently indicating
his intention to do so within a short time following his inauguration. Because of the continued uncertainty about the implementation
of the Health Care Reform Law, including the potential for further legal challenges or repeal of that legislation, we cannot quantify
or predict with any certainty the likely impact of the Health Care Reform Law or its repeal on our business model, prospects, financial
condition or results of operations, in particular on the pricing, coverage or reimbursement of any of our product candidates that
may receive marketing approval. We also anticipate that Congress, state legislatures, and third-party payors may continue to review
and assess alternative healthcare delivery and payment systems and may in the future propose and adopt legislation or policy changes
or implementations effecting additional fundamental changes in the healthcare delivery system. We cannot assure you as to the ultimate
content, timing, or effect of changes, nor is it possible at this time to estimate the impact of any such potential legislation.
In the European Union, a new clinical trial
regulation centralizes clinical trial approval, which eliminates redundancy, but in some cases this may extend timelines for clinical
trial approvals due to potentially longer wait times. The regulation requires specific consents for use of data in research which,
among other measures, may increase the costs and timelines for our product development efforts. The regulation also provides an
obligation for clinical trial sponsors to make summaries of all trial results, accompanied by a summary understandable to laypersons,
as well as the clinical trial report publicly available in a new database. Beyond this obligation, the EMA adopted a new "Agency
policy on publication of clinical data" (in force since January 1, 2015) based on which the EMA makes available to the public
all clinical trials submitted with the EMA as well as raw data results ("individual patient data"). These publication
requirements can conflict with legitimate secrecy interests of the sponsors and may lead to valuable clinical trial data falling
into the public domain.
On June 23, 2016, the UK public voted in
a referendum to leave the European Union. The UK government subsequently announced its intention to serve notice of withdrawal
from the European Union no later than March 2017. As a consequence of such withdrawal notice, EU law will cease to apply to the
UK from the date of entry into force of a withdrawal agreement, or two years after UK’s submission of the withdrawal notification.
As a result, the UK is likely to remain within the European Union for at least the next two years, and, therefore there will likely
be no major legal implications for the life sciences sector in the short term. In the long term, however, the effects may be more
severe, in particular if the UK cannot agree the terms of a continued close association with the European Union and/or chooses
not to incorporate existing EU rules into national law and/or to no longer align themselves with European law. The administrative
burden for pharmaceutical companies could increase significantly because regulatory requirements, for example clinical trial authorizations
and marketing authorization applications, may need to be fulfilled under a new and different legal framework for the UK. Existing
marketing authorizations granted in the European Union under the centralized procedure prior to the exit may potentially not be
recognized anymore by the UK.
Austerity measures in certain European
nations may also affect the prices we are able to seek if our products are approved, as discussed below.
Both in the United States and in the European
Union, legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional
activities for pharmaceutical products. We do not know whether additional legislative changes will be enacted, or whether the regulations,
guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates,
if any, may be.
Our relationships with customers and
payors may be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which, if violated,
could expose us to criminal sanctions, civil penalties, exclusion from government healthcare programs, contractual damages, reputational
harm and diminished profits and future earnings, among other penalties.
Healthcare providers, payors and others
play a primary role in the recommendation and prescription of any products for which we obtain marketing approval. Our future arrangements
with third-party payors and customers
may
expose us to broadly applicable fraud and abuse and other healthcare laws and regulations, primarily in the United States, that
may constrain the business or financial arrangements and relationships through which we market, sell and distribute our products
for which we obtain marketing approval. Restrictions under applicable U.S. healthcare laws and regulations, include the following:
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the U.S. healthcare anti-kickback statute prohibits, among other things, persons from knowingly and willfully soliciting, offering,
receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an
individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under U.S. government
healthcare programs such as Medicare and Medicaid;
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the U.S. False Claims Act imposes criminal and civil penalties, including civil whistleblower or qui tam actions, against individuals
or entities for knowingly presenting, or causing to be presented, to the U.S. government, claims for payment that are false or
fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;
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the U.S. Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for executing
a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;
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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, imposes obligations, including
mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health
information;
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the transparency requirements under the Health Care Reform Law require manufacturers of drugs, devices, biologics and medical
supplies to report to the U.S. Department of Health and Human Services information related to payments and other transfers of value
made by such manufacturers to physicians and teaching hospitals, and ownership and investment interests held by physicians or their
immediate family members; and
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analogous laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements
and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers,
and some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines
and the relevant compliance guidance promulgated by the federal government in addition to requiring manufacturers to report information
related to payments to physicians and other health care providers or marketing expenditures.
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Similar laws exist in other jurisdictions.
In the European Union, there is currently
no central European anti-bribery or similar legislation. However, more and more EU member states as well as life sciences industry
associations are enacting increasingly specific anti-bribery rules for the healthcare sector which are as severe and sometimes
even more severe than in the United States. Germany, for example, has recently adopted new criminal provisions dealing with granting
benefits to healthcare professionals. This new law has increased the legal restrictions as well as the legal scrutiny for the collaboration
and contractual relationships between the pharmaceutical industry and its customers.
Because of the breadth of these laws and
the narrowness of the statutory exceptions and safe harbors available under the U.S. federal Anti-Kickback Statute, it is possible
that some of our future business activities could be subject to challenge under one or more of such laws. In addition, recent health
care reform legislation has strengthened these laws. For example, the Health Care Reform Law, among other things, amends the intent
requirement of the federal anti-kickback and criminal healthcare fraud statutes. A person or entity no longer needs to have actual
knowledge of this statute or specific intent to violate it. Moreover, the Health Care Reform Law provides that the government may
assert that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false
or fraudulent claim for purposes of the False Claims Act.
Efforts to ensure that our business arrangements
with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that
governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations
or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in
violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil,
criminal and administrative penalties, damages, fines, exclusion from U.S. government funded healthcare programs, such as Medicare
and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with
whom we expect to do business with are found to be not in compliance with applicable laws, they may be subject to criminal, civil
or administrative sanctions, including exclusions from government funded healthcare programs.
Risks Related to this Offering and Our Common Shares and
Warrants
We believe that we were a “passive
foreign investment company,” or PFIC, for U.S. federal income tax purposes for our 2016 taxable years, and we expect to be
a PFIC for our current year and for the foreseeable future.
We believe that we were a “passive
foreign investment company,” or PFIC, for U.S. federal income tax purposes for our 2016 taxable year, and we expect to be
a PFIC for our current year and for the foreseeable future. In addition, we may, directly or indirectly, hold equity interests
in other PFICs, or Lower-tier PFICs. Under the Internal Revenue Code of 1986, as amended, or the Code, we will be a PFIC for any
taxable year in which (i) 75% or more of our gross income consists of passive income or (ii) 50% or more of the average quarterly
value of our assets consists of assets that produce, or are held for the production of, passive income. For purposes of the above
calculations, a non-U.S. corporation that directly or indirectly owns at least 25% by value of the shares of another corporation
is treated as if it held its proportionate share of the assets of the other corporation and received directly its proportionate
share of the income of the other corporation. Passive income generally includes dividends, interest, rents, royalties and capital
gains.
If we are a PFIC for any taxable year during
which a U.S. investor holds our shares, the U.S. investor may be subject to adverse tax consequences, including (i) the treatment
of all or a portion of any gain on disposition as ordinary income, (ii) the application of a deferred interest charge on such gain
and the receipt of certain dividends and (iii) compliance with certain reporting requirements.
For further discussion of the adverse U.S.
federal income tax consequences of our classification as a PFIC, see “Taxation—Material U.S. Federal Income Tax Considerations
for U.S. Holders.”
You may not be able to resell your warrants
or obtain any return on your investment.
There is no established trading market
for the warrants being offered in this offering, and we do not expect such a market to develop. In addition, we do not intend to
apply for listing of the warrants on any securities exchange or other nationally recognized trading system, and you may not be
able to resell your warrants. If your warrants cannot be resold, you will have to depend upon any appreciation in the value of
our common shares over the exercise price of the warrants in order to realize a return on your investment in the warrants. Additionally,
under the terms of the warrants, if there is no effective registration statement permitting the issuance of common shares upon
exercise of the warrants, a holder may not exercise the purchase rights represented by the warrants unless such holder, at the
time of such exercise, is an "accredited investor" as defined in Regulation D under the Securities Act, and such holder,
at the Company's request, represents the same to the Company in writing. In such an event, if you are not an "accredited investor"
you will not be able to exercise the purchase rights represented by the warrants and may not be able to realize a return on your
investment in the warrants. We cannot assure you that you will be able to obtain any return on your investment in our common shares
or warrants; and you may lose all of your investment.
Investors will have no rights as a shareholder
with respect to their warrants until they exercise their warrants and acquire our common shares.
Until you acquire our common shares upon
exercise of your warrants (which requires receipt by the Company of the duly executed exercise notice as well as receipt of the
exercise price in accordance with Swiss law), you will have no rights with respect to the common shares underlying such warrants
except as set forth in the warrants. Upon exercise of your warrants, you will be entitled to exercise the rights of a shareholder
only as to matters for which the record date occurs after the exercise date.
The price of our common shares may be
volatile and may fluctuate due to factors beyond our control.
The share price of publicly traded emerging
biopharmaceutical and drug discovery and development companies has been highly volatile and is likely to remain highly volatile
in the future. The market price of our common shares may fluctuate significantly due to a variety of factors, including:
|
·
|
positive or negative results of testing and clinical trials by us, strategic partners, or competitors;
|
|
·
|
delays in entering into strategic relationships with respect to development and/or commercialization of our product candidates
or entry into strategic relationships on terms that are not deemed to be favorable to us;
|
|
·
|
technological innovations or commercial product introductions by us or competitors;
|
|
·
|
changes in government regulations;
|
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·
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developments concerning proprietary rights, including patents and litigation matters;
|
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·
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public concern relating to the commercial value or safety of any of our product candidates;
|
|
·
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financing or other corporate transactions;
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|
·
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publication of research reports or comments by securities or industry analysts;
|
|
·
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general market conditions in the pharmaceutical industry or in the economy as a whole; or
|
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·
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other events and factors beyond our control.
|
Additionally, these factors may affect
the liquidity of our common shares, which may hurt your ability to sell our common shares in the future. In addition, the stock
market in general has recently experienced extreme price and volume fluctuations that have often been unrelated or disproportionate
to the operating performance of individual companies. Broad market and industry factors may materially affect the market price
of companies’ stock, including ours, regardless of actual operating performance.
Certain principal shareholders and members
of our executive team and board of directors own a majority of our common shares and as a result will be able to exercise significant
control over us, and your interests may conflict with the interests of such shareholders.
Certain principal shareholders and their
affiliated entities as well as members of our executive team and board of directors own approximately 73% of our common shares.
Depending on the level of attendance at our general meetings of shareholders, these shareholders may be in a position to determine
the outcome of decisions taken at any such general meeting. Any shareholder or group of shareholders controlling more than 50%
of the shares represented at our general meetings of shareholders may control any shareholder resolution requiring an absolute
majority of the shares represented, including the election of members to the board of directors of our company, certain decisions
relating to our capital structure, the approval of certain significant corporate transactions and certain amendments to our articles
of association. To the extent that the interests of these shareholders may differ from the interests of the Company’s other
shareholders, the latter may be disadvantaged by any action that these shareholders may seek to pursue. Among other consequences,
this concentration of ownership may have the effect
of
delaying or preventing a change in control and might therefore negatively affect the market price of our common shares.
Future sales, or the possibility of future
sales, of a substantial number of our common shares could adversely affect the price of our common shares.
Future sales of a substantial number of
our common shares, or the perception that such sales will occur, could cause a decline in the market price of our common shares.
Approximately 53% of our common shares outstanding are held by affiliates immediately prior to this offering. If these shareholders
sell substantial amounts of common shares in the public market, or the market perceives that such sales may occur, the market price
of our common shares and our ability to raise capital through an issue of equity securities could be adversely affected. We have
also entered into a registration rights agreement pursuant to which we have agreed under certain circumstances to file a registration
statement to register the resale of common shares held by certain of our shareholders, as well as to cooperate in certain public
offerings of such common shares. We have also filed registration statements to register all common shares and other equity securities
that we have issued under our prior equity incentive plans or may issue under our new omnibus equity compensation plan. These common
shares may be freely sold in the public market upon issuance, subject to certain limitations applicable to affiliates. If a large
number of our common shares are sold in the public market, the sales could reduce the trading price of our common shares and impede
our ability to raise future capital.
If you purchase the units sold in this
offering, you may experience immediate dilution as a result of this offering and future equity issuances.
Because the price per share of the common
shares being offered may be higher than the book value per share of our common shares, you may suffer immediate and substantial
dilution in the net tangible book value of the common shares you purchase in this offering. The issuance of additional common shares
in future offerings could be dilutive to shareholders if they do not invest in future offerings. Moreover, to the extent that we
issue options or warrants to purchase, or securities convertible into or exchangeable for, common shares in the future and those
options, warrants or other securities are exercised, converted or exchanged, shareholders may experience further dilution.
Based on the public offering price of $1.00 per unit, excluding common shares issuable upon exercise of the warrants being offered in this offering, you will experience immediate
dilution of $0.38 per common share, representing the difference between our as adjusted net tangible book value per common share after
giving effect to this offering and the public offering price. See “Dilution.”
We have broad discretion in the use of
the net proceeds from this offering, if any, and may not use them effectively.
Our management has broad discretion in
the application of the net proceeds from this offering, if any, and could spend the proceeds in ways that do not improve our results
of operations or enhance the value of our common shares. The failure by our management to apply these funds effectively could result
in financial losses that could have a material adverse effect on our business, cause the price of our common shares to decline
and delay the development of our product candidates. Pending their use, we may invest the net proceeds from this offering in a
manner that does not produce income or that loses value.
We do not expect to pay dividends in
the foreseeable future.
We have not paid any dividends since our
incorporation. Even if future operations lead to significant levels of distributable profits, we currently intend that any earnings
will be reinvested in our business and that dividends will not be paid until we have an established revenue stream to support continuing
dividends. The proposal to pay future dividends to shareholders will in addition effectively be at the discretion of our board
of directors and shareholders after taking into account various factors including our business prospects, cash requirements, financial
performance and new product development. In addition, payment of future dividends is subject to certain limitation pursuant to
Swiss law or by our articles of association. Accordingly, investors cannot rely on dividend income from our
common
shares and any returns on an investment in our common shares will likely depend entirely upon any future appreciation in the price
of our common shares.
We are a holding company with no material
direct operations.
We are a holding company with no material
direct operations. As a result, we would be dependent on dividends, other payments or loans from our subsidiaries in order to pay
a dividend. Our subsidiaries are subject to legal requirements of their respective jurisdictions of organization that may restrict
their paying dividends or other payments, or making loans, to us.
We are a Swiss corporation. The rights
of our shareholders may be different from the rights of shareholders in companies governed by the laws of U.S. jurisdictions.
We are a Swiss corporation. Our corporate
affairs are governed by our articles of association and by the laws governing companies incorporated in Switzerland. The rights
of our shareholders and the responsibilities of members of our board of directors may be different from the rights and obligations
of shareholders and directors of companies governed by the laws of U.S. jurisdictions. In the performance of its duties, our board
of directors is required by Swiss law to consider the interests of our company, our shareholders, our employees and other stakeholders,
in all cases with due observation of the principles of reasonableness and fairness. It is possible that some of these parties will
have interests that are different from, or in addition to, your interests as a shareholder. Swiss corporate law limits the ability
of our shareholders to challenge resolutions made or other actions taken by our board of directors in court. Our shareholders generally
are not permitted to file a suit to reverse a decision or an action taken by our board of directors but are instead only permitted
to seek damages for breaches of fiduciary duty. As a matter of Swiss law, shareholder claims against a member of our board of directors
for breach of fiduciary duty would have to be brought in Zug, Switzerland, or where the relevant member of our board of directors
is domiciled. In addition, under Swiss law, any claims by our shareholders against us must be brought exclusively in Zug, Switzerland.
Our common shares are issued under the
laws of Switzerland, which may not protect investors in a similar fashion afforded by incorporation in a U.S. state.
We are organized under the laws of Switzerland.
There can be no assurance that Swiss law will not change in the future or that it will serve to protect investors in a similar
fashion afforded under corporate law principles in the U.S., which could adversely affect the rights of investors.
U.S. shareholders may not be able to
obtain judgments or enforce civil liabilities against us or our executive officers or members of our board of directors.
We are organized under the laws of Switzerland
and our jurisdiction of incorporation is Zug, Switzerland. Moreover, a number of our directors and executive officers and a number
of directors of each of our subsidiaries are not residents of the United States, and all or a substantial portion of the assets
of such persons are located outside the United States. As a result, it may not be possible for investors to effect service of process
within the United States upon us or upon such persons or to enforce against them judgments obtained in U.S. courts, including judgments
in actions predicated upon the civil liability provisions of the federal securities laws of the United States. We have been advised
by our Swiss counsel that there is doubt as to the enforceability in Switzerland of original actions, or in actions for enforcement
of judgments of U.S. courts, of civil liabilities to the extent predicated upon the federal and state securities laws of the United
States. Original actions against persons in Switzerland based solely upon the U.S. federal or state securities laws are governed,
among other things, by the principles set forth in the Swiss Federal Act on International Private Law. This statute provides that
the application of provisions of non-Swiss law by the courts in Switzerland shall be precluded if the result is incompatible with
Swiss public policy. Also, mandatory provisions of Swiss law may be applicable regardless of any other law that would otherwise
apply.
Switzerland and the United States do not
have a treaty providing for reciprocal recognition and enforcement of judgments in civil and commercial matters. The recognition
and enforcement of a judgment of the courts of the United States in Switzerland is governed by the principles set forth in the
Swiss Federal Act on Private International
Law.
This statute provides in principle that a judgment rendered by a non-Swiss court may be enforced in Switzerland only if:
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·
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the non-Swiss court had jurisdiction pursuant to the Swiss Federal Act on Private International Law;
|
|
·
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the judgment of such non-Swiss court has become final and non-appealable;
|
|
·
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the judgment does not contravene Swiss public policy;
|
|
·
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the court procedures and the service of documents leading to the judgment were in accordance with the due process of law; and
|
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·
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no proceeding involving the same position and the same subject matter was first brought in Switzerland, or adjudicated in Switzerland,
or was earlier adjudicated in a third state and this decision is recognizable in Switzerland.
|
Our status as a Swiss corporation means
that our shareholders enjoy certain rights that may limit our flexibility to raise capital, issue dividends and otherwise manage
ongoing capital needs.
Swiss law reserves for approval by shareholders
certain corporate actions over which a board of directors would have authority in some other jurisdictions. For example, the payment
of dividends and cancellation of treasury shares must be approved by shareholders. Swiss law also requires that our shareholders
themselves resolve to, or authorize our board of directors to, increase our share capital. While our shareholders may authorize
share capital that can be issued by our board of directors without additional shareholder approval, Swiss law limits this authorization
to 50% of the issued share capital at the time of the shareholders’ authorization. The authorization, furthermore, has a
limited duration of up to two years and must be renewed by the shareholders from time to time thereafter in order to be available
for raising capital. Additionally, Swiss law grants pre-emptive rights to existing shareholders to subscribe for new issuances
of shares. In certain circumstances, including those explicitly described in our articles of association, our board of directors
may withdraw such pre-emptive rights. Shareholders who believe pre-emptive rights were improperly withdrawn may sue us for damages
or may attempt to block the registration of the issuance of new shares in the commercial register which may delay or exclude the
share issuance. Swiss law also does not provide as much flexibility in the various rights and regulations that can attach to different
categories of shares as do the laws of some other jurisdictions. These Swiss law requirements relating to our capital management
may limit our flexibility, and situations may arise where greater flexibility would have provided benefits to our shareholders.
We are a foreign private issuer and,
as a result, we are not subject to U.S. proxy rules and are subject to Exchange Act reporting obligations that, to some extent,
are more lenient and less frequent than those of a U.S. domestic public company.
We report under the Securities Exchange
Act of 1934, as amended, or the Exchange Act, as a non-U.S. company with foreign private issuer status. Because we qualify as a
foreign private issuer under the Exchange Act and although we are subject to Swiss laws and regulations with regard to such matters
and intend to furnish quarterly financial information to the SEC, we are exempt from certain provisions of the Exchange Act that
are applicable to U.S. domestic public companies, including (i) the sections of the Exchange Act regulating the solicitation of
proxies, consents or authorizations in respect of a security registered under the Exchange Act; (ii) the sections of the Exchange
Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit
from trades made in a short period of time; and (iii) the rules under the Exchange Act requiring the filing with the SEC of quarterly
reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence
of specified significant events. In addition, foreign private issuers are not required to file their annual report on Form 20-F
until four months after the end of each financial year, while U.S. domestic issuers that are accelerated filers are required to
file their annual report on Form 10-K within 75 days after the end of each fiscal year. Foreign private issuers are also exempt
from the Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information. As
a result
of
the above, you may not have the same protections afforded to shareholders of companies that are not foreign private issuers.
As a foreign private issuer and as permitted
by the listing requirements of Nasdaq, we follow certain home country governance practices rather than the corporate governance
requirements of Nasdaq.
We are a foreign private issuer. As a result,
in accordance with Nasdaq Listing Rule 5615(a)(3), we comply with home country governance requirements and certain exemptions thereunder
rather than complying with certain of the corporate governance requirements of Nasdaq.
Swiss law does not require that a majority
of our board of directors consists of independent directors. Our board of directors therefore may include fewer independent directors
than would be required if we were subject to Nasdaq Listing Rule 5605(b)(1). In addition, we are not subject to Nasdaq Listing
Rule 5605(b)(2), which requires that independent directors regularly have scheduled meetings at which only independent directors
are present.
Although Swiss law also requires that we
adopt a compensation committee, we follow home country requirements with respect to such committee. As a result, our practice varies
from the requirements of Nasdaq Listing Rule 5605(d), which sets forth certain requirements as to the responsibilities, composition
and independence of compensation committees. In addition, in accordance with Swiss law, we have opted not to implement a standalone
nominating committee. To this extent, our practice varies from the independent director oversight of director nominations requirements
of Nasdaq Listing Rule 5605(e).
Furthermore, in accordance with Swiss law
and generally accepted business practices, our articles of association do not provide quorum requirements generally applicable
to general meetings of shareholders. Our practice thus varies from the requirement of Nasdaq Listing Rule 5620(c), which requires
an issuer to provide in its bylaws for a generally applicable quorum, and that such quorum may not be less than one-third of the
outstanding voting stock. Our articles of association provide for an independent proxy holder elected by our shareholders, who
may represent our shareholders at a general meeting of shareholders, and we must provide shareholders with an agenda and other
relevant documents for the general meeting of shareholders. However, Swiss law does not have a regulatory regime for the solicitation
of proxies and company solicitation of proxies is prohibited for public companies in Switzerland, thus our practice varies from
the requirement of Nasdaq Listing Rule 5620(b), which sets forth certain requirements regarding the solicitation of proxies. In
addition, we have opted out of shareholder approval requirements for the issuance of securities in connection with certain events
such as the acquisition of stock or assets of another company, the establishment of or amendments to equity-based compensation
plans for employees, a change of control of us and certain private placements. To this extent, our practice varies from the requirements
of Nasdaq Listing Rule 5635, which generally requires an issuer to obtain shareholder approval for the issuance of securities in
connection with such events.
As a result of the above, you may not have
the same protections afforded to shareholders of companies that are not foreign private issuers.
We may lose our foreign private issuer
status, which would then require us to comply with the Exchange Act’s domestic reporting regime and cause us to incur significant
legal, accounting and other expenses.
We are a foreign private issuer and therefore
we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act applicable
to U.S. domestic issuers. In order to maintain our current status as a foreign private issuer, either (a) a majority of our common
shares must be either directly or indirectly owned of record by non-residents of the United States or (b)(i) a majority of our
executive officers or directors may not be United States citizens or residents, (ii) more than 50 percent of our assets cannot
be located in the United States and (iii) our business must be administered principally outside the United States. These criteria
are tested on the last business day of our second fiscal quarter, each year. If we lost this status, we would be required to comply
with the Exchange Act reporting and other requirements applicable to U.S. domestic issuers, which are more detailed and extensive
than the requirements for foreign private issuers. We may also be required to make changes in our corporate governance practices
in accordance with various SEC and stock exchange rules. The regulatory and compliance costs to us under U.S. securities laws if
we are required to comply with the reporting requirements
applicable
to a U.S. domestic issuer may be significantly higher than the cost we would incur as a foreign private issuer. As a result, we
expect that a loss of foreign private issuer status would increase our legal and financial compliance costs and would make some
activities highly time-consuming and costly. We also expect that if we were required to comply with the rules and regulations
applicable to U.S. domestic issuers, it would make it more difficult and expensive for us to obtain director and officer liability
insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These rules
and regulations could also make it more difficult for us to attract and retain qualified members of our board of directors.
We are an “emerging growth company,”
and we cannot be certain if the reduced reporting requirements applicable to “emerging growth companies” will make
our common shares less attractive to investors.
We are an “emerging growth company,”
as defined in the JOBS Act. For as long as we continue to be an “emerging growth company,” we may take advantage of
exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth
companies,” including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley
Act of 2002, exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval
of any golden parachute payments not previously approved. We could be an “emerging growth company” until 2019, although
circumstances could cause us to lose that status earlier, including if the market value of our common shares held by non-affiliates
exceeds $700 million as of any June 30 (the end of our second fiscal quarter) before that time, in which case we would no longer
be an “emerging growth company” as of the following December 31 (our fiscal year end). We cannot predict if investors
will find our common shares less attractive because we may rely on these exemptions. If some investors find our common shares less
attractive as a result, there may be a less active trading market for our common shares and the price of our common shares may
be more volatile.
If we fail to maintain an effective system
of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As
a result, shareholders could lose confidence in our financial and other public reporting, which would harm our business and the
trading price of our common shares.
Effective internal controls over financial
reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures,
are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their
implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection
with Section 404 of the Sarbanes-Oxley Act of 2002, or any subsequent testing by our independent registered public accounting firm,
may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may
require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement.
Inferior internal controls could also subject us to regulatory scrutiny and sanctions, impair our ability to raise revenue and
cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price
of our common shares.
We will be required to disclose changes
made in our internal controls and procedures and our management will be required to assess the effectiveness of these controls
annually. However, for as long as we are an “emerging growth company” under the JOBS Act, our independent registered
public accounting firm will not be required to attest to the effectiveness of our internal controls over financial reporting pursuant
to Section 404. We could be an “emerging growth company” until 2019. An independent assessment of the effectiveness
of our internal controls could detect problems that our management’s assessment might not. Undetected material weaknesses
in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation.
If securities or industry analysts do
not publish research, or publish inaccurate or unfavorable research, about our business, the price of our common shares and our
trading volume could decline.
The trading market for our common shares
depends in part on the research and reports that securities or industry analysts publish about us or our business. We do not have
any control over these analysts. We cannot assure you that analysts will cover us or provide favorable coverage. If one or more
of the analysts who cover us downgrade our common shares or publish inaccurate or unfavorable research about our business, the
price of our common shares
would
likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand
for our common shares could decrease, which might cause the price of our common shares and trading volume to decline.
Use of Proceeds
We estimate that
the net proceeds of the sale of our common shares and warrants in this offering will be approximately $9.1 million, or approximately
$10.5 million if the underwriters exercise in full their option to
purchase 1,500,000 additional common shares and/or 1,500,000 additional warrants,
after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The net proceeds amount
excludes the proceeds, if any, from the exercise of warrants issued pursuant to this offering.
We intend to use the net proceeds from
this offering for working capital and general corporate purposes.
We believe that our existing cash and cash
equivalents prior to this offering will enable us to fund our operating expenses and capital expenditure requirements until fall
2017. Based on our planned use of the net proceeds of this offering and our existing cash and cash equivalents prior to this offering,
we estimate that such funds will be sufficient to enable us to fund our operating expenses and capital expenditure requirements
into the first quarter of 2018. We have based this estimate on assumptions that may prove to be incorrect, and we could use our available capital
resources sooner than we currently expect.
Market for
Our Common Shares and Dividends
Our common shares are quoted on the NASDAQ
Global Market under the symbol “EARS.” The following table sets forth on a per share basis the low and high closing
sale prices of our common shares as reported by the NASDAQ Global Market for the periods presented.
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High
|
|
Low
|
Year Ended:
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|
|
|
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December 31, 2014 (starting August 6, 2014)
|
|
|
7.23
|
|
|
|
3.51
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|
December 31, 2015
|
|
|
6.38
|
|
|
|
3.02
|
|
December 31, 2016
|
|
|
7.79
|
|
|
|
0.89
|
|
Year Ended December 31, 2015:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
6.38
|
|
|
|
3.51
|
|
Second Quarter
|
|
|
6.05
|
|
|
|
4.33
|
|
Third Quarter
|
|
|
5.56
|
|
|
|
3.50
|
|
Fourth Quarter
|
|
|
5.00
|
|
|
|
3.02
|
|
Year Ended December 31, 2016:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
7.79
|
|
|
|
3.36
|
|
Second Quarter
|
|
|
4.33
|
|
|
|
3.13
|
|
Third Quarter
|
|
|
5.35
|
|
|
|
1.58
|
|
Month Ended:
|
|
|
|
|
|
|
|
|
August 31, 2016
|
|
|
5.35
|
|
|
|
1.85
|
|
September 30, 2016
|
|
|
1.82
|
|
|
|
1.58
|
|
October 31, 2016
|
|
|
1.75
|
|
|
|
1.03
|
|
November 30, 2016
|
|
|
1.24
|
|
|
|
0.90
|
|
December 31, 2016
|
|
|
1.45
|
|
|
|
1.07
|
|
January 31, 2017
|
|
|
1.24
|
|
|
|
1.06
|
|
February 28, 2017 (through February 14, 2017)
|
|
|
1.27
|
|
|
|
1.15
|
|
As of February 14, 2017, we had
34,329,704
common shares issued and outstanding held by
9
registered holders, one of which
is Cede & Co., a nominee for The Depository Trust Company (“DTC”). All of the common shares held by brokerage
firms, banks and other financial institutions as nominees for beneficial owners are deposited into participant accounts at DTC
and therefore are considered to be held of record by Cede & Co. as one shareholder.
We have never paid a dividend, and we do
not anticipate paying dividends in the foreseeable future. We intend to retain all available funds and any future earnings to fund
the development and expansion of our business. As a result, investors in our common shares will benefit in the foreseeable future
only if our common shares appreciate in value.
Under Swiss law, any dividend must be proposed
by our board of directors and approved by a shareholders’ meeting. In addition, our auditors must confirm that the dividend
proposal of our board of directors conforms to Swiss statutory law and our articles of association. A Swiss corporation may pay
dividends only if it has sufficient distributable profits brought forward from the previous business years (“
Gewinnvortrag
”)
or if it has distributable reserves (“
frei verfügbare Reserven
”), each as evidenced by its audited standalone
statutory balance sheet prepared pursuant to Swiss law and after allocations to reserves required by Swiss law and its articles
of association have been deducted. Distributable reserves are generally booked either as “free reserves” (“
freie
Reserven
”) or as “reserve from capital contributions” (“
Reserven aus Kapitaleinlagen
”).
Distributions out of issued share capital, which is the aggregate nominal value of a corporation’s issued shares, may be
made only by way of a share capital reduction.
We are a holding company with no material
direct operations. As a result, we would be dependent on dividends, other payments or loans from our subsidiaries in order to pay
a dividend. Our subsidiaries are subject to legal requirements of their respective jurisdictions of organization that may restrict
their paying dividends or other payments, or making loans, to us.
Capitalization
The table below sets forth our cash and
cash equivalents and our total capitalization (defined as total debt and shareholders’ equity) as of September 30, 2016:
|
·
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on an actual basis; and
|
|
·
|
on an as adjusted basis to give effect to our issuance and sale of 10,000,000 units in this offering (excluding common shares issuable
upon exercise of the warrants being offered in this offering), at the public offering price of $1.00 per unit, after deducting underwriting
discounts and commissions and estimated offering expenses payable by us.
|
The as adjusted information is illustrative
only and will adjust based on the actual price to the public, the actual number of units sold and other terms of the offering determined
at the time our units are sold pursuant to this prospectus supplement. Investors should read this table in conjunction with our
audited consolidated financial statements and related notes as of and for the year ended December 31, 2015 and our unaudited consolidated
interim financial statements as of and for the nine months ended September 30, 2016 and management’s discussion and analysis
thereon, each as incorporated by reference into this prospectus supplement.
U.S. dollar amounts have been translated
into Swiss Francs at a rate of CHF 0.9694 to USD 1.00, the official exchange rate quoted as of September 30, 2016 by the U.S. Federal
Reserve Bank. Such Swiss Francs amounts are not necessarily indicative of the amounts of Swiss Francs that could actually have
been purchased upon exchange of U.S. dollars on September 30, 2016 and have been provided solely for the convenience of the reader.
|
|
September 30, 2016
|
|
|
Actual
|
|
As Adjusted
|
|
|
(in thousands of CHF except share
and per share data)
|
Cash and cash equivalents(1)
|
|
|
37,527
|
|
|
|
46,367
|
|
Total debt(2)
|
|
|
11,673
|
|
|
|
11,673
|
|
Derivative Financial Instruments:
|
|
|
|
|
|
|
|
|
Warrants issued to Hercules(2)
|
|
|
178
|
|
|
|
178
|
|
Warrants to be issued in this offering(3)
|
|
|
|
|
|
|
12,728
|
|
Shareholders’ equity:
|
|
|
|
|
|
|
|
|
Share capital
|
|
|
|
|
|
|
|
|
Common shares, nominal value CHF 0.40 per share; 34,329,704 shares issued and outstanding on an actual basis; 44,329,704 shares issued and outstanding on an adjusted basis
|
|
|
13,732
|
|
|
|
17,732
|
|
Share premium
|
|
|
112,839
|
|
|
|
104,950
|
|
Foreign currency translation reserve
|
|
|
(32
|
)
|
|
|
(32)
|
|
Accumulated deficit
|
|
|
(107,201
|
)
|
|
|
(107,201)
|
|
Total shareholders’ equity attributable to owners of the company(1)
|
|
|
19,338
|
|
|
|
15,449
|
|
Total capitalization(1)
|
|
|
31,189
|
|
|
|
40,028
|
|
|
(1)
|
As adjusted cash and cash equivalents represents actual cash and cash equivalents plus the assumed net proceeds of this offering.
|
|
(2)
|
Total debt in comprised of the $12.5 million drawn on July 19, 2016 under our $20.0 million secured term loan facility with
Hercules as administrative agent. The loan was initially recognized at transaction value less the fair value of the warrant issued
to Hercules in connection with the loan as of the transaction date and less directly attributable transactions costs. Following
the initial recognition, the loan is measured at amortized cost using the effective interest method. As of September 30, 2016,
the loan is valued at CHF 11,673,417. Of the
|
CHF 11,673,417 an amount of CHF
1,042,736, reflecting amortization payments due within the next 12 months, is classified as current liability and the remainder
as non-current liability.
|
(3)
|
The fair value calculation of the warrant is pro forma as of September 30, 2016. The fair value is determined according
to the Black-Scholes option pricing model. Assumptions are made
regarding inputs such as volatility and the risk free rate in
order to determine the fair value of the warrant.
|
The table above is based on our actual
common shares outstanding as of September 30, 2016 on an actual and as adjusted basis and excludes:
|
·
|
4,974,187 of our common shares available for issuance pursuant to our conditional share capital for equity incentive plans
pursuant to our amended and restated articles of association;
|
|
·
|
652,650 of our common shares issuable upon the exercise of options outstanding as of September 30, 2016 at a weighted average
exercise price of $4.68 per common share;
|
|
·
|
12,150,000 common shares available for issuance for financing purposes pursuant to our amended and restated articles of association;
and
|
|
·
|
241,117 common shares issuable upon the exercise of a warrant issued to Hercules at an exercise price of $3.94.
|
Dilution
If you invest in our common shares and
warrants, your interest will be diluted to the extent of the difference between the price you pay in this offering and the as adjusted
net tangible book value per common share after this offering.
As of September 30, 2016, we had a net
tangible book value of $18.4 million, corresponding to a net tangible book value of $0.54 per common share. Net tangible book value
per share represents the amount of our total assets less our total liabilities, excluding intangible assets, divided by 34,329,704,
the total number of our common shares outstanding as of September 30, 2016.
After giving effect to the sale by us
of 10,000,000 units in this offering (excluding the common shares
issuable upon exercise of the warrants being offered in this offering) at the public offering price of $1.00 per unit, after
deducting underwriting discounts and commissions and estimated offering expenses payable by us, our as adjusted net tangible
book value estimated as of September 30, 2016 would have been approximately $27.5 million, representing $0.62 per common share. This
represents an immediate increase in net tangible book value of $0.08 per common share to existing shareholders and an immediate
dilution in net tangible book value of $0.38 per common share to new investors purchasing units in this offering. Dilution for
this purpose represents the difference between the price per common share paid by these purchasers and net tangible book
value per common share immediately after the completion of the offering.
The following table illustrates this dilution
to new investors purchasing units in the offering.
Public offering price per common share
|
|
$
|
1.00
|
|
Net tangible book value per common share as of September 30, 2016
|
|
$
|
0.54
|
|
Increase in net tangible book value per common share attributable to new investors
|
|
$
|
0.08
|
|
As adjusted net tangible book value per common share after the offering
|
|
$
|
0.62
|
|
Dilution per common share to new investors
|
|
$
|
0.38
|
|
Percentage of dilution in net tangible book value per common share for new investors
|
|
|
38
|
%
|
If the underwriters were to fully
exercise their option to purchase up to 1,500,000 additional common shares and/or 1,500,000 additional warrants, the as adjusted net
tangible book value per common shares after the offering would be
$0.63 per common share, and the dilution per common share to new
investors would be $0.37 per share.
The above discussion and table are based
on our actual common shares outstanding as of September 30, 2016 on an actual and as adjusted basis and excludes
|
·
|
4,974,187 of our common shares available for issuance pursuant to our conditional share capital for equity incentive plans
pursuant to our amended and restated articles of association;
|
|
·
|
652,650 of our common shares issuable upon the exercise of options outstanding as of September 30, 2016 at a weighted average
exercise price of $4.68 per common share;
|
|
·
|
12,150,000 common shares available for issuance for financing purposes pursuant to our amended and restated articles of association;
and
|
|
·
|
241,117 common shares issuable upon the exercise of a warrant issued to Hercules at an exercise price of $3.94.
|
To the extent that outstanding options
are exercised, you may experience further dilution. In addition, we may choose to raise additional capital due to market conditions
or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent
that additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities may
result in further dilution to our shareholders.
Swiss Franc amounts have been translated
into U.S. dollars at a rate of CHF 0.9694 to USD 1.00, the official exchange rate quoted as of September 30, 2016 by the U.S. Federal
Reserve Bank. Such U.S. dollar amounts are not necessarily indicative of the amounts of U.S. dollars that could actually have been
purchased upon exchange of Swiss Francs on September 30, 2016 and have been provided solely for the convenience of the reader.
Description
of Share Capital and Articles of Association
The Company
We are
a Swiss stock corporation (
Aktiengesellschaft
) organized under the laws of Switzerland. We were formed in 1998 and started
operations as Auris Medical in 2003. We are currently registered in Zug, Switzerland. Our head office is currently located at Bahnhofstrasse
21, 6300 Zug, Switzerland.
The Company’s corporate purpose as
set forth in its articles of association is to participate in business organizations of all kinds in Switzerland and abroad, particularly
in relation to pharmaceutical products and services. Moreover, the Company may transact any business conducive to developing the
Company or furthering the Company’s corporate purpose. The Company may also arrange financing for its own or third party
account, in particular it may grant loans to affiliated companies or to third parties, as well as guarantees or surety bonds of
any sort for obligations towards affiliated companies. These loans or guarantees may also be granted without any remuneration or
compensation. The Company may in addition participate in cash-pooling operations with affiliated companies.
The current members of our board of directors
are Thomas Meyer (Chairman), James I. Healy, Armando Anido, Wolfgang Arnold, Oliver Kubli, Berndt A. Modig, Antoine Papiernik and
Calvin W. Roberts. Our management team currently consists of Thomas Meyer, Andrea Braun, Thomas Jung, Hernan Levett and Anne Sabine Zoller.
Share Capital
As of
February 14
,
2017, our issued fully paid-in share capital consists of CHF 13,731,881.60, divided into 34,329,704 common shares with a
nominal value of CHF 0.40 each and no preferred shares. We have 25,813 common shares issued from conditional capital which
are not yet recorded in the commercial register.
Articles of Association
When
we refer to our articles of association in this prospectus, we refer to our amended and restated articles of association dated
as of April 8, 2016.
Ordinary Capital Increase, Authorized
and Conditional Share Capital
Under Swiss law, we may increase our share
capital (
Aktienkapital
) with a resolution of the general meeting of shareholders (ordinary capital increase) that must be
carried out by the board of directors within three months in order to become effective. In the case of subscription and increase
against payment of contributions in cash, a resolution passed by an absolute majority of the shares represented at the general
meeting of shareholders is required. In the case of subscription and increase against contributions in kind or to fund acquisitions
in kind, when shareholders’ statutory pre-emptive rights are withdrawn or where transformation of reserves into share capital
is involved, a resolution passed by two-thirds of the shares represented at a general meeting of shareholders and the absolute
majority of the nominal amount of the shares represented is required.
Our shareholders, by a resolution passed
by two-thirds of the shares represented at a general meeting of shareholders and the absolute majority of the nominal amount of
the shares represented, may empower our board of directors to issue shares of a specific aggregate nominal amount up to a maximum
of 50% of the share capital in the form of:
|
·
|
conditional capital (
bedingtes Kapital
) for the purpose of issuing shares in connection with, among other things, (i)
option and conversion rights granted in connection with warrants, convertible bonds or other financial market instruments issued
by the Company or one of our subsidiaries or (ii) grants of rights to employees, members of our board of directors or consultants
or our subsidiaries to subscribe for new shares (conversion or option rights); and/or
|
|
·
|
authorized capital (
genehmigtes Kapital
) to be utilized by the board of directors within a period determined by the
shareholders but not exceeding two years from the date of the shareholder approval.
|
Pre-emptive Rights
Pursuant to the Swiss Code of Obligations,
or CO, shareholders have pre-emptive rights (
Bezugsrechte
) to subscribe for new issuances of shares. With respect to conditional
capital in connection with the issuance of conversion rights, convertible bonds or similar debt instruments, shareholders have
advance subscription rights (
Vorwegzeichnungsrechte
) for the subscription of conversion rights, convertible bonds or similar
debt instruments.
A resolution passed at a general meeting
of shareholders by two-thirds of the shares represented and the absolute majority of the nominal value of the shares represented
may authorize our board of directors to withdraw or limit pre-emptive rights and/or advance subscription rights in certain circumstances.
If pre-emptive rights are granted, but
not exercised, the board of directors may allocate the pre-emptive rights as it elects.
With respect to our authorized share capital,
the board of directors is authorized by our articles of association to withdraw or to limit the pre-emptive rights of shareholders,
and to allocate them to third parties or to us, in the event that the newly issued shares are used for a purpose set forth in our
articles of association.
Our Authorized Share Capital
At our ordinary general meeting of shareholders
dated April 8, 2016, the shareholders approved an amendment to our authorized share capital. The new provision (article 3a of the
articles of association) reads as follows (translation of the binding original German version):
“
The Board of Directors is authorized
at any time until 8 April 2018 to increase the share capital by a maximum aggregate amount of CHF 6,860,000.00 through the
issuance of not more than 17,150,000 registered shares, which will have to be fully paid-in, with a nominal value of CHF 0.40
each.
Increases in partial amounts are permitted.
The Board of Directors may issue new shares also by means of underwriting or in any other manner by one or more banks and subsequent
offer to shareholders or third parties. The Board of Directors determines the type of contributions, the issue price, the time
of the issue, the conditions for the exercise of the pre-emptive rights, the allocation of pre-emptive rights which have not been
exercised, and the date on which the dividend entitlement starts. The Board of Directors is authorized to permit, to restrict or
to deny the trade with pre-emptive rights.
If pre-emptive rights are granted, but
not exercised, the Board of Directors may use the respective shares in the interest of the Corporation.
The Board of Directors is authorized
to restrict or to exclude the pre-emptive rights of the shareholders, and to allocate them to third parties or to the Corporation,
in the event of use of the shares for the purpose of: a) expanding the shareholder base in certain capital markets or in the context
of the listing, admission to official trading or registration of the shares at domestic or international stock exchanges; b) granting
an over-allotment option (“greenshoe”) to one or several underwriters in connection with a placement of shares; c)
share placements, provided the issue price is determined by reference to the market price; d) the participation of employees, Members
of the Board of Directors or consultants of the Corporation or of one of its Group companies according to one or several equity
incentive plans issued by the Board of Directors; e) the acquisition of companies, company assets, participations, the acquisition
of products, intellectual property rights, licenses or new investment projects or for public or private share placements for the
financing and/or refinancing of such transactions; f) for raising equity capital in a fast and flexible manner as such transaction
would be difficult to carry out, or could be carried out only at less favorable terms, without the exclusion of the pre-emptive
rights of the existing shareholders; or g) the acquisition of a participation in the Corporation by a strategic partner (including
in the case of a public takeover offer).
”
Within the limits of Swiss law, the general
meeting of shareholders may increase or alter the authorization granted to the board of directors. See “—Ordinary Capital
Increase, Authorized and Conditional Share Capital.”
On January 30, 2017, the Company’s
board of directors approved the use of our authorized share capital, allowing the issuance and transfer of new common shares in
connection with the offering described in this prospectus supplement and authorizing the issuance of the warrants issuable upon
exercise of the warrants pursuant to the terms of the warrants out of the Company's conditional share capital. To effect any capital
increase based on our authorized share capital in connection with the offering, the Company will have to follow the relevant procedures
under Swiss law. In particular, the Company’s board of directors will have to approve a general authorization resolution
(
Ermächtigungsbeschluss
), issue a capital increase report (
Kapitalerhöhungsbericht
), approve a notarized
confirmation resolution (
Feststellungsbeschluss
) on the capital increase and the amended articles of association, and obtain
(i) duly executed subscription form(s) covering the subscription of the relevant number of new shares, (ii) a report of an audit
firm relating to the withdrawal of the pre-emptive rights, as well as (iii) a banking confirmation confirming the payment of the
aggregate nominal value of the respective number of new shares to a special Swiss bank account, all in accordance with Swiss law.
The Company’s board of directors will subsequently have to file the relevant documentation accompanied by an application
form with the competent commercial register. Any issuance of common shares based on such filing(s) is subject to the recording
of the respective capital increase(s) in the commercial register in accordance with Swiss law.
Our Conditional Share Capital
Conditional Share Capital for Warrants and
Convertible Bonds
At our ordinary general meeting of shareholders
dated April 8, 2016, the shareholders approved an amendment to our conditional share capital for financing purposes. The new provision
(article 3b of the articles of association) reads as follows (translation of the binding original German version):
“
The Corporation’s share
capital shall be increased by a maximum aggregate amount of CHF 4,860,000.00 through the issuance of not more than 12,150,000
registered shares, which will have to be fully paid-in, with a nominal value of CHF 0.40 each, by the exercise of option and
conversion rights which are granted in connection with bonds, similar obligations, loans or other financial market instruments
or contractual obligations of the Corporation or one of its Group companies, and/or by the exercise of option rights issued by
the Corporation or one of its Group companies (“Financial Instruments”). The pre-emptive rights of shareholders are
excluded. The holders of Financial Instruments are entitled to the new shares. The conditions of the Financial Instruments shall
be determined by the Board of Directors.
When issuing Financial Instruments the
Board of Directors is authorized to limit or exclude the advance subscription rights of shareholders:
|
a)
|
for the purpose of financing or refinancing the acquisition of enterprises, divisions thereof, or of participations, products,
intellectual property rights, licenses, cooperations or of newly planned investments of the Corporation;
|
|
b)
|
if the issue occurs on domestic or international capital markets including private placements; or
|
|
c)
|
for purposes of an underwriting of the Financial Instruments by a banking institution or a consortium of banks with subsequent
offering to the public.
|
To the extent that the advance subscription
rights are excluded, i) the Financial Instruments are to be placed at market conditions; ii) the exercise period, the conversion
period or the exchange period of the Financial Instruments may not exceed 10 years as of the date of the issue; and iii) the conversion
price, the exchange price or other exercise price of the Financial Instruments must be determined by reference to the market price
.”
Of this amount, CHF 4,763,553.20, or 11,908,883 common shares, remains available, taking into account all warrants granted as at September 30, 2016.
Conditional Share Capital for Equity Incentive
Plans
At our ordinary general meeting of shareholders
dated April 8, 2016, the shareholders approved an amendment to our conditional share capital for equity incentive plans. The new
provision (last paragraph of article 3b of the articles of association) reads as follows (translation of the binding original German
version):
“
The Corporation’s share
capital shall, to the exclusion of the pre-emptive rights and advance subscription rights of shareholders, be increased by a maximum
aggregate amount of CHF 2,000,000.00 through the issuance of not more than 5,000,000 registered shares, which shall be fully
paid-in, with a nominal value of CHF 0.40 each, by issuance of shares upon the exercise of options or pre-emptive rights thereof,
which have been issued or granted to employees, Members of the Board of Directors or consultants of the Corporation or of one of
its Group companies according to one or several equity incentive plans or regulations issued by the Board of Directors. The details
shall be determined by the Board of Directors
.”
Of this amount, CHF 1,728,614.80, or 4,321,537
common shares, remains available, taking into account all options granted as at September 30, 2016.
Uncertificated Securities
Our shares are uncertificated securities
(
Wertrechte
, within the meaning of art. 973c of the CO) and, when administered by a financial intermediary (
Verwahrungsstelle
,
within the meaning of the Federal Act on Intermediated Securities, “FISA”), qualify as intermediated securities (
Bucheffekten
,
within the meaning of the FISA). In accordance with art. 973c of the CO, we maintain a non-public register of uncertificated securities
(
Wertrechtebuch
). We may at any time convert uncertificated securities into share certificates (including global certificates),
one kind of certificate into another, or share certificates (including global certificates) into uncertificated securities. If
registered in our share register, a shareholder may at any time request from us a written confirmation in respect of the shares.
Shareholders are not entitled, however, to request the printing and delivery of certificates.
Participation certificates and profit
sharing certificates
The Company has not issued any non-voting
equity securities, such as participation certificates (
Partizipationsscheine
) or profit sharing certificates (
Genussscheine
),
nor has it issued any preference shares (
Vorzugsaktien
).
General Meeting of Shareholders
Ordinary/extraordinary meetings and powers
The general meeting of shareholders is
our supreme corporate body. Under Swiss law, ordinary and extraordinary general meetings of shareholders may be held. Under Swiss
law, an ordinary general meeting of shareholders must be held annually within six months after the end of a corporation’s
financial year. In our case, this means on or before June 30.
The following powers are vested exclusively
in the general meeting of shareholders:
|
·
|
adopting and amending our articles of association;
|
|
·
|
electing the members of the board of directors, the chairman of the board of directors, the members of the compensation committee,
the auditors and the independent proxy;
|
|
·
|
approving the annual report, the annual statutory financial statements and the consolidated financial statements, and deciding
on the allocation of profits as shown on the balance sheet, in particular with regard to dividends and bonus payments to members
of the board of directors;
|
|
·
|
approving the compensation of members of the board of directors and executive management, which under Swiss law is not necessarily
limited to the executive officers;
|
|
·
|
discharging the members of the board of directors and executive management from liability with respect to their tenure in the
previous financial year;
|
|
·
|
dissolving the Company with or without liquidation;
|
|
·
|
deciding matters reserved to the general meeting of shareholders by law or our articles of association or that are presented
to it by the board of directors.
|
An extraordinary general meeting of shareholders
may be called by a resolution of the board of directors or, under certain circumstances, by the Company’s auditor, liquidator
or the representatives of convertible bond holders, if any. In addition, the board of directors is required to convene an extraordinary
general meeting of shareholders if shareholders representing at least ten percent of the share capital request such general meeting
of shareholders in writing. Such request must set forth the items to be discussed and the proposals to be acted upon. The board
of directors must convene an extraordinary general meeting of shareholders and propose financial restructuring measures if, based
on the Company’s stand-alone annual statutory balance sheet, half of our share capital and reserves are not covered by our
assets.
Voting and Quorum Requirements
Shareholder resolutions and elections (including
elections of members of the board of directors) require the affirmative vote of the absolute majority of shares represented at
the general meeting of shareholders, unless otherwise stipulated by law.
A resolution of the general meeting of
the shareholders passed by two-thirds of the shares represented at the meeting, and the absolute majority of the nominal value
of the shares represented is required for:
|
·
|
amending the Company’s corporate purpose;
|
|
·
|
creating or cancelling shares with preference rights or amending rights attached to such shares;
|
|
·
|
cancelling or amending the transfer restrictions of registered shares;
|
|
·
|
creating authorized or conditional share capital;
|
|
·
|
increasing the share capital out of equity, against contributions in kind or for the purpose of acquiring specific assets and
granting specific benefits;
|
|
·
|
limiting or suppressing shareholder’s pre-emptive rights;
|
|
·
|
dissolving or liquidating the Company.
|
The same voting requirements apply to resolutions
regarding transactions among corporations based on Switzerland’s Federal Act on Mergers, Demergers, Transformations and the
Transfer of Assets, or the Merger Act (including a merger, demerger or conversion of a corporation) see “—Compulsory
Acquisitions; Appraisal Rights.”
In accordance with Swiss law and generally
accepted business practices, our articles of association do not provide quorum requirements generally applicable to general meetings
of shareholders. To this extent, our practice varies from the requirement of Nasdaq Listing Rule 5620(c), which requires an issuer
to provide in its bylaws for a generally applicable quorum, and that such quorum may not be less than one-third of the outstanding
voting stock.
Notice
General meetings of shareholders must be
convened by the board of directors at least twenty days before the date of the meeting. The general meeting of shareholders is
convened by way of a notice appearing in our official publication medium, currently the Swiss Official Gazette of Commerce. Registered
shareholders may also be informed by ordinary mail. The notice of a general meeting of shareholders must state the items on the
agenda, the proposals to be acted upon and, in case of elections, the names of the nominated candidates. Except in the limited
circumstances listed below, a resolution may not be passed at a general meeting without proper notice. This limitation does not
apply to proposals to convene an extraordinary general meeting of shareholders or to initiate a special investigation. No previous
notification is required for proposals concerning items included in the agenda or for debates that do not result in a vote. The
notice period for a general meeting of shareholders may be waived if all shareholders are present or represented at such meeting.
Agenda Requests
Pursuant to Swiss law, one or more shareholders
whose combined shareholdings represent the lower of (i) one tenth of the share capital or (ii) an aggregate nominal value of at
least CHF 1,000,000, may request that an item be included in the agenda for an ordinary general meeting of shareholders. To be
timely, the shareholder’s request must be received by us at least 45 calendar days in advance of the meeting. The request
must be made in writing and contain, for each of the agenda items, the following information:
|
·
|
a brief description of the business desired to be brought before the ordinary general meeting of shareholders and the reasons
for conducting such business at the ordinary general meeting of shareholders;
|
|
·
|
the name and address, as they appear in the share register, of the shareholder proposing such business; and
|
|
·
|
all other information required under the applicable laws and stock exchange rules.
|
Our business report, the compensation report
and the auditor’s report must be made available for inspection by the shareholders at our registered office no later than
20 days prior to the general meeting of shareholders. Shareholders of record may be notified of this in writing.
Voting Rights
Each of our shares entitles a holder to
one vote, regardless of its nominal value. The shares are not divisible. The right to vote and the other rights of share ownership
may only be exercised by shareholders (including any nominees) or usufructuaries who are entered in our share register at cut-off
date determined by the board of directors. Those entitled to vote in the general meeting of shareholders may be represented by
the independent proxy holder (annually elected by the general meeting of shareholders), another registered shareholder or third
person with written authorization to act as proxy or the shareholder’s legal representative. The chairman has the power to
decide whether to recognize a power of attorney.
Dividends and Other Distributions
Our board of directors may propose to shareholders
that a dividend or other distribution be paid but cannot itself authorize the distribution. Dividend payments require a resolution
passed by an absolute majority of the shares represented at a general meeting of shareholders. In addition, our auditors must confirm
that the dividend proposal of our board of directors conforms to Swiss statutory law and our articles of association.
Under Swiss law, we may pay dividends only
if we have sufficient distributable profits brought forward from the previous business years (
Gewinnvortrag
), or if we have
distributable reserves (
frei verfügbare Reserven
), each as evidenced by our audited stand-alone statutory balance sheet
prepared pursuant to Swiss law, and after allocations to reserves required by Swiss law and the articles of association have been
deducted. We are not permitted to pay interim dividends out of profit of the current business year.
Distributable reserves are generally booked
either as “free reserves” (
freie Reserven
) or as “reserve from capital contributions” (
Reserven
aus Kapitaleinlagen
). Under the CO, if our general reserves (
allgemeine Reserve
) amount to less than 20% of our share
capital recorded in the commercial register (i.e., 20% of the aggregate nominal value of our issued capital), then at least 5%
of our annual profit must be retained as general reserves. The CO permits us to accrue additional general reserves. Further, a
purchase of our own shares (whether by us or a subsidiary) reduces the distributable reserves in an amount corresponding to the
purchase price of such own shares. Finally, the CO under certain circumstances requires the creation of revaluation reserves which
are not distributable.
Distributions out of issued share capital
(i.e. the aggregate nominal value of our issued shares) are not allowed and may be made only by way of a share capital reduction.
Such a capital reduction requires a resolution passed by an absolute majority of the shares represented at a general meeting of
shareholders. The resolution of the shareholders must be recorded in a public deed and a special audit report must confirm that
claims of our creditors remain fully covered despite the reduction in the share capital recorded in the commercial register. The
share capital may be reduced below CHF 100,000 only if and to the extent that at the same time the statutory minimum share capital
of CHF 100,000 is reestablished by sufficient new fully paid-up capital. Upon approval by the general meeting of shareholders of
the capital reduction, the board of directors must give public notice of the capital reduction resolution in the Swiss Official
Gazette of Commerce three times and notify creditors that they may request, within two months of the third publication, satisfaction
of or security for their claims. The reduction of the share capital may be implemented only after expiration of this time limit.
Our board of directors determines the date
on which the dividend entitlement starts. Dividends are usually due and payable shortly after the shareholders have passed the
resolution approving the payment, but shareholders may also resolve at the ordinary general meeting of shareholders to pay dividends
in quarterly or other installments.
Transfer of Shares
Shares in uncertificated form (
Wertrechte
)
may only be transferred by way of assignment. Shares that constitute intermediated securities (
Bucheffekten
) may only be
transferred when a credit of the relevant intermediated securities to the acquirer’s securities account is made in accordance
with the relevant provisions of the FISA. Article 4 of our articles of association provides that in the case of securities held
with an intermediary such as a registrar, transfer agent, trust corporation, bank or similar entity, any transfer, grant of a security
interest or usufructuary right in such intermediated securities and the appurtenant rights associated therewith requires the cooperation
of the intermediary in order for such transfer, grant of a security interest or usufructuary right to be valid against us.
Voting rights may be exercised only after
a shareholder has been entered in our share register (
Aktienbuch
) with his or her name and address (in the case of legal
entities, the registered office) as a shareholder with voting rights. Any acquirer of our shares who is not registered in our share
register as a shareholder with voting rights will still be entitled to dividends and other rights with financial value with respect
to such shares.
Inspection of Books and Records
Under the CO, a shareholder has a right
to inspect our share register with respect to his own shares and otherwise to the extent necessary to exercise his shareholder
rights. No other person has a right to inspect our share register. Our books and correspondence may be inspected with the express
authorization of the general meeting of shareholders or by resolution of the board of directors and subject to the safeguarding
of our business secrets.
Special Investigation
If the shareholders’ inspection rights
as outlined above prove to be insufficient in the judgment of the shareholder, any shareholder may propose to the general meeting
of shareholders that specific facts be examined by a special commissioner in a special investigation. If the general meeting of
shareholders approves the proposal, we or any shareholder may, within 30 calendar days after the general meeting of shareholders,
request a court in Zug, Switzerland, our registered office, to appoint a special commissioner. If the general meeting of shareholders
rejects the request, one or more shareholders representing at least 10 percent of the share capital or holders of shares in an
aggregate nominal value of at least CHF 2,000,000 may request that the court appoint a special commissioner. The
court
will issue such an order if the petitioners can demonstrate that the board of directors, any member of the board of directors
or our executive management infringed the law or our articles of association and thereby caused damages to the Company or the
shareholders. The costs of the investigation would generally be allocated to us and only in exceptional cases to the petitioners.
Compulsory Acquisitions; Appraisal Rights
Business combinations and other transactions
that are governed by the Swiss Merger Act (i.e. mergers, demergers, transformations and certain asset transfers) are binding on
all shareholders. A statutory merger or demerger requires approval of two-thirds of the shares represented at a general meeting
of shareholders and the absolute majority of the nominal value of the shares represented.
Swiss corporations may be acquired by an
acquirer through the direct acquisition of the share capital of the Swiss corporation. The Swiss Merger Act provides for the possibility
of a so-called “cash-out” or “squeeze-out” merger if the acquirer controls 90% of the outstanding shares.
In these limited circumstances, minority shareholders of the corporation being acquired may be compensated in a form other than
through shares of the acquiring corporation (for instance, through cash or securities of a parent corporation of the acquiring
corporation or of another corporation). Following a statutory merger or demerger, pursuant to the Merger Act, shareholders can
file an appraisal action against the surviving company. If the consideration is deemed inadequate, the court will determine an
adequate compensation payment.
In addition, under Swiss law, the sale
of “all or substantially all of our assets” by us may require the approval of two-thirds of the number of shares represented
at a general meeting shareholders and the absolute majority of the nominal value of the shares represented. Whether a shareholder
resolution is required depends on the particular transaction, including whether the following test is satisfied:
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a core part of the Company’s business is sold without which it is economically impracticable or unreasonable to continue
to operate the remaining business;
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the Company’s assets, after the divestment, are not invested in accordance with the Company’s statutory business
purpose; and
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the proceeds of the divestment are not earmarked for reinvestment in accordance with the Company’s business purpose but,
instead, are intended for distribution to the Company’s shareholders or for financial investments unrelated to the Company’s
business.
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Board of Directors
Our articles of association provide that
the board of directors shall consist of at least three and not more than nine members.
The members of the board of directors and
the chairman are elected annually by the general meeting of shareholders for a period until the completion of the subsequent ordinary
general meeting of shareholders and are eligible for re-election. Each member of the board of directors must be elected individually.
Unless an exception is granted by the general meeting of shareholders, only persons who have not completed their seventy-fifth
year of age on the election date are eligible for election.
Powers
The board of directors has the following
non-delegable and inalienable powers and duties:
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the ultimate direction of the business of the Company and issuing of the relevant directives;
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laying down the organization of the Company;
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formulating accounting procedures, financial controls and financial planning, to the extent required for the governance of
the Company;
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nominating and removing persons entrusted with the management and representation of the Company and regulating the power to
sign for the Company;
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the ultimate supervision of those persons entrusted with management of the Company, with particular regard to adherence to
law, our articles of association, and regulations and directives of the Company;
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issuing the annual report and the compensation report, and preparing for the general meeting of shareholders and carrying out
its resolutions; and
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informing the court in case of over-indebtedness.
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The board of directors may, while retaining
such non-delegable and inalienable powers and duties, delegate some of its powers, in particular direct management, to a single
or to several of its members, managing directors, committees or to third parties who need be neither members of the board of directors
nor shareholders. Pursuant to Swiss law and Article 13 of our articles of association, details of the delegation and other procedural
rules such as quorum requirements must be set in the organizational rules issued by the board of directors.
Indemnification of Executive Management and
Directors
Subject to Swiss law, Article 17 of our
articles of association provides for indemnification of the existing and former members of the board of directors, executive management
and their heirs, executors and administrators, against liabilities arising in connection with the performance of their duties in
such capacity, and permits us to advance the expenses of defending any act, suit or proceeding to our directors and executive management.
In addition, under general principles of
Swiss employment law, an employer may be required to indemnify an employee against losses and expenses incurred by such employee
in the proper execution of their duties under the employment agreement with the employer.
We have entered into indemnification agreements
with each of the members of our board of directors and executive management. The indemnification agreements and our articles of
association require us to indemnify our directors and executive officers to the fullest extent permitted by law.
Conflict of Interest, Management Transactions
Swiss law does not provide for a general
provision regarding conflicts of interest. However, the CO contains a provision that requires our directors and executive management
to safeguard the Company’s interests and imposes a duty of loyalty and duty of care on our directors and executive management.
This rule is generally understood to disqualify directors and executive management from participation in decisions that directly
affect them. Our directors and executive officers are personally liable to us for breach of these provisions. In addition, Swiss
law contains provisions under which directors and all persons engaged in the Company’s management are liable to the Company,
each shareholder and the Company’s creditors for damages caused by an intentional or negligent violation of their duties.
Furthermore, Swiss law contains a provision under which payments made to any of the Company’s shareholders or directors or
any person associated with any such shareholder or director, other than payments made at arm’s length, must be repaid to
the Company if such shareholder or director acted in bad faith.
Our board of directors has adopted a Code
of Business Conduct and Ethics that covers a broad range of matters, including the handling of conflicts of interest.
Principles of the Compensation of the
Board of Directors and the Executive Management
Pursuant to Swiss law, our shareholders
must annually resolve on the approval of the compensation of the board of directors and the persons whom the board of directors
has, fully or partially, entrusted with the management of the Company. The board of directors must issue, on an annual basis, a
written compensation report that must be
reviewed
together with a report on our business by our auditor. The compensation report must disclose all compensation, loans and other
forms of indebtedness granted by the Company, directly or indirectly, to current or former members of the board of directors and
executive management to the extent related to their former role within the Company or not on customary market terms.
The disclosure concerning compensation,
loans and other forms of indebtedness must include the aggregate amount for the board of directors and the executive management
as well as the particular amount for each member of the board of directors and executive officer, specifying the name and function
of each respective person.
Certain forms of compensation are prohibited
for members of our board of directors and executive management, such as:
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severance payments provided for either contractually or in the articles of association (compensation due until the termination
of a contractual relationship does not qualify as severance payment);
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incentive fees for the acquisition or transfer of corporations or parts thereof by the Company or by companies being, directly
or indirectly, controlled by us;
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loans, other forms of indebtedness, pension benefits not based on occupational pension schemes and performance-based compensation
not provided for in the articles of association; and
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equity securities and conversion and option rights awards not provided for in the articles of association.
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Compensation to members of the board of
directors and executive management for activities in entities that are, directly or indirectly, controlled by the Company is prohibited
if the compensation (i) would have been prohibited if it was paid directly by the Company, (ii) is not provided for in the articles
of association or (iii) has not been approved by the general meeting of shareholders.
The general meeting of shareholders annually
votes on the proposals of the board of directors with respect to:
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the maximum aggregate amount of compensation of the board of directors for the subsequent term of office; and
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the maximum aggregate amount of compensation of the executive management for the subsequent financial year.
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The board of directors may submit for approval
at the general meeting of shareholders deviating or additional proposals relating to the same or different periods.
In the event that at the general meeting
of shareholders the shareholders do not approve a proposal of the board of directors, the board of directors must form a new proposal
for the maximum aggregate compensation and the particular compensation for each individual, taking into account all relevant factors,
and submit the new proposal for approval by the same general meeting of shareholders, at a subsequent extraordinary general meeting
or the next ordinary general meeting of shareholders.
In addition to fixed compensation, members
of the board of directors and executive management may be paid variable compensation, depending on the achievement of certain performance
criteria. The performance criteria may include individual targets, targets of the Company or parts thereof and targets in relation
to the market, other companies or comparable benchmarks, taking into account the position and level of responsibility of the recipient
of the variable compensation. The board of directors or, where delegated to it, the compensation committee shall determine the
relative weight of the performance criteria and the respective target values.
Compensation may be paid or granted in
the form of cash, shares, financial instruments, in kind, or in the form of other types of benefits. The board of directors or,
where delegated to it, the compensation committee shall determine grant, vesting, exercise and forfeiture conditions.
Borrowing Powers
Neither Swiss law nor our articles of association
restrict in any way our power to borrow and raise funds. The decision to borrow funds is made by or under the direction of our
board of directors, and no approval by the shareholders is required in relation to any such borrowing.
Repurchases of Shares and Purchases of
Own Shares
The CO limits our right to purchase and
hold our own shares. We and our subsidiaries may purchase shares only if and to the extent that (i) we have freely distributable
reserves in the amount of the purchase price; and (ii) the aggregate nominal value of all shares held by us does not exceed 10
percent of our share capital. Pursuant to Swiss law, where shares are acquired in connection with a transfer restriction set out
in the articles of association, the foregoing upper limit is 20 percent. We currently do not have any transfer restriction in our
articles of association. If we own shares that exceed the threshold of 10 percent of our share capital, the excess must be sold
or cancelled by means of a capital reduction within two years.
Shares held by us or our subsidiaries are
not entitled to vote at the general meeting of shareholders but are entitled to the economic benefits applicable to the shares
generally, including dividends and pre-emptive rights in the case of share capital increases.
Notification and Disclosure of Substantial
Share Interests
The disclosure obligations generally applicable
to shareholders of Swiss corporations under the Swiss Financial Market Infrastructure Act do not apply to us since our shares are
not listed on a Swiss exchange.
Pursuant to art. 663c of the CO, Swiss
corporations whose shares are listed on a stock exchange must disclose their significant shareholders and their shareholdings in
the notes to their balance sheet, where this information is known or ought to be known. Significant shareholders are defined as
shareholders and groups of shareholders linked through voting rights who hold more than five percent of all voting rights.
Stock Exchange Listing
Our common shares are listed on the Nasdaq
Global Market under the symbol “EARS.”
The Depository Trust Company
Initial settlement of any common shares
to be issued pursuant to this prospectus will take place through The Depository Trust Company, or DTC, in accordance with its customary
settlement procedures for equity securities. Each person owning common shares held through DTC must rely on the procedures thereof
and on institutions that have accounts therewith to exercise any rights of a holder of the shares.
Transfer Agent and Registrar of Shares
Our share register is currently kept by
American Stock Transfer & Trust Company, LLC, which acts as transfer agent and registrar. The share register reflects only
record owners of our shares.
Description
of Warrants
The warrants will be issued as individual warrant agreements to the investors. The material terms and provisions of the warrants
offered hereby are summarized below. Each warrant represents the right to purchase 0.70 of a common share. The warrants to
be issued in this offering represent the rights to purchase an aggregate of up to 7,000,000 common shares (or 8,050,000 common
shares if the underwriters were to fully exercise their option to purchase up to 1,500,000 additional warrants) at an initial
exercise price of $1.20 per share.
Exercisability
The warrants are exercisable beginning
on the date of issuance, and at any time up to five years from the date of issuance; provided that any single exercise shall be
for common shares with an aggregate exercise price of no less than $25,000 (or if a holder’s purchase rights shall be for
common shares with an aggregate exercise price of less than $25,000, such exercise may be for all of the common shares subject
to purchase under the warrant). The warrants will be exercisable, at the option of each holder, in whole or in part by delivering
to us the original of a duly executed and irrevocable exercise notice accompanied by payment in full of the exercise price for
the number of common shares purchased upon such exercise. Common shares issuable upon exercise of the warrants will not be issued
until both the executed notice of exercise and the relevant exercise price is received by the Company. A holder may pre-deliver
exercise notices to the Company to hold in escrow pending further emailed irrevocable instruction from the holder to the Company
regarding how to complete the exercise notice. The common shares will be issued out of the Company’s conditional share capital.
No fractional common shares will be issued in connection with the exercise of a warrant. In lieu of fractional shares, we will,
at our option, either (i) pay the holder an amount in cash equal to the fractional amount multiplied by the market value of a
common share or (ii) round up to the next whole share. Pursuant to Swiss law, the Company is not permitted to provide holders
with the option of cashless, or net, exercises of the warrants. A holder will not have the right to exercise any portion of the
warrant if such holder (together with its affiliates) would beneficially own in excess of 4.99% of the number of our common shares
outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the
terms of the warrants. A holder may give not less than 61 days’ prior notice to the Company to increase such beneficial
ownership limit, up to 9.99%. The foregoing beneficial ownership restrictions will not apply to the extent a holder (together
with its affiliates) beneficially owned in excess of the foregoing beneficial ownership thresholds prior to the date of issuance.
We
have agreed to maintain an effective registration statement under the Securities Act permitting the issuance of common shares
upon exercise of the warrants from the date of issuance until the termination date for the warrants. However, if at any time
there is no effective registration statement under the Securities Act permitting the issuance of common shares upon exercise
of the warrants, a holder may not exercise the purchase rights represented by the warrants unless such holder, at the time of
such exercise, is an "accredited investor" as defined in Regulation D under the Securities Act, and such holder, at
the Company's request, represents the same to the Company in writing. If a holder delivers to the Company an executed
exercise notice at a time when there is no effective registration statement under the Securities Act permitting the issuance
of common shares upon exercise of the warrants, then the Company will pay to such holder, in cash, an amount equal to the
product of (a) the volume weighted average price per share over the last full day immediately preceding the delivery of the
executed exercise notice (determined in accordance with the provisions of the warrant) minus the exercise price per share and
(b) the number of common shares that would be issuable upon exercise pursuant to such executed exercise notice. The
number of common shares available for purchase under the warrant held by such holder will be decreased by the number of
common shares that would be issuable upon exercise pursuant to such executed exercise notice.
Failure to Timely Deliver Shares
If we fail to deliver to the investor the
common shares specified in a duly executed notice of exercise by the second trading day after the receipt by the Company of such
executed notice of exercise and the corresponding exercise price, as required by the warrant, and if the investor purchases the
common shares after that second trading day to deliver in satisfaction of a sale by the investor of the underlying warrant shares
that the investor anticipated receiving from us, then, upon the investor’s request, we, at the investor’s option, will
(A) pay in cash to the investor the amount, if any, by which (x) the investor’s total purchase price (including brokerage
commissions, if any) for the common shares so purchased exceeds (y) the amount obtained by multiplying (1) the number of warrant
shares that the Company was required to deliver to the investor in connection with the exercise at issue times (2) the price at
which the sell order giving rise to such purchase obligation was executed (without deducting brokerage commissions, if any), and
(B) at the option of the investor, either reinstate the portion of the Warrant and equivalent number of warrant shares for which
such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the investor the number of
common shares that would have been issued had the Company timely complied with its exercise and delivery obligations under the
warrant.
Exercise Price
Each warrant represents the right to
purchase 0.70 of a common share at an exercise price equal to $1.20 per
share. The exercise price is subject to appropriate adjustment in the event of certain common share dividends and
distributions, share splits, stock combinations, reclassifications or similar events affecting our common shares, and also
upon any cash dividends to our shareholders; provided that in no event will the exercise price per share be lower than the
nominal value of a common share, which is CHF 0.40 as of the date of issuance.
Fundamental Transactions
If we consummate any merger, consolidation,
sale or other reorganization event in which our common shares are converted into or exchanged for securities, cash or other property,
or if we consummate certain sales or other business combinations, then following such event, the holders of the warrants will be
entitled to receive upon exercise of the warrants the kind and amount of securities, cash or other property that the holders would
have received had they exercised the warrants immediately prior to such event. At the holder’s election, exercisable
at any time concurrently with, or within 30 days after, the consummation of the Fundamental Transaction (as defined in the warrant),
we or any successor entity shall purchase the warrant from the holder by paying the holder an amount of cash equal to the Black-Scholes
value (determined in accordance with the provisions of the warrant).
Transferability
Subject to applicable laws, the warrants
may be offered for sale, sold, transferred or assigned without our consent.
No Exchange Listing
There is no public trading market for the
warrants, and we do not expect a market to develop. In addition, we do not intend to apply for listing of the warrants on any securities
exchange or other trading system.
Rights as a Shareholder
Except as otherwise provided in the warrants
or by virtue of such holder’s ownership of shares of our common shares, the holder of a warrant does not have the rights
or privileges of a holder of our common shares, including any voting rights, until the holder exercises the warrant and delivers
the corresponding executed exercise notice and exercise price.
Governing Law
The warrants will be governed by, and construed
and enforced in accordance with, the laws of the State of New York. Matters involving the rights of shareholders, issuance of common
shares and the validity of common shares are governed by the laws of Switzerland.
Taxation
The following summary contains
a description of the material Swiss and U.S. federal income tax consequences of the acquisition, ownership and disposition
of common shares and warrants, but it does not purport to be a comprehensive description of all the tax considerations that may be
relevant to a decision to purchase common shares and warrants. The summary is based upon the tax laws of Switzerland and regulations
thereunder and on the tax laws of the United States and regulations thereunder as of the date hereof, which are subject to
change.
Swiss Tax Considerations
This summary of material Swiss tax consequences
is based on Swiss law and regulations and the practice of the Swiss tax administration as in effect on the date hereof, all of
which are subject to change (or subject to changes in interpretation), possibly with retroactive effect. The summary does not purport
to take into account the specific circumstances of any particular shareholder or potential investor and does not relate to persons
in the business of buying and selling common shares or other securities. The summary is not intended to be, and should not be interpreted
as, legal or tax advice to any particular potential shareholder/s, and no representation with respect to the tax consequences to
any particular shareholder/s is made.
Current and prospective shareholders are
advised to consult their own tax advisers in light of their particular circumstances as to the Swiss tax laws, regulations and
regulatory practices that could be relevant for them in connection with the acquiring, owning and selling or otherwise disposing
of common shares and receiving dividends and similar cash or in-kind distributions on common shares (including dividends on liquidation
proceeds and stock dividends) or distributions on common shares based upon a capital reduction (
Nennwertrückzahlungen
)
or reserves paid out of capital contributions (
Reserven aus Kapitaleinlagen
) and the consequences thereof under the tax
laws, regulations and regulatory practices of Switzerland.
Taxation of Auris Medical Holding AG
Auris Medical Holding AG is a Swiss based
company, taxed as a holding company in the Canton of Zug. The company is taxed at a current effective income tax rate of 7.83%
(including direct federal as well as cantonal/communal taxes), whereby a participation relief applies to dividend income from qualifying
participations, and a current annual capital tax rate of 0.003% which is levied on the net equity of the company.
Switzerland is currently in the
process of reforming certain elements of its corporate tax law which may impact the taxation of Auris Medical Holding AG
(including the abolition of the holding taxation at cantonal/communal level). Whether and when such new rules will enter into
force is not known.
Swiss Federal Withholding Tax on Dividends and other
Distributions
Dividend payments and similar cash or in-kind
distributions on the common shares (including dividends on liquidation proceeds and stock dividends) that the Company makes to
shareholders are subject to Swiss federal withholding tax (
Verrechnungssteuer
) at a rate of 35% on the gross amount of the
dividend. The Company is required to withhold the Swiss federal withholding tax from the dividend and remit it to the Swiss Federal
Tax Administration. Distributions based upon a capital reduction (
Nennwertrückzahlungen
) and reserves paid out of capital
contributions (
Reserven aus Kapitaleinlagen
) are not subject to Swiss federal withholding tax.
The redemption of common shares in the
Company may under certain circumstances (in particular, if the common shares in the Company are redeemed for subsequent cancellation)
be taxed as a partial liquidation for Swiss federal withholding tax purposes, with the consequence that the difference between
the repurchase price and the nominal value of the shares (
Nennwertprinzip
) plus capital contribution reserves (
Reserven
aus Kapitaleinlagen
) is subject to Swiss federal withholding tax.
The Swiss federal withholding tax is refundable
or creditable in full to a Swiss tax resident corporate and individual shareholder as well as to a non-Swiss tax resident corporate
or individual shareholder who holds the common shares as part of a trade or business carried on in Switzerland through a permanent
establishment or fixed
place
of business situated for tax purposes in Switzerland, if such person is the beneficial owner of the distribution and, in the case
of a Swiss tax resident individual who holds the common shares as part of his private assets, duly reports the gross distribution
received in his individual income tax return or, in the case of a person who holds the common shares as part of a trade or business
carried on in Switzerland through a permanent establishment or fixed place of business situated for tax purposes in Switzerland,
recognizes the gross dividend distribution for tax purposes as earnings in the income statements and reports the annual profit
in the Swiss income tax return.
If a shareholder who is not a Swiss resident
for tax purposes and does not hold the common shares in connection with the conduct of a trade or business in Switzerland through
a permanent establishment or fixed place of business situated, for tax purposes in Switzerland, receives a distribution from the
Company, the shareholder may be entitled to a full or partial refund or credit of Swiss federal withholding tax incurred on a taxable
distribution if the country in which such shareholder is resident for tax purposes has entered into a treaty for the avoidance
of double taxation with Switzerland and the further prerequisites of the treaty for a refund have been met. Shareholders not resident
in Switzerland should be aware that the procedures for claiming treaty benefits (and the time required for obtaining a refund or
credit) may differ from country to country.
Besides the bilateral treaties, Switzerland
has entered into an agreement with the European Community providing for measures equivalent to those laid down in Council Directive
2003/48/EC on taxation of savings income in the form of interest payments and the Council Directive 90/435/EWG on the taxation
of parent companies and subsidiaries of different Member States. This agreement contains in its Article 15 provisions on taxation
of dividends which apply with respect to EU member states and provides for an exemption of Withholding Tax for companies under
certain circumstances.
On January 1, 2013, treaties on final withholding
taxes entered into by Switzerland with the European Community and the individual European states came into force (each a “Contracting
State”). The treaties require a Swiss paying agent, as defined in the treaties, to levy a flat-rate final withholding tax
at rates specified in the treaties on certain capital gains and income items (including dividends), all as defined in the treaties,
deriving from assets, including the common shares held in account or deposits with a Swiss paying agent by (i) an individual resident
in a Contracting State, or (ii) if certain requirements are met, by a domiciliary company (
Sitzgesellschaft
), an insurance
company in connection with a so-called insurance wrapper (
Lebensversicherungsmantel
) or other individuals if the beneficial
owner is an individual resident in a Contracting State. Each contracting state has different tax rates on dividends and capital
gains for individuals resident and domiciled in one of the European states. The flat-rate tax withheld substitutes the ordinary
capital gains tax and income tax on the relevant capital gains and income items in the Contracting State where the individuals
are tax resident, unless the individuals elect for the flat-rate tax withheld to be treated as if it were a credit allowable against
the income tax or, as the case may be, capital gains tax, due for the relevant tax year in the relevant Contracting State. Alternatively,
instead of paying the flat-rate tax, such individuals may opt for a disclosure or the relevant capital gains and income items to
the tax authorities of the Contracting State where they are tax residents. If Swiss federal withholding tax of 35% has been withheld
on dividends, the Swiss paying agent will – to the extent provided in the applicable bilateral treaty for the avoidance of
double taxation between Switzerland and the Contracting State – in its own name and on behalf of the relevant shareholder
file with the Swiss tax authorities a request for the partial refund of the Swiss federal withholding tax. The Swiss federal withholding
tax which is not refundable according to the bilateral tax treaty (residual tax) is credited against the flat-rate final withholding
tax.
The bilateral treaty between Switzerland
with the European Union on taxation of savings and the treaties on final withholding taxes entered into by Switzerland with the
European Community are only applicable until December 31, 2016.
Individual and Corporate Income Tax on Dividends
Swiss resident individuals holding the
common shares as part of their private assets who receive dividends and similar distributions (including stock dividends and liquidation
proceeds), which are not repayments of the nominal value (
Nennwertrückzahlungen
) of the common shares or reserves paid
out of capital contributions (
Reserven aus Kapitaleinlagen
) are required to report such payments in their individual income
tax returns and are liable to Swiss federal, cantonal and communal income taxes on any net taxable income for the relevant tax
period. Furthermore,
for
the purpose of the Direct Federal Tax, dividends, shares in profits, liquidation proceeds and pecuniary benefits from shares (including
bonus shares) are included in the tax base for only 60% of their value (
Teilbesteuerung
), if the investment amounts to
at least 10% of nominal share capital of the Company. Most Swiss cantons have introduced similar partial taxation measures at
cantonal and communal levels.
Swiss resident individuals as well as non-Swiss
resident individual taxpayers holding the common shares in connection with the conduct of a trade or business in Switzerland through
a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, are required to recognize dividends,
distributions based upon a capital reduction (
Nennwertrückzahlungen
) and reserves paid out of capital contributions
(
Reserven aus Kapitaleinlagen
) in their income statements for the relevant tax period and are liable to Swiss federal, cantonal
and communal individual or corporate income taxes, as the case may be, on any net taxable earnings accumulated (including the payment
of dividends) for such period. Furthermore, for the purpose of the Direct Federal Tax, dividends, shares in profits, liquidation
proceeds and pecuniary benefits from shares (including bonus shares) are included in the tax base for only 50% (
Teilbesteuerung
),
if the investment is held in connection with the conduct of a trade or business or qualifies as an opted business asset (
gewillkürtes
Geschäftsvermögen
) according to Swiss tax law and amounts to at least 10% of nominal share capital of the Company.
All cantons have introduced similar partial taxation measures at cantonal and communal levels.
Swiss resident corporate taxpayers as well
as non-Swiss resident corporate taxpayers holding the common shares in connection with the conduct of a trade or business through
a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, are required to recognize dividends,
distributions based upon a capital reduction (
Nennwertrückzahlungen
) and reserves paid out of capital contributions
(
Reserven aus Kapitaleinlagen
) in their income statements for the relevant tax period and are liable to Swiss federal, cantonal
and communal corporate income taxes on any net taxable earnings accumulated for such period. Swiss resident corporate taxpayers
as well as non-Swiss resident corporate taxpayers holding the common shares in connection with the conduct of a trade or business
through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland may be eligible for participation
relief (
Beteiligungsabzug
) in respect of dividends and distributions based upon a capital reduction (
Nennwertrückzahlungen
)
and reserves paid out of capital contributions (
Reserven aus Kapitaleinlagen
) if the common shares held by them as part
of a Swiss business have an aggregate market value of at least CHF 1 million or represent at least 10% of the nominal share capital
of the Company or give entitlement to at least 10% of the profits and reserves of the Company, respectively.
Recipients of dividends and similar distributions
on the common shares (including stock dividends and liquidation proceeds) who neither are residents of Switzerland nor during the
current taxation year have engaged in a trade or business in Switzerland and who are not subject to taxation in Switzerland for
any other reason are not subject to Swiss federal, cantonal or communal individual or corporate income taxes in respect of dividend
payments and similar distributions because of the mere holding of the common shares.
Wealth and Annual Capital Tax on Holding of Common Shares
Swiss resident individuals and non-Swiss
resident individuals holding the common shares or warrants in connection with the conduct of a trade or business in Switzerland
through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, are required to report
their common shares or warrants as part of their wealth and will be subject to cantonal and communal wealth tax to the extent the
aggregate taxable net wealth is allocable to Switzerland.
Swiss resident corporate taxpayers and
non-Swiss resident corporate taxpayers holding the common shares or warrants in connection with the conduct of a trade or business
in Switzerland through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, will be
subject to cantonal and communal annual capital tax on the taxable capital to the extent the aggregate taxable capital is allocable
to Switzerland.
Individuals and corporate taxpayers not
resident in Switzerland for tax purposes and not holding the common shares or warrants in connection with the conduct of a trade
or business in Switzerland through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland,
are not subject to wealth or annual capital tax in Switzerland because of the mere holding of the common shares.
Capital Gains on Disposal of Common Shares or Warrants
Swiss resident individuals who
sell or otherwise dispose of the common shares or warrants realize a tax-free capital gain, or a non-deductible capital loss,
as the case may be, provided that they hold the common shares or warrants, as applicable, as part of their private assets.
Under certain circumstances, the sale proceeds may be requalified into taxable investment income (e.g., if the taxpayer is
deemed to be a professional securities dealer).
Capital gains realized on the sale of the
common shares or warrants held by Swiss resident individuals, Swiss resident corporate taxpayers as well as non-Swiss resident
individuals and corporate taxpayers holding the common shares or warrants in connection with the conduct of a trade or business
in Switzerland through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, will be
subject to Swiss federal, cantonal and communal individual or corporate income tax, as the case may be. This also applies to Swiss
resident individuals who, for individual income tax purposes, are deemed to be professional securities dealers for reasons of,
inter alia, frequent dealing and debt-financed purchases. Capital gains realized by resident individuals who hold the common shares
as business assets might be entitled to reductions or partial taxations similar to those mentioned above for dividends (
Teilbesteuerung
)
if certain conditions are met (e.g. holding period of at least one year and participation of at least 10% of nominal share capital).
Swiss resident corporate taxpayers as well
as non-Swiss resident corporate taxpayers holding the common shares or warrants in connection with the conduct of a trade or business,
through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, are required to recognize
such capital gain in their income statements for the relevant tax period. Corporate taxpayers may qualify for participation relief
on capital gains (
Beteiligungsabzug
), if the common shares sold during the tax period represent at least 10% of the Company’s
share capital or if the common shares sold give entitlement to at least 10% of the Company’s profit and reserve and were
held for at least one year. The tax relief applies to the difference between the sale proceeds of common shares by the Company
and the acquisition costs of the participation (
Gestehungskosten
).
Individuals and corporations not resident
in Switzerland for tax purposes and not holding the common shares or warrants in connection with the conduct of a trade or business
in Switzerland through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, are not
subject to Swiss federal, cantonal and communal individual income or corporate income tax, as the case may be, on capital gains
realized on the sale of the common shares or warrants.
Gift and Inheritance Tax
Transfers of common shares or warrants
may be subject to cantonal and/or communal inheritance or gift taxes if the deceased or the donor or the recipient were resident
in a Canton levying such taxes and, in international circumstances where residency requirements are satisfied, if the applicable
tax treaty were to allocate the right to tax to Switzerland.
Swiss Issuance Stamp Duty
The Company is subject to paying to the
Swiss Federal Tax Administration a 1% Swiss federal issuance stamp tax (
Emissionsabgabe
) on any increase of the nominal
share capital of the Company (with or without issuance of shares) or any other equity contributions received by the Company (regardless
of whether or not any compensation is paid to the shareholder in connection with the contribution). Certain costs incurred in connection
with the issuance of shares (if any) may be deductible. There are several exemptions from issuance stamp tax that may apply under
certain circumstances (e.g., certain intercompany reorganizations).
Swiss Securities Transfer Tax
The purchase or sale (or other financial
transfer) of the common shares, whether by Swiss residents or non-Swiss residents, may be subject to Swiss securities transfer
tax of up to 0.15%, calculated on the purchase price or the proceeds if the purchase or sale occurs through or with a Swiss bank
or other Swiss securities dealer as defined in the Swiss Federal Stamp Duty Act as an intermediary or party to the transaction
unless an exemption applies.
Material U.S. Federal Income Tax Considerations
for U.S. Holders
The following is a description of the material
U.S. federal income tax consequences to U.S. Holders described below of owning and disposing of common shares or warrants, but
it does not purport to be a comprehensive description of all tax considerations that may be relevant to a particular person’s
decision to acquire the common shares and warrants. This discussion applies only to a U.S. Holder that holds the common shares
or warrants as capital assets for U.S. federal income tax purposes. In addition, it does not describe all of the tax consequences
that may be relevant in light of a U.S. Holder’s particular circumstances, including alternative minimum tax consequences,
the potential application of the provisions of the Internal Revenue Code of 1986, as amended, or the Code, known as the Medicare
contribution tax and tax consequences applicable to U.S. Holders subject to special rules, such as:
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certain financial institutions;
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dealers or traders in securities who use a mark-to-market method of tax accounting;
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persons holding common shares or warrants as part of a straddle, wash sale, or conversion transaction or persons entering into
a constructive sale with respect to the common shares;
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persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;
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entities classified as partnerships for U.S. federal income tax purposes;
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tax-exempt entities, including an “individual retirement account” or “Roth IRA”;
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persons that own or are deemed to own ten percent or more of our voting stock; or
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persons holding shares or warrants in connection with a trade or business conducted outside of the United States.
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If an entity that is classified as a partnership
for U.S. federal income tax purposes holds common shares or warrants, the U.S. federal income tax treatment of a partner will generally
depend on the status of the partner and the activities of the partnership. Partnerships holding common shares or warrants and partners
in such partnerships should consult their tax advisers as to their particular U.S. federal income tax consequences of holding and
disposing of the common shares or warrants.
This discussion is based on the Code, administrative
pronouncements, judicial decisions, final, temporary and proposed Treasury regulations, and the income tax treaty between Switzerland
and the United States, or the Treaty, all as of the date hereof, any of which is subject to change, possibly with retroactive effect.
A “U.S. Holder” is a holder
who, for U.S. federal income tax purposes, is a beneficial owner of common shares who is eligible for the benefits of the Treaty
and is:
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an individual who is a citizen or resident of the United States;
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a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any
state therein or the District of Columbia; or
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an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.
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U.S. Holders should consult their tax advisers
concerning the U.S. federal, state, local and non-U.S. tax consequences of owning and disposing of common shares or warrants in
their particular circumstances.
Passive Foreign Investment Company Rules
We believe that we were a “passive
foreign investment company,” or PFIC, for U.S. federal income tax purposes for our 2016 taxable year, and we expect to be
a PFIC for our current taxable year and for the foreseeable future. In addition, we may, directly or indirectly, hold equity interests
in other PFICs, or Lower-tier PFICs. In general, a non-U.S. corporation will be considered a PFIC for any taxable year in which
(i) 75% or more of its gross income consists of passive income or (ii) 50% or more of the average quarterly value of its assets
consists of assets that produce, or are held for the production of, passive income. For purposes of the above calculations, a non-U.S.
corporation that directly or indirectly owns at least 25% by value of the shares of another corporation is treated as if it held
its proportionate share of the assets of the other corporation and received directly its proportionate share of the income of the
other corporation. Passive income generally includes dividends, interest, rents, royalties and capital gains.
Under attribution rules, assuming we are
a PFIC, U.S. Holders will be deemed to own their proportionate shares of Lower-tier PFICs and will be subject to U.S. federal income
tax according to the rules described in the following paragraphs on (i) certain distributions by a Lower-tier PFIC and (ii) a disposition
of shares of a Lower-tier PFIC, in each case as if the U.S. Holder held such shares directly, even if the U.S. holder has not received
the proceeds of those distributions or dispositions.
If we are a PFIC for any taxable year during
which a U.S. Holder holds our shares or warrants, the U.S. Holder may be subject to certain adverse tax consequences. Unless a
U.S. Holder makes a timely “mark-to-market” election or “qualified electing fund” election, each as discussed
below, gain recognized on a disposition (including, under certain circumstances, a pledge) of common shares or warrants by the
U.S. Holder, or on an indirect disposition of shares of a Lower-tier PFIC, will be allocated ratably over the U.S. Holder’s
holding period for the shares or warrants. The amounts allocated to the taxable year of disposition and to years before we became
a PFIC, if any, will be taxed as ordinary income. The amounts allocated to each other taxable year will be subject to tax at the
highest rate in effect for that taxable year for individuals or corporations, as appropriate, and an interest charge will be imposed
on the tax attributable to the allocated amounts. Further, to the extent that any distribution received by a U.S. Holder on our
common shares (or a distribution by a Lower-tier PFIC to its shareholder that is deemed to be received by a U.S. Holder) exceeds
125% of the average of the annual distributions on the shares received during the preceding three years or the U.S. Holder’s
holding period, whichever is shorter, the distribution will be subject to taxation in the same manner as gain, described immediately
above.
If we are a PFIC for any year during which
a U.S. Holder holds common shares or warrants, we generally will continue to be treated as a PFIC with respect to the U.S. Holder
for all succeeding years during which the U.S. Holder holds common shares or warrants, even if we cease to meet the threshold requirements
for PFIC status. U.S. Holders should consult their tax advisers regarding the potential availability of a “deemed sale”
election that would allow them to eliminate this continuing PFIC status under certain circumstances.
Under proposed Treasury regulations, which
have yet to be finalized, a U.S. Holder of our warrants will be taxed in a manner similar to a U.S. Holder of our common shares
if the U.S. Holder realizes gain on the sale of the warrants. Moreover, if a U.S. Holder of our warrants exercises the warrants
to purchase common shares, the holding period over which any income realized upon a sale or other disposition, will be allocated
will include the holding period of the warrants. Furthermore, if we are a PFIC, a U.S. Holder of our warrants will be treated as
a holder of PFIC stock taxable under the ordinary income allocation and interest charge regime described above.
If our common shares are “regularly
traded” on a “qualified exchange,” a U.S. Holder may make a mark-to-market election with respect to the shares
that would result in tax treatment different from the general tax treatment for PFICs described above. Our common shares will be
treated as “regularly traded” in any calendar year in which more than a
de minimis
quantity of the common shares
is traded on a qualified exchange on at least 15 days during each calendar quarter. NASDAQ, on which the common shares are listed,
is a qualified exchange for this purpose. U.S. Holders should consult their tax advisers regarding the availability and advisability
of making a mark-to-market election in their particular circumstances. In particular, U.S. Holders should consider carefully the
impact of a mark-to-market election with respect to their common shares given that we may have Lower-tier PFICs for which a mark-
to-market
election may not be available. In addition, U.S. Holders should note that the warrants are not likely to be treated as regularly
traded on a qualified exchange.
If a U.S. Holder makes the mark-to-market
election, the U.S. Holder generally will recognize as ordinary income any excess of the fair market value of the common shares
at the end of each taxable year over their adjusted tax basis, and will recognize an ordinary loss in respect of any excess of
the adjusted tax basis of the common shares over their fair market value at the end of the taxable year (but only to the extent
of the net amount of income previously included as a result of the mark-to-market election). If a U.S. Holder makes the election,
the U.S. Holder’s tax basis in the common shares will be adjusted to reflect the income or loss amounts recognized. Any gain
recognized on a sale or other disposition of common shares in a year in which we are a PFIC will be treated as ordinary income
and any loss will be treated as an ordinary loss (but only to the extent of the net amount of income previously included as a result
of the mark-to-market election). Distributions paid on common shares will be treated as discussed below under “
Taxation
of Distributions
.”
Alternatively, a U.S. Holder can make an
election, if we provide the necessary information, to treat us and each Lower-tier PFIC as a qualified electing fund (a “QEF
Election”) in the first taxable year that we are treated as a PFIC with respect to the U.S. Holder. A U.S. Holder must make
the QEF Election for each PFIC by attaching a separate properly completed IRS Form 8621 for each PFIC to its timely filed U.S.
federal income tax return. Upon request of a U.S. Holder, we will provide the information necessary for a U.S. Holder to make a
QEF Election with respect to us and will use commercially reasonable efforts to cause each Lower-tier PFIC that we control to provide
such information with respect to such Lower-tier PFIC. However, no assurance can be given that such QEF information will be available
for any Lower-tier PFIC.
If a U.S. Holder makes a QEF Election with
respect to a PFIC, the U.S. Holder will be currently taxable on its
pro rata
share of the PFIC’s ordinary earnings
and net capital gain (at ordinary income and capital gain rates, respectively) for each taxable year that the entity is classified
as a PFIC. If a U.S. Holder makes a QEF Election with respect to us, any distributions paid by us out of our earnings and profits
that were previously included in the U.S. Holder’s income under the QEF Election will not be taxable to the U.S. Holder.
A U.S. Holder will increase its tax basis in its common shares by an amount equal to any income included under the QEF Election
and will decrease its tax basis by any amount distributed on the common shares that is not included in its income. In addition,
a U.S. Holder will recognize capital gain or loss on the disposition of common shares in an amount equal to the difference between
the amount realized and its adjusted tax basis in the common shares. U.S. Holders should note that if they make QEF Elections with
respect to us and Lower-tier PFICs, they may be required to pay U.S. federal income tax with respect to their common shares for
any taxable year significantly in excess of any cash distributions received on the shares for such taxable year. U.S. Holders should
note that a QEF election cannot be made with respect to our warrants. U.S. Holders should consult their tax advisers regarding
making QEF Elections in their particular circumstances.
Furthermore, if with respect to a particular
U.S. Holder we are treated as a PFIC for the taxable year in which we paid a dividend or the prior taxable year, the preferential
dividend rate with respect to dividends paid to certain non-corporate U.S. Holders discussed below will not apply.
If we are a PFIC for any taxable year during
which a U.S. Holder holds common shares, such U.S. Holder will be required to file an annual information report with such U.S.
Holder’s U.S. Federal income tax return on IRS Form 8621.
U.S. Holders should consult their tax advisers
concerning our PFIC status and the tax considerations relevant to an investment in a PFIC.
Taxation of Distributions on Common Shares
As discussed above under “Dividend
Policy,” we do not currently expect to make distributions on our common shares. In the event that we do make distributions
of cash or other property, subject to the PFIC rules described above, distributions paid on common shares, other than certain
pro
rata
distributions of common shares, will be treated as dividends to the extent paid out of our current or accumulated earnings
and profits (as determined under
U.S.
federal income tax principles). The amount of a dividend will include any amounts withheld by us in respect of Swiss taxes. The
U.S. dollar amount of any dividend will be treated as foreign-source dividend income to U.S. Holders and will not be eligible
for the dividends-received deduction generally available to U.S. corporations under the Code. Dividends will be included in a
U.S. Holder’s income on the date of the U.S. Holder’s receipt of the dividend. The amount of any dividend income paid
in Swiss Francs will be the U.S. dollar amount calculated by reference to the exchange rate in effect on the date of receipt,
regardless of whether the payment is in fact converted into U.S. dollars. If the dividend is converted into U.S. dollars on the
date of receipt, a U.S. Holder should not be required to recognize foreign currency gain or loss in respect of the dividend income.
A U.S. Holder may have foreign currency gain or loss if the dividend is converted into U.S. dollars after the date of receipt.
Subject to applicable limitations, some
of which vary depending upon the U.S. Holder’s circumstances, Swiss income taxes withheld from dividends on common shares
at a rate not exceeding the rate provided by the Treaty may be creditable against the U.S. Holder’s U.S. federal income tax
liability. Swiss taxes withheld in excess of the rate applicable under the Treaty will not be eligible for credit against a U.S.
Holder’s federal income tax liability. The rules governing foreign tax credits are complex, and U.S. Holders should consult
their tax advisers regarding the creditability of foreign taxes in their particular circumstances. In lieu of claiming a foreign
tax credit, U.S. Holders may, at their election, deduct foreign taxes, including the Swiss withholding tax, in computing their
taxable income, subject to generally applicable limitations under U.S. law. An election to deduct foreign taxes instead of claiming
foreign tax credits applies to all foreign taxes paid or accrued in the taxable year.
Constructive Dividends on Warrants
As discussed above under “Dividend
Policy,” we do not currently expect to make distributions on our common shares. Subject to the PFIC rules described above,
if at any time during the period in which a U.S. Holder held our warrants we were to pay a taxable dividend to our shareholders
and, in accordance with the anti-dilution provisions of the warrants, the exercise price of the warrants were decreased, that decrease
would be deemed to be the payment of a taxable dividend to a U.S. Holder of the warrants to the extent of our earnings and profits,
notwithstanding the fact that the U.S. Holder will not receive a cash payment. If the exercise price is adjusted in certain other
circumstances (or in certain circumstances, there is a failure to make adjustments), that adjustment may also result in the deemed
payment of a taxable dividend to a U.S. Holder. U.S. Holders should consult their tax advisors regarding the proper treatment of
any adjustments to the warrants and the interaction between these adjustments and the PFIC rules.
Sale or Other Disposition of Common Shares
Subject to the PFIC rules described above,
for U.S. federal income tax purposes, gain or loss realized on the sale or other disposition of common shares will be capital gain
or loss, and will be long-term capital gain or loss if the U.S. Holder held the common shares for more than one year. The amount
of the gain or loss will equal the difference between the U.S. Holder’s tax basis in the common shares disposed of and the
amount realized on the disposition, in each case as determined in U.S. dollars. This gain or loss will generally be U.S.-source
gain or loss for foreign tax credit purposes. For purposes of determining their basis in common shares and warrants purchased in
this offering, U.S. Holders should allocate their purchase price between the common shares and warrants on the basis of their relative
fair market values at the time of issuance.
Sale or Other Disposition, Exercise or
Expiration of Warrants
Subject to the PFIC rules described above,
for U.S. federal income tax purposes, gain or loss realized on the sale or other disposition of a warrant (other than by exercise)
will be capital gain or loss and will be long-term capital gain or loss if the U.S. Holder held the warrant for more than one year
at the time of the sale or other disposition. The amount of the gain or loss will equal the difference between the U.S. Holder’s
tax basis in the warrants disposed of and the amount realized on the disposition, in each case as determined in U.S. dollars. This
gain or loss will generally be U.S.-source gain or loss for foreign tax credit purposes.
In general, a U.S. Holder will not be required
to recognize income, gain or loss upon the exercise of a warrant by payment of the exercise price. A U.S. Holder’s basis
in a share of common stock received upon exercise will be
equal
to the sum of (1) the U.S. Holder’s basis in the warrant and (2) the exercise price of the warrant. Subject to the PFIC
rules described above, a U.S. Holder’s holding period in the share received upon exercise will commence on the day after
such U.S. Holder exercises the warrants.
If a warrant expires without being exercised,
a U.S. Holder will recognize a capital loss in an amount equal to such U.S. Holder’s basis in the warrant. This loss will
be long-term capital loss if, at the time of the expiration, the U.S. Holder’s holding period in the warrant is more than
one year. The deductibility of capital losses is subject to limitations.
Information Reporting and Backup Withholding
Payments of dividends (including constructive
dividends) and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries generally
are subject to information reporting, and may be subject to backup withholding, unless (i) the U.S. Holder is a corporation or
other exempt recipient or (ii) in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number
and certifies that it is not subject to backup withholding.
The amount of any backup withholding from
a payment to a U.S. Holder will be allowed as a credit against the holder’s U.S. federal income tax liability and may entitle
it to a refund, provided that the required information is timely furnished to the IRS.
Information With Respect to Foreign Financial
Assets
Certain U.S. Holders who are individuals
and certain entities may be required to report information relating to an interest in our common shares, subject to certain exceptions
(including an exception for common shares held in accounts maintained by certain U.S. financial institutions). U.S. Holders should
consult their tax advisers regarding the effect, if any, of this legislation on their ownership and disposition of the common shares.
Underwriting
We have entered into an underwriting agreement
with the several underwriters listed in the table below. Roth Capital Partners, LLC is acting as the representative of the underwriters.
We refer to the underwriters listed in the table below as the “underwriters”. Subject to the terms and conditions set
forth in the underwriting agreement among us and the representative, we have agreed to sell to the underwriters named below, and
each underwriter, severally and not jointly, has agreed to purchase from us the respective number of units set forth opposite its
name below.
Underwriter
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Number of Units
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Roth Capital Partners, LLC
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10,000,000
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Total
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10,000,000
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Subject to the terms and conditions set
forth in the underwriting agreement, the underwriters have agreed to purchase all of the units sold under the underwriting agreement
if any of the units are purchased.
We have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may
be required to make in respect of those liabilities.
The underwriters are offering the units,
subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including
the validity of the units, and other conditions contained in the underwriting agreement, such as the receipt by the representative
of officers’ certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to
the public and to reject orders in whole or in part.
Commissions and Discounts
The underwriters have advised us that they
propose initially to offer the common shares to the public at the public offering price set forth on the cover page of this prospectus
supplement and to dealers at that price less a concession not in excess of $0.03 per share. After the initial offering of the common
shares, the public offering price, concession or any other term of the offering may be changed by the underwriters.
The following table shows the public offering
price, underwriting discounts and commissions and proceeds before expenses to us. The information assumes either no exercise or
full exercise by the underwriters of their over-allotment option.
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TOTAL
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PER UNIT
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(1)
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WITHOUT
OPTION TO PURCHASE ADDITIONAL SHARES AND/OR WARRANTS
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WITH
OPTION TO PURCHASE ADDITIONAL SHARES AND/OR WARRANTS
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Public offering price
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$
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1.00
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$
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10,000,000
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$
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11,500,000
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Underwriting discounts and commissions
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$
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0.06
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$
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600,000
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$
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690,000
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Proceeds, before expenses, to us
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$
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0.94
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$
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9,400,000
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$
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10,810,000
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(1)
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The public offering price and underwriting discounts and commissions correspond to a public offering price per common share
of $0.99 and a public offering price per warrant of $0.01.
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We estimate expenses payable by us
in connection with this offering, other than the underwriting discounts and commissions referred to above, will be
approximately $0.3 million. We also have agreed to reimburse the underwriters for up to $75,000 of fees and out-of-pocket
expenses of their legal counsels. Maxim Group LLC served as financial advisor to us in connection with this offering and
received a fee of $25,000, which amount is included in the total underwriting discounts and commissions set forth above.
Option to Purchase Additional Shares and/or Warrants
We have granted the underwriters an option
to purchase additional shares and/or warrants. This option, which is exercisable for up to 30 days after the date of this prospectus
supplement, permits the underwriters to purchase up to 1,500,000 additional common shares, at a price of $0.939 per share, and/or up to 1,500,000 additional
warrants, at a price of $0.001 per warrant (15% of the common shares and warrants sold in this offering). If this option is exercised in full, the total price to the public
will be $11,500,000 and the total net proceeds, before expenses, to us will be $10,810,000. The underwriter may exercise this option with respect to common shares only, warrants only, or a combination thereof.
No Sales of Similar Securities
Subject to certain exceptions, we, the
members of our board of directors, our executive officers and certain of our significant shareholders have agreed not to sell or
transfer any common shares or securities convertible into or exchangeable or exercisable for common shares, for 60 days after the
date of this prospectus supplement, in each case, without first obtaining the written consent of Roth Capital Markets, LLC. Specifically,
we and these other persons have agreed, with certain limited exceptions, not to directly or indirectly:
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offer, pledge, sell or contract to sell any common shares;
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sell any option or contract to purchase any common shares;
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purchase any option or contract to sell any common shares;
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grant any option, right or warrant for the sale of any common shares;
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otherwise dispose of or transfer any common shares;
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request or demand that we file a registration statement related to the common shares; or
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enter into any swap or other agreement or any transaction that transfers, in whole or in part, the economic consequence of
ownership of any common shares, whether any such swap, agreement or transaction is to be settled by delivery of shares or other
securities, in cash or otherwise.
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This lock-up provision applies to common
shares and to securities convertible into or exchangeable or exercisable for common shares. The foregoing restrictions, however,
will not apply to the filing by us of a registration statement that we are required to file pursuant to our existing registration
rights agreement with certain of our shareholders.
NASDAQ Global Market Listing
Our common shares are listed on The NASDAQ
Global Market under the symbol “EARS.”
Price Stabilization and Short Positions
Until the distribution of the common shares
is completed, SEC rules may limit underwriters and selling group members from bidding for and purchasing our common shares. However,
the representative may engage in transactions that stabilize the price of the common shares, such as bids or purchases to peg,
fix or maintain that price.
In connection with the offering, the underwriters
may purchase and sell our common shares in the open market. These transactions may include short sales, purchases on the open market
to cover positions created by short sales and stabilizing transactions. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. “Covered” short sales are sales made in an amount
not greater than the underwriters’ option described above. The underwriters may close out any covered short position by either
exercising their option or purchasing shares in the open market. In determining the source of shares to close out the covered short
position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through the option granted to them. “Naked” short sales are
sales in excess of such option. The underwriters must close out any naked short position by purchasing shares in the open market.
A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the
price of our common shares in the open market after pricing that could adversely affect investors who purchase in the offering.
Stabilizing transactions consist of various bids for or purchases of shares of common shares made by the underwriters in the open
market prior to the closing of the offering.
Similar to other purchase transactions,
the underwriters’ purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price
of our common shares or preventing or retarding a decline in the market price of our common shares. As a result, the price of our
common shares may be higher than the price that might otherwise exist in the open market. The underwriters may conduct these transactions
on The NASDAQ Global Market, in the over-the-counter market or otherwise.
Neither we nor the underwriters make any
representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the
price of our common shares. In addition, neither we nor the underwriters make any representation that the representative will engage
in these transactions or that these transactions, once commenced, will not be discontinued without notice.
The underwriters may also engage in passive
market making transactions in our common shares on The NASDAQ Global Market in accordance with Rule 103 of Regulation M
during a period before the commencement of offers of sales of our common shares in this offering and extending through the completion
of distribution. A passive market maker must display its bid at a price not in excess of the highest independent bid of that security.
However, if all independent bids are lowered below the passive market maker’s bid, that bid must then be lowered when specified
purchase limits are exceeded.
Electronic Distribution
In connection with the offering, the underwriters
or securities dealers may distribute prospectus supplements by electronic means, such as e-mail.
Other Relationships
The underwriters and certain of their affiliates
are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment
banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage
activities. The underwriters and certain of their affiliates may in the future engage in investment banking and other commercial
dealings in the ordinary course of business with us and our affiliates, for which they may in the future receive customary fees,
commissions and expenses.
In addition, in the ordinary course of
their business activities, the underwriters and their affiliates may make or hold a broad array of investments and actively trade
debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account
and for the accounts of their customers.
Such investments and securities activities
may involve securities and/or instruments of ours or our affiliates. The underwriters and their affiliates may also make investment
recommendations and/or publish or express
independent
research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire,
long and/or short positions in such securities and instruments.
Selling Restrictions
This prospectus supplement and the accompanying
prospectus do not constitute an offer to sell to, or a solicitation of an offer to buy from, anyone in any country or jurisdiction
(i) in which such an offer or solicitation is not authorized, (ii) in which any person making such offer or solicitation
is not qualified to do so or (iii) in which any such offer or solicitation would otherwise be unlawful. No action has been
taken that would, or is intended to, permit a public offer of the common shares or possession or distribution of this prospectus
supplement and the accompanying prospectus or any other offering or publicity material relating to the common shares in any country
or jurisdiction (other than the United States) where any such action for that purpose is required. Accordingly, the underwriters
have undertaken that they will not, directly or indirectly, offer or sell any common shares or have in their possession, distribute
or publish any prospectus, form of application, advertisement or other document or information in any country or jurisdiction except
under circumstances that will, to the best of its knowledge and belief, result in compliance with any applicable laws and regulations
and all offers and sales of the common shares by it will be made on the same terms.
European Economic Area
In relation to each member state of the
European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”), an offer to
the public of any common shares which are the subject of the offering contemplated by this prospectus supplement and the accompanying
prospectus may not be made in that Relevant Member State except that an offer to the public in that Relevant Member State of any
common shares may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented
in that Relevant Member State:
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to any legal entity which is a “qualified investor” as defined in the Prospectus Directive;
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to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive,
150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus
Directive, subject to obtaining the prior consent of the underwriter or the underwriters nominated by us for any such offer; or
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in any other circumstances falling within Article 3(2) of the Prospectus Directive,
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provided
that no such offer of common shares shall require
us or the underwriters to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant
to Article 16 of the Prospectus Directive.
For the purposes of this provision, the
expression an “offer common shares to the public” in relation to the common shares in any Relevant Member State means
the communication in any form and by any means of sufficient information on the terms of the offer and the common shares to be
offered so as to enable an investor to decide to purchase or subscribe to the common shares, as the same may be varied in that
Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State and the expression “Prospectus
Directive” means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented
in the Relevant Member State), and includes any relevant implementing measure in the Relevant Member State and the expression “2010
PD Amending Directive” means Directive 2010/73/EU.
United Kingdom
This prospectus supplement and the accompanying
prospectus is only being distributed to, and is only directed at, persons in the United Kingdom that are qualified investors within
the meaning of Article 2(1)(e) of the Prospectus Directive that are also (i) investment professionals falling within Article
19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the “Order”) and/or
(ii) high net worth
entities
falling within Article 49(2)(a) to (d) of the Order and other persons to whom it may lawfully be communicated (each such
person being referred to as a “relevant person”).
This prospectus supplement and the accompanying
prospectus and its contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed
by recipients to any other persons in the United Kingdom. Any person in the United Kingdom that is not a relevant person should
not act or rely on this document or any of its contents.
Australia
This prospectus supplement and the accompanying
prospectus is not a disclosure document for the purposes of Australia’s Corporations Act 2001 (Cth) of Australia, or Corporations
Act, has not been lodged with the Australian Securities & Investments Commission and is only directed to the categories
of exempt persons set out below. Accordingly, if you receive this prospectus in Australia:
You confirm and warrant that you are either:
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a “sophisticated investor” under section 708(8)(a) or (b) of the Corporations Act;
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a “sophisticated investor” under section 708(8)(c) or (d) of the Corporations Act and that you have provided
an accountant’s certificate to the Company which complies with the requirements of section 708(8)(c)(i) or (ii) of the
Corporations Act and related regulations before the offer has been made;
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a person associated with the Company under Section 708(12) of the Corporations Act; or
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a “professional investor” within the meaning of section 708(11)(a) or (b) of the Corporations Act.
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To the extent that you are unable to confirm or warrant that
you are an exempt sophisticated investor, associated person or professional investor under the Corporations Act any offer made
to you under this prospectus supplement and the accompanying prospectus is void and incapable of acceptance.
You warrant and agree that you will not
offer any of the securities issued to you pursuant to this prospectus supplement and the accompanying prospectus for resale in
Australia within 12 months of those securities being issued unless any such resale offer is exempt from the requirement to issue
a disclosure document under section 708 of the Corporations Act.
Switzerland
The common shares may not be publicly offered
in Switzerland and will not be listed on the SIX Swiss Exchange, or SIX, or on any other stock exchange or regulated trading facility
in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art.
652a of the CO or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules
of any other stock exchange or regulated trading facility in Switzerland. Neither this prospectus supplement and the accompanying
prospectus nor any other offering or marketing relating to the common shares or this offering may be publicly distributed or otherwise
made publicly available in Switzerland.
Neither this document nor any other offering
or marketing material relating to this offering, the Company or the common shares has been or will be filed with or approved by
any Swiss regulatory authority.
Legal Matters
The validity of the common shares, the
common shares issuable upon the exercise of the warrants and certain other matters of Swiss law will be passed upon for us by Walder
Wyss Ltd., Zurich, Switzerland. The validity of the warrants and certain other matters of U.S. federal and New York State law will
be passed upon for us by Davis Polk & Wardwell LLP, New York, New York. Roth Capital Markets, LLC is being represented in connection
with this offering by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., New York, New York and Pestalozzi Attorneys at Law
Ltd., Zurich, Switzerland.
Experts
The consolidated financial statements of
Auris Medical Holding AG as of December 31, 2015 and 2014, and for each of the two years in the period ended December 31, 2015,
incorporated by reference in this prospectus supplement from Auris Medical Holding AG’s Annual Report on Form 20-F for the
year ended December 31, 2015, have been audited by Deloitte AG, an independent registered public accounting firm, as stated in
their report, which is incorporated by reference herein. Such consolidated financial statements have been so incorporated in reliance
upon the report of such firm, given upon their authority as experts in accounting and auditing.
The current address of Deloitte AG
is General Guisan-Quai 38, 8002 Zurich, Switzerland, phone number +(41) 58 279 60 00.
The consolidated financial statements of
Auris Medical Holding AG (formerly Auris Medical AG) as of December 31, 2013 and for the year ended December 31, 2013, have been
incorporated by reference herein in reliance upon the report of KPMG AG, independent registered public accounting firm, incorporated
by reference herein, and upon the authority of said firm as experts in accounting and auditing.
The current address of KPMG AG is
Badenerstrasse 172, 8004 Zurich, Switzerland.
Where You
Can Find More Information and Incorporation by Reference
We are subject to the informational requirements
of the Exchange Act. Accordingly, we are required to file reports and other information with the SEC, including annual reports
on Form 20-F and reports on Form 6-K. You may inspect and copy reports and other information filed with the SEC at the Public Reference
Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by
calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet website that contains reports and other information
about issuers, like us, that file electronically with the SEC. The address of that website is www.sec.gov.
The SEC allows us to incorporate by reference
information into this prospectus supplement. This means that we can disclose important information to you by referring you to another
document filed separately with the SEC. The information incorporated by reference is considered to be a part of this document,
except for any information superseded by information that is included directly in this prospectus supplement or incorporated by
reference subsequent to the date of this prospectus supplement.
We incorporate by reference the following
documents or information that we have filed with the SEC
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our Annual Report on Form 20-F for the fiscal year ended December 31, 2015;
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our Reports on Form 6-K filed on April 11, 2016, May 11, 2016 (other than Exhibit 99.3 thereto), June 1, 2016, July 19, 2016
(other than Exhibit 99.1 thereto), August 18, 2016 (other than Exhibits 99.3 and 99.4 thereto), November 10, 2016 (other than Exhibit
99.4 thereto) and December 6, 2016; and
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The description of our common shares contained in our registration statement on Form 8-A filed with the SEC on July 29, 2014,
including the amendment to such registration statement filed on June 1, 2016 and any amendments or reports filed for the purpose
of updating such description.
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All annual reports we file with the SEC
pursuant to the Exchange Act on Form 20-F after the date of this prospectus supplement and prior to termination of the offering
under this prospectus supplement shall be deemed incorporated by reference into this prospectus supplement and to be part hereof
from the date of filing of such documents. We may incorporate by reference any Form 6-K subsequently submitted to the SEC by identifying
in such Form 6-K that it is being incorporated by reference into this prospectus supplement.
Documents incorporated by reference in
this prospectus are available from us without charge upon written or oral request, excluding any exhibits to those documents that
are not specifically incorporated by reference into those documents. You can obtain documents incorporated by reference in this
document by requesting them from us in writing or at Auris Medical Holding AG, Bahnhofstrasse 21, 6300 Zug, Switzerland or via
telephone at +41 (0)41 729 71 94.
PROSPECTUS
$100,000,000
Common Shares, Debt Securities, Warrants, Purchase Contracts
and Units offered by the Company
Auris Medical
Holding AG
(incorporated in Switzerland)
We may offer, from time to time, in one
or more offerings, common shares, senior debt securities, subordinated debt securities, warrants, purchase contracts or units,
which we collectively refer to as the “securities.” The aggregate initial offering price of the securities that we
may offer and sell under this prospectus will not exceed $100,000,000. We may offer and sell any combination of the securities
described in this prospectus in different series, at times, in amounts, at prices and on terms to be determined at or prior to
the time of each offering. This prospectus describes the general terms of these securities and the general manner in which these
securities will be offered. We will provide the specific terms of these securities in supplements to this prospectus. The prospectus
supplements will also describe the specific manner in which these securities will be offered and may also supplement, update or
amend information contained in this prospectus. You should read this prospectus and any applicable prospectus supplement before
you invest.
The securities covered by this prospectus
may be offered through one or more underwriters, dealers and agents, or directly to purchasers. The names of any underwriters,
dealers or agents, if any, will be included in a supplement to this prospectus. For general information about the distribution
of securities offered, please see “Plan of Distribution” beginning on page 25.
Our common shares are listed on the
Nasdaq Global Market under the symbol “EARS.” On August 31, 2015, the last sale price of our common shares as
reported by the Nasdaq Global Market was $4.76 per common share. As of August 31, 2015, the aggregate market value of
our outstanding common shares held by non-affiliates was approximately $76.7 million based on approximately 34,293,891
outstanding common shares, of which approximately 16,122,393 common shares were held by non-affiliates. We have not offered
any securities pursuant to General Instruction I.B.5 of Form F-3 during the prior 12 calendar month period that ends on, and
includes, the date of this prospectus.
Investing in our securities involves
risks. See “Risk Factors” beginning on page 3 of this prospectus.
Neither the U.S. Securities and Exchange
Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is
September 10, 2015.
You should rely only on the information
contained in or incorporated by reference in this prospectus or any related prospectus supplement we provide to you. We have not
authorized anyone to provide you with different or additional information. We are not making an offer of securities in any state
where the offer is not permitted. You should not assume that the information contained in or incorporated by reference in this
prospectus is accurate as of any date other than the date on the front of this prospectus. Unless otherwise noted or the context
otherwise requires, references in this prospectus to “Auris Medical,” “the Company,” “our company,”
“we,” “us” or “our” refer to Auris Medical Holding AG (Auris Medical AG prior to our corporate
reorganization on April 22, 2014) and its subsidiaries.
table
of contents
Page
About This
Prospectus
This prospectus is part of a registration
statement that we filed with the Securities and Exchange Commission, or the SEC, utilizing a “shelf” registration process.
Under this shelf process, we may sell any combination of the securities described in this prospectus in one or more offerings.
This prospectus provides you with a general description of the securities we may offer. Each time we sell securities, we will provide
a prospectus supplement that will contain specific information about the terms of that offering. The prospectus supplement may
also add, update or change information contained in this prospectus. You should read both this prospectus and any prospectus supplement
together with additional information described under the headings “Where You Can Find More Information” and “Incorporation
of Certain Information by Reference.”
We have filed or incorporated by reference
exhibits to the registration statement of which this prospectus forms a part. You should read the exhibits carefully for provisions
that may be important to you.
Neither the delivery of this prospectus
nor any sale made under it implies that there has been no change in our affairs or that the information in this prospectus is correct
as of any date after the date of this prospectus. You should not assume that the information in this prospectus, including any
information incorporated in this prospectus by reference, the accompanying prospectus supplement or any free writing prospectus
prepared by us, is accurate as of any date other than the date on the front of those documents. Our business, financial condition,
results of operations and prospects may have changed since that date.
You should not assume that the information
contained in this prospectus is accurate as of any other date.
Where You
Can Find More Information
We file annual reports on Form 20-F, reports
on Form 6-K, and other information with the SEC under the Securities Exchange Act of 1934, as amended, or the Exchange Act. You
may read and copy this information at the following location of the SEC: Public Reference Room, 100 F Street, N.E., Washington,
D.C. 20549.
You may obtain information on the operation
of the SEC’s Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains
reports and other information about issuers like us who file electronically with the SEC. The address of the site is
http:
/
/www.sec.gov
.
As a foreign private issuer, we are exempt
under the Exchange Act from, among other things, the rules prescribing the furnishing and content of proxy statements, and our
directors, executive officers and principal shareholders are exempt from the reporting and short-swing profit recovery provisions
contained in Section 16 of the Exchange Act.
Special
Note Regarding Forward-Looking Statements
This prospectus and the financial statements
and other documents incorporated by reference in this prospectus contain forward-looking statements, including statements concerning
our industry, our operations, our anticipated financial performance and financial condition, and our business plans and growth
strategy and product development efforts. These statements constitute forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Exchange Act. The words “may,”
“might,” “will,” “should,” “estimate,” “project,” “plan,”
“anticipate,” “expect,” “intend,” “outlook,” “believe” and other similar
expressions are intended to identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of their dates. These forward-looking statements are based on estimates and assumptions by our
management that, although we believe to be reasonable, are inherently uncertain and subject to a number of risks and uncertainties.
The following represent some, but not necessarily
all, of the factors that could cause actual results to differ from historical results or those anticipated or predicted by our
forward-looking statements:
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our operation as a development stage company with limited operating history and a history of operating losses;
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our need for substantial additional funding before we can expect to become profitable from sales of our products;
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our dependence on the success of AM-101 and AM-111, which are still in clinical development and may eventually prove to be
unsuccessful;
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the chance that we may become exposed to costly and damaging liability claims resulting from the testing of our product candidates
in the clinic or in the commercial stage;
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uncertainty surrounding whether and when any of our product candidates will receive regulatory approval, which is necessary
before they can be commercialized;
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if our product candidates obtain regulatory approval, our being subject to expensive ongoing obligations and continued regulatory
overview;
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enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval and commercialization;
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the chance that we do not obtain orphan drug exclusivity for AM-111, which would allow our competitors to sell products that
treat the same conditions;
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dependence on governmental authorities and health insurers establishing adequate reimbursement levels and pricing policies;
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our products may not gain market acceptance, in which case we may not be able to generate product revenues;
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our reliance on our current strategic relationships with INSERM or Xigen and the potential failure to enter into new strategic
relationships;
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our reliance on third parties to conduct our nonclinical and clinical trials and on third-party single-source suppliers to
supply or produce our product candidates; and
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other risk factors set forth in our most recent Annual Report on Form 20-F.
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Our actual results or performance could
differ materially from those expressed in, or implied by, any forward-looking statements relating to those matters. Accordingly,
no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if
any of them do so, what impact they will have on our results of operations, cash flows or financial condition. Except as required
by law, we are under no obligation, and expressly disclaim any obligation, to update, alter or otherwise revise any forward-looking
statement, whether written or oral, that may be made from time to time, whether as a result of new information, future events or
otherwise.
Auris Medical
Holding AG
We are a clinical-stage biopharmaceutical
company focused on the development of novel products for the treatment of inner ear disorders. Our most advanced product candidate,
AM-101, is in Phase 3 clinical development for acute inner ear tinnitus under a special protocol assessment, or SPA, from the Food
and Drug Administration, or the FDA. In two recently completed Phase 2 clinical trials, AM-101 demonstrated a favorable safety
profile and statistically significant improvement in tinnitus loudness and other patient reported outcomes. We are also developing
AM-111 for acute inner ear hearing loss. We are preparing two pivotal clinical trials in the treatment of idiopathic sudden sensorineural
hearing loss, or ISSNHL, titled Efficacy and Safety of AM-111 in the treatment of Acute Inner Ear Hearing Loss, or HEALOS, and
Efficacy and Safety of AM-111 as Acute Sudden Sensorineural Hearing Loss Treatment, or ASSENT. In addition, we are preparing a
Phase 2 trial titled Efficacy and Safety of AM-111 in the Treatment of Surgery Induced Hearing Loss following Cochlear Implantation,
or REACH. Both acute
inner ear tinnitus and hearing loss are conditions
for which there is high unmet medical need, and we believe that we have the potential to be the first to market in these indications.
On April 22, 2014, we changed our name
from Auris Medical AG to Auris Medical Holding AG and transferred our operational business to our newly incorporated subsidiary
Auris Medical AG, which is now our main operating subsidiary. The common shares covered by this prospectus refer to the common
shares of Auris Medical Holding AG. The offices of Auris Medical Holding AG are located at Bahnhofstrasse 21, 6300 Zug, Switzerland.
Our telephone number is +41 (0) 41 729 71 94. Investors should contact us for any inquiries at the address and telephone number
of our principal executive office. Our principal website is
www.aurismedical.com
. The information contained on our website
is not a part of this prospectus.
Risk Factors
Before making a decision to invest in our
securities, you should carefully consider the risks described under “Risk Factors” in the applicable prospectus supplement
and in our then most recent Annual Report on Form 20-F, and in any updates to those risk factors in our reports on Form 6-K incorporated
herein, together with all of the other information appearing or incorporated by reference in this prospectus and any applicable
prospectus supplement, in light of your particular investment objectives and financial circumstances.
Ratio of
Earnings to Fixed Charges
The following table sets forth our ratio
of earnings to fixed charges for each of the periods indicated. You should read this table in conjunction with the consolidated
financial statements and notes incorporated by reference in this prospectus.
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Six
Months
Ended June 30, 2015
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Fiscal
Year Ended December 31,
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2014
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2013
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2012
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(Unaudited)
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Ratio of earnings to fixed charges
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Our earnings were insufficient to cover fixed charges by CHF 53,000 for the six months ended June 30, 2015 and CHF 95,000,
CHF 80,915 and CHF 38,000 for the years ended December 31, 2014, 2013 and 2012, respectively.
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For purposes of calculating the ratios in
the table above, earnings consist of net profit/(loss) before income taxes plus fixed charges. Fixed charges consist of rental
expenses and cash relevant interest expenses.
Use of Proceeds
Unless otherwise indicated in a prospectus
supplement, the net proceeds from our sale of the securities will be used for general corporate purposes and other business opportunities.
Description
of Share Capital and Articles of Association
The Company
We are
a Swiss stock corporation (
Aktiengesellschaft
) organized under the laws of Switzerland. We were formed in 1998. We are currently
registered in Zug, Switzerland. Our head office is currently located at Bahnhofstrasse 21, 6300 Zug, Switzerland.
Share Capital
As of the date of this prospectus, our
issued fully paid-in share capital consists of CHF 13,717,556.40, divided into common shares with a nominal value of CHF 0.40 each
and no preferred shares.
Articles of Association
When
we refer to our articles of association in this prospectus, we refer to our amended and restated articles of association dated
as of May 18, 2015.
Ordinary Capital Increase, Authorized
and Conditional Share Capital
Under Swiss law, we may increase our share
capital (
Aktienkapital
) with a resolution of the general meeting of shareholders (ordinary capital increase) that must be
carried out by the board of directors within three months in order to become effective. In the case of subscription and increase
against payment of contributions in cash, a resolution passed by an absolute majority of the shares represented at the general
meeting of shareholders is required. In the case of subscription and increase against contributions in kind or to fund acquisitions
in kind, when shareholders’ statutory pre-emptive rights are withdrawn or where transformation of reserves into share capital
is involved, a resolution passed by two-thirds of the shares represented at a general meeting of shareholders and the absolute
majority of the nominal amount of the shares represented is required.
Our shareholders, by a resolution passed
by two-thirds of the shares represented at a general meeting of shareholders and the absolute majority of the nominal amount of
the shares represented, may empower our board of directors to issue shares of a specific aggregate nominal amount up to a maximum
of 50% of the share capital in the form of:
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conditional capital (
bedingtes Kapital
) for the purpose of issuing shares in connection with, among other things, (i)
option and conversion rights granted in connection with warrants and convertible bonds issued by the Company or one of our subsidiaries
or (ii) grants of rights to employees, members of our board of directors or consultants or our subsidiaries to subscribe for new
shares (conversion or option rights); and/or
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authorized capital (
genehmigtes Kapital
) to be utilized by the board of directors within a period determined by the
shareholders but not exceeding two years from the date of the shareholder approval.
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Pre-emptive Rights
Pursuant to the Swiss Code of Obligations,
or CO, shareholders have pre-emptive rights (
Bezugsrechte
) to subscribe for new issuances of shares. With respect to conditional
capital in connection with the issuance of conversion rights, convertible bonds or similar debt instruments, shareholders have
advance subscription rights (
Vorwegzeichnungsrechte
) for the subscription of conversion rights, convertible bonds or similar
debt instruments.
A resolution passed at a general meeting
of shareholders by two-thirds of the shares represented and the absolute majority of the nominal value of the shares represented
may authorize our board of directors to withdraw or limit pre-emptive rights and/or advance subscription rights in certain circumstances.
If pre-emptive rights are granted, but
not exercised, the board of directors may allocate the pre-emptive rights as it elects.
With respect to our authorized share capital,
the board of directors is authorized by our articles of association to withdraw or to limit the pre-emptive rights of shareholders,
and to allocate them to third parties or to us, in the event that the newly issued shares are used for the purpose of:
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expanding the shareholder base in certain capital markets or in the context of the listing, admission to official trading or
registration of the shares at domestic or international stock exchanges;
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granting an over-allotment option to underwriters in connection with a placement of shares;
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share placements, provided the issue price is determined by reference to the market price;
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the participation of our employees, members of the board of directors or consultants or of one of our subsidiaries in one or
several equity incentive plans created by the board of directors;
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the acquisition of companies, assets, participations or new investment projects or for public or private share placements for
the financing and/or refinancing of such transactions;
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for raising equity capital in a fast and flexible manner as such transaction would be difficult to carry out without the withdrawal
of the pre-emptive rights of the existing shareholders; or
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the acquisition of a participation in us by a strategic partner.
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Our Authorized Share Capital
As of the date of this prospectus, our
board of directors is authorized at any time until June 30, 2016 to increase our share capital by a maximum aggregate amount of
CHF 1,204,706 through the issuance of not more than 3,011,765 shares, which would have to be fully paid-in, with a nominal value
of CHF 0.40 each. Within the limits of Swiss law, the general meeting of shareholders may increase or alter the authorization granted
to the board of directors, within the limits imposed by Swiss Law. See “—Ordinary Capital Increase, Authorized and
Conditional Share Capital.”
Increases in partial amounts are permitted.
The board of directors has the power to determine the type of contributions, the issue price and the date on which the dividend
entitlement starts.
The board of directors is also authorized
to withdraw or limit pre-emptive rights as described above. This authorization is exclusively linked to the particular available
authorized share capital set out in the respective article. If the period to increase the share capital lapses without having been
used by the board of directors, the authorization to withdraw or to limit the pre-emptive rights lapses simultaneously with such
capital.
Our Conditional Share Capital
Conditional Share Capital for Warrants and
Convertible Bonds
Our share capital may be increased by a
maximum aggregate amount of CHF 2,000,000 through the issuance of not more than 5,000,000 common shares, which would have to be
fully paid-in, with a nominal value of CHF 0.40 each, by the exercise of option and conversion rights granted in connection with
warrants and convertible bonds of the Company or one of our subsidiaries. Shareholders will not have pre-emptive rights in such
circumstances. The holders of convertible bonds are entitled to the new shares upon the occurrence of the applicable conversion
feature.
When issuing convertible bonds, the board
of directors is authorized to withdraw or to limit the advance subscription right of shareholders to subscribe to the convertible
bond issuance:
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for the purpose of financing or refinancing the acquisition of enterprises, divisions thereof, or of participations or of newly
planned investments of the Company; or
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if the issuance occurs in domestic or international capital markets including private placements.
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To the extent that the advance subscription
rights are withdrawn i) the convertible bonds are to be issued at market conditions; ii) the term to exercise the option or conversion
rights may not exceed seven years as of the date of the convertible bond issue; and iii) the exercise price for the new shares
must be determined based on the market conditions at the time of the convertible bond issuance.
Conditional Share Capital for Equity Incentive
Plans
Under our articles of association, our
share capital may, to the exclusion of the pre-emptive rights of shareholders, be increased by a maximum aggregate amount of CHF
577,647.60 through the issuance of not more than 1,444,119 common shares, which would have to be fully paid-in, with a nominal
value of CHF 0.40 each, by the exercise of option or conversion rights that have been granted to employees, members of the board
of directors or consultants of the Company or of one of our subsidiaries through one or more equity incentive plans created by
the board of directors. Of this amount, CHF 371,743.60 or 929,359 common shares remains available, taking into account all options
granted as of the date of this prospectus.
Uncertificated Securities
Our shares are uncertificated securities
(
Wertrechte
, within the meaning of art. 973c of the CO) and, when administered by a financial intermediary (
Verwahrungsstelle
,
within the meaning of the Federal Act on
Intermediated Securities, “FISA”),
qualify as intermediated securities (
Bucheffekten
, within the meaning of the FISA). In accordance with art. 973c of the
CO, we maintain a non-public register of uncertificated securities (
Wertrechtebuch
). We may at any time convert uncertificated
securities into share certificates (including global certificates), one kind of certificate into another, or share certificates
(including global certificates) into uncertificated securities. If registered in our share register, a shareholder may at any time
request from us a written confirmation in respect of the shares. Shareholders are not entitled, however, to request the printing
and delivery of certificates.
General Meeting of Shareholders
Ordinary/extraordinary meetings, powers
The general meeting of shareholders is
our supreme corporate body. Under Swiss law, ordinary and extraordinary general meetings of shareholders may be held. Under Swiss
law, an ordinary general meeting of shareholders must be held annually within six months after the end of a corporation’s
financial year. In our case, this means on or before June 30.
The following powers are vested exclusively
in the general meeting of shareholders:
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adopting and amending our articles of association;
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electing the members of the board of directors, the chairman of the board of directors, the members of the compensation committee,
the auditors and the independent proxy;
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approving the annual report, the annual statutory financial statements and the consolidated financial statements, and deciding
on the allocation of profits as shown on the balance sheet, in particular with regard to dividends and bonus payments to members
of the board of directors;
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approving the compensation of members of the board of directors and executive management, which under Swiss law is not necessarily
limited to the executive officers;
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discharging the members of the board of directors and executive management from liability with respect to their tenure in the
previous financial year;
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dissolving the Company with or without liquidation;
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deciding matters reserved to the general meeting of shareholders by law or our articles of association or that are presented
to it by the board of directors.
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An extraordinary general meeting of shareholders
may be called by a resolution of the board of directors or, under certain circumstances, by the Company’s auditor, liquidator
or the representatives of convertible bond holders, if any. In addition, the board of directors is required to convene an extraordinary
general meeting of shareholders if shareholders representing at least ten percent of the share capital request such general meeting
of shareholders in writing. Such request must set forth the items to be discussed and the proposals to be acted upon. The board
of directors must convene an extraordinary general meeting of shareholders and propose financial restructuring measures if, based
on the Company’s stand-alone annual statutory balance sheet, half of our share capital and reserves are not covered by our
assets.
Voting and Quorum Requirements
Shareholder resolutions and elections (including
elections of members of the board of directors) require the affirmative vote of the absolute majority of shares represented at
the general meeting of shareholders, unless otherwise stipulated by law.
A resolution of the general meeting of
the shareholders passed by two-thirds of the shares represented at the meeting, and the absolute majority of the nominal value
of the shares represented is required for:
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amending the Company’s corporate purpose;
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creating or cancelling shares with preference rights or amending rights attached to such shares;
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cancelling or amending the transfer restrictions of registered shares;
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creating authorized or conditional share capital;
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increasing the share capital out of equity, against contributions in kind or for the purpose of acquiring specific assets and
granting specific benefits;
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limiting or suppressing shareholder’s pre-emptive rights;
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dissolving or liquidating the Company.
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The same voting requirements apply to resolutions
regarding transactions among corporations based on Switzerland’s Federal Act on Mergers, Demergers, Transformations and the
Transfer of Assets, or the Merger Act (including a merger, demerger or conversion of a corporation) see “—Compulsory
Acquisitions; Appraisal Rights.”
In accordance with Swiss law and generally
accepted business practices, our articles of association do not provide quorum requirements generally applicable to general meetings
of shareholders. To this extent, our practice varies from the requirement of Nasdaq Listing Rule 5620(c), which requires an issuer
to provide in its bylaws for a generally applicable quorum, and that such quorum may not be less than one-third of the outstanding
voting stock.
Notice
General meetings of shareholders must be
convened by the board of directors at least twenty days before the date of the meeting. The general meeting of shareholders is
convened by way of a notice appearing in our official publication medium, currently the Swiss Official Gazette of Commerce. Registered
shareholders may also be informed by ordinary mail. The notice of a general meeting of shareholders must state the items on the
agenda, the proposals to be acted upon and, in case of elections, the names of the nominated candidates. Except in the limited
circumstances listed below, a resolution may not be passed at a general meeting without proper notice. This limitation does not
apply to proposals to convene an extraordinary general meeting of shareholders or to initiate a special investigation. No previous
notification is required for proposals concerning items included in the agenda or for debates that do not result in a vote. The
notice period for a general meeting of shareholders may be waived if all shareholders are present at such meeting.
Agenda Requests
Pursuant to Swiss law, one or more shareholders
whose combined shareholdings represent the lower of (i) one tenth of the share capital or (ii) an aggregate nominal value of at
least CHF 1,000,000, may request that an item be included in the agenda for an ordinary general meeting of shareholders. To be
timely, the shareholder’s request must be received by us at least 45 calendar days in advance of the meeting. The request
must be made in writing and contain, for each of the agenda items, the following information:
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a brief description of the business desired to be brought before the ordinary general meeting of shareholders and the reasons
for conducting such business at the ordinary general meeting of shareholders;
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the name and address, as they appear in the share register, of the shareholder proposing such business; and
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all other information required under the applicable laws and stock exchange rules.
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Our business report, the compensation report
and the auditor’s report must be made available for inspection by the shareholders at our registered office no later than
20 days prior to the general meeting of shareholders. Shareholders of record may be notified of this in writing.
Voting Rights
Each of our shares entitles a holder to
one vote, regardless of its nominal value. The shares are not divisible. The right to vote and the other rights of share ownership
may only be exercised by shareholders (including any nominees) or usufructuaries who are entered in our share register at cut-off
date determined by the board of directors. Those entitled to vote in the general meeting of shareholders may be represented by
the independent proxy holder (annually elected by the general meeting of shareholders), another registered shareholder or third
person with written authorization to act as proxy or the shareholder’s legal representative. The chairman has the power to
decide whether to recognize a power of attorney.
Dividends and Other Distributions
Our board of directors may propose to shareholders
that a dividend or other distribution be paid but cannot itself authorize the distribution. Dividend payments require a resolution
passed by an absolute majority of the shares represented at a general meeting of shareholders. In addition, our auditors must confirm
that the dividend proposal of our board of directors conforms to Swiss statutory law and our articles of association.
Under Swiss law, we may pay dividends only
if we have sufficient distributable profits brought forward from the previous business years (
Gewinnvortrag
), or if we have
distributable reserves (
frei verfügbare Reserven
), each as evidenced by our audited stand-alone statutory balance sheet
prepared pursuant to Swiss law, and after allocations to reserves required by Swiss law and the articles of association have been
deducted. We are not permitted to pay interim dividends out of profit of the current business year.
Distributable reserves are generally booked
either as “free reserves” (
freie Reserven
) or as “reserve from capital contributions” (
Reserven
aus Kapitaleinlagen
). Under the CO, if our general reserves (
allgemeine Reserve
) amount to less than 20% of our share
capital recorded in the commercial register (i.e., 20% of the aggregate nominal value of our issued capital), then at least 5%
of our annual profit must be retained as general reserves. The CO permits us to accrue additional general reserves. Further, a
purchase of our own shares (whether by us or a subsidiary) reduces the distributable reserves in an amount corresponding to the
purchase price of such own shares. Finally, the CO under certain circumstances requires the creation of revaluation reserves which
are not distributable.
Distributions out of issued share capital
(i.e. the aggregate nominal value of our issued shares) are not allowed and may be made only by way of a share capital reduction.
Such a capital reduction requires a resolution passed by an absolute majority of the shares represented at a general meeting of
shareholders. The resolution of the shareholders must be recorded in a public deed and a special audit report must confirm that
claims of our creditors remain fully covered despite the reduction in the share capital recorded in the commercial register. The
share capital may be reduced below CHF 100,000 only if and to the extent that at the same time the statutory minimum share capital
of CHF 100,000 is reestablished by sufficient new fully paid-up capital. Upon approval by the general meeting of shareholders of
the capital reduction, the board of directors must give public notice of the capital reduction resolution in the Swiss Official
Gazette of Commerce three times and notify creditors that they may request, within two months of the third publication, satisfaction
of or security for their claims. The reduction of the share capital may be implemented only after expiration of this time limit.
Our board of directors determines the date
on which the dividend entitlement starts. Dividends are usually due and payable shortly after the shareholders have passed the
resolution approving the payment, but shareholders may also resolve at the ordinary general meeting of shareholders to pay dividends
in quarterly or other installments.
Transfer of Shares
Shares in uncertificated form (
Wertrechte
)
may only be transferred by way of assignment. Shares that constitute intermediated securities (
Bucheffekten
) may only be
transferred when a credit of the relevant intermediated securities to the acquirer’s securities account is made in accordance
with the relevant provisions of the FISA. Article 4 of our articles of association provides that in the case of securities held
with an intermediary such as a registrar, transfer agent, trust corporation, bank or similar entity, any transfer, grant of a security
interest or usufructary right in such intermediated securities and the appurtenant rights associated therewith requires the cooperation
of the intermediary in order for such transfer, grant of a security interest or usufructary right to be valid against us.
Voting rights may be exercised only after
a shareholder has been entered in our share register (
Aktienbuch
) with his or her name and address (in the case of legal
entities, the registered office) as a shareholder with voting rights.
Inspection of Books and Records
Under the CO, a shareholder has a right
to inspect our share register with respect to his own shares and otherwise to the extent necessary to exercise his shareholder
rights. No other person has a right to inspect our share register. Our books and correspondence may be inspected with the express
authorization of the general meeting of shareholders or by resolution of the board of directors and subject to the safeguarding
of our business secrets. See “Comparison of Swiss Law and Delaware Law—Inspection of Books and Records.”
Special Investigation
If the shareholders’ inspection rights
as outlined above prove to be insufficient in the judgment of the shareholder, any shareholder may propose to the general meeting
of shareholders that specific facts be examined by a special commissioner in a special investigation. If the general meeting of
shareholders approves the proposal, we or any shareholder may, within 30 calendar days after the general meeting of shareholders,
request a court sitting in Zug, Switzerland, our registered office, to appoint a special commissioner. If the general meeting of
shareholders rejects the request, one or more shareholders representing at least 10 percent of the share capital or holders of
shares in an aggregate nominal value of at least CHF 2,000,000 may request that the court appoint a special commissioner. The court
will issue such an order if the petitioners can demonstrate that the board of directors, any member of the board of directors or
our executive management infringed the law or our articles of association and thereby caused damages to the Company or the shareholders.
The costs of the investigation would generally be allocated to us and only in exceptional cases to the petitioners.
Compulsory Acquisitions; Appraisal Rights
Business combinations and other transactions
that are governed by the Swiss Merger Act (i.e. mergers, demergers, transformations and certain asset transfers) are binding on
all shareholders. A statutory merger or demerger requires approval of two-thirds of the shares represented at a general meeting
of shareholders and the absolute majority of the nominal value of the shares represented.
Swiss corporations may be acquired by an
acquirer through the direct acquisition of the share capital of the Swiss corporation. The Swiss Merger Act provides for the possibility
of a so-called “cash-out” or “squeeze-out” merger if the acquirer controls 90% of the outstanding shares.
In these limited circumstances, minority shareholders of the corporation being acquired may be compensated in a form other than
through shares of the acquiring corporation (for instance, through cash or securities of a parent corporation of the acquiring
corporation or of another corporation). For business combinations effected in the form of a statutory merger or demerger and subject
to Swiss law, the Swiss Merger Act provides that if equity rights have not been adequately preserved or compensation payments in
the transaction are unreasonable, a shareholder may request the competent court to determine a reasonable amount of compensation.
In addition, under Swiss law, the sale
of “all or substantially all of our assets” by us may require the approval of two-thirds of the number of shares represented
at a general meeting shareholders and the absolute majority of the nominal value of the shares represented. Whether a shareholder
resolution is required depends on the particular transaction, including whether the following test is satisfied:
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a core part of the Company’s business is sold without which it is economically impracticable or unreasonable to continue
to operate the remaining business;
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the Company’s assets, after the divestment, are not invested in accordance with the Company’s statutory business
purpose; and
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the proceeds of the divestment are not earmarked for reinvestment in accordance with the Company’s business purpose but,
instead, are intended for distribution to the Company’s shareholders or for financial investments unrelated to the Company’s
business.
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A shareholder of a Swiss corporation participating
in certain major corporate transactions may, under certain circumstances, be entitled to appraisal rights. As a result, such shareholder
may, in addition to the consideration (be it in shares or in cash) receive an additional amount to ensure that the shareholder
receives the fair value of the shares held by the shareholder. Following a statutory merger or demerger, pursuant to the Merger
Act, shareholders
can file an appraisal action against the surviving
company. If the consideration is deemed inadequate, the court will determine an adequate compensation payment.
Board of Directors
Our articles of association provide that
the board of directors shall consist of at least three and not more than nine members.
The members of the board of directors and
the chairman are elected annually by the general meeting of shareholders for a period until the completion of the subsequent ordinary
general meeting of shareholders and are eligible for re-election. Each member of the board of directors must be elected individually.
Unless an exception is granted by the general meeting of shareholders, only persons who have not completed their seventy-fifth
year of age on the election date are eligible for election.
Powers
The board of directors has the following
non-delegable and inalienable powers and duties:
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the ultimate direction of the business of the Company and issuing of the relevant directives;
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laying down the organization of the Company;
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formulating accounting procedures, financial controls and financial planning, to the extent required for the governance of
the Company;
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nominating and removing persons entrusted with the management and representation of the Company and regulating the power to
sign for the Company;
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the ultimate supervision of those persons entrusted with management of the Company, with particular regard to adherence to
law, our articles of association, and regulations and directives of the Company;
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issuing the annual report and the compensation report, and preparing for the general meeting of shareholders and carrying out
its resolutions; and
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informing the court in case of over-indebtedness.
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The board of directors may, while retaining
such non-delegable and inalienable powers and duties, delegate some of its powers, in particular direct management, to a single
or to several of its members, managing directors, committees or to third parties who need be neither members of the board of directors
nor shareholders. Pursuant to Swiss law and Article 13 of our articles of association, details of the delegation and other procedural
rules such as quorum requirements must be set in the organizational rules issued by the board of directors.
Indemnification of Executive Management and
Directors
Subject to Swiss law, Article 17 of our
articles of association provides for indemnification of the existing and former members of the board of directors, executive management
and their heirs, executors and administrators, against liabilities arising in connection with the performance of their duties in
such capacity, and permits us to advance the expenses of defending any act, suit or proceeding to our directors and executive management.
In addition, under general principles of
Swiss employment law, an employer may be required to indemnify an employee against losses and expenses incurred by such employee
in the proper execution of their duties under the employment agreement with the employer. See “Comparison of Swiss Law and Delaware Law—Indemnification of directors and executive management and limitation
of liability.”
We have entered into indemnification agreements
with each of the members of our board of directors and executive management. The indemnification agreements and our articles of
association require us to indemnify our directors and executive officers to the fullest extent permitted by law.
Conflict of Interest, Management Transactions
Swiss law does not have a general provision
regarding conflicts of interest. However, the CO contains a provision that requires our directors and executive management to safeguard
the Company’s interests and imposes a duty of loyalty and duty of care on our directors and executive management. This rule
is generally understood to disqualify directors and executive management from participation in decisions that directly affect them.
Our directors and executive officers are personally liable to us for breach of these provisions. In addition, Swiss law contains
provisions under which directors and all persons engaged in the Company’s management are liable to the Company, each shareholder
and the Company’s creditors for damages caused by an intentional or negligent violation of their duties. Furthermore, Swiss
law contains a provision under which payments made to any of the Company’s shareholders or directors or any person associated
with any such shareholder or director, other than payments made at arm’s length, must be repaid to the Company if such shareholder
or director acted in bad faith.
Our board of directors has adopted a Code
of Business Conduct and Ethics that covers a broad range of matters, including the handling of conflicts of interest.
Principles of the Compensation of the
Board of Directors and the Executive Management
Pursuant to Swiss law, beginning at our
first annual meeting as a public company in 2015 our shareholders must annually approve the compensation of the board of directors
and the persons whom the board of directors has, fully or partially, entrusted with the management of the Company. The board of
directors must issue, on an annual basis, a written compensation report that must be reviewed together with a report on our business
by our auditor. The compensation report must disclose all compensation, loans and other forms of indebtedness granted by the Company,
directly or indirectly, to current or former members of the board of directors and executive management to the extent related to
their former role within the Company or not on customary market terms.
The disclosure concerning compensation,
loans and other forms of indebtedness must include the aggregate amount for the board of directors and the executive management
as well as the particular amount for each member of the board of directors and executive officer, specifying the name and function
of each respective person.
Certain forms of compensation are prohibited
for members of our board of directors and executive management, such as:
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severance payments provided for either contractually or in the articles of association (compensation due until the termination
of a contractual relationship does not qualify as severance payment);
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incentive fees for the acquisition or transfer of corporations or parts thereof by the Company or by companies being, directly
or indirectly, controlled by us;
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loans, other forms of indebtedness, pension benefits not based on occupational pension schemes and performance-based compensation
not provided for in the articles of association; and
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equity securities and conversion and option rights awards not provided for in the articles of association.
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Compensation to members of the board of
directors and executive management for activities in entities that are, directly or indirectly, controlled by the Company is prohibited
if the compensation (i) would have been prohibited if it was paid directly by the Company, (ii) is not provided for in the articles
of association or (iii) has not been approved by the general meeting of shareholders.
The general meeting of shareholders annually
votes on the proposals of the board of directors with respect to:
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the maximum aggregate amount of compensation of the board of directors for the subsequent term of office; and
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the maximum aggregate amount of compensation of the executive management for the subsequent financial year.
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The board of directors may submit for approval
at the general meeting of shareholders deviating or additional proposals relating to the same or different periods.
In the event that at the general meeting
of shareholders the shareholders do not approve a proposal of the board of directors, the board of directors must form a new proposal
for the maximum aggregate compensation and the particular compensation for each individual, taking into account all relevant factors,
and submit the new proposal for approval by the same general meeting of shareholders, at a subsequent extraordinary general meeting
or the next ordinary general meeting of shareholders.
In addition to fixed compensation, members
of the board of directors and executive management may be paid variable compensation, depending on the achievement of certain performance
criteria. The performance criteria may include individual targets, targets of the Company or parts thereof and targets in relation
to the market, other companies or comparable benchmarks, taking into account the position and level of responsibility of the recipient
of the variable compensation. The board of directors or, where delegated to it, the compensation committee shall determine the
relative weight of the performance criteria and the respective target values.
Compensation may be paid or granted in
the form of cash, shares, financial instruments, in kind, or in the form of other types of benefits. The board of directors or,
where delegated to it, the compensation committee shall determine grant, vesting, exercise and forfeiture conditions.
Borrowing Powers
Neither Swiss law nor our articles of association
restrict in any way our power to borrow and raise funds. The decision to borrow funds is made by or under the direction of our
board of directors, and no approval by the shareholders is required in relation to any such borrowing.
Repurchases of Shares and Purchases of
Own Shares
The CO limits our right to purchase and
hold our own shares. We and our subsidiaries may purchase shares only if and to the extent that (i) we have freely distributable
reserves in the amount of the purchase price; and (ii) the aggregate nominal value of all shares held by us does not exceed 10
percent of our share capital. Pursuant to Swiss law, where shares are acquired in connection with a transfer restriction set out
in the articles of association, the foregoing upper limit is 20 percent. We currently do not have any transfer restriction in our
articles of association. If we own shares that exceed the threshold of 10 percent of our share capital, the excess must be sold
or cancelled by means of a capital reduction within two years.
Shares held by us or our subsidiaries are
not entitled to vote at the general meeting of shareholders but are entitled to the economic benefits applicable to the shares
generally, including dividends and pre-emptive rights in the case of share capital increases.
In addition, selective share repurchases
are only permitted under certain circumstances. Within these limitations, as is customary for Swiss corporations, we may purchase
and sell our own shares from time to time in order to meet imbalances of supply and demand, to provide liquidity and to even out
variances in the market price of shares.
Notification and Disclosure of Substantial
Share Interests
The disclosure obligations generally applicable
to shareholders of Swiss corporations under the Swiss Act on Stock Exchanges and Securities Trading do not apply to us since our
shares are not listed on a Swiss exchange.
Pursuant to art. 663c of the CO, Swiss
corporations whose shares are listed on a stock exchange must disclose their significant shareholders and their shareholdings in
the notes to their balance sheet, where this information is known or ought to be known. Significant shareholders are defined as
shareholders and groups of shareholders linked through voting rights who hold more than five percent of all voting rights.
Stock Exchange Listing
Our common shares are listed on the Nasdaq
Global Market under the symbol “EARS.”
The Depository Trust Company
Initial settlement of any common shares
to be issued pursuant to this prospectus will take place through The Depository Trust Company, or DTC, in accordance with its customary
settlement procedures for equity securities. Each person owning common shares held through DTC must rely on the procedures thereof
and on institutions that have accounts therewith to exercise any rights of a holder of the shares.
Transfer Agent and Registrar of Shares
Our share register is currently kept by
American Stock Transfer & Trust Company, LLC., which acts as transfer agent and registrar. The share register reflects only
record owners of our shares. Swiss law does not recognize fractional share interests.
Comparison
of Swiss Law and Delaware Law
The Swiss laws applicable to Swiss corporations
and their shareholders differ from laws applicable to U.S. corporations and their shareholders. The following table summarizes
significant differences in shareholder rights between the provisions of the Swiss Code of Obligations (
Schweizerisches Obligationenrecht
)
and the Swiss Ordinance against excessive compensation in listed stock corporations applicable to our company and the Delaware
General Corporation Law applicable to companies incorporated in Delaware and their shareholders. Please note that this is only
a general summary of certain provisions applicable to companies in Delaware. Certain Delaware companies may be permitted to exclude
certain of the provisions summarized below in their charter documents.
DELAWARE
CORPORATE LAW
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SWISS
CORPORATE LAW
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Mergers and similar arrangements
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Under the Delaware General Corporation Law, with certain exceptions, a merger, consolidation, sale, lease or transfer of all or substantially all of the assets of a corporation must be approved by the board of directors and a majority of the outstanding shares entitled to vote thereon. A shareholder of a Delaware corporation participating in certain major corporate transactions may, under certain circumstances, be entitled to appraisal rights pursuant to which such shareholder may receive cash in the amount of the fair value of the shares held by such shareholder (as determined by a court) in lieu of the consideration such shareholder would otherwise receive in the transaction. The Delaware General Corporation Law also provides that a parent corporation, by resolution of its board of directors, may merge with any subsidiary, of which it owns at least 90.0% of each class of capital stock without a vote by the shareholders of such subsidiary. Upon any such merger, dissenting shareholders of the subsidiary would have appraisal rights.
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Under Swiss law, with certain exceptions, a merger or a division of the corporation or a sale of all or substantially all of the assets of a corporation must be approved by two-thirds of the shares represented at the respective general meeting of shareholders as well as the absolute majority of the share capital represented at such shareholders’ meeting. The articles of association may increase the voting threshold. A shareholder of a Swiss corporation participating in a statutory merger or demerger pursuant to the Swiss Merger Act can file an appraisal right lawsuit against the surviving company. As a result, if the consideration is deemed “inadequate,” such shareholder may, in addition to the consideration (be it in shares or in cash) receive an additional amount to ensure that such shareholder receives the fair value of the shares held by such shareholder. Swiss law also provides that a parent corporation, by resolution of its board of directors, may merge with any subsidiary, of which it owns at least 90.0% of the shares without a vote by shareholders of such subsidiary, if the shareholders of the subsidiary are offered the payment of the fair value in cash as an alternative to shares.
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Shareholders’ suits
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Class actions and derivative actions generally are available to shareholders of a Delaware corporation for, among other things, breach of fiduciary duty, corporate waste and actions not taken in accordance with
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Class actions and derivative actions as such are not available under Swiss law. Nevertheless, certain actions may have a similar effect. A shareholder is entitled to bring suit against directors for breach of, among other
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DELAWARE
CORPORATE LAW
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SWISS
CORPORATE LAW
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applicable law. In such actions, the court has discretion to permit the winning party to recover attorneys’ fees incurred in connection with such action.
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things, their fiduciary duties and claim the payment of the company’s damages to the corporation. Likewise, an appraisal lawsuit won by a shareholder will indirectly compensate all shareholders. Under Swiss law, the winning party is generally entitled to recover attorneys’ fees incurred in connection with such action, provided, however, that the court has discretion to permit the shareholder whose claim has been dismissed to recover attorneys’ fees incurred to the extent he acted in good faith.
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Shareholder vote on board and management compensation
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Under the Delaware General Corporation Law, the board of directors has the authority to fix the compensation of directors, unless otherwise restricted by the certificate of incorporation or bylaws.
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Pursuant to the Swiss Ordinance against excessive compensation in listed stock corporations, the general meeting of shareholders has the non-transferable right, amongst others, to vote on the compensation due to the board of directors, executive management and advisory boards.
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Annual vote on board renewal
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Unless directors are elected by written consent in lieu of an
annual meeting, directors are elected in an annual meeting of stockholders on a date and at a time designated by or in the manner
provided in the bylaws. Re-election is possible.
Classified boards are permitted.
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The general meeting of shareholders elects annually (i.e. until the following general meeting of shareholders) the members of the board of directors and the members of the compensation committee individually for a term of office of one year. Re-election is possible.
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Indemnification of directors and executive management and limitation of liability
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The Delaware General Corporation Law provides that a certificate
of incorporation may contain a provision eliminating or limiting the personal liability of directors (but not other controlling
persons) of the corporation for monetary damages for breach of a fiduciary duty as a director, except no provision in the certificate
of incorporation may eliminate or limit the liability of a director for:
·
any
breach of a director’s duty of loyalty to the corporation or its shareholders;
·
acts
or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
·
statutory
liability for unlawful payment of dividends or unlawful stock purchase or redemption; or
·
any
transaction from which the director derived an improper personal benefit.
A Delaware corporation may indemnify any person who was or is
a party or is threatened to be made a party to
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Under Swiss corporate law, an indemnification of a director
or member of the executive management in relation to potential personal liability is not effective to the extent the director or
member of the executive management intentionally or negligently violated his or her corporate duties towards the corporation (certain
views advocate that at least a grossly negligent violation is required to exclude the indemnification). Most violations of corporate
law are regarded as violations of duties towards the corporation rather than towards the shareholders. In addition, indemnification
of other controlling persons is not permitted under Swiss corporate law, including shareholders of the corporation.
Nevertheless, a corporation may enter into and pay for directors’
and officers’ liability insurance which typically covers negligent acts as well.
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any proceeding, other than an action by or on behalf of the corporation, because the person is or was a director or officer, against liability incurred in connection with the proceeding if the director or officer acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the corporation; and the director or officer, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.
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Unless ordered by a court, any foregoing indemnification is
subject to a determination that the director or officer has met the applicable standard of conduct:
·
by
a majority vote of the directors who are not parties to the proceeding, even though less than a quorum;
·
by
a committee of directors designated by a majority vote of the eligible directors, even though less than a quorum;
·
by
independent legal counsel in a written opinion if there are no eligible directors, or if the eligible directors so direct; or
·
by
the shareholders.
Moreover, a Delaware corporation may not indemnify a director
or officer in connection with any proceeding in which the director or officer has been adjudged to be liable to the corporation
unless and only to the extent that the court determines that, despite the adjudication of liability but in view of all the circumstances
of the case, the director or officer is fairly and reasonably entitled to indemnity for those expenses which the court deems proper.
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Directors’ fiduciary duties
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A director of a Delaware corporation has a fiduciary duty to
the corporation and its shareholders. This duty has two components:
·
the
duty of care; and
·
the
duty of loyalty.
The duty of care requires that a director act in good faith,
with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform
himself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction. The
duty of loyalty requires that a director act in a manner he
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A director of a Swiss corporation has a fiduciary duty to the
corporation only. This duty has two components:
·
the
duty of care; and
·
the
duty of loyalty.
The duty of care requires that a director act in good faith,
with the care that an ordinarily prudent director would exercise under similar circumstances. Under this duty, a director must
inform himself of, and disclose, all material information reasonably available regarding a significant transaction.
The duty of loyalty requires that a director act in a manner
he reasonably believes to be in the best interests
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reasonably believes to be in the best interests of the corporation.
He must not use his corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates
that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer
or controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have
been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation.
However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties.
Should such evidence be presented concerning a transaction by
a director, a director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the
corporation.
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of the corporation. He must not use his corporate position for
personal gain or advantage. This duty prohibits in principle self-dealing by a director and mandates that the best interest of
the corporation take precedence over any interest possessed by a director or officer.
The burden of proof for a violation of these duties is with
the corporation or with the shareholder bringing a suit against the director.
Directors also have an obligation to treat shareholders equally
proportionate to their share ownership.
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Shareholder action by written consent
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A Delaware corporation may, in its certificate of incorporation, eliminate the right of shareholders to act by written consent.
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Shareholders of a Swiss corporation may only exercise their voting rights in a general meeting of shareholders and may not act by written consent.
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Shareholder proposals
|
A shareholder of a Delaware corporation has the right to put any proposal before the annual meeting of shareholders, provided it complies with the notice provisions in the governing documents. A special meeting may be called by the board of directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings.
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At any general meeting of shareholders any shareholder may put
proposals to the meeting if the proposal is part of an agenda item. Unless the articles of association provide for a lower threshold
or for additional shareholders’ rights:
·
one
or several shareholders representing 10.0% of the share capital may ask that a general meeting of shareholders be called for specific
agenda items and specific proposals; and
·
one
or several shareholders representing 10.0% of the share capital or CHF 1.0 million of nominal share capital may ask that an agenda
item including a specific proposal be put on the agenda for a regularly scheduled general meeting of shareholders, provided such
request is made with appropriate notice.
Any shareholder can propose candidates for election as directors
without prior written notice.
In addition, any shareholder is entitled, at a general meeting
of shareholders and without advance notice, to (i) request information from the Board on the affairs of the company (note, however,
that the right to obtain such information is limited), (ii) request information from the auditors on the methods and results of
their audit, and (iii) request, under certain circumstances and subject to
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certain conditions, a special audit.
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Cumulative voting
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Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation’s certificate of incorporation provides for it.
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Cumulative voting is not permitted under Swiss corporate law. Pursuant to Swiss law, shareholders can vote for each proposed candidate, but they are not allowed to cumulate their votes for single candidates. An annual individual election of all members of the board of directors for a term of office of one year (i.e. until the following annual general meeting) is mandatory for listed companies.
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Removal of directors
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A Delaware corporation with a classified board may be removed only for cause with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise.
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A Swiss corporation may remove, with or without cause, any director at any time with a resolution passed by an absolute majority of the shares represented at a general meeting of shareholders. The articles of association may provide for a qualified majority for the removal of a director.
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Transactions with interested shareholders
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The Delaware General Corporation Law generally prohibits a Delaware corporation from engaging in certain business combinations with an “interested shareholder” for three years following the date that such person becomes an interested shareholder. An interested shareholder generally is a person or group who or which owns or owned 15.0% or more of the corporation’s outstanding voting stock within the past three years.
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No such rule applies to a Swiss corporation.
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Dissolution; Winding up
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Unless the board of directors of a Delaware corporation approves the proposal to dissolve, dissolution must be approved by shareholders holding 100.0% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board.
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A dissolution and winding up of a Swiss corporation requires the approval by two-thirds of the shares represented as well as the absolute majority of the nominal value of the share capital represented at a general meeting of shareholders passing a resolution on such dissolution and winding up. The articles of association may increase the voting thresholds required for such a resolution.
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Variation of rights of shares
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A Delaware corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise.
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A Swiss corporation may modify the rights of a category of shares with (i) a resolution passed by an absolute majority of the shares represented at the general meeting of shareholders and (ii) a resolution passed by an absolute majority of the shares represented at the special meeting of the affected preferred shareholders. Shares that are granted more voting power are not regarded a special class for these purposes.
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CORPORATE LAW
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Amendment of governing documents
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A Delaware corporation’s governing documents may be amended with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise.
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The articles of association of a Swiss corporation may be amended with a resolution passed by an absolute majority of the shares represented at such meeting, unless otherwise provided in the articles of association. There are a number of resolutions, such as an amendment of the stated purpose of the corporation and the introduction of authorized and conditional capital, that require the approval by two-thirds of the votes and an absolute majority of the nominal value of the shares represented at a shareholders’ meeting. The articles of association may increase the voting thresholds.
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Inspection of Books and Records
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Shareholders of a Delaware corporation, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose, and to obtain copies of list(s) of shareholders and other books and records of the corporation and its subsidiaries, if any, to the extent the books and records of such subsidiaries are available to the corporation.
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Shareholders of a Swiss corporation may only inspect books and records if the general meeting of shareholders or the board of directors approved such inspection. The inspection right is limited in scope and only extends to information required for the exercise of shareholder rights and does not extend to confidential information. The right to inspect the share register is limited to the right to inspect that shareholder’s own entry in the share register.
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Payment of dividends
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The board of directors may approve a dividend without shareholder
approval. Subject to any restrictions contained in its certificate of incorporation, the board may declare and pay dividends upon
the shares of its capital stock either:
·
out
of its surplus, or
·
in
case there is no such surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding
fiscal year.
Stockholder approval is required to authorize capital stock
in excess of that provided in the charter. Directors may issue authorized shares without stockholder approval.
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Dividend payments are subject to the approval of the general
meeting of shareholders. The board of directors may propose to shareholders that a dividend shall be paid but cannot itself authorize
the distribution.
Payments out of the Company’s share capital (in other
words, the aggregate nominal value of the Company’s registered share capital) in the form of dividends are not allowed and
may be made by way of a capital reduction only. Dividends may be paid only from the profits brought forward from the previous business
years or if the Company has distributable reserves, each as will be presented on the Company’s audited annual stand-alone
balance sheet. The dividend may be determined only after the allocations to reserves required by the law and the articles of association
have been deducted.
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Creation and issuance of new shares
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All creation of shares require the board of directors to adopt a resolution or resolutions, pursuant to authority expressly vested in the board of directors by the provisions of the company’s certificate of incorporation.
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All creation of shares require a shareholders’ resolution. Authorized shares can be, once created by shareholders’ resolution, issued by the board of directors (subject to fulfillment of the authorization). Conditional shares are created and issued through the exercise of options and conversion rights related to debt instruments issued by the board of directors or such rights issued to employees.
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Description
of Debt Securities
The debt securities will be our direct
general obligations. The debt securities will be either senior debt securities or subordinated debt securities and may be secured
or unsecured and may be convertible into other securities, including our common shares. The debt securities will be issued under
one or more separate indentures between our company and a financial institution that will act as trustee. Senior debt securities
will be issued under a senior indenture. Subordinated debt securities will be issued under a subordinated indenture. Each of the
senior indenture and the subordinated indenture is referred to individually as an indenture and collectively as the indentures.
Each of the senior debt trustee and the subordinated debt trustee is referred to individually as a trustee and collectively as
the trustees. The material terms of any indenture will be set forth in the applicable prospectus supplement.
We have summarized certain terms and provisions
of the indentures. The summary is not complete. The indentures are subject to and governed by the Trust Indenture Act of 1939,
as amended. The senior indenture and subordinated indenture are substantially identical, except for the provisions relating to
subordination.
Neither indenture will limit the amount
of debt securities that we may issue. We may issue debt securities up to an aggregate principal amount as we may authorize from
time to time. The applicable prospectus supplement will describe the terms of any debt securities being offered. These terms will
include some or all of the following:
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·
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classification as senior or subordinated debt securities;
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·
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ranking of the specific series of debt securities relative to other outstanding indebtedness, including subsidiaries’
debt;
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·
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if the debt securities are subordinated, the aggregate amount of outstanding indebtedness, as of a recent date, that is senior
to the subordinated securities, and any limitation on the issuance of additional senior indebtedness;
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·
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the designation, aggregate principal amount and authorized denominations;
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·
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the date or dates on which the principal of the debt securities may be payable;
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·
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the rate or rates (which may be fixed or variable) per annum at which the debt securities shall bear interest, if any;
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·
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the date or dates from which such interest shall accrue, on which such interest shall be payable, and on which a record shall
be taken for the determination of holders of the debt securities to whom interest is payable;
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·
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the place or places where the principal and interest shall be payable;
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·
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our right, if any, to redeem the debt securities, in whole or in part, at our option and the period or periods within which,
the price or prices at which and any terms and conditions upon which such debt securities may be so redeemed, pursuant to any sinking
fund or otherwise;
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·
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our obligation, if any, of the Company to redeem, purchase or repay any debt securities pursuant to any mandatory redemption,
sinking fund or other provisions or at the option of a holder of the debt securities;
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·
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if other than denominations of $2,000 and any higher integral multiple of $1,000, the denominations in which the debt securities
will be issuable;
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·
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if other than the currency of the United States, the currency or currencies, in which payment of the principal and interest
shall be payable;
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·
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whether the debt securities will be issued in the form of global securities;
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·
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provisions, if any, for the defeasance of the debt securities;
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·
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any U.S. federal income tax consequences; and
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·
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other specific terms, including any deletions from, modifications of or additions to the events of default or covenants described
below or in the applicable indenture.
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Senior Debt
We will issue under the senior indenture
the debt securities that will constitute part of our senior debt. These senior debt securities will rank equally and pari passu
with all our other unsecured and unsubordinated debt.
Subordinated Debt
We will issue under the subordinated indenture
the debt securities that will constitute part of our subordinated debt. These subordinated debt securities will be subordinate
and junior in right of payment, to the extent and in the manner set forth in the subordinated indenture, to all our “senior
indebtedness.” “Senior indebtedness” is defined in the subordinated indenture and generally includes obligations
of, or guaranteed by, us for borrowed money, or as evidenced by bonds, debentures, notes or other similar instruments, or in respect
of letters of credit or other similar instruments, or to pay the deferred purchase price of property or services, or as a lessee
under capital leases, or as secured by a lien on any asset of ours. “Senior indebtedness” does not include the subordinated
debt securities or any other obligations specifically designated as being subordinate in right of payment to, or pari passu with,
the subordinated debt securities. In general, the holders of all senior indebtedness are first entitled to receive payment in full
of such senior indebtedness before the holders of any of the subordinated debt securities are entitled to receive a payment on
account of the principal or interest on the indebtedness evidenced by the subordinated debt securities in certain events. These
events include:
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·
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subject to Swiss law, any insolvency or bankruptcy proceedings, or any receivership, dissolution, winding up, total or partial
liquidation, reorganization or other similar proceedings in respect of us or a substantial part of our property, whether voluntary
or involuntary;
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·
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(i) a default having occurred with respect to the payment of principal or interest on or other monetary amounts due and payable
with respect to any senior indebtedness or (ii) an event of default (other than a default described in clause (i) above) having
occurred with respect to any senior indebtedness that permits the holder or holders of such senior indebtedness to accelerate the
maturity of such senior indebtedness. Such a default or event of default must have continued beyond the period of grace, if any,
provided in respect of such default or event of default, and such a default or event of default shall not have been cured or waived
or shall not have ceased to exist; and
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·
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the principal of, and accrued interest on, any series of the subordinated debt securities having been declared due and payable
upon an event of default pursuant to the subordinated indenture. This declaration must not have been rescinded and annulled as
provided in the subordinated indenture.
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Authentication and Delivery
We will deliver the debt securities to
the trustee for authentication, and the trustee will authenticate and deliver the debt securities upon our written order.
Events of Default
When we use the term “Event of Default”
in the indentures with respect to the debt securities of any series, set forth below are some examples of what we mean:
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(1)
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default in the payment of the principal on the debt securities when it becomes due and payable at maturity or otherwise;
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(2)
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default in the payment of interest on the debt securities when it becomes due and payable, and such default continues for a
period of 30 days;
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(3)
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default in the performance, or breach, of any covenant in the indenture (other than defaults specified in clauses (1) or (2)
above) and the default or breach continues for a period of 90 consecutive days or more after written notice to us by the trustee
or to us and the trustee by the holders of 25% or more in aggregate principal amount of the outstanding debt securities of all
series affected thereby;
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(4)
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the occurrence of certain events of bankruptcy, insolvency, or similar proceedings with respect to us or any substantial part
of our property; or
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(5)
|
any other Events of Default that may be set forth in the applicable prospectus supplement.
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If an Event of Default (other than an Event
of Default specified in clause (4) above) with respect to the debt securities of any series then outstanding occurs and is continuing,
then either the trustee or the holders of not less than 25% in principal amount of the securities of all such series then outstanding
in respect of which an Event of Default has occurred may by notice in writing to us declare the entire principal amount of all
debt securities of the affected series, and accrued interest, if any, to be due and payable immediately, and upon any such declaration
the same shall become immediately due and payable.
If an Event of Default described in clause
(4) above occurs and is continuing, then the principal amount of all the debt securities then outstanding and accrued interest
shall be and become due immediately and payable without any declaration, notice or other action by any holder of the debt securities
or the trustee.
The trustee will, within 90 days after
the occurrence of any default actually known to it, give notice of the default to the holders of the debt securities of that series,
unless the default was already cured or waived. Unless there is a default in paying principal or interest when due, the trustee
can withhold giving notice to the holders if it determines in good faith that the withholding of notice is in the interest of the
holders.
Satisfaction, Discharge and Defeasance
We may discharge our obligations under
each indenture, except as to:
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·
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the rights of registration of transfer and exchange of debt securities, and our right of optional redemption, if any;
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·
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substitution of mutilated, defaced, destroyed, lost or stolen debt securities;
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·
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the rights of holders of the debt securities to receive payments of principal and interest;
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·
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the rights, obligations and immunities of the trustee; and
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·
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the rights of the holders of the debt securities as beneficiaries with respect to the property deposited with the trustee payable
to them (as described below);
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when:
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·
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all debt securities of any series issued that have been authenticated and delivered have been delivered by us to the trustee
for cancellation; or
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·
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all the debt securities of any series issued that have not been delivered by us to the trustee for cancellation have become
due and payable or will become due and payable within one year or are to be called for redemption within one year under arrangements
satisfactory to the trustee for the giving of notice of redemption by such trustee in our name and at our expense, and we have
irrevocably deposited or caused to be deposited with the trustee as trust funds the entire amount sufficient to pay at maturity
or upon redemption all debt securities of such series not delivered to the trustee for cancellation, including principal and interest
due or to become due on or prior to such date of maturity or redemption;
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·
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we have paid or caused to be paid all other sums then due and payable under such indenture; and
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·
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we have delivered to the trustee an officers’ certificate and an opinion of counsel, each stating that all conditions
precedent under such indenture relating to the satisfaction and discharge of such indenture have been complied with.
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In addition, unless the applicable prospectus
supplement and supplemental indenture otherwise provide, we may elect either (i) to have our obligations under each indenture discharged
with respect to the outstanding debt securities of any series (“legal defeasance”) or (ii) to be released from our
obligations under each indenture with respect to certain covenants applicable to the outstanding debt securities of any series
(“covenant defeasance”). Legal defeasance means that we will be deemed to have paid and discharged the entire indebtedness
represented by the outstanding debt securities of such series under such indenture and covenant defeasance means that we will no
longer be required to comply with the obligations with respect to such covenants (and an omission to comply with such obligations
will not constitute a default or event of default).
In order to exercise legal defeasance or
covenant defeasance with respect to outstanding debt securities of any series:
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·
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we must irrevocably have deposited or caused to be deposited with the trustee as trust funds in trust for the purpose of making
the following payments, specifically pledged as security for, and dedicated solely to the benefits of the holders of the debt securities
of a series:
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·
|
U.S. government obligations; or
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|
·
|
a combination of money and U.S. government obligations,
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in each case sufficient without reinvestment, in the
written opinion of a nationally recognized firm of independent public accountants, to pay and discharge, and which shall be applied
by the trustee to pay and discharge, all of the principal and interest at due date or maturity or if we have made irrevocable arrangements
satisfactory to the trustee for the giving of notice of redemption by the trustee, the redemption date;
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·
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we have delivered to the trustee an opinion of counsel stating that, under then applicable U.S. federal income tax law, the
holders of the debt securities of that series will not recognize gain or loss for U.S. federal income tax purposes as a result
of the defeasance and will be subject to the same federal income tax as would be the case if the defeasance did not occur;
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·
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no default relating to bankruptcy or insolvency and, in the case of a covenant defeasance, no other default has occurred and
is continuing at any time;
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·
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if at such time the debt securities of such series are listed on a national securities exchange, we have delivered to the trustee
an opinion of counsel to the effect that the debt securities of such series will not be delisted as a result of such defeasance;
and
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|
·
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we have delivered to the trustee an officers’ certificate and an opinion of counsel stating that all conditions precedent
with respect to the defeasance have been complied with.
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We are required to furnish to each trustee
an annual statement as to compliance with all conditions and covenants under the indenture.
Description
of Warrants
We may issue warrants to purchase debt
securities, common shares or other securities. We may issue warrants independently or together with other securities. Warrants
sold with other securities may be attached to or separate from the other securities. We will issue warrants under one or more warrant
agreements between our company and a warrant agent that we will name in the applicable prospectus supplement.
The prospectus supplement relating to any
warrants we offer will include specific terms relating to the offering. These terms will include some or all of the following:
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·
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the title of the warrants;
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|
·
|
the aggregate number of warrants offered;
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|
·
|
the designation, number and terms of the debt securities, common shares or other securities purchasable upon exercise of the
warrants and procedures by which those numbers may be adjusted;
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|
·
|
the exercise price of the warrants;
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|
·
|
the dates or periods during which the warrants are exercisable;
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·
|
the designation and terms of any securities with which the warrants are issued;
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·
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if the warrants are issued as a unit with another security, the date on and after which the warrants and the other security
will be separately transferable;
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·
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if the exercise price is not payable in U.S. dollars, the foreign currency, currency unit or composite currency in which the
exercise price is denominated;
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·
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any minimum or maximum amount of warrants that may be exercised at any one time;
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·
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any terms relating to the modification of the warrants;
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|
·
|
any terms, procedures and limitations relating to the transferability, exchange or exercise of the warrants; and
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·
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any other specific terms of the warrants.
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The terms of any warrants to be issued
and a description of the material provisions of the applicable warrant agreement will be set forth in the applicable prospectus
supplement.
Description
of Purchase Contracts
We may issue purchase contracts for the
purchase or sale of debt or equity securities issued by us or securities of third parties, a basket of such securities, an index
or indices or such securities or any combination of the above as specified in the applicable prospectus supplement.
Each purchase contract will entitle the
holder thereof to purchase or sell, and obligate us to sell or purchase, on specified dates, such securities at a specified purchase
price, which may be based on a formula, all as set forth in the applicable prospectus supplement. We may, however, satisfy our
obligations, if any, with respect to any purchase contract by delivering the cash value of such purchase contract or the cash value
of the property otherwise deliverable as set forth in the applicable prospectus supplement. The applicable prospectus supplement
will also specify the methods by which the holders may purchase or sell such securities and any acceleration, cancellation or termination
provisions or other provisions relating to the settlement of a purchase contract.
The purchase contracts may require us to
make periodic payments to the holders thereof or vice versa, which payments may be deferred to the extent set forth in the applicable
prospectus supplement, and those payments may be unsecured or prefunded on some basis. The purchase contracts may require the holders
thereof to secure their obligations in a specified manner to be described in the applicable prospectus supplement. Alternatively,
purchase contracts may require holders to satisfy their obligations thereunder when the purchase contracts are issued. Our obligation
to settle such pre-paid purchase contracts on the relevant settlement date may constitute indebtedness. Accordingly, pre-paid purchase
contracts will be issued under either the senior indenture or the subordinated indenture.
Description
of Units
As specified in the applicable prospectus
supplement, we may issue units consisting of one or more common shares, debt securities, warrants, purchase contracts or any combination
of such securities. The applicable prospectus supplement will describe:
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·
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the terms of the units and of the common shares, debt securities, warrants and/ or purchase contracts comprising the units,
including whether and under what circumstances the securities comprising the units may be traded separately;
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a description of the terms of any unit agreement governing the units; and
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a description of the provisions for the payment, settlement, transfer or exchange of the units.
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Forms of
Securities
Each debt security, warrant and unit will
be represented either by a certificate issued in definitive form to a particular investor or by one or more global securities representing
the entire issuance of securities. Certificated securities in definitive form and global securities will be issued in registered
form. Definitive securities name you or your nominee as the owner of the security, and in order to transfer or exchange these securities
or to receive payments other than interest or other interim payments, you or your nominee must physically deliver the securities
to the trustee, registrar, paying agent or other agent, as applicable. Global securities name a depositary or its nominee as the
owner of the debt securities, warrants or units represented by these global securities. The depositary maintains a computerized
system that will reflect each investor’s beneficial ownership of the securities through an account maintained by the investor
with its broker/dealer, bank, trust company or other representative, as we explain more fully below.
Registered Global Securities
We may issue the registered debt securities,
warrants and units in the form of one or more fully registered global securities that will be deposited with a depositary or its
nominee identified in the applicable prospectus supplement and registered in the name of that depositary or nominee. In those cases,
one or more registered global securities will be issued in a denomination or aggregate denominations equal to the portion of the
aggregate principal or face amount of the securities to be represented by registered global securities. Unless and until it is
exchanged in whole for securities in definitive registered form, a registered global security may not be transferred except as
a whole by and among the depositary for the registered global security, the nominees of the depositary or any successors of the
depositary or those nominees.
If not described below, any specific terms
of the depositary arrangement with respect to any securities to be represented by a registered global security will be described
in the prospectus supplement relating to those securities. We anticipate that the following provisions will apply to all depositary
arrangements.
Ownership of beneficial interests in a
registered global security will be limited to persons, called participants, that have accounts with the depositary or persons that
may hold interests through participants. Upon the issuance of a registered global security, the depositary will credit, on its
book-entry registration and transfer system, the participants’ accounts with the respective principal or face amounts of
the securities beneficially owned by the participants. Any dealers, underwriters or agents participating in the distribution of
the securities will designate the accounts to be credited. Ownership of beneficial interests in a registered global security will
be shown on, and the transfer of ownership interests will be effected only through, records maintained by the depositary, with
respect to interests of participants, and on the records of participants, with respect to interests of persons holding through
participants. The laws of some states may require that some purchasers of securities take physical delivery of these securities
in definitive form. These laws may impair your ability to own, transfer or pledge beneficial interests in registered global securities.
So long as the depositary, or its nominee,
is the registered owner of a registered global security, that depositary or its nominee, as the case may be, will be considered
the sole owner or holder of the securities represented by the registered global security for all purposes under the applicable
indenture, warrant agreement or unit agreement. Except as described below, owners of beneficial interests in a registered global
security will not be entitled to have the securities represented by the registered global security registered in their names, will
not receive or be entitled to receive physical delivery of the securities in definitive form and will not be considered the owners
or holders of the securities under the applicable indenture, warrant agreement or unit agreement. Accordingly, each person owning
a beneficial interest in a registered global security must rely on the procedures of the depositary for that registered global
security and, if that person is not a participant, on the procedures of the participant through which the person
owns its interest, to exercise any rights
of a holder under the applicable indenture, warrant agreement or unit agreement. We understand that under existing industry practices,
if we request any action of holders or if an owner of a beneficial interest in a registered global security desires to give or
take any action that a holder is entitled to give or take under the applicable indenture, warrant agreement or unit agreement,
the depositary for the registered global security would authorize the participants holding the relevant beneficial interests to
give or take that action, and the participants would authorize beneficial owners owning through them to give or take that action
or would otherwise act upon the instructions of beneficial owners holding through them.
Principal, premium, if any, and interest
payments on debt securities, and any payments to holders with respect to warrants or units, represented by a registered global
security registered in the name of a depositary or its nominee will be made to the depositary or its nominee, as the case may be,
as the registered owner of the registered global security. None of Auris Medical Holding AG, its affiliates, the trustees, the
warrant agents, the unit agents or any other agent of Auris Medical Holding AG, agent of the trustees or agent of the warrant agents
or unit agents will have any responsibility or liability for any aspect of the records relating to payments made on account of
beneficial ownership interests in the registered global security or for maintaining, supervising or reviewing any records relating
to those beneficial ownership interests.
We expect that the depositary for any of
the securities represented by a registered global security, upon receipt of any payment of principal, premium, interest or other
distribution of underlying securities or other property to holders on that registered global security, will immediately credit
participants’ accounts in amounts proportionate to their respective beneficial interests in that registered global security
as shown on the records of the depositary. We also expect that payments by participants to owners of beneficial interests in a
registered global security held through participants will be governed by standing customer instructions and customary practices,
as is now the case with the securities held for the accounts of customers in bearer form or registered in “street name,”
and will be the responsibility of those participants.
If the depositary for any of these securities
represented by a registered global security is at any time unwilling or unable to continue as depositary or ceases to be a clearing
agency registered under the Exchange Act, and a successor depositary registered as a clearing agency under the Exchange Act is
not appointed by us within 90 days, we will issue securities in definitive form in exchange for the registered global security
that had been held by the depositary. Any securities issued in definitive form in exchange for a registered global security will
be registered in the name or names that the depositary gives to the relevant trustee, warrant agent, unit agent or other relevant
agent of ours or theirs. It is expected that the depositary’s instructions will be based upon directions received by the
depositary from participants with respect to ownership of beneficial interests in the registered global security that had been
held by the depositary.
Plan of
Distribution
We may sell the securities in one or more
of the following ways (or in any combination) from time to time:
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through underwriters or dealers;
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directly to a limited number of purchasers or to a single purchaser;
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through any other method permitted by applicable law and described in the applicable prospectus supplement.
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The prospectus supplement will state the
terms of the offering of the securities, including:
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the name or names of any underwriters, dealers or agents;
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the purchase price of such securities and the proceeds to be received by us, if any;
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any underwriting discounts or agency fees and other items constituting underwriters’ or agents’ compensation;
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any initial public offering price;
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any discounts or concessions allowed or reallowed or paid to dealers; and
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any securities exchanges on which the securities may be listed.
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Any initial public offering price and any
discounts or concessions allowed or reallowed or paid to dealers may be changed from time to time.
If underwriters are used in the sale, the
securities will be acquired by the underwriters for their own account and may be resold from time to time in one or more transactions,
including:
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negotiated transactions;
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at a fixed public offering price or prices, which may be changed;
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at market prices prevailing at the time of sale;
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at prices related to prevailing market prices; or
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Unless otherwise stated in a prospectus
supplement, the obligations of the underwriters to purchase any securities will be conditioned on customary closing conditions
and the underwriters will be obligated to purchase all of such series of securities, if any are purchased.
The securities may be sold through agents
from time to time. The prospectus supplement will name any agent involved in the offer or sale of the securities and any commissions
paid to them. Generally, any agent will be acting on a best efforts basis for the period of its appointment.
We may authorize underwriters, dealers
or agents to solicit offers by certain purchasers to purchase the securities at the public offering price set forth in the prospectus
supplement pursuant to delayed delivery contracts providing for payment and delivery on a specified date in the future. The contracts
will be subject only to those conditions set forth in the prospectus supplement, and the prospectus supplement will set forth any
commissions paid for solicitation of these contracts.
Underwriters and agents may be entitled
under agreements entered into with us to indemnification by us against certain civil liabilities, including liabilities under the
Securities Act, or to contribution with respect to payments which the underwriters or agents may be required to make.
The prospectus supplement may also set
forth whether or not underwriters may over-allot or effect transactions that stabilize, maintain or otherwise affect the market
price of the securities at levels above those that might otherwise prevail in the open market, including, for example, by entering
stabilizing bids, effecting syndicate covering transactions or imposing penalty bids.
Underwriters and agents may be customers
of, engage in transactions with, or perform services for us and our affiliates in the ordinary course of business.
Each series of securities will be a new
issue of securities and will have no established trading market, other than our common shares, which are listed on Nasdaq Global
Market. Any underwriters to whom securities are sold for public offering and sale may make a market in the securities, but such
underwriters will not be obligated to do so and may discontinue any market making at any time without notice. The securities, other
than our common shares, may or may not be listed on a national securities exchange.
Incorporation
of Certain Information By Reference
The SEC allows us to incorporate by reference
information into this document. This means that we can disclose important information to you by referring you to another document
filed separately with the SEC. The information
incorporated by reference is considered to
be a part of this document, except for any information superseded by information that is included directly in this prospectus or
incorporated by reference subsequent to the date of this prospectus.
We incorporate by reference the following
documents or information that we have filed with the SEC
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our 2014 Annual Report on Form 20-F for the fiscal year ended December 31, 2014; and
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the information in Exhibits 99.1 and 99.2 to our report on Form 6-K filed on August 19, 2015.
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All annual reports we file with the SEC
pursuant to the Exchange Act on Form 20-F after the date of this prospectus and prior to termination or expiration of this registration
statement shall be deemed incorporated by reference into this prospectus and to be part hereof from the date of filing of such
documents. We may incorporate by reference any Form 6-K subsequently submitted to the SEC by identifying in such Form 6-K that
it is being incorporated by reference into this prospectus.
Documents incorporated by reference in
this prospectus are available from us without charge upon written or oral request, excluding any exhibits to those documents that
are not specifically incorporated by reference into those documents. You can obtain documents incorporated by reference in this
document by requesting them from us in writing or at Auris Medical Holding AG, Bahnhofstrasse 21, 6300 Zug, Switzerland or via
telephone at +41 (0)41 729 71 94.
Enforcement
of Civil Liabilities
We are organized under the laws of Switzerland
and our jurisdiction of incorporation is Zug, Switzerland. Moreover, a number of our directors and executive officers and a number
of directors of each of our subsidiaries are not residents of the United States, and all or a substantial portion of the assets
of such persons are located outside the United States. As a result, it may not be possible for investors to effect service of process
within the United States upon us or upon such persons or to enforce against them judgments obtained in U.S. courts, including judgments
in actions predicated upon the civil liability provisions of the federal securities laws of the United States. We have been advised
by our Swiss counsel that there is doubt as to the enforceability in Switzerland of original actions, or in actions for enforcement
of judgments of U.S. courts, of civil liabilities to the extent predicated upon the federal and state securities laws of the United
States. Original actions against persons in Switzerland based solely upon the U.S. federal or state securities laws are governed,
among other things, by the principles set forth in the Swiss Federal Act on International Private Law. This statute provides that
the application of provisions of non-Swiss law by the courts in Switzerland shall be precluded if the result was incompatible with
Swiss public policy. Also, mandatory provisions of Swiss law may be applicable regardless of any other law that would otherwise
apply.
Switzerland and the United States do not
have a treaty providing for reciprocal recognition of and enforcement of judgments in civil and commercial matters. The recognition
and enforcement of a judgment of the courts of the United States in Switzerland is governed by the principles set forth in the
Swiss Federal Act on Private International Law. This statute provides in principle that a judgment rendered by a non-Swiss court
may be enforced in Switzerland only if:
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the non-Swiss court had jurisdiction pursuant to the Swiss Federal Act on Private International Law;
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the judgment of such non-Swiss court has become final and non-appealable;
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the judgment does not contravene Swiss public policy;
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the court procedures and the service of documents leading to the judgment were in accordance with the due process of law; and
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no proceeding involving the same position and the same subject matter was first brought in Switzerland, or adjudicated in Switzerland,
or was earlier adjudicated in a third state and this decision is recognizable in Switzerland.
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Expenses
The following table sets forth the expenses
(other than underwriting discounts and commissions or agency fees and other items constituting underwriters’ or agents’
compensation, if any) expected to be incurred by us in connection with a possible offering of securities registered under this
registration statement.
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Amount
To Be Paid
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SEC registration fee
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$
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11,620
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FINRA filing fee
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15,500
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Transfer agent’s fees
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*
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Printing and engraving expenses
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*
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Legal fees and expenses
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*
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Accounting fees and expenses
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*
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Miscellaneous
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*
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Total
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$
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*
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To be provided by a prospectus supplement or a Report on Form 6–K that is incorporated by reference into this prospectus.
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Legal Matters
The validity of our common shares and certain
other matters of Swiss law will be passed upon for us by Froriep, Zurich, Switzerland. Certain matters of U.S. federal and New
York State law will be passed upon for us by Davis Polk & Wardwell LLP, New York, New York.
Experts
The consolidated financial statements
of Auris Medical Holding AG as of and for the year ended December 31, 2014, incorporated in this Prospectus by reference from
Auris Medical Holding AG’s Annual Report on Form 20-F for the year ended December 31, 2014, have been audited by
Deloitte AG, an independent registered public accounting firm, as stated in their report, which is incorporated herein by
reference. Such consolidated financial statements have been so incorporated in reliance on the report of such firm, given
upon their authority as experts in accounting and auditing.
The current address of Deloitte AG is General
Guisan-Quai 38, 8002 Zurich, Switzerland, phone number +(41) 58 279 60 00.
The consolidated financial statements of
Auris Medical Holding AG (formerly Auris Medical AG) as of December 31, 2013 and for each of the years in the two-year period ended
December 31, 2013, have been incorporated by reference herein in reliance upon the report of KPMG AG, independent registered public
accounting firm, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing.
The current address of KPMG AG is Badenerstrasse
172, CH-8004 Zurich, Switzerland.
Auris Medical Holding
AG
10,000,000 Common Shares
Warrants
to Purchase 7,000,000 Common Shares
PROSPECTUS SUPPLEMENT
Roth Capital Partners
February 15, 2017
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