Ocera Therapeutics, Inc.
TRANZYME INC (Form: DEFM14A, Received: 06/10/2013 16:45:14)

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TABLE OF CONTENTS
OCERA THERAPEUTICS, INC. FINANCIAL STATEMENTS
TRANZYME, INC. AMENDMENT NO. 1 TO ANNUAL REPORT ON FORM 10-K/A TABLE OF CONTENTS
TRANZYME, INC. ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS
PART III.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.          )

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Check the appropriate box:

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Preliminary Proxy Statement

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Definitive Proxy Statement

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Definitive Additional Materials

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Soliciting Material under §240.14a-12

 

TRANZYME, INC.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

 

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LOGO

To the Stockholders of Tranzyme, Inc.:

        You are cordially invited to attend the special meeting of the stockholders of Tranzyme, Inc., a Delaware corporation, which we refer to as Tranzyme, which will be held at 8:30 a.m., local time, on Monday, July 15, 2013, at the Homewood Suites located at 4603 Central Park Drive, Cardinal Room, Third Floor, Durham, NC 27703, unless postponed or adjourned to a later date. This is an important special meeting that affects your investment in Tranzyme.

        On April 23, 2013, Tranzyme and Ocera Therapeutics, Inc., or Ocera, entered into an agreement and plan of merger and reorganization, which we refer to as the merger agreement, pursuant to which a wholly owned subsidiary of Tranzyme will merge with and into Ocera with Ocera surviving as a wholly owned subsidiary of Tranzyme. Immediately following the effective time of the merger, Ocera's stockholders will own approximately 72.6%, and Tranzyme's current stockholders will own approximately 27.4%, of Tranzyme's common stock, after giving effect to shares issuable pursuant to Ocera's and Tranzyme's outstanding options and warrants. In addition, immediately following the effective time of the merger, existing investors of Ocera will acquire approximately $20.0 million in shares of Tranzyme's common stock in a private placement at a price per share equal to the volume weighted average closing price for Tranzyme's common stock for the 10 trading days ending the day prior to the closing of the merger, which we refer to as the PIPE investment. The funding of the PIPE investment is conditioned on the closing of the merger.

        At the effective time of the merger, Tranzyme will be renamed "Ocera Therapeutics, Inc." and expects to trade under the symbol "OCRX" on the NASDAQ Global Market. At the effective time of the merger, directors and executive officers, including officers and directors designated by Ocera, will be deemed elected to Tranzyme's board and management, respectively. Following the merger, the headquarters of Tranzyme will be located in San Diego, California, at Ocera's current headquarters.

        Tranzyme is holding a special meeting of its stockholders in order to obtain the stockholder approvals necessary to complete the merger. At the special meeting, Tranzyme will ask its stockholders to approve the issuance of Tranzyme's common stock pursuant to the merger agreement, approve the issuance of approximately $20.0 million in shares of Tranzyme's common stock to existing investors of Ocera in the PIPE investment, approve amendments to Tranzyme's certificate of incorporation to effect a reverse stock split of Tranzyme's common stock, referred to as the reverse stock split, and approve an amendment to Tranzyme's certificate of incorporation to change the name of Tranzyme to "Ocera Therapeutics, Inc." Upon the effectiveness of the amendments to Tranzyme's certificate of incorporation effecting the reverse stock split, the outstanding shares of Tranzyme's common stock will be reclassified and combined into a lesser number of shares to be determined by Tranzyme's board of directors prior to the effective time of such amendments and public announcement by Tranzyme.

        After careful consideration, Tranzyme's board of directors has approved the merger agreement and the proposals referred to above, and has determined that they are advisable, fair and in the best interests of Tranzyme's stockholders. Accordingly, Tranzyme's board of directors unanimously recommends that stockholders vote FOR the issuance of Tranzyme's common stock pursuant to the merger agreement, FOR the issuance of Tranzyme's common stock to existing investors of Ocera in the PIPE investment, FOR the amendments to Tranzyme's certificate of incorporation to effect the reverse stock split and related matters, FOR the amendment to Tranzyme's certificate of incorporation to change the name of Tranzyme to "Ocera Therapeutics, Inc." and "FOR" the adjournment of the special meeting if necessary to solicit additional proxies if there are not sufficient votes to approve the issuance of Tranzyme's common stock pursuant to the merger agreement at the time of the special meeting.

        More information about Tranzyme, Ocera and the proposed transactions are contained in the accompanying proxy statement. Tranzyme urges you to read the proxy statement carefully and in its


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entirety. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER "RISK FACTORS" BEGINNING ON PAGE 13.

        Your vote is important. Whether or not you expect to attend the special meeting in person, please complete, date, sign and promptly return the accompanying proxy card in the enclosed postage paid envelope to ensure that your shares will be represented and voted at the special meeting.

        Tranzyme is excited about the opportunities the merger brings to its stockholders, and we thank you for your consideration and continued support.

    Yours sincerely,

 

 


GRAPHIC

 

 

Vipin K. Garg, Ph.D.
President and Chief Executive Officer

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the merger described in this proxy statement or the Tranzyme's common stock to be issued in connection with the merger or determined if this proxy statement is accurate or adequate. Any representation to the contrary is a criminal offense.

This proxy statement is dated June 10, 2013, and is first being mailed to stockholders on or
about June 13, 2013.


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LOGO

5001 SOUTH MIAMI BOULEVARD, SUITE 300 DURHAM, NORTH CAROLINA 27703

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON JULY 15, 2013

To the Stockholders of Tranzyme, Inc.:

        A special meeting of stockholders of Tranzyme, Inc. will be held at 8:30 a.m., local time, on July 15, 2013, at the Homewood Suites located at 4603 Central Park Drive, Cardinal Room, Third Floor, Durham, NC 27703, to consider and act upon the following matters:

        Stockholders also will consider and act on any other matters as may properly come before the special meeting or any adjournment or postponement thereof, including any procedural matters incident to the conduct of the special meeting.

        Tranzyme's common stock is the only type of security entitled to vote at the special meeting. The board of directors has fixed June 7, 2013 as the record date for the determination of stockholders entitled to notice of, and to vote at, the special meeting and any adjournment or postponement thereof. Only holders of record of shares of Tranzyme's common stock at the close of business on the record date are entitled to notice of, and to vote at, the special meeting. At the close of business on the record date, Tranzyme had 27,600,437 shares of common stock outstanding and entitled to vote at the special meeting. Each holder of record of shares of common stock on the record date will be entitled to one vote for each share held on all matters to be voted upon at the special meeting.

        Your vote is important. The affirmative vote of the holders of a majority of the shares of Tranzyme's common stock present in person or represented by proxy and voting on such matter at the special meeting is required for approval of Proposal 1, Proposal 2 and Proposal 5 above. The affirmative vote of holders of a majority of the outstanding shares of Tranzyme's common stock as of the record date for the special meeting is required for approval of Proposal 3 and Proposal 4 above.

        Whether or not you plan to attend the special meeting in person, please complete, date, sign and promptly return the accompanying proxy card in the enclosed postage paid envelope to ensure that your shares will be represented and voted at the special meeting. If you date, sign and return your proxy card without indicating how you wish to vote, your proxy will be counted as a vote in favor of Proposals 1 through 5. If you fail either to return your proxy card or to vote in person at the special meeting, your shares will not be counted for purposes of determining whether a quorum is present at the special meeting and will have the same effect as a vote against Proposal 3 and Proposal 4. If you


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attend the special meeting, you may, upon your written request, withdraw your proxy and vote in person.

    By Order of the Board of Directors of Tranzyme, Inc.

 

 


GRAPHIC

 

 

Vipin K. Garg, Ph.D.
President and Chief Executive Officer

June 10, 2013
Durham, North Carolina

TRANZYME'S BOARD OF DIRECTORS HAS DETERMINED AND BELIEVES THAT EACH OF THE PROPOSALS OUTLINED ABOVE IS ADVISABLE, FAIR AND IN THE BEST INTERESTS OF TRANZYME AND ITS STOCKHOLDERS AND HAS UNANIMOUSLY APPROVED EACH SUCH PROPOSAL. TRANZYME'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT TRANZYME'S STOCKHOLDERS VOTE "FOR" EACH SUCH PROPOSAL.


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REFERENCES TO ADDITIONAL INFORMATION

        This proxy statement under Section 14(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the rules thereunder, contains a notice of meeting with respect to the special meeting of stockholders at which Tranzyme's stockholders will consider and vote on the proposals to approve the issuance of Tranzyme's common stock issuable to the holders of Ocera's common stock pursuant to the merger agreement described in this proxy statement, issuance of Tranzyme's common stock to the existing stockholders of Ocera in a private placement described in this proxy statement, amendments to Tranzyme's certificate of incorporation to effect a reverse stock split of Tranzyme's common stock and related matters and an amendment to Tranzyme's certificate of incorporation to change the name of Tranzyme to "Ocera Therapeutics, Inc."

        This proxy statement and notice of meeting incorporates important business and financial information about Tranzyme that is not included in or delivered with this proxy statement. This information is available to you without charge upon your written or oral request. You can obtain these documents, which are incorporated by reference in this proxy statement, by requesting them in writing or by telephone at the following address and telephone number:

TRANZYME, INC.
Rhonda L. Stanley
Principal Financial and Accounting Officer
5001 South Miami Boulevard, Suite 300
Durham, North Carolina 27703
Tel: (919) 474-0020

IF YOU WOULD LIKE TO REQUEST DOCUMENTS, PLEASE DO SO BY JUNE 28, 2013 IN ORDER TO RECEIVE THEM BEFORE THE SPECIAL MEETING.

        See "Where You Can Find More Information" beginning on page 133.


NOTE REGARDING TRADEMARKS

        Tranzyme®, Tranzyme Pharma® and MATCH™ are trademarks or servicemarks of Tranzyme, Inc.

        The other trademarks, trade names and service marks appearing in this proxy statement are the property of their respective holders.


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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

  iv

SUMMARY

  1

The Companies

  1

Summary of the Merger

  1

Reasons for the Merger

  1

Opinion of Tranzyme's Financial Advisor

  2

Overview of the Merger Agreement

  2

Stockholder Agreements

  4

Management Following the Merger

  4

The Board of Directors Following the Merger

  4

Interests of Tranzyme's Directors and Executive Officers

  5

Interests of Ocera's Directors and Executive Officers

  5

Material U.S. Federal Income Tax Consequences of the Merger

  5

Risk Factors

  5

Regulatory Approvals

  5

Anticipated Accounting Treatment

  6

Appraisal Rights

  6

Comparison of Stockholder Rights

  6

SELECTED HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA

  7

Selected Historical Consolidated Financial Data of Tranzyme

  7

Selected Historical Consolidated Financial Data of Ocera

  8

Selected Unaudited Pro Forma Condensed Combined Financial Data of Tranzyme and Ocera

  9

Comparative Historical And Unaudited Pro Forma Per Share Data

  10

MARKET PRICE AND DIVIDEND INFORMATION

  12

RISK FACTORS

  13

Risks Related to the Merger

  13

Risks Related to the Reverse Stock Split

  17

Risks Related to Tranzyme

  18

Risks Related to Ocera's Development, Commercialization and Regulatory Approval

  18

Risks Related to Ocera's Financial Position and Need for Additional Capital

  26

Risks Related to Ocera's Reliance on Third Parties

  28

Risks Related to Ocera's Product Liability

  29

Risks Related to Ocera's Intellectual Property

  30

Risks Related to Ownership of Ocera's Capital Stock

  32

FORWARD-LOOKING STATEMENTS

  34

THE MERGER

  35

Background of the Merger

  35

Tranzyme's Reasons for the Merger

  42

Opinion of Tranzyme's Financial Advisor

  46

Interests of Tranzyme's Directors and Executive Officers in the Merger

  53

Interests of Ocera's Directors and Executive Officers in the Merger

  58

Material U.S. Federal Income Tax Consequences of the Merger

  61

Anticipated Accounting Treatment

  62

THE MERGER AGREEMENT

  63

Form of the Merger

  63

Effective Time of the Merger

  63

Merger Consideration

  63

Stock Options and Warrants

  65

Regulatory Approvals

  65

NASDAQ Listing

  66

Appraisal Rights

  66

Amendments to Tranzyme's Certificate of Incorporation; Bylaws of the Surviving Corporation

  66

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Conditions to the Completion of the Merger

  66

No Solicitation

  69

Meeting of Tranzyme's Stockholders and Ocera Stockholder Approval

  71

Directors and Officers Following the Merger

  71

Indemnification of Officers and Directors

  71

Covenants; Conduct of Business Pending the Merger

  72

Other Agreements

  74

Termination

  75

Termination Fee

  76

Representations and Warranties

  77

Amendment

  78

AGREEMENTS RELATED TO THE MERGER

  79

MATTERS BEING SUBMITTED TO A VOTE OF TRANZYME'S STOCKHOLDERS

  80

Proposal 1: Approval of the Issuance of Common Stock in the Merger

  80

Proposal 2: Approval of the Issuance of Common Stock in the Private Investment in Public Equity, or PIPE, Transaction

  80

Proposal 3: Approval of the Reverse Stock Split

  81

Proposal 4: Approval of Name Change

  86

Proposal 5: Approval of Possible Adjournment of the Special Meeting

  87

TRANZYME'S BUSINESS

  88

TRANZYME'S PROPERTY

  88

OCERA'S BUSINESS

  88

TRANZYME'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  90

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT TRANZYME'S MARKET RISK

  90

OCERA'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  90

Overview

  90

Recent Developments

  92

Financial Overview

  92

Critical Accounting Policies and Significant Judgments and Estimates

  94

Liquidity and Capital Resources

  104

Future Funding Requirements

  105

Contractual Obligations and Commitments

  106

Off-Balance Sheet Arrangements

  106

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

  107

DESCRIPTION OF TRANZYME'S CAPITAL STOCK

  117

Authorized Capital Stock

  117

Common Stock

  117

Listing

  117

Transfer Agent and Registrar

  117

Preferred Stock

  117

Provisions of our Certificate of Incorporation and By-Laws and Delaware Anti-Takeover Law

  118

SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT OF TRANZYME

  120

SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT OF OCERA

  123

SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT OF COMBINED COMPANY

  129

WHERE YOU CAN FIND MORE INFORMATION

  133

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HOUSEHOLDING

  133

FUTURE STOCKHOLDER PROPOSALS

  134

TRANZYME FINANCIAL STATEMENTS

  F-1

OCERA THERAPEUTICS, INC. FINANCIAL STATEMENTS

  F-2

Annex A

 

Opinion of Tranzyme's Financial Advisor.

   

Annex B

 

Tranzyme's Annual Report on Form 10-K for the year ended December 31, 2012, as amended.

   

Annex C

 

Agreement and Plan of Merger, dated as of April 23, 2013, by and among Tranzyme, Inc., Terrapin Acquisition, Inc. and Ocera Therapeutics, Inc.

   

Annex D

 

Securities Purchase Agreement, dated as of April 23, 2013, by and among Tranzyme, Inc. and the Purchasers named therein.

   

Annex E

 

Registration Rights Agreement, dated as of April 23, 2013, by and among Tranzyme, Inc. and the Investors named therein.

   

Annex F

 

Certificates of Amendment to the Certificate of Incorporation of Tranzyme, Inc. (reverse stock split and related matters)

   

Annex G

 

Certificate of Amendment to the Certificate of Incorporation of Tranzyme, Inc. (name change)

   

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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

        Except as specifically indicated, the following information and all other information contained in this proxy statement does not give effect to the reverse stock split described in Proposal 3.

        The following section provides answers to frequently asked questions about the special meeting of stockholders and the merger. This section, however, only provides summary information. These questions and answers may not address all issues that may be important to you as a stockholder. For a more complete response to these questions and for additional information, please refer to the cross-referenced pages below. You should carefully read this entire proxy statement, including each of the annexes.

Q:
What is the merger?

A:
Tranzyme and Ocera have entered into an Agreement and Plan of Merger and Reorganization, dated as of April 23, 2013, or the merger agreement, that contains the terms and conditions of the proposed business combination of Tranzyme and Ocera. Under the merger agreement, Terrapin Acquisition, Inc., a wholly owned subsidiary of Tranzyme, or the acquisition subsidiary, will merge with and into Ocera, with Ocera surviving as a wholly owned subsidiary of Tranzyme. This transaction is referred to as the merger. Had the merger been consummated on April 23, 2013, Tranzyme would have issued to Ocera's stockholders, and would have assumed Ocera options and warrants that represented, an aggregate of approximately 79.1 million shares of Tranzyme's common stock, subject to adjustment as a result of a reverse stock split of Tranzyme's common stock that would have occurred in connection with the merger. Immediately following the effective time of the merger, Ocera's stockholders will own approximately 72.6%, and Tranzyme's current stockholders will own approximately 27.4%, of Tranzyme's common stock, after giving effect to shares issuable pursuant to Ocera's and Tranzyme's outstanding options and warrants.
Q:
What will happen to Tranzyme if, for any reason, the merger with Ocera does not close?

A:
Tranzyme has invested significant time and incurred, and expects to continue to incur, significant expenses related to the proposed merger with Ocera. In the event the merger does not close, Tranzyme will have a limited ability to continue its current operations without obtaining additional financing. Although Tranzyme's board of directors may elect to, among other things, attempt to complete another strategic transaction if the merger with Ocera does not close, Tranzyme's board of directors may instead divest all or a portion of Tranzyme's business or take steps necessary to liquidate or dissolve Tranzyme's business and assets if a viable alternative strategic transaction is not available.

Q:
Why is Tranzyme proposing to merge with Ocera?

A:
Tranzyme's board of directors considered a number of factors that supported its decision to approve the merger agreement. In the course of its deliberations, Tranzyme's board of directors also considered a variety of risks and other countervailing factors related to entering into the merger agreement.

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Q:
What is required to consummate the merger?

A:
To consummate the merger, Tranzyme's stockholders must approve (1) the issuance of shares of Tranzyme's common stock in the merger, which requires the affirmative vote of the holders of a majority of the shares of Tranzyme's common stock present in person or represented by proxy and voting on such matter at the special meeting, (2) the amendments to Tranzyme's certificate of incorporation to effect the reverse stock split and (3) the amendment to Tranzyme's certificate of incorporation to change the name of Tranzyme to "Ocera Therapeutics, Inc.", which requires the affirmative vote of the holders of a majority of the outstanding shares of Tranzyme's common stock as of the record date for the special meeting. In addition, Ocera's stockholders must adopt the merger agreement, which requires the affirmative vote of holders of a majority of the outstanding shares of Ocera's common stock. On April 23, 2013, by the requisite vote, the stockholders of Ocera adopted the merger agreement pursuant to a written consent in lieu of a meeting. In addition to obtaining stockholder approval, each of the other closing conditions set forth in the merger agreement must be satisfied or waived.
Q:
Are there any federal or state regulatory requirements that must be complied with or federal or state regulatory approvals or clearances that must be obtained in connection with the merger?

A:
Neither Tranzyme nor Ocera is required to make any filings or to obtain any approvals or clearances from any antitrust regulatory authorities in the United States or other countries to consummate the merger. In the United States, Tranzyme must comply with applicable federal and state securities laws and NASDAQ rules and regulations in connection with the issuance of shares of Tranzyme's common stock in the merger, including the filing with the SEC of this proxy statement. Prior to consummation of the merger, Tranzyme intends to file an initial listing application with the NASDAQ Global Market pursuant to NASDAQ's "reverse merger" rules and to effect the initial listing of Tranzyme's common stock issuable in connection with the merger or upon exercise of Ocera's outstanding stock options or warrants.

Q:
What will Ocera's stockholders receive in the merger?

A:
The shares of Tranzyme's common stock issued or issuable to Ocera's stockholders in connection with the merger are expected to represent approximately 72.6%, and shares of Tranzyme's common stock held by Tranzyme's current stockholders are expected to represent approximately 27.4%, of Tranzyme's common stock, after giving effect to shares issuable pursuant to Ocera's and Tranzyme's outstanding options and warrants. At the effective time of the merger, each share of Ocera's common stock will be converted into and exchanged for the right to receive a number of shares of Tranzyme's common stock equal to the exchange ratio calculated in accordance with the merger agreement. The exact exchange ratio per share of Ocera's common stock will be based in part on the number of Ocera's and Tranzyme's common stock outstanding or issuable pursuant to outstanding options and warrants immediately prior to the effective time of the merger and will not be calculated until that time.

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Q:
Who will be the directors of Tranzyme following the merger?

A:
At and immediately after the effective time of the merger, the initial directors to serve on the board of directors of Tranzyme shall be Jean-Paul Castaigne, M.D., Lars G. Ekman, M.D., Ph.D., Linda S. Grais, M.D., Nina Kjellson, Michael F. Powell, Ph.D., Franck S. Rousseau, M.D., Pratik Shah, Ph.D., Anne M. VanLent and Eckard Weber, M.D. until their respective successors are duly elected or appointed and qualified or their earlier death, resignation or removal.

Q:
Who will be the executive officers of Tranzyme following the merger?

A:
Promptly following the effective time of the merger, the executive management team of the combined company is expected to include the following individuals:

Name
  Position with the Combined Company   Current Position
Linda S. Grais, M.D.    Chief Executive Officer   President and Chief Executive Officer of Ocera
Dana S. McGowan   Chief Financial Officer   Chief Financial Officer and Secretary of Ocera
Franck S. Rousseau, M.D.    Chief Medical and Development Officer   Chief Medical Officer of Tranzyme
David S. Moore   Chief Business Officer   Chief Business Officer of Tranzyme
Q:
What are the material federal income tax consequences of the merger to me?

A:
The merger has been structured to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, or the Code, and it is a closing condition to the merger that Tranzyme and Ocera receive opinions of their respective counsel regarding such qualification. There will be no U.S. federal income tax consequences to Tranzyme's stockholders as a result of the merger.
Q:
Why is Tranzyme seeking stockholder approval to issue shares of common stock to existing stockholders of Ocera in the private investment?

A:
Because our common stock is listed on the NASDAQ Global Market, we are subject to NASDAQ Listing Rules. Rule 5635 of NASDAQ Listing Rules requires stockholder approval if a listed company issues common stock or securities convertible into or exercisable for common stock in a private placement equal to 20% or more of the common stock or 20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the stock.

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Q:
What is the reverse stock split and why is it necessary?

A:
Immediately prior to the effective time of the merger, the outstanding shares of Tranzyme's common stock will be reclassified and combined into a lesser number of shares to be determined by Tranzyme's board of directors prior to the effective time and publicly announced by Tranzyme. Pursuant to the merger agreement, Tranzyme agreed to use its commercially reasonable efforts to maintain its existing listing on the NASDAQ Global Market (or else, the NASDAQ Capital Market) and to cause the shares of Tranzyme common stock being issued in the merger to be approved for listing on the NASDAQ Global Market (or else, the NASDAQ Capital Market) at or prior to the effective time of the merger. Since the merger constitutes a "reverse merger" under applicable marketplace rules established by NASDAQ, the combined company is required to comply with the initial listing standards of the applicable NASDAQ market to continue to be listed on such market following the merger. The NASDAQ Global Market's initial listing standards require a company to have, among other things, a $4.00 per share minimum bid price and the NASDAQ Capital Market's initial listing standards require a company to have, among other things, a $4.00 per share minimum bid price. Because the current price of Tranzyme common stock is less than the required minimum bid prices, the reverse stock split is necessary to obtain approval of the listing of the combined company and the shares of Tranzyme common stock being issued in the merger on either market.

Q:
Why am I receiving this proxy statement?

A:
You are receiving this proxy statement because you have been identified as a stockholder of Tranzyme as of the record date, and thus you are entitled to vote at Tranzyme's special meeting. This document serves as a proxy statement used to solicit proxies for the special meeting. This document contains important information about the merger and the special meeting of Tranzyme, and you should read it carefully.

Q:
How does Tranzyme's board of directors recommend that Tranzyme's stockholders vote?

A:
After careful consideration, Tranzyme's board of directors unanimously recommends that Tranzyme's stockholders vote:

FOR Proposal 1 to approve the issuance of Tranzyme's common stock pursuant to the merger agreement;

FOR Proposal 2 to approve the issuance of Tranzyme's common stock pursuant to the securities purchase agreement in connection with the PIPE transaction;

FOR Proposal 3 to approve amendments to Tranzyme's certificate of incorporation to effect the reverse stock split and related matters;

FOR Proposal 4 to approve an amendment to Tranzyme's certificate of incorporation to change the name of Tranzyme to "Ocera Therapeutics, Inc."; and

FOR Proposal 5 to approve an adjournment of the special meeting, if necessary, if a quorum is present, to solicit additional proxies if there are not sufficient votes in favor of Proposals 1, 2, 3 and 4.

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Q:
What risks should Tranzyme's stockholders consider in deciding whether to vote in favor of the share issuance, reverse stock split and name change?

A:
Tranzyme's stockholders should carefully read the section of this proxy statement entitled "Risk Factors" beginning on page 13, which sets forth certain risks and uncertainties related to the merger and reverse stock split, risks and uncertainties to which the combined company's business will be subject, risks and uncertainties to which Tranzyme, as an independent company, is subject and risks and uncertainties to which Ocera, as an independent company, is subject.

Q:
When do you expect the merger to be consummated?

A:
Tranzyme and Ocera anticipate that the consummation of the merger will occur in the third quarter of 2013 as promptly as practicable after the special meeting and following satisfaction or waiver of all closing conditions. However, the exact timing of the consummation of the merger is not yet known. For a more complete description of the closing conditions under the merger agreement, please see the section entitled "The Merger Agreement—Conditions to the Completion of the Merger" beginning on page 66 of this proxy statement.

Q:
How will the merger affect stock options and warrants to acquire Ocera common stock?

A:
Upon the effectiveness of the merger, each outstanding option to purchase Ocera's common stock, whether vested or unvested, and all warrants to purchase Ocera's common stock or preferred stock will be assumed by Tranzyme and become options and warrants to purchase Tranzyme's common stock.

Q:
How will the reverse stock split and the merger affect stock options and warrants to acquire Tranzyme's common stock and Tranzyme's stock option plans?

A:
As of the effective time of the reverse stock split, Tranzyme will adjust and proportionately decrease the number of shares of Tranzyme's common stock reserved for issuance upon exercise of, and adjust and proportionately increase the exercise price of, all options and warrants to acquire Tranzyme's common stock. All stock options and warrants to acquire shares of Tranzyme's common stock that are outstanding immediately prior to the effective time of the merger will remain outstanding following the effective time of the merger. In addition, as of the effective time of the reverse stock split, Tranzyme will adjust and proportionately decrease the total number of shares of Tranzyme's common stock that may be the subject of future grants under Tranzyme's stock option plans.

Q:
What do I need to do now?

A:
You are urged to read this proxy statement carefully, including each of the annexes, and to consider how the merger affects you. If your shares are registered directly in your name, you may complete, date and sign the enclosed proxy card and mail return it in the enclosed postage-paid envelope. Alternatively, you can deliver your completed proxy card in person or vote by completing a ballot in person at the special meeting.

Q:
What happens if I do not return a proxy card or otherwise provide proxy instructions?

A:
The failure to return your proxy card or otherwise provide proxy instructions will have the same effect as voting against Proposal 3 and Proposal 4, and your shares will not be counted for purposes of determining whether a quorum is present at the special meeting.

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Q:
May I vote in person?

A:
If you are a stockholder of Tranzyme and your shares of Tranzyme's common stock are registered directly in your name with Tranzyme's transfer agent, you are considered, with respect to those shares, the stockholder of record, and the proxy materials and proxy card are being sent directly to you by Tranzyme. If you are a Tranzyme stockholder of record, you may attend the special meeting to be held on July 15, 2013 and vote your shares in person, rather than signing and returning your proxy.
Q:
If my Tranzyme shares are held in "street name" by my broker, will my broker vote my shares for me?

A:
Broker non-votes occur when a beneficial owner of shares held in "street name" does not give instructions to the broker or nominee holding the shares as to how to vote on matters deemed "non-routine." Generally, if shares are held in street name, the beneficial owner of the shares is entitled to give voting instructions to the broker or nominee holding the shares. If the beneficial owner does not provide voting instructions, the broker or nominee can still vote the shares with respect to matters that are considered to be "routine," but not with respect to "non-routine" matters. Your broker will not be able to vote your shares of Tranzyme's common stock without specific instructions from you for "non-routine" matters. You should instruct your broker to vote your shares, following the procedure provided by your broker.

Q:
May I change my vote after I have submitted a proxy or provided proxy instructions?

A:
Any Tranzyme stockholder of record voting by proxy, other than those Tranzyme stockholders who have executed a voting agreement and irrevocable proxy, has the right to revoke the proxy at any time before the polls close at the special meeting by sending a written notice stating that he, she or it would like to revoke his, her or its proxy to the Corporate Secretary of Tranzyme, by providing a duly executed proxy card bearing a later date than the proxy being revoked or by attending the special meeting and voting in person. Attendance alone at the special meeting will not revoke a proxy. If a stockholder of Tranzyme has instructed a broker to vote its shares of Tranzyme's common stock that are held in "street name," the stockholder must follow directions received from its broker to change those instructions.

Q:
Should Ocera's and Tranzyme's stockholders send in their stock certificates now?

A:
No. After the merger is consummated, Ocera's stockholders will receive written instructions from the exchange agent for exchanging their certificates representing shares of Ocera capital stock for certificates representing shares of Tranzyme's common stock. Ocera's stockholders will also receive a cash payment for any fractional shares.

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Q:
Am I entitled to appraisal rights?

A:
Tranzyme's stockholders are not entitled to appraisal rights in connection with the merger or any of the proposals to be voted on at the special meeting.

Q:
Have Ocera's stockholders agreed to adopt the merger agreement?

A:
Yes. On April 23, 2013, Ocera's stockholders adopted the merger agreement and approved the merger and related transactions pursuant to a written consent in lieu of a meeting.
Q:
Have any of Tranzyme's stockholders agreed to vote in favor of the issuance of the shares in the merger?

A:
Yes. In connection with the execution of the merger agreement, holders of approximately 11.1% of Tranzyme's outstanding common stock have entered into agreements with Ocera and Tranzyme that provide, among other things, that the stockholders will vote in favor of the issuance of shares of Tranzyme's common stock in the merger and grant to Ocera an irrevocable proxy to vote all of such stockholders' shares of Tranzyme's common stock in favor of the approval of the issuance of the shares of Tranzyme's common stock in the merger and against any proposal made in opposition to, or in competition with, the issuance of shares of Tranzyme's common stock in the merger.

Q:
Has Tranzyme or Ocera entered into any agreements with Ocera's and Tranzyme's stockholders restricting the transfer of shares of their common stock?

A:
Yes. The agreements that Tranzyme and Ocera entered into with Tranzyme's and Ocera's stockholders described above place restrictions on the transfer of the shares of Tranzyme and Ocera shares held by the respective signatory stockholders.

Q:
Who is paying for this proxy solicitation?

A:
Tranzyme will bear the cost of soliciting proxies, including the printing, mailing and filing of this proxy statement, the proxy card and any additional information furnished to Tranzyme's stockholders. Tranzyme has engaged Innisfree M&A Incorporated, a proxy solicitation firm, to solicit proxies from Tranzyme's stockholders. Arrangements will also be made with banks, brokers, nominees, custodians and fiduciaries who are record holders of Tranzyme's common stock for the forwarding of solicitation materials to the beneficial owners of Tranzyme's common stock. Tranzyme will reimburse these banks, brokers, nominees, custodians and fiduciaries for the reasonable out-of-pocket expenses they incur in connection with the forwarding of solicitation materials.

Q:
Who can provide me with additional information and help answer my questions?

A:
If you would like additional copies, without charge, of this proxy statement or if you have questions about the merger and the other proposals being considered at the special meeting, including the procedures for voting your shares, you should contact Innisfree M&A Incorporated, Tranzyme's proxy solicitor, by telephone at 877-825-8619.

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SUMMARY

        This summary highlights selected information from this proxy statement and may not contain all of the information that is important to you. To better understand the merger and the other proposals being considered at the special meeting, you should read this entire proxy statement carefully, including the materials attached as annexes, as well as other documents referred to or incorporated by reference herein. See "Where You Can Find More Information" beginning on page 133 of this proxy statement. Page references are included in parentheses to direct you to a more detailed description of the topics presented in this summary.


The Companies

Tranzyme, Inc.
5001 South Miami Boulevard, Suite 300
Durham, North Carolina 27703
(919) 474-0020

        Tranzyme is a biopharmaceutical company focused on discovering, developing and commercializing novel, mechanism-based therapeutics. All of Tranzyme's drug discovery activities are based on its proprietary small molecule macrocyclic template chemistry (MATCH™) technology, which has also been successfully used to generate drug candidates in partnership with other pharmaceutical companies. MATCH enables the rapid construct of synthetic libraries of drug-like, macrocyclic compounds in a predictable and efficient manner. By leveraging MATCH, Tranzyme is committed to pursuing first-in-class medicines to address areas of significant unmet medical need and continues to pursue funded drug discovery partnerships.

Ocera Therapeutics, Inc.
12651 High Bluff Drive, Suite 230
San Diego, California 92130
(858) 436-3900

        Ocera is a clinical stage biopharmaceutical company focused on the development and commercialization of novel therapeutics for patients with acute and chronic liver disease, an area of high unmet medical need. Ocera's lead program, OCR-002, is an ammonia scavenger designed to treat hyperammonemia (elevated ammonia in the blood) and associated hepatic encephalopathy, a complication of patients with liver cirrhosis. In addition to OCR-002, Ocera has developed Zysa™ (AST-120), a spherical carbon adsorbent, for the treatment of irritable bowel syndrome.


Summary of the Merger

        Upon the terms and subject to the conditions of the merger agreement, Terrapin Acquisition, Inc., or the acquisition subsidiary, a Delaware corporation and wholly-owned subsidiary of Tranzyme formed by Tranzyme in connection with the merger, will merge with and into Ocera. The merger agreement provides that upon the consummation of the merger the separate existence of acquisition subsidiary shall cease. Ocera will continue as the surviving corporation and will be a wholly-owned subsidiary of Tranzyme. Immediately following the effective time of the merger, Ocera's stockholders will own approximately 72.6%, and Tranzyme's current stockholders will own approximately 27.4%, of Tranzyme's common stock, after giving effect to shares issuable pursuant to Ocera's and Tranzyme's outstanding options and warrants.


Reasons for the Merger (see page 42)

        The board of directors of Tranzyme considered various reasons for the merger, as described herein.

 

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Opinion of Tranzyme's Financial Advisor (see page 46)

        In connection with the merger, Tranzyme's board of directors received an opinion, dated April 23, 2013, from Tranzyme's financial advisor, Stifel, Nicolaus & Company, Incorporated, or Stifel, that, as of the date of the opinion and subject to and based on the assumptions made, procedures followed, matters considered, limitations of the review undertaken and qualifications contained in such opinion, the exchange ratio provided for in the merger was fair to the stockholders of Tranzyme from a financial point of view.


Overview of the Merger Agreement

    Merger Consideration (see page 63)

        At the effective time of the merger:

    any shares of Ocera common stock or preferred stock held as treasury stock or held or owned by Ocera or any of its subsidiaries or acquisition subsidiary shall be cancelled and cease to exist and no consideration shall be delivered in exchange therefor; and

    each share of Ocera common stock shall be converted solely into the right to receive a number of shares of Tranzyme common stock equal to the "exchange ratio" (as defined in the merger agreement).

        No fractional shares of Tranzyme common stock will be issuable pursuant to the merger to Ocera stockholders. Instead, each Ocera stockholder who would otherwise be entitled to receive a fraction of a share of Tranzyme common stock will be entitled to receive in cash payment determined in accordance with the merger agreement.

    Stock Options and Warrants (see page 65)

        Each outstanding option to purchase Ocera common stock and warrant to purchase Ocera common stock or Ocera preferred stock unexercised prior to the effective time of the merger will be assumed by Tranzyme in accordance with its terms. Accordingly, from and after the effective time of the merger each option or warrant assumed by Tranzyme may be exercised solely for shares of Tranzyme common stock. In addition, all outstanding options to purchase shares of Tranzyme common stock will immediately vest upon the effective time of the merger.

    Conditions to Completion of the Merger (see page 66)

        Consummation of the merger is subject to a number of conditions (subject to certain exceptions in the merger agreement), including, among others, the following:

    there must not have been issued any order preventing, challenging or seeking to restrain or prohibit the consummation of the merger, and no law, statute, rule, regulation, ruling or decree shall be in effect which has the effect of making the consummation of the merger illegal;

    obtaining requisite Ocera and Tranzyme stockholder approvals;

    all representations and warranties in the merger agreement must be true and correct, except in each case where the failure of to be true and correct has not had, and would not reasonably be expected to have, a material adverse effect on the party making the representations and warranties; and

    receipt of all required consents, performance or compliance with in all material respects all covenants and obligations on or before the closing of the merger and delivery of certain certificates and other documents required under the merger agreement for the closing of the merger.

 

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        In addition, the obligation of Tranzyme and the acquisition subsidiary to complete the merger is further subject to the satisfaction or waiver of the following conditions:

    Tranzyme must have received the opinion of Skadden, Arps, Slate Meagher & Flom LLP, dated as of the closing date of the merger, to the effect that, on the basis of the facts, representations and assumptions set forth or referred to in such opinion, the merger will for U.S. federal income tax purposes constitute a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended; and

    there shall have been no effect, change, event, circumstance, or development that is or could reasonably be expected to be materially adverse to, or has or could reasonably be expected to have or result in a material adverse effect on the business condition (financial or otherwise), capitalization, assets, operations, financial performance or prospects of Ocera and its subsidiaries taken as a whole, or the ability of Ocera to consummate the merger or any of the other transactions contemplated by the merger agreement or to perform any of its covenants or obligations under the merger agreement in all material respects, each referred to as a material adverse effect as it relates to Ocera.

        In addition, the obligation of Ocera to complete the merger is further subject to the satisfaction or waiver of the following conditions:

    Tranzyme must have caused the board of directors of the combined company to be constituted as specified in the merger agreement;

    Ocera must have received the opinion of Reed Smith LLP, dated as of the closing date of the merger, to the effect that, on the basis of the facts, representations and assumptions set forth or referred to in such opinion, the merger will for U.S. federal income tax purposes constitute a reorganization within the meaning of Section 368(a) of the Code; and

    there shall have been no effect, change, event, circumstance, or development that is or could reasonably be expected to be materially adverse to, or has or could reasonably be expected to have or result in a material adverse effect on the business condition (financial or otherwise), capitalization, assets, operations, financial performance or prospects of Tranzyme and its subsidiaries taken as a whole, or the ability of Tranzyme to consummate the merger or any of the other transactions contemplated by the merger agreement or to perform any of its covenants or obligations under the merger agreement in all material respects, each referred to as a material adverse effect as it relates to Tranzyme.

    No Solicitation (see page 69)

        Each of Ocera and Tranzyme agreed that, subject to specified exceptions in the merger agreement, Ocera and Tranzyme shall not, nor shall either of them authorize or permit any of their subsidiaries or their respective subsidiaries' subsidiaries or any of their or their subsidiaries' respective officers, directors, investment bankers, attorneys, accountants or other advisors or representatives to, directly or indirectly:

    solicit, initiate, encourage, induce or knowingly facilitate the communication, making, submission or announcement of, any "acquisition proposal" (as defined in the merger agreement) or inquiry, indication of interest or request for information that could reasonably be expected to lead to an acquisition proposal;

    furnish to any person any information with respect to it in connection with or in response to an acquisition proposal, indication of interest or request for information;

    engage in discussions or negotiations with respect to any acquisition proposal, indication of interest or request for information;

 

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    approve, endorse or recommend an acquisition proposal; or

    execute or enter into any letter of intent or similar document or any contract contemplating or otherwise relating to an "acquisition transaction" (as defined in the merger agreement).

    Termination of the Merger Agreement (see page 75)

        Either Tranzyme or Ocera can terminate the merger agreement under specified circumstances, which would prevent the merger from being consummated.

    Termination Fees (see page 76)

        The merger agreement provides for the payment of a termination fee of $500,000 by each of Tranzyme and Ocera to the other party upon termination of the merger agreement under specified circumstances.


Stockholder Agreements (see page 74)

        Concurrently with the execution of the Merger Agreement, certain Tranzyme stockholders, owning in the aggregate approximately 11.1% of Tranzyme's outstanding common stock, and certain Ocera stockholders, owning in the aggregate approximately 32.5% of Ocera's outstanding capital stock (on an as-converted to Ocera common stock basis), entered into voting agreements with Tranzyme and Ocera. The voting agreements provide, among other things, that the parties to the voting agreements will vote the shares of Tranzyme and Ocera capital stock held by them in favor of the transactions contemplated by the Merger Agreement and grant a proxy to vote such shares in favor of the transactions. In addition, the voting agreements place restrictions on the transfer of the shares of Tranzyme and Ocera capital stock held by the respective signatory stockholders.

        In addition, pursuant to the conditions of the merger agreement, holders of the number of shares of Ocera capital stock required to approve the merger have already approved the merger via written consent.


Management Following the Merger (see page 71)

        At the effective time of the merger, the executive management team of the combined company is expected to include the following individuals:

Name
  Position with the Combined Company   Current Position

Linda S. Grais, M.D. 

  Chief Executive Officer   President and Chief Executive Officer of Ocera

Dana S. McGowan

 

Chief Financial Officer

 

Chief Financial Officer and Secretary of Ocera

Franck S. Rousseau, M.D. 

 

Chief Medical and Development Officer

 

Chief Medical Officer of Tranzyme

David S. Moore

 

Chief Business Officer

 

Chief Business Officer of Tranzyme


The Board of Directors Following the Merger (see page 71)

        At the effective time of the merger, the combined company will initially have a nine member board of directors, comprised of Jean-Paul Castaigne, M.D., Lars G. Ekman, M.D., Ph.D., Linda S. Grais, M.D., Nina Kjellson, Michael F. Powell, Ph.D., Franck S. Rousseau, M.D., Pratik Shah, Ph.D., Anne M. VanLent and Eckard Weber, M.D.

 

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Interests of Tranzyme's Directors and Executive Officers (see page 53)

        In considering the recommendation of Tranzyme's board of directors with respect to issuing shares of Tranzyme's common stock pursuant to the merger agreement and the other matters to be acted upon by Tranzyme's stockholders at the special meeting, Tranzyme's stockholders should be aware that members of the board of directors and executive officers of Tranzyme have interests in the merger that may be different from, or in addition to, interests they may have as Tranzyme's stockholders.

        As of May 1, 2013, all directors and executive officers of Tranzyme, together with their affiliates, beneficially owned approximately 15.39% of the shares of Tranzyme's common stock. The affirmative vote of the holders of a majority of the shares of Tranzyme's common stock present in person or represented by proxy and voting on such matter at the special meeting is required for approval of Proposal 1, Proposal 2 and Proposal 5. The affirmative vote of holders of a majority of the outstanding shares of Tranzyme's common stock as of the record date for the special meeting is required for approval of Proposal 3 and Proposal 4.

        As of May 1, 2013, Thomas, McNerney & Partners and its affiliates beneficially owned approximately 11.04% of the shares of Tranzyme's common stock, prior to the merger, and approximately 26.2% of the shares of Ocera's capital stock, prior to the merger. Alex Zisson is a member of the board of directors of Tranzyme and is a partner at Thomas, McNerney & Partners. Pratik Shah is a member of the board of directors of Ocera and is a partner at Thomas, McNerney & Partners. As further discussed under the heading "Background of the Merger," Tranzyme's board of directors created a special committee of directors to review and evaluate strategic alternatives for Tranzyme, and Mr. Zisson was not a member of that committee.


Interests of Ocera's Directors and Executive Officers (see page 58)

        Tranzyme's stockholders also should be aware that members of the board of directors and executive officers of Ocera have interests in the merger that may be different from, or in addition to, interests they may have as Ocera stockholders.


Material U.S. Federal Income Tax Consequences of the Merger (see page 61)

        Assuming that the merger will be treated for U.S. federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code and subject to the qualifications and assumptions described in this proxy statement, neither Tranzyme nor its stockholders will recognize any gain or loss for federal income tax purposes as a result of the merger. Therefore, there will be no material U.S. federal income tax consequences of the merger for Tranzyme stockholders.


Risk Factors (see page 13)

        The merger, including the possibility that the merger may not be consummated, poses a number of risks to Tranzyme and its stockholders. In addition, both Tranzyme and Ocera are subject to various risks associated with their businesses and their industries, and the combined business will also be subject to those and other risks.


Regulatory Approvals (see page 65)

        Neither Tranzyme nor Ocera is required to make any filings or to obtain approvals or clearances from any antitrust regulatory authorities in the United States or other countries to consummate the merger. In the United States, Tranzyme must comply with applicable federal and state securities laws and NASDAQ rules and regulations in connection with the issuance of shares of Tranzyme's common stock in the merger and the PIPE financing, including the filing with the SEC of this proxy statement.

 

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Anticipated Accounting Treatment (see page 62)

        The merger will be treated by Tranzyme as a reverse merger under the purchase method of accounting in accordance with U.S. generally accepted accounting principles, or GAAP. For accounting purposes, Ocera is considered to be acquiring Tranzyme in this transaction.


Appraisal Rights (see page 66)

        Tranzyme's stockholders are not entitled to appraisal rights in connection with the merger.


Comparison of Stockholder Rights

        Both Tranzyme and Ocera are incorporated under the laws of the State of Delaware and, accordingly, the rights of the stockholders of each are currently, and will continue to be, governed by the Delaware General Corporation Law. If the merger is completed, Ocera's stockholders will become stockholders of Tranzyme, and their rights will be governed by the Delaware General Corporation Law, the certificate of incorporation of Tranzyme and the bylaws of Tranzyme. The rights of Tranzyme's stockholders contained in the certificate of incorporation and bylaws of Tranzyme will not materially change following the merger.

 

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SELECTED HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA

        The following tables present summary historical financial data for each of Tranzyme and Ocera, summary unaudited pro forma condensed combined financial data for Tranzyme and Ocera and comparative historical and unaudited pro forma per share data for Tranzyme and Ocera.


Selected Historical Consolidated Financial Data of Tranzyme

        The following table summarizes Tranzyme's consolidated financial data. Tranzyme derived the following consolidated statements of operations and comprehensive loss for the years ended December 31, 2012, 2011 and 2010 and the consolidated balance sheet data as of December 31, 2012, 2011 and 2010 from its audited consolidated financial statements and related notes, included elsewhere in Tranzyme's Annual Report on Form 10-K for the year ended December 31, 2012, which is included as Annex B to this proxy statement, or the Tranzyme 10-K. The consolidated statements of operations data for the three months ended March 31, 2013 and 2012 and the consolidated balance sheet data as of March 31, 2013 are derived from its unaudited consolidated financial statements and related notes, included in its Quarterly Report on Form 10-Q as filed with the Securities and Exchange Commission on May 14, 2013 and incorporated by reference herein, or the Tranzyme 10-Q. Tranzyme's historical results are not necessarily indicative of the results that may be expected in the future and results of interim periods are not necessarily indicative of the results for the entire year. The following selected financial data have been derived from Tranzyme's audited consolidated financial statements and should be read in conjunction with "Tranzyme's Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and notes thereto appearing in the Tranzyme 10-Q, the Tranzyme 10-K and Tranzyme's Registration Statement on Form S-1, as amended (File No. 333-170749).

 
  Year Ended December 31,   Three Months Ended March 31,  
 
  2012   2011   2010   2013   2012  
 
  (in thousands, except share and per share data)
 
 
   
   
   
  (unaudited)
 

Statement of Operations and Comprehensive Loss Data:

                               

Revenue:

                               

Licensing and royalty revenue

  $ 5,247   $ 6,940   $ 6,094   $ 599   $ 1,443  

Research revenue

    3,200     3,227     2,444         1,165  
                       

Total revenue

    8,447     10,167     8,538     599     2,608  

Operating expenses:

                               

Research and development

    20,980     24,884     10,081     1,856     8,140  

General and administrative

    6,561     6,028     3,872     2,136     1,948  
                       

Total operating expenses

    27,541     30,912     13,953     3,992     10,088  
                       

Operating loss

    (19,094 )   (20,745 )   (5,415 )   (3,393 )   (7,480 )

Interest expense, net

    (2,377 )   (1,589 )   (1,493 )   (2 )   (432 )

Other income (expense), net

    (1,373 )   126     (392 )   2     (508 )
                       

Net loss

  $ (22,844 ) $ (22,208 ) $ (7,300 ) $ (3,393 ) $ (8,420 )
                       

Net loss per share— basic and diluted

  $ (0.90 ) $ (1.22 ) $ (52.08 ) $ (0.12 ) $ (0.34 )
                       

Shares used to compute net loss per share— basic and diluted

    25,465,978     18,140,863     140,192     27,600,327     24,601,447  
                       

Comprehensive loss

  $ (22,826 ) $ (22,223 ) $ (6,871 ) $ (3,433 ) $ (8,400 )
                       

 

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  As of December 31,   As of March 31,  
 
  2012   2011   2010   2013  
 
  (in thousands)
 
 
   
   
   
  (unaudited)
 

Balance Sheet Data:

                         

Cash and cash equivalents

  $ 15,319     40,930   $ 17,373   $ 10,812  

Working capital (deficit)

    13,469     34,208     8,156     10,372  

Total assets

    17,528     44,711     21,594     13,009  

Notes payable

        10,972     12,805      

Convertible stockholder notes payable

                 

Accumulated deficit

    (129,474 )   (106,630 )   (84,422 )   (132,867 )

Total stockholders' equity (deficit)

    14,274     24,482     (5,939 ) $ 11,182  


Selected Historical Consolidated Financial Data of Ocera

        The following table summarizes Ocera's financial data. Ocera derived the following statements of operations and comprehensive loss for the years ended December 31, 2012 and 2011, and the balance sheet data as of December 31, 2012 and 2011 from its audited financial statements and related notes, included elsewhere in this proxy statement. The statements of operations and comprehensive loss for the three months ended March 31, 2013 and 2012, and the balance sheet data as of March 31, 2013 are derived from its unaudited financial statements and related notes, included elsewhere in this proxy statement. Ocera derived the statement of operations and comprehensive loss data for the year ended December 31, 2010 and the balance sheet data as of December 31, 2010 from its audited financial statements not included in this proxy statement. Ocera's historical results are not necessarily indicative of the results that may be expected in the future and results of interim periods are not necessarily indicative of the results for the entire year. The following selected financial data should be read in conjunction with "Ocera's Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and notes thereto appearing elsewhere in this proxy statement.

 
  Year Ended December 31,   Three Months Ended March 31,  
 
  2012   2011   2010   2013   2012  
 
  (in thousands, except share and per share data)
 
 
   
   
   
  (unaudited)
 

Statement of Operations and Comprehensive Loss Data:

                               

Operating expenses:

                               

Research and development

  $ 1,642   $ 3,045   $ 7,999   $ 69   $ 481  

General and administrative

    1,739     1,985     2,487     571     579  
                       

Total operating expenses

    3,381     5,030     10,486     640     1,060  
                       

Operating loss

    (3,381 )   (5,030 )   (10,486 )   (640 )   (1,060 )

Other income (expense), net

    (227 )   303     803     (91 )   7  
                       

Net loss

  $ (3,608 ) $ (4,727 ) $ (9,683 ) $ (731 ) $ (1,053 )
                       

Net loss per share— basic and diluted

  $ (0.69 ) $ (0.90 ) $ (1.88 ) $ (0.14 ) $ (0.20 )
                       

Weighted average number of shares used to compute net loss per share of common stock— basic and diluted

    5,234,952     5,234,952     5,155,021     5,323,748     5,234,952  
                       

Comprehensive loss:

                               

Net loss

  $ (3,608 ) $ (4,727 ) $ (9,683 ) $ (731 ) $ (1,053 )

Unrealized loss on investments

            (5 )        
                       

Comprehensive loss

  $ (3,608 ) $ (4,727 ) $ (9,688 ) $ (731 ) $ (1,053 )
                       

 

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  As of December 31,   As of March 31,  
 
  2012   2011   2010   2013  
 
  (in thousands)
 
 
   
   
   
  (unaudited)
 

Balance Sheet Data:

                         

Cash, cash equivalents and short-term investments

  $ 2,303   $ 3,365   $ 8,378   $ 1,661  

Working capital (deficit)

    (1,054 )   2,192     6,975     (1,752 )

Total assets

    2,410     3,467     8,558     1,742  

Convertible notes payable, net—related parties

    2,908             2,943  

Convertible preferred stock

    61,743     61,743     61,743     61,743  

Deficit accumulated during the development stage

    (63,972 )   (60,364 )   (55,637 )   (64,703 )

Total stockholders' deficit

    (62,806 )   (59,556 )   (55,053 )   (63,501 )


Selected Unaudited Pro Forma Combined Financial Data of Tranzyme and Ocera

        The following summary unaudited pro forma condensed combined financial data is intended to show how the merger might have affected historical financial statements if the merger had been completed on January 1, 2012 for the purposes of the statements of operations and as of March 31, 2013 for the purposes of the balance sheet and was prepared based on the historical financial results reported by Tranzyme and Ocera. The following should be read in conjunction with the section entitled "Unaudited Pro Forma Combined Financial Statements" beginning on page 107, Tranzyme's audited and unaudited historical financial statements and notes thereto of the Tranzyme 10-K and the Tranzyme 10-Q, Ocera's audited and unaudited historical financial statements and the notes thereto beginning on page F-2, the sections entitled "Tranzyme's Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 90 and "Ocera's Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 90 and the other information contained in this proxy statement. The following information does not give effect to the proposed reverse stock split of Tranzyme common stock described in Proposal No. 3.

        The merger will be accounted for as a reverse acquisition under the acquisition method of accounting. Under the acquisition method of accounting, Ocera will be treated as the accounting acquirer and Tranzyme will be treated as the "acquired" company for financial reporting purposes because, immediately upon completion of the merger, the Ocera stockholders prior to the merger will hold a majority of the voting interest of the combined company. In addition, the nine member board of directors of the combined company will include the six current members of the Ocera board of directors, and therefore, Ocera's current board of directors will possess majority control of the board of directors of the combined company. Members of the current management of Ocera will be responsible for the management of the combined company and the majority of the combined company's activities will be activities related to Ocera's current business.

        The unaudited pro forma condensed combined financial statements were prepared in accordance with the regulations of the Securities and Exchange Commission. The pro forma adjustments reflecting the completion of the merger are based upon the acquisition method of accounting in accordance with GAAP, and upon the assumptions set forth in the notes to the unaudited pro forma condensed combined financial statements.

        The summary unaudited pro forma condensed combined statements of operations for the year ended December 31, 2012 and the three months ended March 31, 2013 combine the historical statements of operations of Tranzyme and Ocera and gives pro forma effect to the merger as if it had been completed on January 1, 2012.

 

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        The historical financial data has been adjusted to give pro forma effect to events that are (i) directly attributable to the merger, (ii) factually supportable and (iii) with respect to the statements of operations, expected to have a continuing impact on the combined results. The pro forma adjustments are preliminary and based on management's estimates of the fair value and useful lives of the assets acquired and liabilities assumed and have been prepared to illustrate the estimated effect of the acquisition and certain other adjustments.

        The unaudited pro forma condensed combined financial data is presented for illustrative purposes only and is not necessarily indicative of the financial condition or results of operations of future periods or the financial condition or results of operations that actually would have been realized had the entities been combined during the periods presented. In addition, as explained in more detail in the accompanying notes to the unaudited pro forma condensed combined financial statements (see the section entitled "Unaudited Pro Forma Combined Financial Statements" beginning on page 107), the preliminary acquisition-date fair value of the identifiable assets acquired and liabilities assumed reflected in the unaudited pro forma condensed combined financial statements is subject to adjustment and may vary from the actual amounts that will be recorded upon completion of the merger.

 
  Year Ended
December 31, 2012
  Three Months Ended
March 31, 2013
 
 
  (in thousands)
 

Unaudited Pro Forma Condensed Combined Statements of Operations and Comprehensive Loss Data:

             

Revenues

  $ 8,447   $ 599  

Operating expenses:

             

Research and development

    23,253     2,083  

General and administrative

    8,300     1,930  

Total operating expenses

    31,553     4,013  

Comprehensive loss

    (26,836 )   (3,454 )

Unaudited Pro Forma Combined Balance Sheet Data :

       

Cash and cash equivalents

        $ 12,473  

Working capital

          9,130  

Total assets

          22,081  

Stockholders' equity

          17,275  


Comparative Historical And Unaudited Pro Forma Per Share Data

        The following table sets forth certain historical, unaudited pro forma condensed combined and pro forma condensed combined equivalent financial information and reflects:

    Tranzyme and Ocera Historical Data:   the historical Tranzyme net loss and book value per share of Tranzyme common stock and the historical Ocera net loss and book value per share of Ocera common stock;

    Combined Company Pro Forma Data:   the unaudited pro forma combined company net loss after giving effect to the merger on a purchase basis as if the merger had been completed on January 1, 2012; and

    Ocera Pro Forma Equivalent Data:   the unaudited pro forma Ocera equivalent share data, including net loss per common share, and book value per share, calculated by multiplying the unaudited pro forma combined company data by the assumed Exchange Ratio of 1.5536.

 

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        The following information does not give effect to the proposed reverse stock split of Tranzyme common stock described in Proposal No. 3. You should read the table below in conjunction with the financial statements of Tranzyme and Ocera beginning on pages F-1 and F-2, respectively, of this proxy statement, and the related notes thereto. You are urged to also read the section entitled "Unaudited Pro Forma Combined Financial Statements" beginning on page 107.

 
  Year Ended
December 31, 2012
  Three Months Ended
March 31, 2013
 

Tranzyme Historical Data

             

Basic and diluted net loss per common share:

  $ (0.90 ) $ (0.12 )

Ocera Historical Data

             

Basic and diluted net loss per common share:

  $ (0.69 ) $ (0.14 )

Combined Company Pro Forma Data

             

Basic and diluted net loss per common share:

  $ (0.24 ) $ (0.03 )

Ocera Pro Forma Equivalent Data*

             

Basic and diluted net loss per common share:

  $ (0.17 ) $ (0.02 )

*
In comparison, if the Ocera Pro Forma Equivalent Data were calculated by multiplying the unaudited pro forma combined company data by 0.726, which represents the estimated percentage of ownership of the combined company expected to be held by the current Ocera stockholders as of immediately following the completion of the merger calculated on a fully diluted basis (without taking into account any shares of Tranzyme common stock held by Ocera stockholders prior to the completion of the merger), as determined pursuant to the Exchange Ratio, the basic and diluted net loss per common share for the year ended December 31, 2012 and the three months ended March 31, 2013 would have been $(0.17) and $(0.02), respectively.

 

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MARKET PRICE AND DIVIDEND INFORMATION

        Tranzyme's common stock began trading on the NASDAQ Global Market under the symbol "TZYM" on April 4, 2011. The following table details the high and low sales prices for the common stock as reported by the NASDAQ Global Market for the periods indicated.

 
  Price Range  
 
  High   Low  

Fiscal year ending December 31, 2011

             

2nd Quarter (beginning April 1, 2011)

  $ 5.70   $ 3.81  

3rd Quarter

  $ 4.81   $ 2.38  

4th Quarter

  $ 3.84   $ 2.40  

Fiscal year ending December 31, 2012

             

1st Quarter

  $ 5.64   $ 2.70  

2nd Quarter

  $ 3.98   $ 2.66  

3rd Quarter

  $ 5.16   $ 3.93  

4th Quarter

  $ 4.75   $ 0.54  

        Ocera is a private company and its common stock is not publicly traded. There has never been, nor is there expected to be in the future, a public market for Ocera's common stock.

        On April 23, 2013, the last full trading day prior to the public announcement of the proposed merger, the closing price per share of Tranzyme's common stock as reported on the NASDAQ Global Market was $0.52, for an aggregate market value of Tranzyme of approximately $14.4 million. Accordingly, if the merger had been consummated on that day, the value attributable to the shares of Tranzyme's common stock issued to holders of Ocera's common stock and issuable to holders of Ocera's outstanding options and warrants in connection with the merger would have been approximately $41.2 million, based on approximately 79.1 million shares of Tranzyme's common stock issued or issuable to Ocera's stockholders in the merger, multiplied by $0.52.

        On June 7, 2013, the last practicable date before the printing of this proxy statement, the closing price per share of Tranzyme's common stock as reported on the NASDAQ Global Market was $0.53, for an aggregate market value of Tranzyme of approximately $14.7 million. Accordingly, if the merger had been consummated on that day, the value attributable to the shares of Tranzyme's common stock issued to holders of Ocera's common stock and issuable to holders of Ocera's outstanding options and warrants in connection with the merger would have been approximately $41.9 million, based on approximately 79.1 million shares of Tranzyme's common stock issued or issuable to Ocera's stockholders in the merger multiplied by $0.53.

        Because the market price of Tranzyme's common stock is subject to fluctuation, the market value of the shares of Tranzyme's common stock that holders of Ocera's common stock and Ocera's outstanding stock options and warrants will be entitled to receive in the merger may increase or decrease.

        Following the consummation of the merger, and subject to successful application for initial listing with the NASDAQ Global Market, Tranzyme's common stock will continue to be listed on the NASDAQ Global Market, but will trade under the symbol "OCRX" and under the combined company's new name, "Ocera Therapeutics, Inc."

        As of June 7, 2013 Tranzyme had approximately 40 stockholders of record.

        Tranzyme has never declared or paid cash dividends on its capital stock. Tranzyme currently intends to retain earnings, if any, to finance the growth and development of its business, and does not expect to pay any cash dividends to its stockholders in the foreseeable future. Payment of future dividends, if any, will be at the discretion of Tranzyme's board of directors.

 

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RISK FACTORS

         You should consider the following factors in evaluating whether to approve the issuance of shares of Tranzyme common stock in the merger and the PIPE financing and the amendments to Tranzyme's certificate of incorporation to effect a reverse stock split of Tranzyme's common stock. These factors should be considered in conjunction with the other information included or incorporated by reference by Tranzyme in this proxy statement.


Risks Related to the Merger

         If the proposed merger with Ocera is not consummated, Tranzyme's business could suffer materially and Tranzyme's stock price could decline.

        The consummation of the proposed merger with Ocera is subject to a number of closing conditions, including the approval by Tranzyme's stockholders, approval by NASDAQ of Tranzyme's application for initial listing of Tranzyme's common stock in connection with the merger, and other customary closing conditions. Tranzyme is targeting a closing of the transaction in the third quarter of 2013.

        If the proposed merger is not consummated, Tranzyme may be subject to a number of material risks, and its business and stock price could be adversely affected, as follows:

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        In addition, if the merger agreement is terminated and Tranzyme's board of directors determines to seek another business combination, it may not be able to find a third party willing to provide equivalent or more attractive consideration than the consideration to be provided by each party in the merger. In such circumstances, Tranzyme's board of directors may elect to, among other things, divest all or a portion of Tranzyme's business, or take the steps necessary to liquidate all of Tranzyme's business and assets, and in either such case, the consideration that Tranzyme receives may be less attractive than the consideration to be received by Tranzyme pursuant to the merger agreement.

         Tranzyme's common stock could be delisted from the NASDAQ Global Market if we do not comply with its initial listing standards at the time of the merger and may also be delisted if we do not comply with the continued listing standards.

        Pursuant to the NASDAQ Listing Rules, consummation of the merger requires the combined company to submit an initial listing application and, at the time of the merger, meet all of the criteria applicable to a company initially requesting listing (including a $4.00 per share minimum bid price for our common stock). We intend to apply for listing on the NASDAQ Global Market and are seeking stockholder approval of a reverse stock split in order to satisfy the initial listing criteria. While we intend to obtain listing status for the combined company and maintain the same, no guarantees can be made about our ability to do so. In the event the merger is approved by Tranzyme stockholders but the reverse stock split is not, the merger could still be consummated and shares of Tranzyme common stock would not be listed on a national securities exchange.

        As previously announced, on January 2, 2013, Tranzyme received a letter from the NASDAQ Stock Market notifying them that the minimum bid price per share for its common stock fell below $1.00 for a period of 30 consecutive business days and therefore the company did not meet the minimum bid price requirement set forth in NASDAQ Listing Rule 5450(a)(1). Tranzyme was provided 180 calendar days, or until July 1, 2013, to regain compliance with the minimum bid price requirement. Though Tranzyme can regain compliance if at any time during the 180-day period the closing bid price of its common stock is at least $1.00 for a minimum of 10 consecutive business days, it is unlikely that the company will be able to meet the minimum listing requirements of NASDAQ unless the merger is consummated and Tranzyme would then likely be delisted.

        If Tranzyme's common stock is delisted by NASDAQ, the common stock may be eligible to trade on the OTC Bulletin Board or another over-the-counter market. Any such alternative would likely result in it being more difficult for the company to raise additional capital through the public or private sale of equity securities and for investors to dispose of, or obtain accurate quotations as to the market value of, the common stock. In addition, there can be no assurance that the common stock would be eligible for trading on any such alternative exchange or markets.

         Some of Tranzyme's and Ocera's officers and directors have conflicts of interest that may influence them to support or approve the merger.

        Officers and directors of Tranzyme and Ocera participate in arrangements that provide them with interests in the merger that are different from yours, including, among others, their continued service as an officer or director of the combined company, retention and severance benefits, the acceleration of restricted stock and stock option vesting and continued indemnification. These interests, among others, may influence the officers and directors of Tranzyme and Ocera to support or approve the merger. For a more detailed discussion see "The Merger—Interests of Tranzyme's Directors and Executive Officers in the Merger" and "The Merger—Interests of Ocera's Directors and Executive Officers in the Merger" beginning on pages 53 and 58, respectively, of this proxy statement.

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         The merger may be completed even though material adverse changes may result from the announcement of the merger, industry-wide changes and other causes.

        In general, either party can refuse to complete the merger if there is a material adverse change affecting the other party between April 23, 2013, the date of the merger agreement, and the closing. However, some types of changes do not permit either party to refuse to complete the merger, even if such changes would have a material adverse effect on Tranzyme or Ocera, to the extent they resulted from the following and do not have a materially disproportionate effect on Tranzyme or Ocera, as the case may be:

        If adverse changes occur but Tranzyme and Ocera must still complete the merger, the combined company's stock price may suffer.

         The market price of the combined company's common stock may decline as a result of the merger.

        The market price of the combined company's common stock may decline as a result of the merger for a number of reasons including if:

         Tranzyme's stockholders may not realize a benefit from the merger commensurate with the ownership dilution they will experience in connection with the merger.

        If the combined company is unable to realize the strategic and financial benefits currently anticipated from the merger, Tranzyme's stockholders will have experienced substantial dilution of their ownership interest without receiving any commensurate benefit. Significant management attention and resources will be required to integrate the two companies. Delays in this process could adversely affect the combined company's business, financial results, financial condition and stock price following the merger. Even if the combined company were able to integrate the business operations successfully, there can be no assurance that this integration will result in the realization of the full benefits of synergies, innovation and operational efficiencies that may be possible from this integration and that these benefits will be achieved within a reasonable period of time.

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         During the pendency of the merger, Tranzyme may not be able to enter into a business combination with another party because of restrictions in the merger agreement.

        Covenants in the merger agreement impede the ability of Tranzyme or Ocera to make acquisitions or complete other transactions that are not in the ordinary course of business pending completion of the merger. As a result, if the merger is not completed, the parties may be at a disadvantage to their competitors. In addition, while the merger agreement is in effect and subject to limited exceptions, each party is prohibited from soliciting, initiating, encouraging or taking actions designed to facilitate any inquiries or the making of any proposal or offer that could lead to the entering into certain extraordinary transactions with any third party, such as a sale of assets, an acquisition of Tranzyme's common stock, a tender offer for Tranzyme's common stock, a merger or other business combination outside the ordinary course of business. Any such transactions could be favorable to such party's stockholders.

         Because the lack of a public market for the Ocera shares makes it difficult to evaluate the fairness of the merger, Ocera's stockholders may receive consideration in the merger that is greater than or less than the fair market value of the Ocera shares.

        The outstanding capital stock of Ocera is privately held and is not traded in any public market. The lack of a public market makes it extremely difficult to determine the fair market value of Ocera. Since the percentage of Tranzyme's equity to be issued to Ocera's stockholders was determined based on negotiations between the parties, it is possible that the value of the Tranzyme's common stock to be issued in connection with the merger will be greater than the fair market value of Ocera. Alternatively, it is possible that the value of the shares of Tranzyme's common stock to be issued in connection with the merger will be less than the fair market value of Ocera.

        The combined company will incur significant transaction costs as a result of the merger, including investment banking, legal and accounting fees. In addition, the combined company will incur significant consolidation and integration expenses which cannot be accurately estimated at this time. These costs could include the possible relocation of certain operations from North Carolina to other offices of the combined company as well as costs associated with terminating existing office leases and the loss of benefits of certain favorable office leases. Actual transaction costs may substantially exceed our estimates and may have an adverse effect on the combined company's financial condition and operating results.

         Failure of the merger to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code could harm the combined company.

        The parties intend for the merger to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code, as amended. For a full description of the tax consequences of the merger, see "The Merger—Material U.S. Federal Income Tax Consequences of the Merger" beginning on page 61 of this proxy statement. To comply with the requirements for a Section 368(a) reorganization, certain structural and other requirements for the transaction must be met; if not satisfied, the companies could be subject to additional and extensive tax liability for consummating a transaction that does not satisfy the Section 368(a) reorganization requirements.

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         If any of the events described in "Risks Related to Ocera's Development, Commercialization and Regulatory Approval" or "Risks Related to Ocera's Financial Position and Need for Additional Capital" or "Risks Related to Ocera's Reliance on Third Parties" or "Risks Related to Ocera's Product Liability" or "Risks Related to Ocera's Intellectual Property," those events could cause the potential benefits of the merger not to be realized.

        Following the effective time of the merger, certain of Tranzyme's and Ocera's officers and directors will direct the business and operations of the combined company. Ocera's business is expected to constitute most, if not all, of the business of the combined company following the merger. As a result, the risks described below in the section entitled "Risks Related to Ocera's Development, Commercialization and Regulatory Approval" beginning on page 18 are among the most significant risks to the combined company if the merger is completed. To the extent any of the events in the risks described below in the sections entitled "Risks Related to Ocera's Development, Commercialization and Regulatory Approval" or "Risks Related to Ocera's Financial Position and Need for Additional Capital" or "Risks Related to Ocera's Reliance on Third Parties" or "Risks Related to Ocera's Product Liability" or "Risks Related to Ocera's Intellectual Property" beginning on page 18 occur, those events could cause the potential benefits of the merger not to be realized and the market price of the combined company's common stock to decline.


Risks Related to the Reverse Stock Split

         The reverse stock split may not increase our stock price over the long-term.

        The principal purpose of the reverse stock split is to increase the per-share market price of Tranzyme's common stock above the minimum bid price requirement under the NASDAQ Listing Rules so that the listing of the combined company and the shares of Tranzyme common stock being issued in the merger on either NASDAQ Global Market or NASDAQ Capital Market will be approved. It cannot be assured, however, that the reverse stock split will accomplish this objective for any meaningful period of time. While it is expected that the reduction in the number of outstanding shares of common stock will proportionally increase the market price of Tranzyme's common stock, it cannot be assured that the reverse stock split will increase the market price of its common stock by a multiple of the reverse stock split ratio chosen by its board of directors in its sole discretion, or result in any permanent or sustained increase in the market price of Tranzyme's common stock, which is dependent upon many factors, including our business and financial performance, general market conditions, and prospects for future success. Thus, while the stock price of the combined company might meet the continued listing requirements for the NASDAQ Capital Market or the NASDAQ Global Market initially, it cannot be assured that it will continue to do so.

         The reverse stock split may decrease the liquidity of the common stock.

        Although the board of directors believes that the anticipated increase in the market price of Tranzyme's common stock could encourage interest in its common stock and possibly promote greater liquidity for its stockholders, such liquidity could also be adversely affected by the reduced number of shares outstanding after the reverse stock split. The reduction in the number of outstanding shares may lead to reduced trading and a smaller number of market makers for Tranzyme's common stock.

         The reverse stock split may lead to a decrease in our overall market capitalization.

        Should the market price of Tranzyme's common stock decline after the reverse stock split, the percentage decline may be greater, due to the smaller number of shares outstanding, than it would have been prior to the reverse stock split. A reverse stock split is often viewed negatively by the market and, consequently, can lead to a decrease in our overall market capitalization. If the per share market price does not increase in proportion to the reverse stock split ratio, then the value of the combined

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company, as measured by its stock capitalization, will be reduced. In some cases, the per-share stock price of companies that have effected reverse stock splits subsequently declined back to pre-reverse split levels, and accordingly, it cannot be assured that the total market value of Tranzyme's common stock will remain the same after the reverse stock split is effected, or that the reverse stock split will not have an adverse effect on Tranzyme's stock price due to the reduced number of shares outstanding after the reverse stock split.


Risks Related to Tranzyme

        For risks related to the business of Tranzyme, please refer to the section entitled "Item 1A. Risk Factors" set forth in Tranzyme's Annual Report on Form 10-K for the year ended December 31, 2012, included as Annex B to this proxy statement, and the section entitled "Item 1A. Risk Factors" set forth in Tranzyme's Quarterly Report on Form 10-Q as filed with the Securities and Exchange Commission on May 14, 2013, which sections are incorporated by reference herein.


Risks Related to Ocera's Development, Commercialization and Regulatory Approval

         Ocera depends substantially on the success of its product candidate, OCR-002, and Ocera may not successfully complete the development of OCR-002, obtain regulatory approval or successfully commercialize it.

        Ocera has invested significant effort and financial resources in the development of OCR-002 for the treatment of hyperammonemia and associated hepatic encephalopathy ("HE") in patients with liver cirrhosis, acute liver failure and acute liver injury. As a result, its business is substantially dependent on its ability to complete the development of, obtain regulatory approval for, and successfully commercialize OCR-002 in a timely manner. The process to develop, obtain regulatory approval for and commercialize OCR-002 is long, complex and costly.

        The FDA has substantial discretion in the approval process and may form an opinion, after review of its data, that the NDA is insufficient to allow approval of OCR-002 for either HE or acute liver failure. The FDA may require that Ocera conduct additional clinical, nonclinical, manufacturing validation or drug product quality studies and submit such data before it will consider or reconsider the NDA. Depending on the extent of these or any other studies, approval of any applications that Ocera submits may be delayed, or may require it to expend more resources than Ocera has available. It is also possible that additional studies, if performed and completed, may not be considered sufficient by the FDA to approve the use of OCR-002 for either HE or acute liver failure. If any of these outcomes occur, Ocera may not receive approval for OCR-002. Even if Ocera obtains FDA approval for OCR-002, the approval might contain significant limitations related to use restrictions for certain age groups, warnings, precautions or contraindications, or may be subject to significant post-marketing studies or risk mitigation requirements. If Ocera is unable to successfully commercialize OCR-002, Ocera may not be able to earn sufficient revenues to continue its business.

         OCR-002's ability to show a statistically significant reduction in West Haven Encephalopathy Criteria highly depends on Ocera's planned phase 2b and phase 3 studies.

        To date, the clinical trials relating to OCR-002 have studied, as a primary endpoint, the ability of OCR-002 to reduce plasma ammonia in the patient population. While Ocera believes that a reduction in patient's plasma ammonia levels is linked to its planned HE endpoint of a reduction in the West Haven Encephalopathy Criteria, which Ocera intends to use in its phase 2b and phase 3 studies, the study results may not bear this out.

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         Any safety or efficacy concerns, or delays in enrollment, relating to the two externally sponsored phase 2a studies of OCR-002 may delay or prevent approval of OCR-002.

        There are two externally sponsored phase 2a studies that are ongoing. A study of OCR-002 was initiated in patients with liver cirrhosis and upper GI bleeding. While, in an open label portion of the study, the first cohort of patients demonstrated that the drug is well tolerated and provides rapid and durable ammonia reduction within 36 hours of treatment, there can be no assurance that similar results will be demonstrated in the ongoing double-blind, placebo-controlled portion of the study designed to measure ammonia plasma concentration and improvement in HE symptoms. If the results of this phase 2a study, which are currently planned for 2014, are not positive, Ocera may need to spend additional time evaluating the results and its OCR-002 development plans.

        The National Institutes of Health is funding a second phase 2a study of OCR-002, the Acute Liver Failure Study Group, for the treatment of patients with acute liver injury, as well as those that have progressed to acute liver failure following acetaminophen overdose. Enrollment in this clinical trial is ongoing. In March 2013, the FDA approved less restrictive enrollment inclusion criteria for the study, which Ocera believes will allow for more rapid enrollment of a greater number of patients. However, there can be no assurance that enrollment will occur on a timely basis or that the study will achieve full enrollment. In the event that safety or efficacy concerns are raised by this study, Ocera may no longer be able to pursue an acute liver failure indication for OCR-002.

         The patient populations suffering from both HE and acute liver failure are small. If Ocera is unable to timely enroll its clinical trials or reach the desired enrollment levels, its development program for OCR-002 will likely be delayed.

        Ocera estimates that in the United States, the annual number of hospitalizations due to HE is approximately 150,000 cases, and the annual number of hospitalizations due to acute liver failure is approximately 2,000-3,000 cases. To date, the largest clinical trial studying OCR-002 was approximately 77 patients. Ocera currently plans to enroll substantially greater numbers of patients in its anticipated phase 2b study and, if the phase 2b study is successful, its future phase 3 studies. If the enrollment in these studies is delayed, it will result in delays in its OCR-002 development program and the time to commercialization.

         To obtain regulatory approval to market OCR-002 in additional indications and formulations, additional costly and lengthy clinical studies will be required, and the results are uncertain.

        As part of the regulatory approval process, Ocera will conduct, at its own expense, nonclinical and clinical studies for each indication and formulation that Ocera intends to pursue. Ocera expects the number of nonclinical and clinical studies that the regulatory authorities will require will vary. Generally, the number and size of clinical trials required for approval depends on the nature of the disease and size of the expected patient population that may be treated with a drug. Ocera may need to perform additional nonclinical and clinical studies, which could result in delays in its ability to market OCR-002 for any additional indications, or in additional formulations.

         Serious adverse events or other safety risks could require it to abandon development and preclude or limit approval of OCR-002 to treat HE or acute liver failure.

        Ocera may voluntarily suspend or terminate its clinical trials if at any time Ocera believes that they present an unacceptable risk to participants or if preliminary data demonstrates that the product is unlikely to receive regulatory approval or unlikely to be successfully commercialized. In addition, regulatory agencies, institutional review boards or data safety monitoring boards may at any time order the temporary or permanent discontinuation of its clinical trials or request that Ocera cease using investigators in the clinical trials if they believe that the clinical trials are not being conducted in

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accordance with applicable regulatory requirements, or that they present an unacceptable safety risk to participants. If Ocera elects or is forced to suspend or terminate a clinical trial of OCR-002 to treat HE or acute liver failure, the commercial prospects for OCR-002 will be harmed and its ability to generate product revenues from OCR-002 may be delayed or eliminated.

         Even though Ocera has received orphan drug designation, Ocera may not receive orphan drug exclusivity for OCR-002.

        As part of its business strategy, Ocera has obtained orphan drug designation in the United States for OCR-002 for the treatment of both HE and acute liver failure. Ocera has also obtained orphan drug designation in the European Union for OCR-002, for the treatment of acute liver failure. In the United States, the company that first obtains FDA approval for a designated orphan drug for the specified rare disease or condition receives orphan drug marketing exclusivity for that drug for a period of seven years. This orphan drug exclusivity prevents the FDA from approving another application, including a full NDA, to market the same drug for the same orphan indication, except in very limited circumstances, including when the FDA concludes that the later drug is safer, more effective or makes a major contribution to patient care. For purposes of small molecule drugs, the FDA defines "same drug" as a drug that contains the same active chemical entity and is intended for the same use as the drug in question. To obtain orphan drug exclusivity for a drug that shares the same active chemical entity as an already orphan designated drug, it must be demonstrated to the FDA that the drug is safer or more effective than the approved orphan designated drug, or that it makes a major contribution to patient care. In addition, a designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, orphan drug exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition.

        Even if Ocera obtains orphan drug exclusivity for OCR-002, that exclusivity may not effectively protect the product from competition because different drugs can be approved for the same condition.

         Even if the FDA approves OCR-002 in the United States, Ocera may never obtain approval for or commercialize OCR-002 outside of the United States, which would limit its ability to realize its full market potential.

        In order to market OCR-002 outside of the United States, Ocera must comply with regulatory requirements of, and obtain required regulatory approvals in, other countries. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and obtaining regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. Approval processes vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking foreign regulatory approval could require additional nonclinical studies or clinical trials, which could be costly and time consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of OCR-002 in those countries. Except for AST-120, Ocera does not have any products approved for sale in any jurisdiction, including international markets, and Ocera does not have experience in obtaining regulatory approval in international markets. If Ocera fails to comply with regulatory requirements in international markets or to obtain and maintain required approvals or if regulatory approvals in international markets are delayed, its target market will be reduced and its ability to realize the full market potential of its products will be harmed.

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         If Ocera obtains approval to commercialize OCR-002 outside of the United States, a variety of risks associated with international operations could materially adversely affect its business.

        If OCR-002 is approved outside the United States, Ocera will likely enter into agreements with third parties to commercialize OCR-002 outside the United States. Ocera expects that it will be subject to additional risks related to entering into or maintaining these international business relationships, including:

         AST-120 is subject to, and if Ocera obtains regulatory approval of OCR-002, it will continue to be subject to extensive regulatory requirements.

        Even if a drug is FDA-approved, regulatory requirements still impose significant restrictions on a product's indicated uses and marketing and the FDA may impose ongoing requirements for potentially costly post-marketing studies. Furthermore, any new legislation addressing drug safety issues could result in delays or increased costs to assure compliance.

        AST-120 is, and if OCR-002 is approved, OCR-002 will be subject to ongoing regulatory requirements for labeling, packaging, storage, advertising, promotion, sampling, record-keeping and submission of safety and other post-market information, including both federal and state requirements in any jurisdiction in which Ocera or a partner determines to commercialize the product. In addition, manufacturers and manufacturers' facilities are required to comply with extensive FDA requirements, including ensuring that quality control and manufacturing procedures conform to current Good Manufacturing Practices, or cGMP. As such, Ocera and its contract manufacturers are subject to continual review and periodic inspections to assess compliance with cGMP. Accordingly, Ocera and others with whom Ocera works must continue to expend time, money, and effort in all areas of regulatory compliance, including manufacturing, production, and quality control. Ocera will also be required to report certain adverse reactions and production problems, if any, to the FDA and

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applicable foreign regulatory bodies, and to comply with requirements concerning advertising and promotion for its products. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product's approved label. As such, Ocera may not promote its products for indications or uses for which they do not have FDA or foreign approval, as applicable.

        If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing, or labeling of a product, a regulatory agency may impose restrictions on that product, including requiring withdrawal of the product from the market. If Ocera fails to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may:

        Any government investigation of alleged violations of law could require it to expend significant time and resources in response, and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect its ability to commercialize and generate revenues from AST-120 and OCR-002, if approved. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of its company and its operating results will be adversely affected. Additionally, if Ocera is unable to generate revenues from the sale of AST-120 and OCR-002, if approved, its potential for achieving profitability will be diminished and the capital necessary to fund its operations will be increased.

         Ocera expects to rely upon third-party manufacturers for the commercial supply of OCR-002, if approved. If third-party manufacturers fail to comply with manufacturing regulations, its financial results and financial condition will be adversely affected.

        Ocera does not have its own manufacturing facilities. Furthermore, Ocera does not currently have manufacturing and supply agreements for the commercial supply of OCR-002. Ocera expects to rely upon third-parties for the manufacture and supply of the active pharmaceutical ingredients contained in its products, as well as the preparation of finished products and their packaging. Even if Ocera receives approval for the commercialization of OCR-002, Ocera will not be able to launch such product until Ocera has appropriate commercial and manufacturing arrangements in place.

        Before they can begin commercial manufacture of OCR-002, contract manufacturers must obtain regulatory approval of their manufacturing facilities, processes and quality systems. In addition, pharmaceutical manufacturing facilities are continuously subject to inspection by the FDA and foreign regulatory authorities, before and after product approval. Due to the complexity of the processes used to manufacture pharmaceutical products and product candidates, any potential third-party manufacturer may be unable to continue to pass or initially pass federal, state or international regulatory inspections in a cost effective manner.

        If a third-party manufacturer with whom Ocera contracts is unable to comply with manufacturing regulations, Ocera may be subject to fines, unanticipated compliance expenses, recall or seizure of its

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products, total or partial suspension of production and/or enforcement actions, including injunctions, and criminal or civil prosecution. These possible sanctions would adversely affect its financial results and financial condition.

         If Ocera's competitors are able to develop and market products that are preferred over OCR-002, if approved, its commercial opportunity for such product candidate will be reduced.

        Ocera faces competition from established pharmaceutical and biotechnology companies, as well as from academic institutions, government agencies and private and public research institutions, which may in the future develop products to treat HE, acute liver failure and irritable bowel syndrome. If Ocera completes development, obtains regulatory approval and commercializes OCR-002 to treat HE in chronic patient population in oral formulation, Ocera will face competition from Salix Pharmaceuticals, Inc., the manufacturer of rifaximin, as well as generic manufacturers of lactulose. Hyperion Therapeutics has announced its intent to develop HPN-100 (Ravicti™), currently approved for the treatment of Urea Cycle Disorder, for the treatment of HE, which Ocera expects to compete with OCR-002, if approved. In addition, researchers are continually learning more about liver disease including HE, and new discoveries may lead to new therapies. As a result, OCR-002 may be rendered less competitive. Other early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.

        Ocera's commercial opportunity will be reduced if its competitors develop and commercialize products that are safer, more effective, have fewer side effects, are more convenient or are less expensive than OCR-002. Ocera expects that its ability to compete effectively will depend upon, among other things, its ability to:

         The commercial success of AST-120 and OCR-002 will depend upon the degree of market acceptance among physicians, patients, patient advocacy groups, health care payors and the medical community.

        Neither AST-120 nor OCR-002 may gain market acceptance among physicians, patients, patient advocacy groups, health care payors and the medical community. The degree of market acceptance of AST-120 and OCR-002 will depend on a number of factors, including:

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        If Ocera fails to achieve market acceptance of its AST-120 and OCR-002, if approved, its revenue will be more limited and it will be more difficult to achieve profitability.

         If Ocera fails to obtain and sustain an adequate level of reimbursement for its products by third-party payors, sales would be adversely affected.

        There will be no commercially viable market for AST-120 or OCR-002, if approved, without reimbursement from third-party payors. Even if there is a commercially viable market, if the level of reimbursement is below its expectations, its revenue and gross margins will be adversely affected.

        Third-party payors, such as government or private health care insurers, carefully review and increasingly question the coverage of, and challenge the prices charged for, drugs. Reimbursement rates from private health insurance companies vary depending on the company, the insurance plan and other factors. A current trend in the United States health care industry is toward cost containment. Large public and private payors, managed care organizations, group purchasing organizations and similar organizations are exerting increasing influence on decisions regarding the use of, and reimbursement levels for, particular treatments. Such third-party payors, including Medicare, are questioning the coverage of, and challenging the prices charged for, medical products and services, and many third-party payors limit coverage of or reimbursement for newly approved health care products. In particular, third-party payors may limit the covered indications. Cost-control initiatives could decrease the price Ocera might establish for products, which could result in product revenues being lower than anticipated. If the prices for its products decrease or if governmental and other third-party payors do not provide adequate coverage and reimbursement levels, its revenue and prospects for profitability will suffer. Reimbursement systems in international markets vary significantly by country and by region, and reimbursement approvals must be obtained on a country-by-country basis.

        Reimbursement in the European Union must be negotiated on a country-by-country basis and in many countries the product cannot be commercially launched until reimbursement is approved. The negotiation process in some countries can exceed 12 months.

         If Ocera is unable to establish a direct sales force for OCR-002 in the United States, its business may be harmed.

        Ocera currently does not have an established sales organization. If OCR-002 is approved by the FDA for commercial sale, Ocera may market OCR-002 directly to physicians in the United States through its own sales force. Ocera will need to incur significant additional expenses and commit significant additional management resources to establish and train a sales force to market and sell OCR-002. Ocera may not be able to successfully establish these capabilities despite these additional expenditures. Ocera will also have to compete with other pharmaceutical and life sciences companies to recruit, hire, train and retain sales and marketing personnel. In the event Ocera is unable to successfully market and promote OCR-002, its business may be harmed.

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         Ocera is evaluating strategic options for AST-120. If Ocera is unable to establish and implement an appropriate plan, Ocera will not receive any revenues and may be required to return the product to the licensor.

        In March 2012, Ocera received a CE Mark for the sale of AST-120 as a medical device for the treatment of diarrhea predominant irritable bowel syndrome (IBS) in the European Market. However, Ocera has not commercialized AST-120 and, as a result, Ocera has not generated any revenue from the sale of AST-120. Ocera is currently evaluating its options for AST-120. As a result, Ocera does not expect any revenues from the sale of AST-120 in the immediate future. If Ocera is unable to determine and implement an appropriate strategic plan for AST-120, Ocera will not receive any revenue in relation to this product. Furthermore, Ocera is required under the terms of its license agreement regarding AST-120 to make commercially reasonable efforts to develop and commercialize the product. If Ocera does not, the license agreement may be terminated and all rights will revert to the licensor.

         If Ocera fails to establish an effective distribution process utilizing specialty pharmacies, its business may be adversely affected.

        Ocera does not currently have the infrastructure necessary for distributing pharmaceutical products to patients. Ocera intends to contract with a third-party logistics company to warehouse these products and distribute them to specialty pharmacies. A specialty pharmacy is a pharmacy that specializes in the dispensing of medications for complex or chronic conditions which require a high level of patient education and ongoing management. This distribution network will require significant coordination with Ocera's sales and marketing and finance organizations. Failure to secure contracts with a logistics company and specialty pharmacies could negatively impact the distribution of its products, and failure to coordinate financial systems could negatively impact its ability to accurately report product revenue. If Ocera is unable to effectively establish and manage the distribution process, the commercial launch and sales of its products will be delayed or severely compromised and its results of operations may be harmed.

        In addition, the use of specialty pharmacies involves certain risks, including, but not limited to, risks that these specialty pharmacies will:

        Any such failure may result in decreased product sales and lower product revenue, which would harm its business.

         If Ocera is found in violation of federal or state "fraud and abuse" laws, Ocera may be required to pay a penalty and/or be suspended from participation in federal or state health care programs, which may adversely affect its business, financial condition and results of operation.

        In the United States, Ocera is subject to various federal and state health care "fraud and abuse" laws, including anti-kickback laws, false claims laws and other laws intended to reduce fraud and abuse in federal and state health care programs. The federal Anti-Kickback Statute makes it illegal for any

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person, including a prescription drug manufacturer (or a party acting on its behalf), to knowingly and willfully solicit, receive, offer or pay any remuneration that is intended to induce the referral of business, including the purchase, order or prescription of a particular drug for which payment may be made under a federal health care program, such as Medicare or Medicaid. Under federal government regulations, some arrangements, known as safe harbors, are deemed not to violate the federal Anti-Kickback Statute. Although Ocera seeks to structure its business arrangements in compliance with all applicable requirements, these laws are broadly written, and it is often difficult to determine precisely how the law will be applied in specific circumstances. Accordingly, it is possible that its practices may be challenged under the federal Anti-Kickback Statute. False claims laws prohibit anyone from knowingly and willfully presenting or causing to be presented for payment to third-party payors, including government payors, claims for reimbursed drugs or services that are false or fraudulent, claims for items or services that Ocera is not provided as claimed, or claims for medically unnecessary items or services. Cases have been brought under false claims laws alleging that off-label promotion of pharmaceutical products or the provision of kickbacks has resulted in the submission of false claims to governmental health care programs. Under the Health Insurance Portability and Accountability Act of 1996, Ocera is prohibited from knowingly and willfully executing a scheme to defraud any health care benefit program, including private payors, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for health care benefits, items or services. Violations of fraud and abuse laws may be punishable by criminal and/or civil sanctions, including fines and/or exclusion or suspension from federal and state health care programs such as Medicare and Medicaid and debarment from contracting with the U.S. government. In addition, private individuals have the ability to bring actions on behalf of the government under the federal False Claims Act as well as under the false claims laws of several states.

        Many states have adopted laws similar to the federal anti-kickback statute, some of which apply to the referral of patients for health care services reimbursed by any source, not just governmental payors. In addition, California and a few other states have passed laws that require pharmaceutical companies to comply with the April 2003 Office of Inspector General Compliance Program Guidance for Pharmaceutical Manufacturers and/or the Pharmaceutical Research and Manufacturers of America, or PhRMA, Code on Interactions with Healthcare Professionals. In addition, several states impose other marketing restrictions or require pharmaceutical companies to make marketing or price disclosures to the state. There are ambiguities as to what is required to comply with these state requirements and if Ocera fails to comply with an applicable state law requirement Ocera could be subject to penalties.

        Neither the government nor the courts have provided definitive guidance on the application of fraud and abuse laws to its business. Law enforcement authorities are increasingly focused on enforcing these laws, and it is possible that some of its practices may be challenged under these laws. While Ocera believes it has structured its business arrangements to comply with these laws, it is possible that the government could allege violations of, or convict it of violating, these laws. If Ocera is found in violation of one of these laws, Ocera could be required to pay a penalty and could be suspended or excluded from participation in federal or state health care programs, and its business, financial condition and results of operations may be adversely affected.


Risks Related to Ocera's Financial Position and Need for Additional Capital

         Ocera has incurred net losses since inception and anticipates that it will continue to incur net losses for the foreseeable future.

        Ocera is a development stage company and has incurred net losses since its inception. Based on its operating plans, Ocera does not currently have sufficient working capital to fund planned operating expenses through December 31, 2013 without additional sources of cash. However, certain of its investors have committed to approximately $20.0 million in a PIPE financing for the combined

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company concurrent with the successful completion of the merger with Tranzyme. As of December 31, 2012, Ocera had a deficit accumulated during the development stage of $64.0 million. Ocera recorded net losses of $3.6 million and $4.7 million during the years ended December 31, 2012, and 2011, respectively. Ocera anticipates that a substantial portion of its capital resources and efforts in the foreseeable future will be focused on completing the development and obtaining regulatory approval of OCR-002. As a result, Ocera expects to continue to incur significant and increasing operating losses and negative cash flows for the foreseeable future. These losses have had and will continue to have an adverse effect on stockholders' deficit and working capital.

         Ocera will need to obtain additional financing to fund its operations.

        Ocera will need to obtain additional financing to fund future operations, including the development and commercialization of OCR-002 and the commercialization of AST-120, and to support sales and marketing activities. Ocera would likely need to obtain additional financing to conduct a phase 3 trial of OCR-002 in HE, for pre-clinical and clinical work relating to an oral dose form of OCR-002, and for development of any additional product candidates. Moreover, Ocera's fixed expenses such as rent, license payments, interest expense and other contractual commitments are substantial and are expected to increase in the future.

        Ocera's future funding requirements will depend on many factors, including, but not limited to:

        Ocera has not generated any revenue from the sale of any products and does not know when, or if, it will generate any revenue. Until Ocera can generate a sufficient amount of revenue, it may raise additional funds through collaborations and public or private debt or equity financings. Additional funds may not be available when needed on terms that are acceptable, or at all. To the extent that Ocera raises additional capital through the sale of equity or convertible debt securities, the ownership interest of existing stockholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of existing stockholders. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting its ability to take specific actions such as incurring debt, making capital expenditures or declaring dividends. Ocera may seek to access the public or private capital markets whenever conditions are favorable, even if it does not have an immediate need for additional capital at that time.

        Ocera believes that its current cash and cash equivalents, Tranzyme's current cash and cash equivalents, and approximately $20.0 million to be received upon closing of the private investment in public entity, or PIPE, financing contemporaneous with the merger, will be sufficient to fund operations through the completion of the phase 2b clinical trial of OCR-002, assuming such trial can be completed by the end of 2014. This estimate is based on a number of assumptions that may prove to be wrong, and changing circumstances beyond Ocera's control may cause the consumption of capital more rapidly than currently anticipated. Inability to obtain additional funding when needed could seriously harm the business.

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         Ocera's future financial results could be adversely impacted by asset impairments or other charges.

        Applicable accounting standards requires that Ocera tests assets determined to have long lives for impairment on an annual, or on an interim basis if certain events occur or circumstances change that would reduce the fair value of an asset below its carrying value. In addition, long-lived assets with finite lives are tested for impairment whenever events or changes in circumstances indicate that its carrying value may not be recoverable. A significant decrease in the fair value of a long-lived asset, an adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition or an expectation that a long-lived asset will be sold or disposed of significantly before the end of its previously estimated life are among several of the factors that could result in an impairment charge. If the merger with Tranzyme is approved, following the merger, Ocera intends to evaluate the carrying value of the assets of the post-merger company, to determine if the changed events or changes in circumstances indicate that the carrying amounts of such assets may not be recoverable. Such a review could result in an impairment charge, which could have a negative impact on the company's results of operations and financial position, as well as on the market price of its common stock.


Risks Related to Ocera's Reliance on Third Parties

         Ocera has no manufacturing capacity and anticipates continued reliance on third-party manufacturers for the development and commercialization of its products.

        Ocera does not currently operate manufacturing facilities for clinical or commercial production of any product. Ocera has no experience in drug formulation, and Ocera lacks the resources and the capabilities to manufacture OCR-002 on a clinical or commercial scale. Ocera does not intend to develop facilities for the manufacture of products for clinical trials or commercial purposes in the foreseeable future. Ocera relies on third-party manufacturers to produce bulk drug substance and drug products required for its clinical trials. Ocera plans to continue to rely upon contract manufacturers and, potentially, collaboration partners to manufacture commercial quantities of its drug product candidates if and when approved for marketing by the applicable regulatory authorities. Ocera has clinical supplies of the active pharmaceutical ingredient for OCR-002 manufactured for it by a single drug substance supplier, Helsinn Chemicals SA, or Helsinn. The OCR-002 finished product manufacturing and filling is undertaken by AAI Pharma Service Corp. on behalf of Ocera. Ocera has not secured commercial supply agreements with any contract manufacturers and can give no assurance that Ocera will enter commercial supply agreements with any contract manufacturers on favorable terms or at all. For AST-120, Ocera relies solely on Kureha for manufacturing and commercial supply.

        Ocera's contract manufacturers' failure to achieve and maintain high manufacturing standards, in accordance with applicable regulatory requirements, or the incidence of manufacturing errors, could result in patient injury or death, product shortages, product recalls or withdrawals, delays or failures in product testing or delivery, cost overruns or other problems that could seriously harm its business. Contract manufacturers often encounter difficulties involving production yields, quality control and quality assurance, as well as shortages of qualified personnel.

        Ocera's existing manufacturer and any future contract manufacturers may not perform as agreed or may not remain in the contract manufacturing business. In the event of a natural disaster, business failure, strike or other difficulty, Ocera may be unable to replace a third-party manufacturer in a timely manner and the production of its products would be interrupted, resulting in delays and additional costs.

         Some of the intellectual property necessary for the commercialization of Ocera's products is or will be licensed from third parties, which will require it to pay milestones and royalties.

        Ocera has a license agreement on OCR-002 with UCL Business PLC for worldwide rights to develop and commercialize its product candidate and related technologies for any use. Ocera may be

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required to make future milestone payments totaling up to $17.0 million upon the achievement of various milestones related to regulatory or commercial events for OCR-002. Ocera may also be required to pay incremental milestone payments for an additional dosage form. Ocera is also obligated to pay a royalty in the low to mid-single digits on future net sales of the licensed product.

        Ocera has also in-licensed from Kureha Corporation the technology and exclusive development and commercialization rights to its AST-120 product candidate for the treatment of liver and gastrointestinal disease for the territories worldwide outside of certain Asian countries. Ocera is required to make future milestone payments upon the achievement of various milestones related to regulatory or commercial events for its first indications in gastrointestinal diseases. Ocera is also obligated to pay a royalty in the single digits on future net sales. In April 2012, Ocera amended the license agreement to include the development and commercialization of AST-120 as a medical device for IBS in European countries. Under this amended agreement, Ocera may be required to make milestone payments based on future commercial milestones and net sales.

        Ocera may become obligated to make a milestone or royalty payments when Ocera does not have the cash on hand to make these payments, or have budgeted cash for its development efforts. This could cause it to delay its development efforts, curtail its operations, scale back its commercialization and marketing efforts or seek additional capital to meet these obligations, which could be on terms unfavorable to it. Additionally, if Ocera fails to make a required payment and does not cure the failure within the required time period, the licensor may be able to terminate its license to use its technology. If its license from UCL Business PLC or Kureha is terminated, it will likely be impossible for it to commercialize OCR-002 or AST-120, respectively.

         Ocera currently depends on third parties to conduct some of the operations of its clinical trials, and depends on a single third-party to supply OCR-002 for its clinical uses in connection with the development of, and application for regulatory approval of, such product candidate.

        Ocera relies on third parties, such as contract research organizations, medical institutions, clinical investigators and contract laboratories to oversee some of the operations of its clinical trials and to perform data collection and analysis. As a result, Ocera may face additional delays outside of its control if these parties do not perform their obligations in a timely fashion or in accordance with regulatory requirements. If these third parties do not successfully carry out their contractual duties or obligations and meet expected deadlines, if they need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to its clinical protocols or for other reasons, its financial results and the commercial prospects for OCR-002 or its other potential product candidates could be harmed, its costs could increase and its ability to obtain regulatory approval and commence product sales could be delayed.


Risks Related to Ocera's Product Liability

         If product liability lawsuits are successfully brought against Ocera, it will incur substantial liabilities and may be required to limit the commercialization of AST-120, OCR-002 or other products.

        Ocera faces potential product liability exposure related to the testing of its product candidates in human clinical trials, and may face exposure to claims by an even greater number of persons if it begins marketing and distributing its products commercially. In the future, an individual may bring a liability claim against Ocera alleging that one of its products or product candidates caused an injury. If Ocera cannot successfully defend itself against product liability claims, it will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

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        In addition, while Ocera continues to take what it believes are appropriate precautions, it may be unable to avoid significant liability if any product liability lawsuit is brought against it.

         If product liability lawsuits are successfully brought against Ocera, its insurance may be inadequate.

        Ocera is exposed to the potential product liability risks inherent in the testing, manufacturing and marketing of human pharmaceuticals. Ocera plans to maintain insurance against product liability lawsuits for commercial sale of AST-120 and OCR-002, if approved for sale. Ocera currently maintains insurance for the clinical trials of product candidates. Biopharmaceutical companies must balance the cost of insurance with the level of coverage based on estimates of potential liability. Historically, the potential liability associated with product liability lawsuits for pharmaceutical products has been unpredictable. Although Ocera believes that its current insurance is a reasonable estimate of its potential liability and represents a commercially reasonable balancing of the level of coverage as compared to the cost of the insurance, it may be subject to claims in connection with clinical trials and commercial use of AST-120, OCR-002 and other product candidates, for which existing insurance coverage may not be adequate.

        The product liability insurance Ocera will need to obtain in connection with the commercial sales of its product and product candidates, if and when they receive regulatory approval, may be unavailable in meaningful amounts or at a reasonable cost. If Ocera is the subject of a successful product liability claim that exceeds the limits of any insurance coverage obtained, it may incur substantial charges that would adversely affect earnings and require the commitment of capital resources that might otherwise be available for the development and commercial launch of product programs.


Risks Related to Ocera's Intellectual Property

         Ocera may not be able to protect its proprietary technology in the marketplace.

        Where appropriate, Ocera seeks patent protection for certain aspects of its technology. Patent protection may not be available for some of the products or technology Ocera is developing. If Ocera must spend significant time and money protecting or enforcing its patents, designing around patents held by others or licensing, potentially for large fees, patents or other proprietary rights held by others, its business and financial prospects may be harmed. Ocera may not develop additional proprietary products which are patentable.

        The patent positions of pharmaceutical products, including its products and product candidates, are complex and uncertain. Publication of information related to OCR-002 and its future products and product candidates may prevent it from obtaining or enforcing patents relating to these products and product candidates, including without limitation composition-of-matter patents, which are generally believed to offer the strongest patent protection.

        Ocera owns, or has licensed, patents in the United States and in certain foreign jurisdictions related to AST-120 and OCR-002. Patents that Ocera owns or licenses do not ensure the protection of its intellectual property for a number of reasons, including without limitation the following:

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        If Ocera encounters delays in its development or clinical trials, the period of time during which Ocera could market its products under patent protection would be reduced.

         Ocera may not be able to enforce its intellectual property rights throughout the world.

        The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to life sciences. This could make it difficult for it to stop the infringement of its in-licensed patents or the misappropriation of its other intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit.

        Proceedings to enforce its patent rights in foreign jurisdictions could result in substantial costs and divert its efforts and attention from other aspects of its business. Accordingly, its efforts to protect its intellectual property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by courts in the United States and foreign countries may affect its ability to obtain adequate protection for its technology and the enforcement of intellectual property.

         Ocera may infringe the intellectual property rights of others, which may prevent or delay its product development efforts and stop it from commercializing or increase the costs of commercializing its products.

        Its commercial success depends significantly on its ability to operate without infringing the patents and other intellectual property rights of third parties. For example, there could be issued patents of which Ocera is not aware that its products infringe. There also could be patents that Ocera believes it does not infringe, but that Ocera may ultimately be found to infringe. Moreover, patent applications are in some cases maintained in secrecy until patents are issued. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries Ocera made and patent applications Ocera filed. Because patents can take many years to issue, there may be currently pending applications of which Ocera is unaware that may later result in issued patents that its products infringe. For example, pending applications may exist that provide support or can be amended to provide support for a claim that results in an issued patent that its product infringes.

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        Third parties may assert that Ocera is employing their proprietary technology without authorization. If a court held that any third-party patents are valid, enforceable and cover its products or their use, the holders of any of these patents may be able to block its ability to commercialize its products unless Ocera obtained a license under the applicable patents, or until the patents expire. Ocera may not be able to enter into licensing arrangements or make other arrangements at a reasonable cost or on reasonable terms. Any inability to secure licenses or alternative technology could result in delays in the introduction of its products or lead to prohibition of the manufacture or sale of products by it.

         Ocera may be unable to adequately prevent disclosure of trade secrets and other proprietary information.

        Ocera relies on trade secrets to protect its proprietary know-how and technological advances, especially where Ocera does not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. Ocera relies in part on confidentiality agreements with its employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to protect its trade secrets and other proprietary information. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover its trade secrets and proprietary information. Costly and time-consuming litigation could be necessary to enforce and determine the scope of its proprietary rights. Failure to obtain or maintain trade secret protection could enable competitors to use its proprietary information to develop products that compete with its products or cause additional, material adverse effects upon its competitive business position.

         Any lawsuits relating to infringement of intellectual property rights necessary to defend Ocera or enforce its rights will be costly and time consuming.

        Ocera's ability to defend its intellectual property may require it to initiate litigation to enforce its rights or defend its activities in response to alleged infringement of a third-party. In addition, Ocera may be sued by others who hold intellectual property rights who claim that their issued patents are infringed by AST-120 or any future products, including OCR-002, or product candidates. These lawsuits can be very time consuming and costly. There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries generally.

        In addition, Ocera's patents and patent applications, or those of its licensors, could face other challenges, such as interference proceedings, opposition proceedings, and re-examination proceedings. Any of these challenges, if successful, could result in the invalidation of, or in a narrowing of the scope of, any of its patents and patent applications subject to challenge. Any of these challenges, regardless of their success, would likely be time consuming and expensive to defend and resolve and would divert its management's time and attention.


Risks Related to Ownership of Ocera's Capital Stock

         Ocera's principal stockholders, executive officers and directors will own a significant percentage of Tranzyme's common stock and will be able to exert a significant control over matters submitted to the stockholders for approval.

        Immediately following the effective time of the merger between Ocera and Tranzyme, Ocera's stockholders will own approximately 72.6%, and Tranzyme's current stockholders will own approximately 27.4%, of Tranzyme's common stock, after giving effect to shares issuable pursuant to Ocera's and Tranzyme's outstanding options and warrants. In addition, immediately following the effective time of the merger, existing investors of Ocera will acquire approximately $20.0 million in shares of Tranzyme's common stock in the PIPE financing at a price per share equal to the volume

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weighted average closing price for Tranzyme's common stock for the 10 trading days ending the day prior to the closing of the merger.

        After the merger with Tranzyme and the related private placement of securities, Ocera's officers and directors, and stockholders who own more than 5% of Ocera's common stock will beneficially own a significant percentage of Tranzyme's common stock. This significant concentration of share ownership may adversely affect the trading price for the Tranzyme common stock because investors often perceive disadvantages in owning stock in companies with controlling stockholders. These stockholders, if they acted together, could significantly influence all matters requiring approval by the stockholders following the merger, including the election of directors and the approval of mergers or other business combination transactions. The interests of these stockholders may not always coincide with the interests of other stockholders.

         The ability of the post-merger company to use Ocera's net operating loss carryforwards may be limited.

        Pursuant to Sections 382 and 383 of the Internal Revenue Code, or the Code, the annual use of its NOL and research tax credit carryforwards to offset future taxable income and tax, respectively, may be limited in the event of an ownership change as defined under the Section 382 of the Code, which results from a cumulative change in ownership of 50% of certain stockholders occurring within a three-year period. As of December 31, 2012 Ocera had estimated deferred tax assets for net operating losses of approximately $23,800,000 and research and development credits of approximately $4,300,000. Ocera has not completed an IRC Section 382/383 analysis regarding the limitation of net operating loss and research and development credit carryforwards. Until this analysis has been completed, Ocera has removed the estimated deferred tax assets for net operating losses and research and development credits, and has recorded a corresponding decrease to its valuation allowance.

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FORWARD-LOOKING STATEMENTS

        This proxy statement includes forward-looking statements within the meaning of Section 21E of the Exchange Act. For this purpose, any statements contained herein, other than statements of historical fact, including statements regarding the proposed merger with Ocera, including the expected timetable for completing the transaction; future financial and operating results, including targeted product milestones; benefits and synergies of the transaction; future opportunities of the combined company; the progress and timing of product development programs and related trials; the potential efficacy of product candidates; and the strategy, projected costs, prospects, plans and objectives of management of either Tranzyme or Ocera, may be forward-looking statements under the provisions of The Private Securities Litigation Reform Act of 1995. In this proxy statement, words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "project," "should," "target," "will," "would" or other words that convey uncertainty of future events or outcomes are used to identify these forward-looking statements. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including "critical accounting estimates" and risks relating to: the ability to consummate the proposed merger; the ability to transition Tranzyme's management team effectively; the ability to maintain compliance with NASDAQ listing standards; conducting clinical trials, including difficulties or delays in the completion of patient enrollment, data collection or data analysis; the results of preclinical studies and clinical trials with respect to products under development and whether such results will be indicative of results obtained in later clinical trials; the ability to obtain the substantial additional funding required to conduct development and commercialization activities; and the ability to obtain, maintain and enforce patent and other intellectual property protection for currently marketed products and product candidates. These and other risks are described in greater detail in the section entitled "Risk Factors" beginning on page 13 of this proxy statement. If one or more of these factors materialize, or if any underlying assumptions prove incorrect, actual results, performance or achievements may vary materially from any future results, performance or achievements expressed or implied by these forward-looking statements. In addition, any forward-looking statements in this proxy statement represent Tranzyme's views only as of the date of this proxy statement and should not be relied upon as representing Tranzyme's views as of any subsequent date. Tranzyme anticipates that subsequent events and developments will cause its views to change. However, while Tranzyme may elect to update these forward-looking statements publicly at some point in the future, Tranzyme specifically disclaims any obligation to do so, except as may be required by law, whether as a result of new information, future events or otherwise. Tranzyme's forward-looking statements generally do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments it may make. In particular, unless otherwise stated or the context otherwise requires, Tranzyme has prepared this proxy statement as if it were going to remain an independent, standalone company. If Tranzyme consummates the merger with Ocera, the descriptions of its strategy, future operations and financial position, future revenues, projected costs and prospects and the plans and objectives of management in this proxy statement may no longer be applicable.

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THE MERGER

         This section and the section entitled "The Merger Agreement" beginning on page 63 of this proxy statement describe the material aspects of the merger, including the merger agreement. While Tranzyme believes that this description covers the material terms of the merger and the merger agreement, it may not contain all of the information that is important to you. You should read carefully this entire proxy statement, including the merger agreement, which is attached as Annex C to this proxy statement and the opinion of Stifel, Nicolaus & Company, Incorporated attached as Annex A to this proxy statement, and the other documents to which Tranzyme has referred to or incorporated by reference herein. For a more detailed description of where you can find those other documents, please see the section entitled "Where You Can Find More Information" beginning on page 133 of this proxy statement.


Background of the Merger

        From time to time, Tranzyme has considered strategic business initiatives intended to further the development of its business and maximize stockholder value.

        On November 15, 2012, Tranzyme publicly announced that the preliminary analysis of the first of two Phase 2b trials of lead product candidate TZP-102, for the treatment of diabetic gastroparesis, indicated the trial did not meet its primary efficacy endpoint. Tranzyme also announced that a second Phase 2b trial of TZP-102 was ongoing.

        On December 17, 2012, Tranzyme publicly announced the results of a planned interim analysis of a second Phase 2b trial of lead product candidate TZP-102, which were consistent with the first Phase 2b results. The second Phase 2b trial of TZP-102 failed to meet its primary endpoint. Tranzyme immediately discontinued patient enrollment and ended the trial.

        In late November, 2012, Dr. Garg had a discussion with Ocera's Chief Executive Officer, Dr. Linda Grais, in which Dr. Grais suggested that Ocera may be seeking potential license or business combination candidates. In early December, they had a follow up conversation in which Drs. Garg and Grais discussed the businesses of their respective companies. They agreed to meet in person at the JP Morgan Healthcare Conference in January.

        During November and December of 2012, the Tranzyme board of directors began to consider an appropriate process for exploring potential strategic opportunities to maximize value for its stockholders. Tranzyme engaged in non-confidential discussions with several companies to gauge preliminary interest in a potential strategic business combination. By December 21, 2012, Tranzyme had executed mutual nondisclosure agreements with four potential strategic partners, including Ocera.

        On December 19, 2012, due primarily to the termination of the clinical program of Tranzyme's lead product candidate TZP-102, and at the direction of its board of directors, Tranzyme's management presented to the board of directors its preliminary assessments of a variety of business strategies that Tranzyme could pursue, including: (i) funded collaborations of its proprietary drug discovery technology; (ii) evaluating Tranzyme's preclinical stage assets for further development; (iii) investigating the potential for developing Tranzyme's clinical stage assets for cachexia or other indications; (iv) in-licensing a clinical-stage product candidate for development; and/or (v) engaging an advisor to assist in the evaluation and potential execution of a strategic option to maximize stockholder value. The board of directors and management discussed the advantages and disadvantages of each opportunity and also considered the risks and potential value to stockholders of liquidating Tranzyme. At the conclusion of the meeting, the board of directors approved the hiring of Stifel, Nicolaus & Company, Incorporated ("Stifel"), to act as financial advisor to explore various strategic alternatives for Tranzyme. An engagement letter with Stifel was signed on January 18, 2013.

        From January 7, 2013 through January 10, 2013, Tranzyme held meetings with thirteen (13) potential strategic partners, which were identified through various ways, including being introduced to

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Tranzyme by Stifel and reaching out to Tranzyme directly. All thirteen (13) of these potential strategic partners became part of the strategic review process and were invited by Stifel to submit an initial bid. Dr. Garg, Dr. Franck Rousseau, Chief Medical Officer of Tranzyme, and Mr. David Moore, Chief Business Officer of Tranzyme, were among those present at the meetings. During the early part of January, 2013, Tranzyme was granted access to Ocera's data room and was provided with confidential materials for due diligence purposes.

        On January 11, 2013, Tranzyme's board of directors and representatives from Goodwin Procter LLP discussed certain legal aspects of the strategic review process.

        On January 15, 2013, Tranzyme's board of directors and a representative from Stifel discussed Tranzyme's strategic alternative evaluation process, the list of potential transaction parties, the parties with whom confidentiality agreements had been entered into and the ongoing due diligence regarding the strategic review process. Stifel recommended a two-step strategic review process, with an initial phase involving Stifel contacting a broad list of parties and sharing non-confidential information with interested parties, answering questions and soliciting non-binding initial offers and a subsequent phase focusing on conducting simultaneous two-way diligence with selected parties and soliciting binding bids. In order to allow the board to conduct the strategic review process in the most efficient manner and preserve stockholder value, Stifel suggested establishing guidelines to determine which companies would be invited into the first phase of the process that could center around therapeutic area, phase of development, type of technology, funding situation or some other criteria or combination of criteria.

        On January 16, 2013, Dr. Grais tendered a non-binding indication of interest to Dr. Garg providing for Tranzyme's ownership of 25% of the combined company. On January 17, 2013, Tranzyme's and Ocera's clinical teams discussed Ocera's clinical development programs, the status of regulatory activities and Ocera's near term business and development plans.

        On January 17, 2013, Dr. Grais presented Stifel with a corporate and clinical overview of Ocera. During the conversation, Dr. Grais described Ocera's transactional interest in Tranzyme and discussed the next steps to be taken in the evaluation process of a potential merger with Tranzyme. Stifel described the transaction and diligence process from Tranzyme's perspective. On the same day, Ocera provided Tranzyme and Stifel with a list of corporate documents and information it required for conducting its due diligence of Tranzyme in connection with evaluating the potential merger.

        On January 21, 2013, Tranzyme's board of directors met to discuss the potential conflict of interest that Alex Zisson, a member of the board of directors, would have in a transaction between Tranzyme and Ocera. Mr. Zisson is a partner with Thomas, McNerney & Partners ("TM Partners"), which beneficially owned as of May 1, 2013 approximately 11.04% of Tranzyme's common stock and approximately 26.2% of Ocera's common stock (on an as-converted-to-common stock basis). A different partner of TM Partners is also a member of Ocera's board of directors. Following a discussion of this matter with Tranzyme's corporate counsel at Goodwin Procter LLP, Tranzyme's board of directors organized a special committee of the board of directors to review and evaluate potential strategic alternatives for Tranzyme (the "Special Committee"). The Special Committee was initially comprised of Messrs. John H. Johnson, George B. Abercrombie, Dr. Jean-Paul Castaigne, and Ms. Anne M. VanLent, each an independent director. Mr. Abercrombie subsequently learned, and informed the Special Committee and Tranzyme's board of directors, that developments arising after the formation of the Special Committee at another entity with which he is involved could potentially create a conflict of interest in the future that may make it inadvisable for him to continue to serve on the Special Committee. Accordingly, Mr. Abercrombie resigned from the Special Committee. Mr. Abercrombie has subsequently informed Tranzyme that it is his belief that the conflict of interest concern never materialized and is no longer relevant.

        On January 23, 2013, the Special Committee engaged Skadden, Arps, Slate, Meagher & Flom LLP ("Skadden") to act as legal counsel to advise it in connection with the strategic review process.

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        On January 31, 2013, Stifel began to formally market to outside parties Tranzyme's interest in exploring proposals, offers or mutual interest in a possible acquisition or business combination with Tranzyme. Based on recommendations of Tranzyme management and in consultation with Stifel, the Special Committee established metrics and criteria for assessing potential strategic candidates. The primary criteria included: proposed percentage ownership of the combined company to be held by Tranzyme stockholders, the strength of each company's clinical programs, the potential market for each company's product candidates, the amount of incremental capital, if any, that would be required to advance the development of each company to its next significant clinical or commercial milestone and each company's plans for raising such incremental capital, the strength and quality of the management team proposed by each company, the status and availability of each company's 2012 audit, the timing and breadth of required diligence and the availability of required documentation for reverse due diligence to be performed by Tranzyme, the proposed timeline for closing any proposed strategic transaction, any required authorizations and approvals required by each company's officers, board of directors or investment committee and any closing requirements. The status of each company's 2012 audit was important to the Special Committee because audited financials of the transaction partner would be required to be included in Tranzyme's proxy statement relating to the transaction. Consequently, a delay in completing the 2012 audit could result in a delay in the closing of the transaction.

        Given that discussions with Ocera had progressed, Stifel and the Special Committee determined to continue discussions with Ocera on a parallel path, with a plan to request an updated proposal from Ocera contemporaneously with the submission of bids from other parties.

        On January 31, 2013, members of Ocera's management team met with certain members of Tranzyme's management and clinical teams and Stifel, at Tranzyme's offices, to discuss their diligence review.

        On February 1, 2013, Stifel provided an update to the Special Committee on its progress in evaluating potential strategic alternatives. Stifel had reviewed over 200 companies, and identified within that group a list of 85 companies that were more promising based on the criteria established at the January 31, 2013 Special Committee meeting. As part of the process of contacting the 85 identified companies, Stifel provided an overview of the process in order to gauge each company's interest, without identifying Tranzyme by name. Interested parties were asked to sign a nondisclosure agreement and after doing so, were provided confidential materials and offered the opportunity to meet or participate in a teleconference call with Tranzyme management

        On February 4, 2013, Tranzyme and Stifel provided members of H.I.G. BioVentures, a current Tranzyme stockholder, with an overview of Ocera's lead drug candidate, OCR-002, in clinical development for hepatic encephalopathy in patients with acute and chronic liver disease.

        On February 7, 2013, Stifel provided to the Special Committee a review of the status of the strategic alternative outreach effort, including an overview of companies contacted, companies under evaluation, companies that signed nondisclosure agreements and companies that were contacted but had declined to move forward.

        On February 8, 2013, Tranzyme publicly announced that its board of directors had made a determination to explore and evaluate strategic alternatives, including the possibility of a merger, sale, or other business combination or transaction to maximize value to its stockholders. Tranzyme's press release generated interest from 25 additional companies, all of which became part of the strategic review process being undertaken by the Special Committee and Stifel.

        On February 14, 2013, Stifel provided to the Special Committee a review of the status of the outreach effort in connection with the strategic review process and the status of management meetings and teleconference calls between the transaction candidates and Tranzyme and Stifel.

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        Between February 5, 2013 and March 4, 2013, members of Tranzyme management and Stifel met or held teleconference calls with the management teams of 24 different companies that expressed an interest in having such a meeting or call, in order to gain an understanding of each company's background, their respective drug candidates, regulatory status, market opportunities, intellectual property position, timelines, and any capital requirements. All but two of the initial management meetings were held before the initial bid deadline of February 25, 2013, as described in the next paragraph below.

        On February 15, 2013, Stifel sent a bid letter to each company that was actively involved in the process and that had signed a mutual nondisclosure agreement, which outlined the procedures and guidelines for submitting a preliminary good faith, non-binding term sheet for the acquisition of all of Tranzyme's outstanding shares and assets (a "Term Sheet"). The bid letters asked that interested bidding companies address the criteria specified in the January 31, 2013 Special Committee meeting described above. The deadline for submitting the Term Sheets was February 25, 2013, at 5 p.m. EST. Bid letters were sent to additional parties on the days between February 15 and February 22, 2013 as those parties signed two-way mutual nondisclosure agreements. One additional preliminary bid letter was sent to an interested party on March 7, 2013.

        On February 19, 2013, Company A granted Tranzyme access to the Company A data room to begin performing due diligence. On February 20, 2013, Dr. Garg and Stifel met with Company A to discuss Company A's clinical programs and plan for their development as well as an overview of Tranzyme's plans for its own programs and personnel.

        On February 20, 2013, members of the management team of Company B met with members of Tranzyme's management and clinical team and Stifel. At the meeting, Company B management presented an overview of Company B's technology of its drug candidates. Further discussion at the meeting focused on development timelines, cost strategies and industry competition, as well as an overview of Company B's future manufacturing facility.

        On February 21, 2013, Stifel provided to the Special Committee a review of the status of its progress in evaluating potential strategic alternatives and discuss the parties to whom bid letters had been sent. On February 25, 2013, initial bids from 19 companies were received by Stifel. A 20th initial bid was received on March 18th and presented to the Tranzyme Special Committee at a later Special Committee meeting as identified below.

        On February 26, 2013, members of Ocera and Tranzyme management presented to the Special Committee an overview of Ocera and the combined vision for Ocera's lead drug candidate, OCR-002. They discussed the competitive landscape, market opportunities and capital needs relative to OCR-002 development. Ocera and Tranzyme management outlined their rational for a potential merger of Ocera and Tranzyme, including a strong combined management team, specific clinical expertise and key opinion leaders networks in the therapeutic areas of gastroenterology and hepatology and the clinical and regulatory status of OCR-002 and its potential for near term value inflection points. On March 6, 2013, March 18, 2013 and March 26, 2013, Ocera and Tranzyme management teams made similar, separate presentations to several directors on Ocera's board.

        On February 26, 2013, Stifel provided to the Special Committee another update on its progress in evaluating candidates for a potential corporate strategic transaction. In its update, Stifel noted that as of February 26, 2013, 104 total companies had been included as part of the process of evaluating potential transaction partners, 29 of which signed a nondisclosure agreement and subsequently received the Tranzyme confidential overview and bid letter. An additional six companies would be included before the conclusion of the process (making the total 110), four of which would sign nondisclosure agreements, making the total number of companies signing such agreements 33. In its presentation to the Special Committee, Stifel discussed each of the 19 initial bidding companies (and one that was expected to bid but later declined to do so). In evaluating each of these bids, Stifel and the Special

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Committee considered the proposed percentage ownership of the combined company to be held by Tranzyme stockholders, the strength of the each company's clinical programs, the potential market for each company's product candidates, the amount of incremental capital, if any, that would be required to advance the development of each company to its next significant clinical or commercial milestone and each company's plans for raising that incremental capital, the strength and quality of the management team proposed by each company, the timing and breadth of required diligence and the availability of required documentation for reverse due diligence to be performed by Tranzyme, the proposed timeline for closing any proposed strategic transaction, any required authorizations and approvals required by each company's officers, board of directors or investment committee, and any closing requirements. The Special Committee and Stifel also discussed the potential value of seeking input on each of these bidders from Aaron Davidson and Mr. Zisson, two members of Tranzyme's board of directors who were not on the Special Committee. The Special Committee identified their substantial industry expertise and understanding of Tranzyme's business. The Special Committee discussed whether such a discussion with Mr. Zisson would result in any risk that information was shared with Ocera, and also discussed the benefit of Mr. Zisson hearing of the robust interest by numerous other companies in a potential transaction with Tranzyme. The Special Committee ultimately determined that the benefit of such discussions significantly outweighed the risks.

        By the February 26 Special Committee meeting, Tranzyme and Stifel had held management meetings or conference calls with 22 companies to review the Tranzyme and each counterparty presentation.

        On February 27, 2013, Tranzyme management held a teleconference call with Stifel to review each bidding party's corporate structure and background, therapeutic areas of drug development, drug candidate pipelines, clinical and regulatory status, market opportunities and competitive landscape, strength of intellectual property portfolio, and potential synergies with Tranzyme. On the same day, Stifel held separate teleconference calls with Aaron Davidson and Alex Zisson, the two directors not on the Special Committee, to review with them the companies that had submitted bids and to receive any feedback that Messrs. Davidson and Zisson may have on those companies.

        On March 1, 2013, Stifel provided to the Special Committee a review of the bids received. Stifel presented a summary of each of the 19 initial bids that were received, including analysis of how each bid compares to the criteria required in the bid letter and summarized above. With advice from Stifel, the Special Committee subsequently identified three bidding companies, Ocera, Company A and Company B, as presenting a realistic chance of producing the greatest value for Tranzyme's stockholders. The Special Committee then directed Tranzyme management and Stifel to conduct further in-depth financial, business and scientific due diligence and evaluation on these three counterparties. Tranzyme did not advance with any further diligence or negotiations with any of the 16 other bidding companies.

        On March 6, 2013, members of Tranzyme's clinical team and Stifel met with members of Company A's clinical and manufacturing teams and advisors. The participants discussed in detail the clinical development plans, priorities, timelines and regulatory aspects for the Company A pipeline and toured Company A's facility for due diligence purposes. The participants also prepared plans for a presentation to be presented to Tranzyme's Special Committee regarding a potential transaction between the two companies.

        On March 7, 2013, Stifel sent final bid letters and the preliminary merger agreement to each of Company A, Company B and Ocera, which outlined the procedures and guidelines for submitting a final binding term sheet for the acquisition of all of Tranzyme's outstanding shares and assets. The bid letters asked that interested bidding companies address in final form the same criteria specified in the preliminary bid letter. The deadline for submitting the final term sheets was March 18, 2013,

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at 5 p.m. EST. The three companies were also asked to submit comments to the preliminary merger agreement when submitting the final bid letter.

        On March 11, 2013, Ocera was granted access to Tranzyme's data room. By this time, Company A and Company B had also been granted access to Tranzyme's data room for due diligence purposes.

        On March 14, 2013, members of Tranzyme management and clinical teams and Stifel met with members of Company A's scientific and technology teams to review and exchange more details regarding each company's technology platform. Also on March 14, Dr. Garg, members of Company A's management and Stifel met to discuss the due diligence process, including financial diligence, and the details of the presentation to be given by Company A to Tranzyme's Special Committee on March 19, 2013.

        On March 18, 2013, final bids and comments to the merger agreement were submitted to Stifel from Ocera, Company A and Company B. All three of the final bids conditioned closing of the merger on the continued listing on the combined company on NASDAQ. Ocera's final bid proposed Tranzyme's stockholders receiving a 25% ownership interest in the combined company, included a commitment from existing investors of Ocera to invest approximately $20.0 million in the combined company pursuant to a PIPE financing, which would be priced at a ten-day trailing average of the public market price of Tranzyme's common stock before the effective date of the merger, and required the execution of a voting agreement by TM Partners. Ocera's bid also provided for a seven member board of directors, with two to be designated by Tranzyme, and a management team that would include Franck Rousseau, from Tranzyme, and Keith Anderson, from Ocera, with the chief executive officer to be determined by the board of the combined company following the merger. Company A also proposed Tranzyme's stockholders receiving a 25% ownership interest in the combined company and a seven member board of directors with two Tranzyme designees. In addition, if needed, Company A's final bid included a commitment to provide $5.5 million in funding from existing investors in Company A. Company A indicated that an incremental financing would not be required to fund the combined company to its next meaningful milestone. Company B's final bid proposed Tranzyme's stockholders receiving a 10% ownership interest in the combined company, indicated that $22.5 million would fund the company to its next meaningful milestone and that current investors had agreed to support a financing. The bid provided for the combined company to be led by Company B's current management team and board of directors, with no current Tranzyme employees being retained.

        In addition to the final bids from the three companies discussed above, as mentioned previously, on March 18, 2013, a new initial bid was received from the 20th company to submit an initial bid. This bidder was evaluated in the same manner and against the same criteria discussed above and was deemed by the Special Committee not to merit further consideration.

        On March 19, 2013, Company B's management presented to the Special Committee an overview of its technology and of its drug candidates in development. Further discussion included development timelines, cost strategies and competition in the market, along with an overview of Company B's future manufacturing facility.

        On March 19, 2013, Company A's management also presented to the Special Committee. As part of the presentation, Company A provided a financial overview of the company and its history and the background of, and clinical development plans for its drug candidates. Further discussion included the market opportunities, program milestones and synergies between Company A and Tranzyme.

        After considering the information made available to them throughout the comprehensive strategic review process, on March 20, 2013, the Tranzyme Special Committee identified Ocera as the prospective strategic partner which represented the greatest potential value for Tranzyme and its stockholders, taking all of the previously identified criteria into account.

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        From March 20, 2013 to March 26, 2013, Tranzyme and Ocera, together with their respective outside legal counsel and Tranzyme's financial advisor, continued their mutual due diligence and engaged in negotiations regarding the merger agreement. By March 26, 2013, these negotiations had completed, with, among other things, the percentage of the combined company that would be owned by Tranzyme's stockholders as a result of the merger being increased to approximately 27.4%.

        On April 4, 2013, Ocera's and Tranzyme's management teams, with Stifel in attendance, delivered the combined company presentation to H.I.G. Capital, one of Tranzyme's largest stockholders.

        On April 6, 2013, Stifel, Tranzyme and Ocera, and each party's audit team and legal counsel had a call to discuss the timing of delivery of Ocera's audited financial statements that were required to be included in the proxy statement. On this call, it became clear that Ocera's audited financial statements would not be ready for inclusion in the proxy statement until after the expected execution of the merger agreement. The expectant delivery date of the audited financial statements and the resultant filing date of the proxy statement and this timing's effect on Tranzyme's level of cash at closing were discussed. In consideration of the impact on the timing of the proxy filing, the merger agreement was subsequently revised to reflect a $250,000 decrease in Tranzyme's targeted cash level at closing. In addition, Ocera agreed to credit Tranzyme's expenses incurred in connection with the transaction before and after Ocera had been identified as the prospective strategic partner in the auction process against its targeted cash level at closing.

        On April 9, 2013, Ocera's and Tranzyme's management teams, with Stifel in attendance, delivered the combined company presentation to TM Partners, one of both Tranzyme's and Ocera's largest stockholders.

        On April 16, 2013, the Special Committee and Stifel convened a teleconference call to discuss the latest update on negotiations with Ocera and to finalize certain aspects of the merger agreement.

        Final agreement on the issues noted above was reached over the course of numerous discussions involving members of Tranzyme's and Ocera's respective management teams, financial advisors and legal counsel. On April 21, 2013, the Special Committee convened a call to discuss the process for signing the definitive agreement with Ocera.

        On April 23, 2013, the Special Committee met and reviewed the proposed transaction with Ocera. In addition, the Special Committee received a fairness opinion from Stifel and a representative from Skadden provided an overview of the Special Committee's fiduciary duties in connection with decisions regarding business combinations. After the meeting concluded, the Special Committee recommended the proposed transaction with Ocera to Tranzyme's full board of directors. At a meeting held on April 23, 2013, the board of directors discussed the terms of the proposed transaction with Ocera, received Stifel's fairness opinion and an overview of their applicable fiduciary duties from a representative from Skadden. After discussion, the Tranzyme board of directors adopted resolutions declaring that the merger agreement and the transactions contemplated thereby were advisable, fair and in the best interests of Tranzyme and its stockholders, approved the merger agreement and the transactions contemplated thereby and authorized Tranzyme to enter into the merger agreement and the transaction with Ocera. On April 23, 2013, Tranzyme and Ocera finalized all terms and executed the merger agreement, and certain Tranzyme and Ocera stockholders executed voting agreements with Tranzyme and Ocera.

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Tranzyme's Reasons for the Merger

        In reaching its determination that the merger agreement and the transactions contemplated thereby were advisable, fair and in the best interests of Tranzyme and its stockholders, the board of directors based its determination on its assessment of the following factors:

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        In addition to the factors outlined above, the Tranzyme board of directors considered the following criteria in reaching its conclusion to approve the merger and to recommend that the Tranzyme stockholders approve the issuance of shares of Tranzyme common stock in the merger, all of which it viewed as supporting its decision to approve the business combination with Ocera:

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        In the course of its deliberations, the Tranzyme board of directors also considered a variety of risks and other countervailing factors related to entering into the merger agreement and the proposed business combination with Ocera, including:

        The foregoing discussion of the factors considered by Tranzyme's board of directors is not intended to be exhaustive, but does set forth the principal factors considered by Tranzyme's board of directors. Tranzyme's board of directors collectively reached the unanimous conclusion to approve the merger agreement in light of the various factors described above and other factors that each member of Tranzyme's board of directors deemed relevant. In view of the wide variety of factors considered by the members of Tranzyme's board of directors in connection with their evaluation of the merger agreement and the complexity of these matters, Tranzyme's board of directors did not consider it practical, and did not attempt, to quantify, rank or otherwise assign relative weights to the specific factors it considered in reaching its decision. Tranzyme's board of directors made its decision based on the totality of information presented to and considered by it. In considering the factors discussed above, individual directors may have given different weights to different factors.

         TRANZYME'S BOARD OF DIRECTORS UNANIMOUSLY DETERMINED THAT THE MERGER AGREEMENT AND THE MERGER ARE ADVISABLE, FAIR AND IN THE BEST INTERESTS OF TRANZYME'S STOCKHOLDERS AND UNANIMOUSLY APPROVED THE MERGER AGREEMENT. TRANZYME'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT TRANZYME'S STOCKHOLDERS APPROVE THE ISSUANCE OF TRANZYME'S COMMON STOCK PURSUANT TO THE MERGER AGREEMENT, THE ISSUANCE OF TRANZYME'S COMMON STOCK

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PURSUANT TO THE PIPE TRANSACTION, THE REVERSE STOCK SPLIT AND THE CHANGE OF TRANZYME'S NAME TO "OCERA THERAPEUTICS, INC."


Opinion of Tranzyme's Financial Advisor

        Tranzyme retained Stifel, Nicolaus & Company, Incorporated, or Stifel, on January 18, 2013 to act as its financial advisor in connection with a sale or merger of Tranzyme and to provide to the Tranzyme board of directors and the Special Committee a fairness opinion in connection with any proposed transaction. On April 23, 2013, Stifel delivered its written opinion, dated April 23, 2013, to the Tranzyme board of directors and the Special Committee that, as of the date of the opinion and subject to and based on the assumptions made, procedures followed, matters considered, limitations of the review undertaken and qualifications contained in such opinion, the exchange ratio was fair to the holders of Tranzyme common stock, from a financial point of view.

        Tranzyme did not impose any limitations on Stifel with respect to the investigations made or procedures followed in rendering its opinion. In selecting Stifel, the Tranzyme board of directors considered, among other things, the fact that Stifel is a reputable investment banking firm with substantial experience advising companies in the healthcare and pharmaceutical sectors and in providing strategic advisory services in general. Stifel, as part of its investment banking business, is continuously engaged in the evaluation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. In the ordinary course of its business, Stifel and its affiliates may actively trade the securities of Tranzyme for its own account or for the account of its customers and, accordingly, may at any time hold a long or short position in such securities.

        The full text of the written opinion of Stifel is attached as Annex A to this proxy statement and is incorporated into this document by reference. The summary of Stifel's opinion set forth in this proxy statement is qualified in its entirety by reference to the full text of the opinion. Stockholders are urged to read the opinion carefully and in its entirety for a discussion of the procedures followed, assumptions made, other matters considered and limits of the review undertaken by Stifel in connection with such opinion.

        Stifel's opinion was approved by its fairness committee. The opinion was provided for the information of, and directed to, the Tranzyme board of directors and the Special Committee (in their capacities as such) for their information and assistance in connection with their consideration of the financial terms of the merger. The opinion does not constitute a recommendation to the Tranzyme board of directors as to how the Tranzyme board of directors should vote on any aspect of the merger or to any stockholder of Tranzyme as to how such stockholder should vote his, her or its shares of common stock at any stockholders' meeting at which the merger is considered, or whether or not any stockholder of Tranzyme should enter into a voting or stockholders', or affiliates' agreement with respect to the merger, or exercise any dissenters' or appraisal rights that may be available to such stockholder. In addition, the opinion does not compare the relative merits of the merger with any other alternative transaction or business strategies which may have been available to the Tranzyme board of directors or Tranzyme and does not address the underlying business decision of the Tranzyme board of directors or Tranzyme to proceed with or effect the merger. Moreover, it does not address the fairness of the merger to, or any consideration received in connection therewith by, the holders of any other class of securities, creditors or other constituencies of Tranzyme or Ocera other than the holders of Tranzyme Common Stock; nor does it address the fairness of the amount or nature of any compensation to be paid or payable to any of Tranzyme's or Ocera's officers, directors or employees, or class of such persons, in connection with the merger, whether relative to the consideration to be received by Tranzyme's or Ocera's stockholders or otherwise.

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        In connection with its opinion, Stifel, among other things:

        In addition, Stifel took into account its assessment of general economic, market and financial conditions and its experience in other transactions, as well as its experience in securities valuations and its general knowledge of the industries in which Tranzyme and Ocera operate.

        In connection with its review, Stifel, with the Tranzyme board of director's and Special Committee's consent, relied upon and assumed, without independent verification, the accuracy and completeness of all financial and other information that was made available, supplied, or otherwise communicated to Stifel by or on behalf of Tranzyme or Ocera or that was otherwise reviewed by Stifel,

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including, without limitation, publicly available information, and Stifel has not assumed any responsibility for independently verifying any of such information. Stifel further relied upon the assurances of Tranzyme's and Ocera's managements that they were unaware of any facts that would make such information incomplete or misleading.

        With respect to estimates, forecasts or projections of Tranzyme's or Ocera's future financial performance prepared by or reviewed with management of Tranzyme or Ocera, as applicable, or obtained from public sources (including, without limitation, potential cost savings which may be realized), Stifel assumed, at Tranzyme's direction, that such estimates, forecasts and projections were reasonably prepared on the basis reflecting the best available estimates, forecasts and projections available to the management of Tranzyme or Ocera, as applicable, as to the future operating performance of Tranzyme or Ocera, as applicable, and that they provided a reasonable basis upon which Stifel could form its opinion. The estimates, forecasts and projections were not prepared with the expectation of public disclosure and are based on numerous variables and assumptions that are inherently uncertain, including, without limitation, factors related to general economic and competitive conditions. Accordingly, actual results could vary significantly from those set forth in such estimates, forecasts and projections. Stifel relied on these estimates, forecasts and projections without independent verification or analyses and does not in any respect assume any responsibility for the accuracy or completeness thereof. Stifel expresses no opinion as to Tranzyme's or Ocera's projections or any other estimates, forecasts and assumptions or the assumptions on which they were made.

        Stifel was not requested to make, and did not make, an independent evaluation, physical inspection, valuation or appraisal of the properties, facilities, assets, or liabilities (contingent or otherwise) of Tranzyme or Ocera, and was not furnished with any such materials. Estimates of values of companies and assets do not purport to be appraisals or necessarily reflect the prices at which companies and assets may actually be sold. Because such estimates are inherently subject to uncertainty, Stifel assumes no responsibility for their accuracy.

        Stifel assumed that there has been no material change in the assets, liabilities, financial condition, business or prospects of Tranzyme or Ocera since the date of the most recent relevant financial statements made available to Stifel. With respect to certain legal matters relating to Tranzyme and the merger, Stifel relied on the advice of Tranzyme's counsel.

        Stifel's opinion was limited to whether the exchange ratio was, as of the date of such opinion, fair to the holders of Tranzyme common stock, from a financial point of view. Stifel expressed no view as to any other aspect or implication of the merger, including, without limitation, the form or structure of the merger, any consequences of the merger on Tranzyme, its stockholders, creditors or otherwise, or any terms, aspects or implications of any other agreement, arrangement or understanding contemplated or entered into in connection with the merger or otherwise, including, without limitation, the simultaneous sale of Tranzyme common stock to certain investors. In addition, Stifel's opinion does not consider, address or include: (i) any other strategic alternatives currently (or which have been or may be) contemplated by the Tranzyme board of directors or Tranzyme; (ii) the legal, tax or accounting consequences of the merger on Tranzyme or the holders of Tranzyme common stock, including, without limitation, whether or not the merger will qualify as a tax-free reorganization pursuant to Section 368 of the Code; (iii) the fairness of the amount or nature of any compensation to any of Tranzyme's or Ocera's officers, directors or employees, or class of such persons, relative to the compensation to the holders of Tranzyme common stock or Ocera common stock; (iv) the effect of the merger on, or the fairness of the consideration to be paid to, holders of any class of securities of Tranzyme or Ocera other than the holders of Tranzyme common stock, or any class of securities of any other party to any transaction contemplated by the merger agreement; (v) any advice or opinions provided by any other advisor to Tranzyme or Ocera; or (vi) the treatment of, or effect of the merger on, any securities of Tranzyme other than Tranzyme common stock (or the holders of any such securities). Without limiting the generality of the foregoing, Stifel's opinion does not address any legal, tax or accounting matters,

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including the consequences any such matters may have on Tranzyme or its stockholders. Furthermore, Stifel expresses no opinion as to the prices, trading range or volume at which Tranzyme's securities (including the Tranzyme common stock) will trade following public announcement or consummation of the merger.

        For purposes of rendering its opinion Stifel assumed in all respects material to its analysis that the representations and warranties of each party contained in the merger agreement are true and correct and that each party will perform all of the covenants and agreements required to be performed by it under the merger agreement. Stifel also assumed that the contemplated approximately $20.0 million financing will be consummated and will occur simultaneously with the merger. Stifel also assumed that there are no factors that would delay or subject to any adverse conditions any necessary regulatory or governmental approval. In addition, Stifel assumed that the definitive transaction documents will not differ materially from the drafts reviewed by it. Stifel also assumed that the merger will be consummated substantially on the terms and conditions described in the merger agreement, without any waiver of material terms or conditions by any party and without any adjustment to the exchange ratio (beyond the adjustment provisions set forth in the merger agreement) and that obtaining any necessary regulatory approvals or satisfying any other conditions for consummation of the merger will not have an adverse effect on Tranzyme, Ocera or the merger. Stifel assumed that the merger will be consummated in a manner that complies with the applicable provisions of the Securities Act of 1933, the Securities and Exchange Act of 1934 and all other applicable federal and state statutes, rules and regulations. Stifel further assumed that Tranzyme relied upon the advice of its counsel, independent accountants and other advisors (other than Stifel) as to all legal, financial reporting, tax, accounting and regulatory matters with respect to Tranzyme, the merger and the transaction documents.

        Stifel did not consider any potential legislative or regulatory changes currently being considered or recently enacted by the United States Congress, the SEC, or any other governmental or regulatory bodies, or any changes in accounting methods or generally accepted accounting principles that may be adopted by the SEC or FASB. The opinion is not a solvency opinion and does not in any way address the solvency or financial condition of Tranzyme, Ocera or any other person.

        Stifel's opinion was necessarily based on economic, market, financial and other conditions as they exist on, and on the information made available to it as of, the date of the opinion. It is understood that subsequent developments may affect the conclusions reached in Stifel's opinion and that Stifel does not have any obligation to update, revise or reaffirm its opinion.

        The summary set forth below does not purport to be a complete description of the analyses performed by Stifel, but describes, in summary form, the material elements of the presentation that Stifel made to the Tranzyme board of directors and the Special Committee on April 21, 2013, in connection with Stifel's opinion.

        In accordance with customary investment banking practice, Stifel employed generally accepted valuation methods and financial analyses in reaching its opinion. The following is a summary of the material financial analyses performed by Stifel in arriving at its opinion. These summaries of financial analyses alone do not constitute a complete description of the financial analyses Stifel employed in reaching its conclusions. None of the analyses performed by Stifel were assigned a greater significance by Stifel than any other, nor does the order of analyses described represent relative importance or weight given to those analyses by Stifel. The summary text describing each financial analysis does not constitute a complete description of Stifel's financial analyses, including the methodologies and assumptions underlying the analyses, and if viewed in isolation could create a misleading or incomplete view of the financial analyses performed by Stifel. The summary text set forth below does not represent and should not be viewed by anyone as constituting conclusions reached by Stifel with respect to any of the analyses performed by it in connection with its opinion. Rather, Stifel made its determination as to the fairness to the common stockholders of Tranzyme of the exchange ratio, from a financial point of

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view, on the basis of its experience and professional judgment after considering the results of all of the analyses performed.

        Except as otherwise noted, the information utilized by Stifel in its analyses, to the extent that it is based on market data, is based on market data as it existed on or before April 19, 2013 and is not necessarily indicative of current market conditions. The analyses described below do not purport to be indicative of actual future results, or to reflect the prices at which any securities may trade in the public markets, which may vary depending upon various factors, including changes in interest rates, dividend rates, market conditions, economic conditions and other factors that influence the price of securities.

        In conducting its analysis, Stifel used five primary methodologies: selected publicly-traded companies analysis; selected precedent transactions analysis; selected precedent private financings analysis; discounted cash flow analysis; and liquidation analysis. No individual methodology was given a specific weight, nor can any methodology be viewed individually. Additionally, no company or transaction used in any analysis as a comparison, is identical to Tranzyme, Ocera or the merger, and they all differ in material ways. Accordingly, an analysis of the results described below is not mathematical; rather it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other factors that could affect the public trading value of the selected companies or transactions to which they are being compared. Stifel used these analyses to determine the impact of various operating metrics on the implied equity value of Tranzyme or Ocera, as applicable. Each of these analyses yielded a range of implied equity values, and therefore, such implied equity value ranges developed from these analyses were viewed by Stifel collectively and not individually.

Discounted Cash Flow Analysis.

        Stifel used the financial projections and estimates provided by Tranzyme's management to perform a discounted cash flow analysis of Tranzyme on a standalone basis. In conducting this analysis, Stifel assumed that Tranzyme would perform in accordance with these projections and estimates. Stifel performed an analysis of the present value of the unlevered free cash flows that Tranzyme's management projects it will generate from the second half of 2013 through 2025. The cash flows projected to be generated by Tranzyme included the upfront and milestone payments projected by management to be generated by the MATCH collaborations, including unreimbursed research and development costs, and overhead costs. Stifel probability adjusted and discounted the cash flows using discount rates ranging from 10% to 14%. Giving effect to Tranzyme's management's projected cash and cash equivalents at June 30, 2013, this analysis resulted in implied equity per share values for Tranzyme ranging from $0.32 to $0.36.

Liquidation Analysis.

        Stifel also performed a liquidation analysis of Tranzyme using information prepared by Tranzyme management and assuming Tranzyme would be liquidated on May 31, 2013. The analysis assumed a projected cash balance as of May 31, 2013 of $7.5 million, added approximately $0.9 million for projected royalty income and Canadian investment tax credits and subtracted approximately $5.3 million in liquidated expenses for personnel, infrastructure, insurance, taxes and professional services, resulting in an implied distribution to Tranzyme stockholders of approximately $3.2 million, or approximately $0.11 per share.

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Selected Companies Analysis.

        Stifel reviewed, analyzed and compared certain financial information relating to Ocera to corresponding publicly available financial information and market multiples for the following 24 publicly-traded, biopharmaceutical companies with their lead product in Phase 2 of clinical development and with equity values between $20.0 million and $500.0 million: Novavax, Inc.; Coronado Biosciences, Inc.; Cytokinetics, Inc.; MEI Pharma, Inc.; SIGA Technologies, Inc.; Targacept, Inc.; ImmunoCellular Therapeutics, Ltd; Geron Corporation; Athersys, Inc.; NeoStem, Inc.; Inovio Pharmaceuticals, Inc.; Stemline Therapeutics, Inc.; Ohr Pharmaceutical, Inc.; Cleveland BioLabs, Inc.; Neuralstem, Inc.; Medgenics, Inc.; NovaBay Pharmaceuticals, Inc.; EntreMed, Inc.; MediciNova, Inc.; MethylGene Inc.; Biodel Inc.; Advaxis, Inc.; Rexahn Pharmaceuticals, Inc. and Arrowhead Research Corporation.

        Stifel reviewed, among other things, the range of enterprise values of the selected companies, calculated as equity value based upon closing stock prices on April 19, 2013, plus the book value of debt, preferred stock, and minority interests, less cash and cash equivalents. The mean and median enterprise values for the selected companies were $80.5 million and $60.3 million, respectively. Giving effect to Ocera's projected cash and cash equivalents at June 30, 2013 as provided by Ocera's management, this analysis resulted in implied equity values for Ocera ranging from $61.2 million to $81.4 million.

Selected Precedent Transactions Analysis.

        Stifel reviewed and analyzed certain publicly available information for the following 14 recent business combinations where the acquired companies were U.S.-based biopharmaceutical companies with their lead product in Phase 2 of clinical development, with transaction equity values ranging from $20.0 million to $500.0 million, and where the transaction was announced subsequent to January 1, 2010: LigoCyte Pharmaceuticals, Inc. and Takeda America Holdings, Inc. (announced October 4, 2012); Elevation Pharmaceuticals, Inc. and Sunovion Pharmaceuticals Inc. (announced August 30, 2012); KAI Pharmaceuticals, Inc. and Amgen Inc. (announced April 10, 2012); FerroKin BioSciences, Inc. and Shire plc (announced March 15, 2012); Boston Biomedical, Inc. and Dainippon Sumitomo Pharma Co., Ltd (announced February 29, 2012); Stromedix, Inc. and Biogen Idec Inc. (announced February 14, 2012); Intellikine, Inc. and Takeda Pharmaceutical Company Limited (announced December 20, 2011); Excaliard Pharmaceuticals, Inc. and Pfizer Inc. (announced November 22, 2011); Anadys Pharmaceuticals, Inc. and Roche Holding AG (announced October 17, 2011); Vicept Therapeutics, Inc. and Allergan, Inc. (announced July 19, 2011); Synageva BioPharma Corp. and Trimeris, Inc. (announced June 13, 2011); Calistoga Pharmaceuticals, Inc. and Gilead Sciences, Inc. (announced February 22, 2011); TargeGen, Inc. and sanofi-aventis (announced June 30, 2010) and Angioblast Systems, Inc. and Mesoblast Limited (announced May 12, 2010).

        The mean and median enterprise values for the selected companies were $145.0 million and $163.2 million, respectively. Giving effect to Ocera's projected cash and cash equivalents at June 30, 2013 as provided by Ocera's management, this analysis resulted in implied equity values for Ocera ranging from $145.9 million to $164.1 million.

Selected Precedent Private Financings Analysis.

        Stifel reviewed and analyzed certain publicly available information regarding the most recent venture-backed, non-convertible debt rounds of private financing for the following 12 biopharmaceutical companies selected for having both consummated an Initial Public Offering, or IPO, since January 1, 2011 and for having a product in Phase 2 of clinical development as their most advanced program at the time of such private financing: KaloBios Pharmaceuticals, Inc., June 2012; Merrimack

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Pharmaceuticals, Inc., April 2011; Chimerix, Inc., February 2011; Tetraphase Pharmaceuticals, Inc., June 2010; AcelRx Pharmaceuticals, Inc., November 2009; Clovis Oncology, Inc., November 2009; Endocyte, Inc., October 2009; NewLink Genetics Corporation, July 2009; Hyperion Therapeutics, Inc., June 2009; Stemline Therapeutics, Inc., October 2007; Tranzyme, Inc., January 2007; and ChemoCentryx, Inc., August 2006.

        The mean and median pre-money valuations for the selected financings and the equity values for Ocera implied by this analysis were $80.4 million and $107.6 million, respectively.

Discounted Cash Flow Analysis.

        Stifel used the financial projections and estimates provided by Ocera management, modified by Tranzyme management, to perform a discounted cash flow analysis of Ocera. In conducting this analysis, Stifel assumed that Ocera would perform in accordance with these projections and estimates. Stifel performed an analysis of the present value of the unlevered free cash flows that Ocera's management projected it will generate from the second half of 2013 through calendar year-end 2025. Stifel probability adjusted and discounted the cash flows projected for the specified period using discount rates ranging from 10% to 14%. Giving effect to Ocera's projected cash and cash equivalents at June 30, 2013 as provided by Ocera management, this analysis resulted in implied equity values for Ocera ranging from $84.3 million to $155.9 million.

        Solely for illustrative purposes, Stifel noted that all of the Ocera equity values implied in the Ocera financial analyses described above exceed the implied equity value of Ocera in the proposed merger of $32.0 million calculated based upon Tranzyme's share price at the close of the market on April 19, 2013.

        Stifel analyzed the relative valuations resulting from the current fully-diluted equity value per share of Tranzyme with the stand-alone fully-diluted equity value ranges per share calculated for Ocera implied by in the selected companies, selected precedent transactions, selected precedent private financings and discounted cash flow analyses summarized above.

        The result of this relative valuation analysis showed a range of implied post-closing pro forma ownership ratios of 2.943:1 to 3.913:1, 7.018:1 to 7.893:1, 3.867:1 to 5.176:1, and 4.055:1 to 7.499:1 for the selected companies, selected precedent transactions, selected precedent private financings and discounted cash flow analyses, respectively.

        Stifel noted that all the implied pro forma ownership ratios in this analysis exceeded the 1.538:1 ratio implied by the proposed merger transaction.

        Stifel noted that the implied ownership percentages of Tranzyme stockholders implied by the ownership ratios noted above were 16.5% to 12.9%, 7.6% to 6.9%, 13.1% to 10.1%, and 12.5% to 7.2%, for the selected companies, selected precedent transactions, selected precedent private financings and discounted cash flow analyses, respectively; and that all the implied ownership percentages in this analysis were lower than the 27.4% ownership percentage of Tranzyme stockholders implied by the ratio proposed in the merger.

        Based upon the foregoing analyses and the assumptions and limitations set forth in full in the text of Stifel's opinion, Stifel was of the opinion that, as of the date of Stifel's opinion, the exchange ratio was fair to the holders of Tranzyme's common stock, from a financial point of view.

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        The preparation of a fairness opinion is a complex process and is not necessarily susceptible to a partial analysis or summary description. In arriving at its opinion, Stifel considered the results of all of its analyses as a whole and did not attribute any particular weight to any analysis or factor considered by it. Stifel believes that the summary provided and the analyses described above must be considered as a whole and that selecting portions of these analyses, without considering all of them, would create an incomplete view of the process underlying Stifel's analyses and opinion; therefore, the range of valuations resulting from any particular analysis described above should not be taken to be Stifel's view of the actual value of Tranzyme or Ocera.

        Stifel is acting as financial advisor to Tranzyme in connection with the merger. It received a fee of $250,000 for rendering its opinion which was not contingent upon consummation of the merger but is creditable against the $625,000 of transaction fees payable to Stifel which are contingent upon the completion of the merger. In addition, Tranzyme has agreed to indemnify Stifel for certain liabilities arising out of Stifel's engagement. Stifel acted as co-manager of Tranzyme's initial public offering in April 2011. Other than as provided in the immediately preceding sentence, no other material relationships existed between Stifel and any party to the merger during the two years prior to the date of Stifel's opinion or that are mutually understood to be contemplated in which any compensation was received or is intended to be received as a result of the relationship between Stifel and any party to the merger. Stifel may seek to provide investment banking services to Tranzyme or its affiliates in the future, for which Stifel would seek customary compensation.


Interests of Tranzyme's Directors and Executive Officers in the Merger

        In considering the recommendation of Tranzyme's board of directors with respect to issuing shares of Tranzyme's common stock as contemplated by the merger agreement and the other matters to be acted upon by Tranzyme's stockholders at the special meeting, Tranzyme's stockholders should be aware that members of the board of directors and executive officers of Tranzyme have interests in the merger that are different from, or in addition to, the interests of Tranzyme's stockholders. Tranzyme's board of directors was aware of these potential conflicts of interest and considered them, among other matters, in reaching its decision to approve the merger agreement and the related transaction and to recommend that Tranzyme's stockholders vote to approve the issuance of Tranzyme's common stock in connection with the merger and the other matters to be acted upon by Tranzyme's stockholders at the special meeting.

        As of May 1, 2013, all directors and executive officers of Tranzyme, together with their affiliates, beneficially owned approximately 15.39% of the shares of Tranzyme's common stock. The affirmative vote of the holders of a majority of the shares of Tranzyme's common stock present in person or represented by proxy and voting on such matter at the special meeting is required for approval of Proposal 1, Proposal 2 and Proposal 5. The affirmative vote of holders of a majority of the outstanding shares of Tranzyme's common stock as of the record date for the special meeting is required for approval of Proposal 3 and Proposal 4.

        Thomas, McNerney & Partners and its affiliates beneficially owned approximately 11.04% of the shares of Tranzyme's common stock, prior to the merger, and approximately 26.2% of the outstanding shares of Ocera's capital stock (on an as-converted to Ocera common stock basis), prior to the merger. Alex Zisson is a member of the board of directors of Tranzyme and is a partner at Thomas, McNerney & Partners.

        Tranzyme has entered into employment agreements with each of its executive officers.

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        Vipin K. Garg, Ph.D.     On February 20, 2007, we entered into an Amended and Restated Agreement of Employment with Dr. Garg, our President and Chief Executive Officer, providing for his continued employment, effective as of the signing date. This employment agreement, as amended on July 16, 2008 and on March 8, 2011, provides for an initial term of three years with automatic renewals each year thereafter unless terminated by either the company or Dr. Garg. Dr. Garg's base salary was originally set at $270,000 per year, subject to annual review and increases based on Dr. Garg's performance and our performance. Under the employment agreement, Dr. Garg is also eligible to receive an annual bonus payment of up to 35% of his annual base salary, based on achievement of certain performance milestones identified by our Board of Directors in consultation with Dr. Garg. For the avoidance of doubt, Dr. Garg's base salary is currently $370,000 per year and he is eligible to receive an annual bonus payment of up to 50% of his annual base salary. Furthermore, he is eligible to participate in our group benefits programs, including but not limited to medical insurance, vacation and retirement plans, and will be provided with life insurance and the ability to participate in a 401(k) plan. In the event Dr. Garg is terminated by us without cause, as defined in the employment agreement, or he resigns with good reason, as defined in the employment agreement, including any material reduction in base compensation or material diminution in title, duties or responsibilities as President and Chief Executive Officer, Dr. Garg will be entitled to receive (i) continued payment of his base salary for 12 months, (ii) a pro-rata portion of his bonus for the year of termination and (iii) continuation of his taxable and non-taxable benefits for 12 months, subject to the limits under the Treasury Regulation Section 1.409A-1(b)(9)(v)(D). Additionally, all of Dr. Garg's stock options that would have otherwise vested during the 12 month period from the date of termination (assuming no termination had occurred) shall vest immediately. In the event that Dr. Garg is terminated for cause or he terminates his employment without good reason, Dr. Garg will not be entitled to the payments and benefits described above unless mutually agreed upon in writing. Dr. Garg's employment agreement also includes a two-year non-solicitation covenant and a one year non-compete covenant following the termination of Dr. Garg's employment.

        We also entered into a Change in Control Agreement with Dr. Garg effective as of June 13, 2008 providing for certain benefits to Dr. Garg in the event of the termination of his employment following a change in control. In the event that Dr. Garg's employment is terminated (i) by us for any reason other than for cause, as defined in the agreement (other than by reason of his death or permanent disability) or (ii) by Dr. Garg for good reason as defined in the agreement, including substantial reduction or diminishment of duties, responsibilities or salary or relocation of Dr. Garg's place of employment by more than 50 miles, in either case, in immediate anticipation of, concurrently with, or within 12 months following a change in control, Dr. Garg will be entitled to receive (a) an amount equal to 12 months' of his then-current monthly base salary (less all applicable deductions for withholding taxes and the like) payable as a single lump sum, (b) an amount equal to: (x) the percentage of his annual base salary received as a bonus payment for the preceding calendar year multiplied by (y) his base salary for the year of termination, and (c) an amount equal to the cost of the premium for continued health insurance coverage at the same coverage level and on the same terms and conditions which applied immediately prior to the date of termination for 12 months from the date of termination.

        Helmut Thomas, Ph.D.     Effective June 13, 2008, we entered into a Change in Control Agreement with Dr. Thomas, our Senior Vice President, Research and Preclinical Development, providing for certain benefits to Dr. Thomas in the event of his termination of employment following a change in control. In the event that Dr. Thomas' employment is terminated (i) by us for any reason other than for cause, as defined in the agreement (other than by reason of his death or permanent disability) or (ii) by Dr. Thomas for good reason as defined in the agreement, including substantial reduction or diminishment of duties, responsibilities or salary or relocation of Dr. Thomas' place of employment by more than 50 miles, in either case, in immediate anticipation of, concurrently with, or within 12 months following a change in control, Dr. Thomas will be entitled to receive (a) an amount equal to

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12 months' of his then-current monthly base salary (less all applicable deductions for withholding taxes and the like) payable as a single lump sum, (b) an amount equal to: (x) the percentage of his annual base salary received as a bonus payment for the preceding calendar year multiplied by (y) his base salary for the year of termination, and (c) an amount equal to the cost of the premium for continued health insurance coverage at the same coverage level and on the same terms and conditions which applied immediately prior to the date of termination for 12 months from the date of termination.

        Franck S. Rousseau, M.D.     On November 2, 2011, we entered into a Change in Control Agreement with Dr. Rousseau, our Chief Medical Officer, providing for certain benefits to Dr. Rousseau in the event of his termination of employment following a change in control. In the event that Dr. Rousseau's employment is terminated (i) by us for any reason other than for cause, as defined in the agreement (other than by reason of his death or permanent disability) or (ii) by Dr. Rousseau for good reason as defined in the agreement, including substantial reduction or diminishment of duties, responsibilities or salary or relocation of Dr. Rousseau's place of employment by more than 50 miles, in either case, in immediate anticipation of, concurrently with, or within 12 months following a change in control, Dr. Rousseau will be entitled to receive (a) an amount equal to six months' of his then-current monthly base salary (less all applicable deductions for withholding taxes and the like) payable as a single lump sum, (b) an amount equal to: (x) the percentage of his annual base salary received as a bonus payment for the preceding calendar year multiplied by (y) his base salary for the year of termination, and (c) an amount equal to the cost of the premium for continued health insurance coverage at the same coverage level and on the same terms and conditions which applied immediately prior to the date of termination for six months from the date of termination.

        David S. Moore.     On November 2, 2011, we entered into a Change in Control Agreement with Mr. Moore, our Chief Business Officer, providing for certain benefits to Mr. Moore in the event of his termination of employment following a change in control. In the event that Mr. Moore's employment is terminated (i) by us for any reason other than for cause, as defined in the agreement (other than by reason of his death or permanent disability) or (ii) by Mr. Moore for good reason as defined in the agreement, including substantial reduction or diminishment of duties, responsibilities or salary or relocation of Mr. Moore's place of employment by more than 50 miles, in either case, in immediate anticipation of, concurrently with, or within 12 months following a change in control, Mr. Moore will be entitled to receive (a) an amount equal to six months' of his then-current monthly base salary (less all applicable deductions for withholding taxes and the like) payable as a single lump sum, (b) an amount equal to: (x) the percentage of his annual base salary received as a bonus payment for the preceding calendar year multiplied by (y) his base salary for the year of termination, and (c) an amount equal to the cost of the premium for continued health insurance coverage at the same coverage level and on the same terms and conditions which applied immediately prior to the date of termination for six months from the date of termination.

        On February 8, 2013, we entered into a Severance Agreement with Mr. Moore in connection with his promotion as our Chief Business Officer. If Mr. Moore's employment is terminated without Cause (as defined in the agreement) other than by reason of his death or disability, and is not in immediate anticipation of, concurrently with, or within twelve months following a Change of Control (as defined in the agreement), subject to his execution of a customary separation agreement and unrevoked release, he shall be entitled to receive (i) salary continuation for the six month period immediately following the date of termination at the rate in effect at termination and subject to reduction on a dollar for dollar basis by any compensation received in connection with any employment or consulting relationship with any other person or entity during such six month period, such salary payable starting within 60 days of the date of termination with the first installment to cover amounts retroactive to the day immediately following the date of termination and (ii) if Mr. Moore was participating in our group health plan immediately prior to the date of termination and elects health continuation under COBRA, monthly cash payments in an amount equal to the monthly employer contribution that we would have

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made to provide health insurance to Mr. Moore for the period of six months following the date of termination or until such sooner date as Mr. Moore begins employment with another employer. This agreement supplements Mr. Moore's Change in Control Agreement, provided, that in no event shall Mr. Moore be entitled to pay and benefits under both his Severance Agreement and Change in Control Agreement.

        Rhonda L. Stanley.     On February 8, 2013, we entered into a Retention and Change in Control Agreement with Rhonda L. Stanley, our corporate controller, principal financial officer and principal accounting officer, providing for retention and change in control benefits. Pursuant to the agreement, Ms. Stanley will receive a retention bonus in an amount equal to 50% of her then annual base salary, less applicable deductions and withholdings, if she remains employed by us until September 30, 2013. Additionally, if her employment is terminated without Cause (as defined in the agreement) other than by reason of her death or disability prior to September 30, 2013, and is not in immediate anticipation of, concurrently with, or within twelve months following a Change of Control (as defined in agreement), subject to Ms. Stanley's execution of a customary separation agreement and unrevoked release, she shall be entitled to receive (i) salary continuation for the six month period immediately following the date of termination at the rate in effect at termination and subject to reduction on a dollar for dollar basis by any compensation received in connection with any employment or consulting relationship with any other person or entity during such six month period, such salary payable starting within 60 days of the date of termination with the first installment to cover amounts retroactive to the day immediately following the date of termination and (ii) if Ms. Stanley was participating in our group health plan immediately prior to the date of termination and elects health continuation under COBRA, monthly cash payments in an amount equal to the monthly employer contribution that we would have made to provide health insurance to Ms. Stanley for the period of six months following the date of termination or until such sooner date as Ms. Stanley begins employment with another employer.

        In addition, if her employment is terminated without Cause or for Good Reason (each as defined in the agreement) in immediate anticipation of, concurrently with, or within twelve months following a Change of Control (as defined in the agreement), subject to Ms. Stanley's execution of a customary separation agreement and unrevoked release, she shall be entitled to receive (i) six months annual salary at the rate in effect at termination payable in lump sum, (ii) an amount equal to the percentage of her annual base salary received as a bonus payment for the calendar year immediately preceding the year of termination multiplied by her base salary received in the year of termination excluding the amount described in the preceding clause (i), payable in lump sum, and (iii) an amount equal to the cost of the premium for continued health insurance coverage at the same average level and on the same terms and conditions which applied immediately prior to the date of termination for six months from the date termination, paid directly to our health insurance provider, provided Ms. Stanley properly elects and maintains continued health insurance. If Ms. Stanley was not participating in our group health insurance plan at the time of her termination of employment, we shall pay in lieu of the amount described in clause (iii) such amount equal to the monthly payment Ms. Stanley is making to obtain individual health insurance coverage at the same level and on the same terms and conditions which applied immediately prior to the date of termination, subject to Ms. Stanley providing satisfactory proof of her payment of premiums in accordance with our normal expense reimbursement policy.

        The following table and summary set forth potential payments and benefits payable to our current executive officers upon a termination of employment without cause or resignation for good reason or termination of employment without cause or resignation for good reason following a change in control. Our Compensation Committee may in its discretion revise, amend or add to the benefits if it deems advisable. The table below reflects amounts payable to our executive officers assuming the termination

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occurred on, and their employment was terminated on, December 31, 2012 and, if applicable, a change of control also occurred on such date.

        Payments upon certain terminations of employment as set forth in the table below are determined by the terms of our CEO's employment agreement and the respective named executive officer's change in control agreements. The amounts payable upon a change in control represent accelerated vesting of options and are determined by the terms of the equity incentive plan under which the options have been granted and the terms of the grant agreement governing the options. Grant agreements for options under our stock option plans generally have provided for 100% acceleration of unvested options for all grantees in connection with a change in control because our Board of Directors believes that this accelerated vesting provides our employees an incentive to assist in the successful completion of a change in control transaction.

Name
  Benefit   Without cause or
for good reason
  Change in control  

Vipin K. Garg, Ph.D. 

  Base salary continuation   $ 370,000   $ 370,000  

  Bonus          

  Continuation of benefits(1)     26,114     26,114  

  Vesting of Options(2)          
               

  Total     396,114     396,114  

Helmut Thomas, Ph.D. 

 

Base salary continuation

   
   
272,000
 

  Bonus          

  Continuation of benefits(1)         6,770  

  Vesting of Options(2)          
               

  Total         278,770  

Franck S. Rousseau

 

Base salary continuation

   
   
165,000
 

  Bonus          

  Continuation of benefits(1)         12,344  

  Vesting of Options(2)          
               

  Total         177,344  

David S. Moore

 

Base salary continuation

   
   
125,000
 

  Bonus          

  Continuation of benefits(1)         10,661  

  Vesting of Options(2)          
               

  Total         135,661  

(1)
Amounts shown for continuation of benefits represent estimates for the continuation of medical, disability and other insurance benefits afforded to the executive officers and eligible family members in accordance with the executive officer's employment agreement and/or change in control agreement.

(2)
Upon change of control all awards vest as of the change of control date. This number assumes all outstanding unvested options as of December 31, 2012 held by each named executive officer would vest. The aggregate value reported is based on the spread between the closing stock market price of $0.5402 on December 31, 2012 and the respective exercise price for each option granted. The exercise price of all executive officer unvested options exceeded the closing stock market price on December 31, 2012.

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Interests of Ocera's Directors and Executive Officers in the Merger

    Board of Directors and Management

        Each of the six current directors of Ocera is expected to serve on the board of Tranzyme effective as of the effective time of the merger. Those individuals are as follows:

         Lars G. Ekman, M.D., Ph.D. , age 63, has served as a director of Ocera since January 2009. Dr. Ekman has been employed at Sofinnova Ventures for five years and currently serves as an Executive Partner. With more than 28-years of experience in the pharmaceutical industry, Dr. Ekman served as Co-Founder and Chief Executive Officer of Cebix Inc., from 2008 to 2010 and prior to that he was Executive Vice President and President of Global Research and Development of Elan Corporation plc from January 2001 to December 2007. Prior to joining Elan, he was Executive Vice President, Research and Development at Schwarz Pharma AG from February 1997 to December 2000, and was previously employed in a variety of senior scientific and clinical functions at Pharmacia, now Pfizer. Dr. Ekman serves as the Lead Independent Director of the board of InterMune and of Amarin Corporation, the Executive Chairman of Sophiris Bio Inc. (formerly Protox Therapeutics) and the Chairman of Prothena Biosciences, each of which entities is publicly traded. Additionally, he is a member of the board of Cebix Inc. Dr. Ekman is a board certified surgeon with a Ph.D. in experimental biology and has held several clinical and academic positions in the United States and Europe. He obtained his Ph.D. and M.D. from the University of Gothenburg, Sweden. Based on Dr. Ekman's extensive knowledge of the research, development and commercialization of pharmaceutical products in a variety of therapeutic areas that he gained as a former senior executive at several global pharmaceutical companies and his medical background, Ocera believes that Dr. Ekman brings global experience and proven leadership in the pharmaceutical industry to the board of Ocera and will do likewise as a member of the board of Tranzyme effective as of the effective time of the merger.

         Linda S. Grais, M.D. , age 56, has served as a member of the Board of Directors of Ocera Therapeutics, Inc. since January 2008 and as President and Chief Executive Officer of Ocera Therapeutics, Inc. since June 2012. Prior to her employment by Ocera, Dr. Grais served as a Managing Member at InterWest Partners, a venture capital firm from May 2005 until February 2011. From July 1998 to July 2003, Dr. Grais was a founder and executive vice president of SGX Pharmaceuticals Inc., a drug discovery company focusing on new treatments for cancer. Prior to that, she was a corporate attorney at Wilson Sonsini Goodrich & Rosati, where she practiced in such areas as venture financings, public offerings and strategic partnerships. Before practicing law, Dr. Grais worked as an assistant clinical professor of Internal Medicine and Critical Care at the University of California, San Francisco. Dr. Grais received a B.A. from Yale University, magna cum laude, and Phi Beta Kappa, an M.D. from Yale Medical School and a J.D. from Stanford Law School. Dr. Grais is an appropriate nominee to the Company's Board of Directors because of her diverse training and experience as both a medical doctor and a lawyer, her experience as a founder and senior executive of a pharmaceutical company, and her experience as an investor in new life sciences companies. She currently serves on the Board of Directors of Arca Biopharma, Inc.

         Nina Kjellson , age 38, has served on Ocera's board of directors since June 2011. Ms. Kjellson is a managing director at InterWest Partners, a venture capital firm, where she has been employed since 2002. From June 2000 to June 2002, she served as an investment manager at Bay City Capital, a life sciences merchant bank, and from October 1999 to June 2000, as a research associate at Oracle Partners, a healthcare-focused hedge fund. From August 1997 to September 1999, Ms. Kjellson conducted health policy and survey research with the Kaiser Family Foundation, a private foundation focusing on healthcare issues. She holds a B.A. in Human Biology from Stanford University. Ms. Kjellson currently serves on the board of directors of Trius Therapeutics, Inc., a publicly held company. Ocera believes Ms. Kjellson's extensive healthcare investment experience, knowledge of

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financial markets and expertise in biopharmaceuticals companies makes her an appropriate nominee to serve on the board of Tranzyme effective as of the effective time of the merger.

         Michael Powell, Ph.D. , age 58, has served on Ocera's board of directors since June 2006. Dr. Powell has been a managing general partner of Sofinnova Ventures, a venture capital firm, since 1997. From 1990 to 1997, Dr. Powell served as group leader of drug delivery at Genentech, Inc. From 1987 to 1990, he was the director of product development for Cytel Corporation, a biotechnology firm. He is an adjunct professor at the University of Kansas. Dr. Powell is currently the board president of AVAC (AIDS Vaccine Advocacy Coalition) and a past strategic advisor to OneWorld Health and to the IAVI (International AIDS Vaccine Initiative) Innovation Fund. Within the past five years, Dr. Powell served on the board of directors of each of Trius Therapeutics, Inc. and Orexigen Therapeutics, Inc., each of which is a publicly held company, and currently serves on the board of directors of several private companies, including Ascenta Therapeutics, Labrys Biologics, and Mirna Therapeutics. Dr. Powell holds a B.S. in chemistry and a Ph.D. in physical chemistry from the University of Toronto, and completed his post-doctorate work in bio-organic chemistry at the University of California. Ocera believes that Dr. Powell's leadership and corporate governance experience from his experience with life sciences companies and his service on the boards of directors of other companies, including his service on other audit and nominating and corporate governance committees, makes him an appropriate nominee to serve on the board of Tranzyme effective as of the effective time of the merger.

         Pratik Shah, Ph.D. , age 43, has served as a director of Ocera since September 2005. Dr. Shah is a partner with Thomas, McNerney & Partners, a health care venture firm that invests in life science and medical technology companies, and has been with that firm since 2004. In addition he serves on the boards of Auspex Pharmaceuticals, Cebix Inc. and SGB Inc. Prior to joining Thomas, McNerney & Partners, Dr. Shah was the Chief Business Officer and co-founder of Kalypsys, Inc., a biopharmaceutical company. Before that, he was at McKinsey & Company, where he focused on biotechnology and venture capital projects. Dr. Shah holds a Ph.D. in Biochemistry & Molecular Biology and an M.B.A. in Finance from the University of Chicago. Dr. Shah is an appropriate nominee to serve on the board of Tranzyme effective as of the effective time of the merger because of his educational background, his experience as a board member, founder and senior executive of biotechnology and pharmaceutical companies, and his experience as an investor in new life sciences companies.

         Eckard Weber, M.D. , age 63, is a co-founder of Ocera and served as a member of its board of directors since Ocera's inception in December 2004, and as the chairman of Ocera's board of directors since March 2004. Dr. Weber is also an employee of Domain Associates, L.L.C., a private venture capital management firm focused on life sciences, a position he has held since 2001. Dr. Weber currently serves as interim chief executive officer of Sonexa Therapeutics, a seed-stage biopharmaceutical company. He is chairman of the board at Ascenta Therapeutics, Inc., Ocera Therapeutics Inc., Sequel Pharmaceuticals, Inc., Tobira Therapeutics, Inc. and Tragara Pharmaceuticals, Inc. Dr. Weber is an observer on the board of directors of Syndax Pharmaceuticals, Inc. and a member of the board of directors of Adynxx, Inc., Domain Elite Holdings, Ltd., and RightCare Solutions, Inc. Dr. Weber was chairman of Peninsula Pharmaceuticals, Inc. until the company was sold to Johnson & Johnson in 2005, chairman of Cerexa Inc. until the company was sold to Forest Laboratories, Inc. in January 2007, chairman of NovaCardia, Inc. until the company was sold to Merck in September 2007, chairman of Calixa Therapeutics until the company was sold to Cubist Pharmaceuticals in December 2009 and a board member of Conforma Therapeutics Corporation and Cabrellis Pharmaceuticals Corporation until they were sold to Biogen-IDEC, Inc. and Pharmion Corporation, respectively. Dr. Weber also has over 20 years of drug discovery and development experience and has been a consultant to biotechnology and pharmaceutical companies. Until 1995, he was a tenured Professor of Pharmacology at the University of California, Irvine. Dr. Weber is the inventor or co-inventor of over 40 patents and patent

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applications, and has published over 130 papers in scientific periodicals. Dr. Weber is a member of the board of director of Orexigen, Inc., and, during the past five years, served as a member of the board of directors of Novacea, Inc., each of which is a publicly traded company. Dr. Weber holds a B.S. from Kolping College in Germany and an M.D. from the University of Ulm Medical School in Germany. Because of Dr. Weber's operational, strategic and corporate leadership experience, and his experience as a founding chief executive officer and board member of, and consultant to, numerous biopharmaceutical companies, Ocera believes that Dr. Weber is an appropriate nominee to serve on the board of Tranzyme effective as of the effective time of the merger.

        The executive officers of Ocera who will be deemed executive officers of Tranzyme as of the effective time of the merger include Dr. Grais as noted above and Dana S. McGowan.

         Dana S. McGowan , age 54, is the Chief Financial Officer and Secretary of Ocera Therapeutics, Inc. and has served in those positions since September 2005 and September 2006, respectively. Prior to her employment with Ocera, Ms. McGowan was V.P. Finance and Administration and CFO for MedVantx, a healthcare technology company from 2001 to 2004. She held similar roles at Kinzan, Inc. an internet company, and DepoTech Corporation, a public drug delivery company. She has also held various financial positions with Cytel Corporation, a public biotechnology company, and at SAIC, a public Fortune 500 technical services company. Her experience at Kinzan, DepoTech and Cytel included initial public offerings and secondary offerings. She has been responsible for venture and debt financing, mergers and acquisitions, financial strategy, planning and operations. She received her B.S. in Business Administration from San Diego State University and is a certified public accountant.

        Drs. Weber, Shah and Powell and Ms. Kjellson are each employees of or otherwise affiliated with stockholders of Ocera. See "Security Ownership of Principal Stockholders and Management of Ocera" beginning on page 123.

    Ownership Interests

        As noted above under "Interests of Tranzyme's Directors and Executive Officers in the Merger" (page 53), as of May 1, 2013, Thomas, McNerney & Partners and its affiliates beneficially owned approximately 11.04% of the shares of Tranzyme's common stock, prior to the merger, and approximately 26.2% of the outstanding shares of Ocera's capital stock (on an as-converted to Ocera common stock basis), prior to the merger. Dr. Shah is a member of the board of directors of Ocera and is a partner at Thomas, McNerney & Partners.

    Stock Options

        The Ocera Therapeutics, Inc. 2005 Stock Plan covers an aggregate of 6,550,000 shares of the common stock of Ocera. At the effective time of the merger, Ocera's option plan and each outstanding option under the plan will be assumed by Tranzyme and the outstanding options will be converted into options to purchase Tranzyme common stock.

    Employment and Related Agreements

         Dr. Grais has served on Ocera's board of directors since January 2008. In June 2012, Dr. Grais became employed by Ocera as President and Chief Executive Officer. Under the terms of her June 7, 2012 offer letter from Ocera, Dr. Grais is to be employed on an "at-will," part-time basis. Currently, Dr. Grais is employed at 75% of a full time equivalent at a salary of $255,000 based on a full time equivalent salary of $340,000. The letter further provides that, while Dr. Grais would remain on Ocera's board of directors following her employment by Ocera, she was to resign, and did resign, from Ocera's audit committee.

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        The offer letter further provides that, in the event of the consummation of certain corporate transactions, Dr. Grais would be entitled to an incentive bonus equal to 4% of the consideration paid in such transaction. If Dr. Grais terminates her employment with "good reason" (as defined in her letter) prior to the closing of such corporate transaction or the expiration of the term of her employment, or if Ocera elects to terminate her employment without "cause" (as defined in her letter) prior to the consummation of such a corporate transaction or the expiration of the term of her employment, she will continue to be eligible for that incentive bonus. Although standard forward and change in control mergers would trigger the payment of such bonus, the merger with Tranzyme, structured as a reverse triangular merger for various business and tax consideration favorable to the parties and their stockholders, does not technically trigger the payment of the bonus.

        Pursuant to her offer letter, Dr. Grais was also granted an option to purchase such number of shares of Ocera's common stock as represented one percent thereof on a fully-diluted basis. The option is immediately exercisable as to all shares thereunder but any shares issued upon exercise of the option are subject to a right of repurchase in favor of Ocera upon termination of her employment with Ocera for any reason. One-half of the shares covered by her option vest in equal monthly installments over the first year of the term thereof and the other one-half upon the occurrence of certain corporate transactions. The option granted pursuant to the terms of her offer letter was amended on April 22, 2013 to revise the definition of those corporate transactions which would trigger the vesting of such other half of the shares covered by her option. As a result, the portion of her option contingent upon the occurence of certain corporate transactions will vest in full as of the effective time of the merger.

        Dr. Grais is eligible to receive performance based bonuses in an amount of up to 35% of her base salary.

        Effective as of the effective time of the merger, Dr. Grais will become the President and Chief Executive Officer of Tranzyme. Although no decision has been made as to her compensation package, it is expected that she will receive compensation in line with compensation payable to other similar executives in other similar stage companies within industries comparable to Tranzyme.

         Dana S. McGowan is employed on an "at will" basis as the Chief Financial Officer and Secretary of Ocera. Pursuant to an offer letter between Ocera and Ms. McGowan, dated September 12, 2005, as amended by a letter agreement dated January 24, 2008, in the event that the employment of Ms. McGowan is terminated without cause (as determined in good faith by the board of directors of Ocera), Ms. McGowan is entitled to continue to be paid at her then base salary for three months. As of the date of filing, Ms. McGowan's annual salary is $247,700. She is eligible to receive performance based bonuses in an amount of up to 25% of her base salary. She holds options for an aggregate of 567,489 shares of which 561,239 shares are fully vested and the balance of which will vest in accordance with the schedule set forth in her options. Effective as of the effective time of the merger, Ms. McGowan will become the Chief Financial Officer of the combined company. Although no decision has been made as to her compensation package, it is expected that she will receive compensation in line with compensation payable to other similar executives in other similar stage companies within industries comparable to Tranzyme.


Material U.S. Federal Income Tax Consequences of the Merger

        Ocera and Tranzyme intend the merger to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, or the Code. Each of Ocera and Tranzyme will use its commercially reasonable efforts to cause the merger to qualify as a reorganization within the meaning of Section 368(a) of the Code, and not to, and not to permit or cause any affiliate or any subsidiary of Ocera or Tranzyme to, take any action or cause any action to be taken which would reasonable be expected to cause the merger to fail to qualify as a reorganization under Section 368(a) of the Code. Ocera and Tranzyme will cooperate and use their commercially reasonable

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efforts in order for Ocera to obtain from Reed Smith LLP, and Tranzyme to obtain from Skadden, Arps, Slate, Meagher & Flom LLP, an opinion that the merger will constitute a reorganization within the meaning of Section 368(a) of the Code. Completion of the merger is conditioned upon receipt of such opinions. Neither Ocera nor Tranzyme may waive such respective tax opinion closing condition to the merger after the Ocera stockholders and the Tranzyme stockholders have approved the merger unless further approval is obtained from the Ocera stockholders and the Tranzyme stockholders with appropriate disclosure.

        Assuming that the merger will be treated for U.S. federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code and subject to the qualifications and assumptions described in this proxy statement neither Tranzyme nor its stockholders will not recognize any gain or loss for federal income tax purposes as a result of the merger. Therefore, there will be no material U.S. federal income tax consequences of the merger for Tranzyme stockholders.

        The foregoing discussion is for general information purposes only and is not intended to be a complete analysis or description of all potential U.S. federal income tax consequences of the merger. In addition, the discussion does not address tax consequences which may vary with, or are contingent on, your individual circumstances. Moreover, the discussion does not address any non-income tax or any foreign, state or local tax consequences of the merger. Accordingly, you are strongly encouraged to consult with your own tax advisor as to the tax consequences of the merger in your particular circumstances, including the applicability and effect of the alternative minimum tax and any state, local or foreign and other tax laws and of changes in those laws.


Anticipated Accounting Treatment

        The merger will be treated by Tranzyme as a reverse merger under the purchase method of accounting in accordance with accounting principles generally accepted in the United States, or GAAP. For accounting purposes, Ocera is considered to be acquiring Tranzyme in this transaction. Therefore, the aggregate consideration paid in connection with the merger, together with the direct costs of acquisition, will be allocated to Tranzyme's tangible and intangible assets and liabilities based on their fair market values. The assets and liabilities and results of operations of Tranzyme will be consolidated into the results of operations of Ocera as of the effective time of the merger. These allocations will be based upon a valuation that has not yet been finalized.

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THE MERGER AGREEMENT

         The following is a summary of the material terms of the merger agreement. A copy of the merger agreement is attached as Annex C to this proxy statement and is incorporated by reference into this proxy statement. The merger agreement has been attached to this proxy statement to provide you with information regarding its terms. The summary of the material terms of the merger agreement below and elsewhere in this proxy statement is qualified in its entirety by reference to the merger agreement. This summary may not contain all of the information about the merger agreement that is important to you. Tranzyme urges you to read carefully the merger agreement in its entirety as it is the legal document governing the merger.


Form of the Merger

        Upon the terms and subject to the conditions of the merger agreement, Terrapin Acquisition, Inc., or acquisition subsidiary, a Delaware corporation and wholly-owned subsidiary of Tranzyme formed by Tranzyme in connection with the merger, will merge with and into Ocera. The merger agreement provides that upon the consummation of the merger the separate existence of acquisition subsidiary shall cease. Ocera will continue as the surviving corporation and will be a wholly-owned subsidiary of Tranzyme. Under the merger agreement, the parties agreed to reasonably cooperate in the consideration and implementation of alternative structures to effect the business combination contemplated by the merger agreement as long as any such alternative structure does not impose a material delay on, or condition to, the consummation of the merger, cause any condition to the consummation of the merger contained in the merger agreement to not be capable of being satisfied or adversely affect any of the parties thereto or either of the parties' stockholders.

        After completion of the merger, assuming Proposal No. 4 is approved by Tranzyme stockholders at the Tranzyme special meeting, Tranzyme will be renamed "Ocera Therapeutics, Inc." and expects to trade on the NASDAQ Global Market under the symbol "OCRX".


Effective Time of the Merger

        The merger agreement requires the parties to consummate the merger after all of the conditions to the consummation of the merger contained in the merger agreement are satisfied or waived, including the adoption of the merger agreement by the stockholders of Ocera and the approval by the Tranzyme stockholders of the issuance of Tranzyme common stock. The merger will become effective upon the filing of a certificate of merger with the Secretary of State of the State of Delaware or at such later time as is agreed by Tranzyme and Ocera and specified in the certificate of merger. Neither Tranzyme nor Ocera can predict the exact timing of the consummation of the merger.


Merger Consideration

        Immediately prior to the effective time of the merger, each share of Ocera preferred stock outstanding at such time will be converted into shares of Ocera common stock in accordance with the certificate of incorporation of Ocera then in effect. At the effective time of the merger:

    any shares of Ocera common stock or preferred stock held as treasury stock or held or owned by Ocera or any of its subsidiaries or acquisition subsidiary shall be cancelled and cease to exist and no consideration shall be delivered in exchange therefor; and

    each share of Ocera common stock (excluding shares to be cancelled as described above and shares which are held by Ocera stockholders who have exercised and perfected appraisal rights or dissenters' rights for such shares in accordance with the DGCL or California Corporations Code, if and to the extent applicable) shall be converted solely into the right to receive a number of shares of Tranzyme common stock equal to the "exchange ratio" (as defined in the merger agreement).

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        The "exchange ratio" shall be equal to the quotient of (i) (A) the sum of (x) 45,000,000, plus (y) the amount, if any, by which Ocera's closing net working capital exceeds $890,000, or minus (z) the amount, if any, by which Ocera's net working capital is less than $890,000, multiplied by (B) the number of outstanding shares of Tranzyme common stock on a fully-diluted basis as of immediately prior to the effective time of the merger, divided by (ii) (A) the sum of (x) 17,000,000, plus (y) the amount, if any, by which Tranzyme's net working capital exceeds $6,500,000, or minus (z) the amount, if any, by which the Tranzyme's closing net working capital is less than the $6,500,000, multiplied by (B) the number of outstanding shares of Ocera common stock on a fully-diluted basis as of immediately prior to the effective time of the merger. For purposes of calculating the exchange ratio, each party's closing net working capital shall be determined based on each party's best estimate of its adjusted cash (which is equal to its current cash and cash equivalents, plus accounts receivable and minus accounts payable, as determined in accordance with GAAP) as of immediately prior to the effective time. Each party's adjusted cash calculation shall be provided to the other party three business days prior to the closing date of the merger. If either Tranzyme or Ocera objects to the other party's estimate of its adjusted cash and Tranzyme and Ocera are unable to reach an agreement on or prior to the closing date of the merger, they shall refer the dispute to PricewaterhouseCoopers LLP, which shall deliver a written report to Ocera and Tranzyme with its determination within thirty days after its engagement by the parties.

        The merger agreement does not include a price-based termination right, so there will be no adjustment to the total number of shares of Tranzyme common stock that Ocera stockholders, option holders and warrant holders will be entitled to receive for changes in the market price of Tranzyme common stock. Accordingly, the market value of the shares of Tranzyme common stock issued pursuant to the merger will depend on the market value of the shares of Tranzyme common stock at the time the merger closes, and could vary significantly from the market value on the date of this proxy statement.

        The merger agreement provides that, at or promptly following the effective time of the merger, Tranzyme will deposit with an exchange agent acceptable to Tranzyme and Ocera stock certificates representing the shares of Tranzyme common stock issuable to the Ocera stockholders.

        No fractional shares of Tranzyme common stock will be issuable pursuant to the merger to Ocera stockholders. Instead, each Ocera stockholder who would otherwise be entitled to receive a fraction of a share of Tranzyme common stock, after aggregating all fractional shares of Tranzyme common stock issuable to such stockholder, will be entitled to receive a cash payment in lieu of such fractional shares representing such holder's proportionate interest, if any, in the proceeds from the sale by the exchange agent (reduced by any fees attributable to such sale) in one or more transactions of shares of Tranzyme common stock equal to the excess of (i) the aggregate number of shares of Tranzyme common stock issuable in exchange for the outstanding shares of Ocera common stock and preferred stock over (ii) the aggregate number of whole shares of Tranzyme common stock to be distributed to holders of Ocera stock certificates.

        The merger agreement provides that, promptly after the effective time of the merger, the exchange agent will mail to each record holder of Ocera common stock and Ocera preferred stock immediately prior to the effective time of the merger a letter of transmittal and instructions for surrendering and exchanging the record holder's Ocera stock certificates for shares of Tranzyme common stock. Upon surrender of an Ocera common stock certificate for exchange to the exchange agent, together with a duly signed letter of transmittal and such other documents as the exchange agent or Tranzyme may reasonably require, the Ocera stock certificate surrendered will be cancelled and the holder of the Ocera stock certificate will be entitled to receive the following:

    a certificate representing the number of whole shares of Tranzyme common stock that such holder has the right to receive pursuant to the provisions of the merger agreement;

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    cash in lieu of any fractional share of Tranzyme common stock; and

    dividends or other distributions, if any, declared or made with respect to Tranzyme common stock with a record date after the effective time of the merger.

        At the effective time of the merger, all holders of certificates representing shares of Ocera common stock or Ocera preferred stock that were outstanding immediately prior to the effective time of the merger will cease to have any rights as stockholders of Ocera. Each Ocera stock certificate shall be deemed, from and after the effective time of the merger, to represent only the right to receive shares of Tranzyme common stock (and cash in lieu of any fractional share of Tranzyme common stock). Tranzyme will not pay dividends or other distributions on any shares of Tranzyme common stock to be issued in exchange for any unsurrendered Ocera stock certificate until the Ocera stock certificate is surrendered as provided in the merger agreement.

        If any Ocera stock certificate has been lost, stolen or destroyed, Tranzyme may, in its discretion, and as a condition to the delivery of any shares of Tranzyme common stock, require the owner of such lost, stolen or destroyed certificate to deliver an affidavit claiming such certificate has been lost, stolen or destroyed and post a bond indemnifying Tranzyme against any claim suffered by Tranzyme related to the lost, stolen or destroyed certificate or any Tranzyme common stock issued in exchange for such certificate as Tranzyme may reasonably request.


Stock Options and Warrants

        At the effective time of the merger, each outstanding option, whether or not vested, to purchase Ocera common stock and warrant to purchase Ocera common stock or Ocera preferred stock unexercised prior to the effective time of the merger shall be converted into an option or warrant to purchase Tranzyme common stock. All rights with respect to each Ocera option or warrant shall be assumed by Tranzyme in accordance with its terms. Accordingly, from and after the effective time of the merger each option or warrant assumed by Tranzyme may be exercised solely for shares of Tranzyme common stock.

        The number of shares of Tranzyme common stock subject to each outstanding Ocera option or warrant assumed by Tranzyme shall be determined by multiplying the number of shares of Ocera common stock, or in the case of each warrant, the number of shares of Ocera common stock or the number of shares of Ocera common stock issuable upon conversion of the shares of Ocera preferred stock issuable upon exercise of the warrant, that were subject to such option or warrant, as applicable, by the exchange ratio and rounding the resulting number down to the nearest whole number of shares of Tranzyme common stock. The per share exercise price for the Tranzyme common stock issuable upon exercise of each Ocera option or warrant assumed by Tranzyme shall be determined by dividing the per share exercise price of Ocera common stock, or in the case of each warrant, the per share exercise price of Ocera common stock or preferred stock, subject to such option or warrant, as applicable, by the exchange ratio and rounding the resulting exercise price up to the nearest whole cent. Any restriction on the exercise of any option assumed by Tranzyme shall continue in full force and effect and the term, exercisability, vesting schedule and other provisions of such option shall, subject to certain exceptions set forth in the merger agreement, otherwise remain unchanged. Likewise, any restriction on any warrant assumed by Tranzyme shall continue in full force and effect and the term and other provisions of such warrant shall otherwise remain unchanged.


Regulatory Approvals

        Neither Tranzyme nor Ocera is required to make any filings or to obtain approvals or clearances from any antitrust regulatory authorities in the United States or other countries to consummate the merger. In the United States, Tranzyme must comply with applicable federal and state securities laws and NASDAQ rules and regulations in connection with the issuance of shares of Tranzyme's common

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stock in the merger, including the filing with the SEC of this proxy statement. The merger agreement provides that Ocera and Tranzyme shall respond as promptly as is practicable in compliance with: (i) any inquiries or requests received from the Federal Trade Commission or the Department of Justice for information or documentation; and (ii) any inquiries or requests received from any other governmental body in connection with antitrust or competition matters.


NASDAQ Listing

        Tranzyme's common stock currently is listed on the NASDAQ Global Market under the symbol "TZYM". Pursuant to the merger agreement, Tranzyme agreed to use its commercially reasonable efforts to maintain its existing listing on the NASDAQ Global Market (or else, the NASDAQ Capital Market) and to cause the shares of Tranzyme common stock being issued in the merger to be approved for listing on the NASDAQ Global Market (or else, the NASDAQ Capital Market) at or prior to the effective time of the merger. Prior to consummation of the merger, Tranzyme intends to file an initial listing application with the NASDAQ Global Market pursuant to NASDAQ "reverse merger" rules. If such application is accepted, Tranzyme anticipates that its common stock will continue to be listed on the NASDAQ Global Market following the closing of the merger under the trading symbol "OCRX".


Appraisal Rights

        Holders of Tranzyme common stock are not entitled to appraisal rights or dissenters' rights in connection with the merger. If the merger is completed, Ocera's stockholders are entitled to appraisal rights or dissenters' rights under the Delaware General Corporation Law or the California Corporations Code, if and to the extent applicable.


Amendments to Tranzyme's Certificate of Incorporation; Bylaws of the Surviving Corporation

        At the effective time, the certificate of incorporation of Tranzyme shall be the certificate of incorporation of Tranzyme immediately prior to the effective time of the merger. Stockholders of record of Tranzyme common stock on the record date for the Tranzyme special meeting will be also be asked to approve the amended and restated certificate of incorporation of Tranzyme to change the name of the corporation from "Tranzyme, Inc." to "Ocera Therapeutics, Inc." upon consummation of the merger, which requires the affirmative vote of holders of a majority of the outstanding common stock on the record date for the Tranzyme annual meeting.

        In addition, at the effective time, the Bylaws of Ocera, as the surviving corporation in the merger, shall be amended and restated in its entirety to read identically to the Bylaws of the acquisition subsidiary immediately in effect prior to the effective time of the merger.


Conditions to the Completion of the Merger

        Each party's obligation to complete the merger is subject to the satisfaction or, to the extent permitted by applicable law, the written waiver by each of the parties, at or prior to the merger, of various conditions (subject to certain exceptions set forth in the merger agreement), which include the following:

    there must not have been issued any temporary restraining order, preliminary or permanent injunction or other order preventing the consummation of the merger, and no law, statute, rule, regulation, ruling or decree shall be in effect which has the effect of making the consummation of the merger illegal;

    stockholders of Ocera must have approved the merger, and stockholders of Tranzyme must have approved the issuance of Tranzyme common stock in the merger;

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    there must not be any legal proceeding pending, or overtly threatened in writing by an official of any governmental body in which such governmental body indicates that it intends to conduct any legal proceeding or take any action:

    challenging or seeking to restrain or prohibit the consummation of the merger;

    relating to the merger and seeking to obtain from Tranzyme, acquisition subsidiary or Ocera any damages or other relief that may be material to Tranzyme or Ocera;

    seeking to prohibit or limit in any material and adverse respect a party's ability to vote, transfer, receive dividends with respect to or otherwise exercise ownership rights with respect to the stock of Tranzyme;

    that could materially and adversely affect the right or ability of Tranzyme or Ocera to own the assets or operate the business of Tranzyme or Ocera; or

    seeking to compel Ocera, Tranzyme or any subsidiary of Tranzyme to dispose of or hold separate any material assets as a result of the merger.

        In addition, each party's obligation to complete the merger is further subject to the satisfaction or waiver by that party of the following additional conditions:

    all representations and warranties of the other party in the merger agreement must be true and correct on the date of the merger agreement and on the closing date of the merger with the same force and effect as if made on the date on which the merger is to be consummated, except in each case where the failure of to be true and correct has not had, and would not reasonably be expected to have, a material adverse effect on the party making the representations and warranties;

    the other party to the merger agreement party must have received all required third-party and governmental consents, and such consents must be in full force and effect at the closing of the merger;

    no objection to each party's closing net working capital shall have been delivered by Tranzyme or Ocera, unless Tranzyme and Ocera have agreed in writing upon the closing net working capital amounts or PricewaterhouseCoopers LLP shall have delivered its report with respect to the closing net working capital amounts;

    the other party to the merger agreement must have performed or complied with in all material respects all covenants and obligations required to be performed or complied with by it on or before the closing of the merger; and

    the other party must have delivered certain certificates and other documents required under the merger agreement for the closing of the merger, including, without limitation, written resignations executed by the other party's directors and officers who will not be officers or directors of the combined company upon the closing of the merger.

        In addition, the obligation of Tranzyme and the acquisition subsidiary to complete the merger is further subject to the satisfaction or waiver of the following conditions:

    Tranzyme must have received the opinion of Skadden, Arps, Slate Meagher & Flom LLP, dated as of the closing date of the merger, to the effect that, on the basis of the facts, representations and assumptions set forth or referred to in such opinion, the merger will for U.S. federal income tax purposes constitute a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended; and

    there shall have been no effect, change, event, circumstance, or development that is or could reasonably be expected to be materially adverse to, or has or could reasonably be expected to

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      have or result in a material adverse effect on the business condition (financial or otherwise), capitalization, assets, operations, financial performance or prospects of Ocera and its subsidiaries taken as a whole, or the ability of Ocera to consummate the merger or any of the other transactions contemplated by the merger agreement or to perform any of its covenants or obligations under the merger agreement in all material respects, each referred to as a material adverse effect as it relates to Ocera. The merger agreement provides that certain events shall not, either alone or in combination, be considered a materially adverse effect as it relates to Ocera, including, without limitation:

      any adverse effect that results from (i) general economic, business, financial or market conditions; (ii) any act of terrorism, war, national or international calamity or any other similar event or (iii) conditions in any of the industries or industry sectors in which Ocera or any of its subsidiaries operates (provided that such adverse effect does not affect Ocera and its subsidiaries, taken as a whole, in a disproportionate manner as compared to the Ocera's industry peers);

      any adverse effect resulting from any change in any applicable law, statute, rule, regulation, ruling or decree of any governmental body (provided that such adverse effect does not affect Ocera in a disproportionate manner as compared to the Ocera's industry peers or as compared to Tranzyme);

      any changes in GAAP;

      any adverse effect resulting from any action taken by Ocera or any of its subsidiaries with Tranzyme's prior written consent or the taking of any action expressly required by the merger agreement;

      any changes in the listing status of Tranzyme common stock on the NASDAQ Global Market or a determination by the NASDAQ Stock Market that such listing status of the surviving corporation may change;

      any effect resulting from the announcement or pendency of the merger; and

      a decline in Tranzyme's stock price (it being understood that any cause of any such decline may be deemed to constitute, in and of itself, a material adverse effect and may be taken into consideration when determining whether a material adverse effect on Ocera has occurred).

        In addition, the obligation of Ocera to complete the merger is further subject to the satisfaction or waiver of the following conditions:

    Tranzyme must have caused the board of directors of the combined company to be constituted as specified in the merger agreement;

    Ocera must have received the opinion of Reed Smith LLP, dated as of the closing date of the merger, to the effect that, on the basis of the facts, representations and assumptions set forth or referred to in such opinion, the merger will for U.S. federal income tax purposes constitute a reorganization within the meaning of Section 368(a) of the Code; and

    there shall have been no effect, change, event, circumstance, or development that is or could reasonably be expected to be materially adverse to, or has or could reasonably be expected to have or result in a material adverse effect on the business condition (financial or otherwise), capitalization, assets, operations, financial performance or prospects of Tranzyme and its subsidiaries taken as a whole, or the ability of Tranzyme to consummate the merger or any of the other transactions contemplated by the merger agreement or to perform any of its covenants or obligations under the merger agreement in all material respects, each referred to as a

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      material adverse effect as it relates to Tranzyme. The merger agreement provides that certain events shall not, either alone or in combination, be considered a materially adverse effect as it relates to Tranzyme, including, without limitation:

      any adverse effect that results from (i) general economic, business, financial or market conditions; (ii) any act of terrorism, war, national or international calamity or any other similar event or (iii) conditions in any of the industries or industry sectors in which Tranzyme or any of its subsidiaries operates (provided that such adverse effect does not affect Tranzyme and its subsidiaries, taken as a whole, in a disproportionate manner as compared to the Tranzyme's industry peers);

      any adverse effect resulting from any change in any applicable law, statute, rule, regulation, ruling or decree of any governmental body (provided that such adverse effect does not affect Tranzyme in a disproportionate manner as compared to the Tranzyme's industry peers or as compared to Ocera);

      any changes in GAAP;

      any adverse effect resulting from any action taken by Tranzyme or any of its subsidiaries with Ocera's prior written consent or the taking of any action expressly required by the merger agreement;

      any changes in the listing status of Tranzyme common stock on the NASDAQ Global Market or a determination by the NASDAQ Stock Market that such listing status of the surviving corporation may change;

      any effect resulting from the announcement or pendency of the merger; and

      a decline in Tranzyme's stock price (it being understood that any cause of any such decline may be deemed to constitute, in and of itself, a material adverse effect and may be taken into consideration when determining whether a material adverse effect on Tranzyme has occurred).


No Solicitation

        Each of Ocera and Tranzyme agreed that, except as described below, Ocera and Tranzyme and any of their respective subsidiaries will not, nor will either party or any of its subsidiaries authorize or permit any of the officers, directors, investment bankers, attorneys or accountants retained by it or any of its subsidiaries to, and it will use its commercially reasonable efforts to cause its and its subsidiaries' non-officer employees and other agents not to (and will not authorize any of them to) directly or indirectly:

    solicit, initiate, encourage, induce or knowingly facilitate the communication, making, submission or announcement of, any "acquisition proposal" (as defined in the merger agreement) or inquiry, indication of interest or request for information that could reasonably be expected to lead to an acquisition proposal;

    furnish to any person any information with respect to it in connection with or in response to an acquisition proposal or inquiry, indication of interest or request for information that could reasonably be expected to lead to an acquisition proposal;

    engage in discussions or negotiations with respect to any acquisition proposal or inquiry, indication of interest or request for information that could reasonably be expected to lead to an acquisition proposal;

    approve, endorse or recommend any acquisition proposal; or

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    execute or enter into any letter of intent or similar document or any contract contemplating or otherwise relating to an "acquisition transaction" (as defined in the merger agreement).

        However, before obtaining the applicable Ocera or Tranzyme stockholder approvals required to consummate the merger, each party may furnish nonpublic information regarding such party to, and may enter into discussions or negotiations with, any third party in response to a bona fide written acquisition proposal, which such party's board of directors determines in good faith, after consultation with a nationally recognized independent financial advisor and its outside legal counsel, constitutes or is reasonably likely to result in a "superior offer" (as defined in the merger agreement) if:

    neither such party nor any representative of such party has breached the no solicitation provisions of the merger agreement described above;

    that party's board of directors concludes in good faith, based on the advice of outside legal counsel, that the failure to take such action would be inconsistent with the fiduciary duties of such board of directors under applicable legal requirements; and

    that party receives from the third party an executed confidentiality agreement containing provisions (including nondisclosure provisions, use restrictions, non-solicitation provisions, no hire provisions and standstill provisions) at least as favorable to such party as those contained in the confidentiality agreement between Ocera and Tranzyme.

        The merger agreement defines "acquisition proposal" as any offer or proposal, whether written or oral (other than an offer or proposal made or submitted by Ocera, on the one hand or Tranzyme, on the other hand to the other party) contemplating or otherwise relating to any "acquisition transaction" with such party. An "acquisition transaction" includes, subject to any exceptions set forth in the merger agreement:

    any merger, consolidation, amalgamation, share exchange, business combination, issuance of securities, acquisition of securities, reorganization, recapitalization, tender offer, exchange offer or other similar transaction: (i) in which a party is a constituent corporation; (ii) in which a person or "group" of persons, directly or indirectly, acquires beneficial or record ownership of securities representing more than 15% of the outstanding securities of any class of voting securities of a party or any of its subsidiaries; or (iii) in which a party or any of its subsidiaries issues securities representing more than 15% of the outstanding securities of any class of voting securities of such party or any of its subsidiaries;

    any sale, lease, exchange, transfer, license, acquisition or disposition of any business or businesses or assets that constitute or account for 15% or more of the consolidated book value or the fair market value of the assets of a party and its subsidiaries, taken as a whole;

    any liquidation or dissolution of a party.

        The merger agreement provides that if any party or any representative of such party receives an acquisition proposal or any inquiry, indication of interest or request for information that could reasonably be expected to lead to an acquisition proposal, then such party shall promptly (and in no event later than twenty-four (24) hours after such party becomes aware of such acquisition proposal or inquiry) advise the other party, orally and in writing, of such acquisition proposal or inquiry, indication of interest or request for information that could reasonably be expected to lead to an acquisition proposal (including the material terms thereof). Such party shall keep the other party informed in all material respects with respect to the status and terms of any such acquisition proposal or inquiry, indication of interest or request for information that could reasonably be expected to lead to an acquisition proposal and any modification or proposed modification thereto.

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Meeting of Tranzyme's Stockholders and Ocera Stockholder Approval

        Tranzyme is obligated under the merger agreement to call, give notice of and hold a meeting of its stockholders for the purposes of voting on the issuance of shares of Tranzyme common stock and the merger, the sale of shares of Tranzyme Common Stock to be issued pursuant to that certain securities purchase agreement, dated April 23, 2013, by and among Tranzyme and certain purchaser parties identified therein, and the reverse stock split. The Tranzyme stockholders' meeting shall be held as promptly as practicable after this proxy statement is filed with the SEC and either (i) the SEC has indicated that it does not intend to review the proxy statement or that's its review is completed or (ii) at least ten days have passed since the proxy statement was filed with the SEC.

        Ocera is obligated under the merger agreement to obtain written consents of its stockholders sufficient to adopt the merger agreement and approve the merger and related transactions. By April 23, 2013, Ocera had obtained through a written consent of the Ocera stockholders the requisite vote necessary to approve the merger and related transactions.


Directors and Officers Following the Merger

        At and immediately after the effective time of the merger, the combined company will initially have a nine member board of directors. The initial directors to serve on the board of directors of Tranzyme shall be Jean-Paul Castaigne, M.D., Lars G. Ekman, M.D., Ph.D., Linda S. Grais, M.D., Nina Kjellson, Michael F. Powell, Ph.D., Franck S. Rousseau, M.D., Pratik Shah, Ph.D., Anne M. VanLent and Eckard Weber, M.D. until their respective successors are duly elected or appointed and qualified or their earlier death, resignation or removal.

        The merger agreement provides that at and immediately after the effective time of the merger, the officers the company shall include Linda S. Grais, M.D., Dana S. McGowan, Franck S. Rousseau, M.D. and David S. Moore. Accordingly, upon completion of the Merger, Vipin K. Garg, Ph.D., Tranzyme's President and Chief Executive Officer, will depart Tranzyme. Following the departure of Dr. Garg, Dr. Grais, the current President and Chief Executive Officer of Ocera, will assume the role of Chief Executive Officer. Ms. McGowan, the current Chief Financial Officer and Secretary of Ocera, will assume the duties of Chief Financial Officer of the combined company.


Indemnification of Officers and Directors

        The merger agreement provides that, for a period of six years following the effective time of the merger, each of Tranzyme and Ocera, as the surviving corporation in the merger, will, to the fullest extent permitted under the DGCL, jointly and severally, indemnify and hold harmless all individuals who are present or former directors and officers or who become, prior to the effective date of the merger, directors or officers of Tranzyme or Ocera, against all claims, losses, liabilities, damages, judgments, fines and reasonable fees, costs and expenses, including attorneys' fees and disbursements, incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of or pertaining to the fact that such person is or was a director or officer of Tranzyme or Ocera, whether asserted or claimed prior to, at or after the effective time of the merger. Each such indemnified person will be entitled to advancement of expenses incurred in the defense of any such claim, action, suit, proceeding or investigation from each of Tranzyme and Ocera, as the surviving corporation in the merger, jointly and severally, upon receipt by Tranzyme or Ocera, from such person of a request for such advancement; provided that such person provides an undertaking, to the extent then required by the DGCL, to repay such advances if it is ultimately determined that such person is not entitled to indemnification.

        In addition, for a period of six years following the effective time of the merger, the certificate of incorporation and bylaws of Tranzyme and Ocera, as the surviving corporation in the merger, will contain provisions no less favorable with respect to indemnification of present and former directors and

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officers of Tranzyme and Ocera than are presently set forth in the certificate of incorporation and bylaws of Tranzyme and Ocera, as applicable.

        The merger agreement also provides that, for a period of six years commencing at the closing of the merger, each of Tranzyme and Ocera, will maintain in effect a directors' and officers' liability insurance policy, with coverage containing terms and conditions at least as favorable as the coverage under the presently existing policies maintained by Tranzyme and Ocera; provided, however, that in no event shall Tranzyme and Ocera be required to expend for such insurance coverage more than an amount equal to 200% of the current annual premiums paid by Tranzyme and Ocera, as applicable, for its existing policy. In addition, the merger agreement provides that Tranzyme shall maintain directors' and officers' liability insurance policies commencing at the closing date of the merger, on commercially reasonable terms and conditions and with coverage limits customary for United States public companies similarly situated to Tranzyme.


Covenants; Conduct of Business Pending the Merger

        During the period commencing on April 23, 2013 and ending at the earlier of the date of termination of the merger agreement and the effective time of the merger, Ocera agreed that it will conduct its business in the ordinary course in accordance with past practices and in compliance with all applicable laws, rules, regulations, and certain contracts, and to take other agreed-upon actions, including, without limitation, preserving intact its current business organization and providing Tranzyme prompt notice upon the occurrence of certain events or discovery of certain conditions, facts or circumstances. During the same period, Tranzyme also agreed that it will conduct its business in the ordinary course consistent with past practices and in compliance with all applicable laws, rules, regulations and certain contracts, and to take other agreed-upon actions, including, without limitation, providing Ocera prompt notice upon the occurrence of certain events or discovery of certain conditions, facts or circumstances.

        Tranzyme and Ocera also agreed that prior to the effective time of the merger, subject to certain limited exceptions set forth in the merger agreement, without the consent of the other party, each of Tranzyme and Ocera would not, and would not cause or permit any of their subsidiaries to:

    declare, accrue, set aside or pay any dividend or made any other distribution in respect of any shares of capital stock; or repurchase, redeem or otherwise reacquire any shares of capital stock or other securities (except for shares of common stock from terminated employees);

    except for contractual commitments in place on April 23, 2013, sell, issue or grant, or authorize the issuance of: (i) any capital stock or other security (except (A) in the case of Tranzyme, Tranzyme common stock issued upon the exercise of outstanding options to purchase Tranzyme common stock and (B) in the case of Ocera, options to purchase Ocera common stock issued to Ocera employees or consultants or shares of Ocera common stock issued upon the exercise of options to purchase Ocera common stock); (ii) any option, warrant or right to acquire any capital stock or any other security; or (iii) any instrument convertible into or exchangeable for any capital stock or other security;

    amend its certificate of incorporation, bylaws or other charter or organizational documents, or effect or become a party to any merger, consolidation, share exchange, business combination, recapitalization, reclassification of shares, stock split, reverse stock split or similar transaction, except as related to any of the transactions contemplated by the merger agreement;

    form any subsidiary or acquire any equity interest or other interest in any other entity;

    lend money to any person; incur or guarantee any indebtedness for borrowed money; issue or sell any debt securities or options, warrants, calls or other rights to acquire any debt securities; guarantee any debt securities of others; or make any capital expenditure or commitment in

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      excess of $25,000, other than in the ordinary course of business or, in the case of Tranzyme, in connection with winding down of operations;

    adopt, establish or enter into any employee plan, except, in the case of Ocera, in the ordinary course of business and in observance of common practice for a similarly-situated company; cause or permit any employee plan to be amended other than as required by law or, in the case of Tranzyme, in order to make amendments for the purposes of section 409A of the tax code (in the case of Tranzyme, such amendments shall be subject to review and approval by Ocera, with Ocera's approval not to be unreasonably withheld); in the case of Tranzyme, hire any new employee; or grant, make or pay any severance, bonus or profit-sharing or similar payment to, or increase the amount of the wages, salary, commissions, fringe benefits or other compensation or remuneration payable to, any of its directors, employees or consultants;

    enter into any material transaction outside the ordinary course of business;

    acquire any material asset or sell, lease or otherwise irrevocably dispose of any of its material assets or properties or grant any encumbrance with respect to such assets or properties, except in the ordinary course of business;

    make, change or revoke any material tax election; file any material amendment to any tax return; adopt or change any accounting method in respect of taxes; change any annual tax accounting period; enter into any tax allocation agreement, tax sharing agreement or tax indemnity agreement, other than commercial contracts entered into in the ordinary course of business with vendors, customers or landlords; enter into any closing agreement with respect to any tax; settle or compromise any claim, notice, audit report or assessment in respect of material taxes; apply for or enter into any ruling from any tax authority with respect to taxes; surrender any right to claim a material tax refund; or consent to any extension or waiver of the statute of limitations period applicable to any material tax claim or assessment;

    enter into, amend or terminate any material contract;

    commence a lawsuit other than (i) for routine collection of bills; (ii) in such cases as either party in good faith determines that failure to commence such lawsuit would result in the material impairment of a valuable aspect of its business, provided that Tranzyme or Ocera, as the case may be, consults with the other party prior to the filing of such lawsuit; or (iii) for a breach of the merger agreement;

    fail to make any material payment with respect to any of its accounts payable or indebtedness in a timely manner in accordance with the terms thereof and consistent with past practice;

    issue any press release or make any disclosure (to any customers or employees of such party) regarding the merger or any other transaction contemplated by the merger agreement unless (i) the other party has approved such press release or disclosure in writing; or (ii) such party has determined in good faith, upon the advice of outside legal counsel, that such disclosure is required by applicable law and, to the extent practicable, before such release or disclosure is issued or made, such party advises the other party of, and consults with the other party regarding, the text thereof, provided that Tranzyme and Ocera may make any public statement in response to specific questions by the press, analysts, investors or those attending industry conferences or financial analyst conference calls, so long as any such statements are consistent with previous press releases, public disclosures or public statements made by Ocera or Tranzyme, as applicable; or

    take any actions or cause any action to be taken that would reasonably be expected to prevent the merger from qualifying as a "reorganization" under Section 368(a) of the Code.

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Other Agreements

        Each of Ocera and Tranzyme has agreed to use its commercially reasonable efforts to:

    cause the merger to qualify as a "reorganization" under Section 368(a) of the Code and to obtain the opinions of their respective legal advisors to the effect that, on the basis of the facts, representations and assumptions set forth or referred to in such opinions, for U.S. federal income tax purposes, the merger will constitute a "reorganization" within the meaning of Section 368(a) of the Code;

    file or otherwise submit all applications, notices, reports and other documents reasonably required to be filed with a governmental entity with respect to the merger and any transaction contemplated by the merger agreement and to promptly submit any additional information required by any such governmental entity;

    take all actions and satisfy all conditions necessary to consummate the merger and any transaction contemplated by the merger agreement;

    coordinate with the other in preparing and exchanging information and promptly provide the other with copies of all filings or submissions made in connection with the merger;

    obtain all consents, approvals or waivers reasonably required in connection with the transactions contemplated by the merger agreement; and

    lift any injunction prohibiting, or any other legal bar to, the merger or other transactions contemplated by the merger agreement.

        Ocera and Tranzyme agreed that:

    Tranzyme shall use its commercially reasonable efforts to maintain its existing listing on the NASDAQ Global Market (or else, the NASDAQ Capital Market) and to cause the shares of Tranzyme common stock being issued in the merger to be approved for listing on the NASDAQ Global Market (or else, the NASDAQ Capital Market) at or prior to the effective time of the merger;

    Ocera shall use reasonable best efforts to obtain, as promptly as practicable but in any event within 48 hours after the execution of the merger agreement, irrevocable actions by written consent from its stockholders adopting the merger agreement and approving the merger and related transactions;

    Ocera shall use its reasonable best efforts to obtain an investment representation letter from each holder of its capital stock and shall take all action required to effect the conversion of its issued and outstanding shares of preferred stock into shares of common stock in accordance with the merger agreement;

    As promptly as practicable following the date of the merger agreement, and in any event no later than one week after Ocera shall have delivered the requisite financials, Tranzyme shall prepare and cause to be filed with the SEC this proxy statement and shall use its commercially reasonable efforts to (i) cause the proxy statement to comply with the rules and regulations promulgated by the SEC, (ii) respond promptly to any comments of the SEC or its staff and (iii) cause the proxy statement to be mailed to Tranzyme's stockholders as promptly as practicable after it has been filed with the SEC and either (a) the SEC has indicated either that it does not want to review the proxy statement or its review is completed or (b) at least ten calendar days has passed since the proxy statement was filed with the SEC;

    for a period of six years after the closing of the merger, the combined company will indemnify each of the directors and officers of Ocera and Tranzyme to the fullest extent permitted under

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      the DGCL and will maintain directors' and officers' liability insurance for the directors and officers of Ocera and Tranzyme; and

    Tranzyme shall maintain directors' and officers' liability insurance policies commencing at the closing time of the merger, on commercially reasonable terms and conditions and with coverage limits customary for U.S. public companies similarly situated to Tranzyme.


Termination

        The merger agreement may be terminated at any time before the completion of the merger, whether before or after the required stockholder approvals to complete the merger have been obtained, as set forth below:

    by mutual written consent duly authorized by the board of directors of each of Ocera and Tranzyme;

    by Ocera or Tranzyme if the merger has not been completed by October 31, 2013; provided, that this right to terminate the merger agreement will not be available to any party whose action or failure to act has been a principal cause of the failure of the merger to be completed by such date and such action or failure to act constitutes a breach of the merger agreement; provided, further, that, in the event this proxy statement is still being reviewed or commented on by the SEC, either party shall be entitled to extend the date for termination of the merger agreement for an additional sixty (60) days and in the event of any dispute with respect to the adjusted cash estimates for purposes of calculating the exchange rate, the date for termination of the merger agreement shall be extended until five business days after PricewaterhouseCoopers LLP provides its report;

    by Ocera or Tranzyme if a court or other governmental entity has issued a final and nonappealable order, decree or ruling or taken any other action that permanently restrains, enjoins or otherwise prohibits the merger;

    by Tranzyme if Ocera did not obtain the written consent of a requisite number of its stockholders necessary to approve the merger and related matters within forty-eight (48) hours of the execution of the merger agreement;

    by Ocera or Tranzyme if the stockholders of Tranzyme have not given the requisite approval to consummate the merger or any of the transactions contemplated by the merger agreement, including the sale of shares of Tranzyme's common stock to be issued pursuant to that certain securities purchase agreement, dated April 23, 2013, by and among Tranzyme and certain purchaser parties identified therein, and the reverse stock split; provided, that this right to terminate the merger agreement shall not be available to Tranzyme if failure to obtain the approval of the Tranzyme stockholders was caused by the action or failure to act of Tranzyme and such action or failure to act constitutes a material breach by Tranzyme of the merger agreement;

    by Ocera, at any time prior to the approval of the issuance of the shares of Tranzyme common stock pursuant to the merger, if (each such event, a "Tranzyme triggering event"):

    the Tranzyme board of directors fails to recommend that the stockholders of Tranzyme vote to approve the merger and the issuance of Tranzyme common stock in the merger or withdraws or modifies its recommendation in a manner adverse to Ocera;

    Tranzyme fails to include in this proxy statement the recommendation of its board of directors;

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      the Tranzyme board of directors approves, endorses or recommends any acquisition proposal; or

      Tranzyme enters into any letter of intent or similar document or any contract relating to any acquisition proposal, other than a confidentiality agreement permitted pursuant to the merger agreement;

    by Tranzyme, at any time prior to the adoption of the merger agreement by the stockholders of Ocera, if (each such event, an "Ocera triggering event"):

    the Ocera board of directors fails to recommend that the Ocera stockholders vote or act by written consent to approve the merger or withdraws or modifies its recommendation in a manner adverse to Tranzyme;

    the Ocera board of directors approves, endorses or recommends any acquisition proposal;

    Ocera enters into any letter of intent or similar document or any contract relating to any acquisition proposal, other than a confidentiality agreement permitted pursuant to the merger agreement; or

    by Ocera or Tranzyme if the other party has breached any of its representations, warranties, covenants or agreements contained in the merger agreement or if any representation or warranty of the other party has become inaccurate, in either case such that the conditions to the closing of the merger would not be satisfied as of time of such breach or inaccuracy; provided, however, that if such breach or inaccuracy is curable, then the merger agreement will not terminate as a result of a particular breach or inaccuracy until the earlier of the expiration of a 30-day period after delivery of written notice of such breach or inaccuracy and the breaching party ceasing to exercise commercially reasonable efforts to cure such breach.


Termination Fee

        Except as set forth below, all fees and expenses incurred in connection with the merger agreement and the transactions contemplated thereby shall be paid by the party incurring such expenses, whether or not the merger is consummated.

    Fee Payable by Tranzyme

        Tranzyme must pay Ocera a termination fee of $500,000 if the merger agreement is terminated by Tranzyme or Ocera because the stockholders of Tranzyme do not approve the issuance of Tranzyme common stock in the merger, the sale of shares of Tranzyme common stock to be issued pursuant to that certain securities purchase agreement, dated April 23, 2013, by and among Tranzyme and certain purchaser parties identified therein, and the reverse stock split or because of a Tranzyme triggering event and (i) an acquisition proposal with respect to Tranzyme was publicly announced, disclosed or otherwise communicated to the board of directors of Tranzyme prior to the Tranzyme special meeting, and (ii) Tranzyme enters into a definitive agreement for, or consummates, an acquisition transaction within 12 months of the termination of the merger agreement.

    Fee Payable by Ocera

        Ocera must pay Tranzyme a termination fee of $500,000 if the merger agreement is terminated by Tranzyme because Ocera did not obtain the written consent of a requisite number of its stockholders necessary to adopt the merger agreement and approve the merger and related transactions within forty-eight (48) hours of the execution of the merger agreement or because of an Ocera triggering event and (i) at any time before such termination, an acquisition proposal with respect to Ocera has been publicly announced, disclosed or otherwise communicated to Ocera's board of directors, and (ii) Ocera enters

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into a definitive agreement for, or consummates, an acquisition transaction within 12 months of the termination of the merger agreement.


Representations and Warranties

        The merger agreement contains customary representations and warranties of Tranzyme, Ocera and the acquisition subsidiary for a transaction of this type. Tranzyme's representations and warranties are qualified by its disclosure schedules and, in some cases, by Tranzyme's SEC reports. Ocera's representations and warranties are qualified by its disclosure schedules. The representations and warranties in the merger agreement relate to, among other things:

    corporate organization, power and similar corporate matters;

    subsidiaries and organizational documents;

    capital structure;

    any conflicts or violations of each party's agreements as a result of the merger or the merger agreement;

    financial statements and, with respect to Tranzyme, documents filed with the SEC and the accuracy of information contained in those documents;

    any undisclosed liabilities;

    any material changes or events;

    title to assets;

    bank accounts and receivables;

    real property and leaseholds;

    filing of tax returns and payment of taxes;

    intellectual property;

    compliance with legal and regulatory requirements;

    litigation matters;

    any brokerage or finder's fee or other fee or commission in connection with the merger;

    employee benefits and related matters;

    any liens and encumbrances;

    environmental matters;

    insurance matters;

    the validity of material contracts to which the parties or their subsidiaries are a party and any violation, default or breach to such contracts;

    authority to enter into the merger agreement and the related agreements;

    approval by the board of directors;

    votes required for completion of the merger and approval of the proposals that will come before each of the Tranzyme special meeting and the Ocera written stockholder consent;

    transactions with affiliates;

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    with respect to Tranzyme, its auditor, maintenance of listing of its common stock on the NASDAQ Global Market and the valid issuance in the merger of the Tranzyme common stock; and

    the inapplicability of the provisions of Section 203 of the DGCL to the merger.

        The representations and warranties are, in many respects, qualified by materiality and knowledge, and will not survive the merger, but their accuracy forms the basis of one of the conditions to the obligations of Ocera and Tranzyme to complete the merger.


Amendment

        The merger agreement may be amended by an instrument in writing signed on behalf of each of Tranzyme and Ocera with the approval of the respective boards of directors of Ocera and Tranzyme at any time, except that after the merger agreement has been adopted by the stockholders of Ocera or Tranzyme, no amendment which by law requires further approval by the stockholders of Ocera or Tranzyme, as the case may be, shall be made without such further approval.

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AGREEMENTS RELATED TO THE MERGER

        In connection with the execution of the merger agreement, certain Ocera and Tranzyme stockholders entered into voting agreements with Tranzyme and Ocera pursuant to which, among other things, each of these stockholders agreed, solely in its capacity as a stockholder, to vote (i) in favor of the merger and the adoption of the merger agreement and the transactions contemplated thereby, and, in the case of Tranzyme, in favor of the issuance of shares and reverse stock split contemplated thereby; (ii) against the approval or adoption of any proposal made in opposition to, or in competition with, the proposed merger; (iii) against any action or agreement that would result in a breach of the merger agreement by Ocera or Tranzyme, as applicable; and (iv) against any other action which is intended, or could reasonably be expected to, impede, interfere with, delay, postpone, discourage or adversely affect the consummation of the merger or any of the other transactions contemplated by the merger agreement. The voting agreements grant a proxy to vote such shares in favor of the transactions contemplated by the merger agreement. In addition, the voting agreements place restrictions on the transfer of the shares of Tranzyme and Ocera shares held by the respective signatory stockholders.

        As of April 23, 2013, the stockholders of Ocera that entered into voting agreements owned in the aggregate approximately 32.5% of the outstanding Ocera capital stock on an as-converted to common stock basis. The Ocera stockholders that entered into voting agreements are Thomas, McNerney & Partners, L.P., TMP Nominee, LLC, TMP Associates, L.P. and Eckard Weber, M.D., Trustee of the Eckard Weber Living Trust UTA dated November 2, 2007.

        As of April 23, 2013, stockholders owning in the aggregate approximately 11.1% of Tranzyme's outstanding common stock, have entered into voting agreements. The Tranzyme stockholders that entered into the voting agreements are Thomas, McNerney & Partners, L.P., TMP Nominee, LLC and TMP Associates, L.P.

        In addition, pursuant to the conditions of the merger agreement, Ocera has obtained a written consent from the holders of a majority of the shares of Ocera common stock and preferred stock, voting together as a single class (on an as-converted to Ocera common stock basis), and the holders of at least sixty-seven percent (67%) of the outstanding shares of its preferred stock, voting together as a single class (on an as-converted to Ocera common stock basis), for purposes of (i) adopting the merger agreement and approving the merger and all other transactions contemplated under the merger agreement, (ii) acknowledging that such adoption and approval of the merger and the other contemplated transactions given thereby is irrevocable and that such stockholder is aware it may have the right to demand appraisal for its shares pursuant to Section 262 of the DGCL or dissenters' rights pursuant to Chapter 13 of the California Corporations Code, if applicable, a copy of each of which was attached thereto, and that such stockholder has received and read a copy of Section 262 of the DGCL and Chapter 13 of the California Corporations Code, and (iii) acknowledging that by its approval of the merger it is not entitled to appraisal or dissenters' rights with respect to its shares in connection with the merger and thereby waives any rights to receive payment of the fair value of its capital stock under the DGCL or California Corporations Code. Therefore, on April 23, 2013, Ocera stockholders holding shares representing the requisite vote adopted the merger agreement and approved the merger and by May 7, 2013, all Ocera stockholders had adopted the merger agreement and approved the merger. No additional Ocera stockholder approval is required to effect the merger and the related transactions.

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MATTERS BEING SUBMITTED TO A VOTE OF TRANZYME'S STOCKHOLDERS

Proposal 1: Approval of the Issuance of Common Stock in the Merger

    General

        At the special meeting, Tranzyme's stockholders will be asked to approve the issuance of Tranzyme's common stock pursuant to the merger agreement. Immediately following the effective time of the merger, Ocera's stockholders will own approximately 72.6%, and Tranzyme's current stockholders will own approximately 27.4%, of Tranzyme's common stock, after giving effect to shares issuable pursuant to Ocera's and Tranzyme's outstanding options and warrants, subject to various assumptions and conditions described in detail in this proxy statement. The terms of, reasons for and other aspects of the merger agreement and the issuance of Tranzyme's common stock pursuant to the merger agreement are described in detail in the other sections of this proxy statement.

        The full text of the merger agreement is attached to this proxy statement as Annex C .

    Required Vote; Recommendation of Board of Directors

        The affirmative vote of the holders of a majority of the shares of Tranzyme's common stock present in person or represented by proxy and voting on such matter at the special meeting is required for approval of Proposal 1. A failure to submit a proxy card or vote at the special meeting, or an abstention, vote withheld or "broker non-vote" will have no effect on the outcome of Proposal 1.

TRANZYME'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT TRANZYME'S STOCKHOLDERS VOTE "FOR" PROPOSAL 1 TO APPROVE THE ISSUANCE OF TRANZYME'S COMMON STOCK PURSUANT TO THE MERGER AGREEMENT.


Proposal 2: Approval of the Issuance of Common Stock in the Private Investment in Public Equity, or PIPE, Transaction

        At the special meeting, Tranzyme's stockholders will be asked to approve the issuance of Tranzyme's common stock pursuant to a securities purchase agreement, dated as of April 23, 2013, by and among Tranzyme and the investors (and current Ocera stockholders) named therein.

        Pursuant to the securities purchase agreement, Tranzyme will issue shares of its common stock to existing stockholders of Ocera at a price per share equal to the volume weighted average closing price for Tranzyme's common stock for the 10 trading days ending the day prior to the closing of the merger. The aggregate offering price will be $19,995,499.90, and the total number of shares to be issued will be $19,995,499.90 divided by the purchase price per share. The PIPE transaction is conditioned on the closing of the merger and customary closing conditions as detailed in the securities purchase agreement. The securities purchase agreement contains customary representations, warranties, covenants and indemnities.

        The full text of the securities purchase agreement is attached to this proxy statement as Annex D .

        In connection with the PIPE transaction, Tranzyme will enter into a Registration Rights Agreement that grants customary registration rights to the investors that will cover the shares issued pursuant to the securities purchase agreement and all other shares held by the investors. If Tranzyme is eligible to file a registration statement on Form S-3, holders of 30% of the registrable securities under the Registration Rights Agreement may demand that Tranzyme file a registration statement on Form S-3 to register their shares. If Tranzyme is not eligible to file a registration statement on Form S-3, holders of a majority of the registrable securities under the Registration Rights Agreement

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may demand that Tranzyme file a registration statement on Form S-1 to register their shares. The investors are also entitled to customary "piggy-back" registration rights.

        The full text of the Registration Rights Agreement is attached to this proxy statement as Annex E .

        The Company intends to use the proceeds from the PIPE transaction to help fund a Phase 2b clinical trial for Ocera's OCR-002 product candidate, for working capital and general corporate purposes.

        The participants in the PIPE transaction are each currently a stockholder of Ocera. Thomas, McNerney & Partners, L.P., TMP Associates, L.P. and TMP Nominee, each of which is a participant in the PIPE transaction, is also a stockholder of Tranzyme.

        Because our common stock is listed on the NASDAQ Global Market, we are subject to NASDAQ Listing Rules. Rule 5635 of the NASDAQ Listing Rules requires stockholder approval if a listed company issues common stock or securities convertible into or exercisable for common stock in a private placement equal to 20% or more of the common stock or 20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the stock.

        In the case of the PIPE transaction, Tranzyme will be issuing approximately $20.0 million in shares of its common stock, which will represent greater than 20% of its voting stock. The per share purchase price is equal to the volume weighted average closing price for Tranzyme's common for the 10 trading days ending the day prior to the closing of the merger, which price could be a discount to the market value of our common stock as reported on the NASDAQ Global Market. Accordingly, Tranzyme is seeking stockholder of approval of this issuance under the NASDAQ Listing Rules.

        The affirmative vote of the holders of a majority of the shares of Tranzyme's common stock present in person or represented by proxy and voting on such matter at the special meeting is required for approval of Proposal 2. Abstentions and broker non-votes will have no effect since only shares voting on the transaction will be counted.

TRANZYME'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT TRANZYME'S STOCKHOLDERS VOTE "FOR" PROPOSAL 2 TO APPROVE THE ISSUANCE OF TRANZYME'S COMMON STOCK PURSUANT TO THE PRIVATE INVESTMENT IN PUBLIC EQUITY, OR PIPE, TRANSACTION.


Proposal 3: Approval of the Reverse Stock Split

        At the special meeting, Tranzyme's stockholders will be asked to approve amendments to Tranzyme's certificate of incorporation to effect a reverse stock split of the issued and outstanding shares of Tranzyme's common stock and related matters. Upon the effectiveness of the amendment to Tranzyme's certificate of incorporation effecting the reverse stock split, the outstanding shares of Tranzyme's common stock will be reclassified and combined into a lesser number of shares such that one share of Tranzyme's common stock will be issued for a specified number of shares, which shall be greater than one and equal to or less than 100, of outstanding Tranzyme's common stock, with the exact number within the range to be determined by Tranzyme's board of directors prior to the effective time of such amendments and publicly announced by Tranzyme. The forms of the proposed

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amendments to the Tranzyme certificate of incorporation will, together, effect the reverse stock split, as more fully described below, but will not change the number of authorized shares, or the par value, of Tranzyme's common stock.

        If Proposal 3 is approved, the reverse stock split would become effective immediately prior to the effective time the merger. Tranzyme's board of directors may effect only one reverse stock split in connection with this Proposal 3. Tranzyme's board of directors' decision will be based on a number of factors, including market conditions, existing and expected trading prices for Tranzyme's common stock and the listing requirements of the NASDAQ Global Market . Even if the stockholders approve the reverse stock split, Tranzyme reserves the right not to effect the reverse stock split if Tranzyme's board of directors does not deem the reverse stock split to be in the best interests of Tranzyme and its stockholders. Tranzyme's board of directors may determine to effect the reverse stock split, if it is approved by the stockholders, even if the other proposals to be acted upon at the meeting are not approved, including the issuance of shares of Tranzyme's common stock in the merger.

        Tranzyme's board of directors approved the proposal authorizing the reverse stock split for the following reasons:

        If the reverse stock split successfully increases the per share price of Tranzyme's common stock, Tranzyme's board of directors believes that this may increase trading volume in Tranzyme's common stock and facilitate future financings by Tranzyme.

        Tranzyme's common stock is currently listed on the NASDAQ Global Market under the symbol "TZYM."

        According to NASDAQ rules, an issuer must, in a case such as this, apply for initial inclusion following a transaction whereby the issuer combines with a non-NASDAQ entity, resulting in a change of control of the issuer and potentially allowing the non-NASDAQ entity to obtain a NASDAQ listing. These are referred to as NASDAQ's "reverse merger" rules. Accordingly, the listing standards of the NASDAQ Global Market or NASDAQ Capital Market will require Tranzyme to have, among other things, a $4.00 per share minimum bid price upon the effective time of the merger. Because the current price of Tranzyme common stock is less than the required minimum bid prices, the reverse stock split is

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necessary to obtain approval of the listing of the combined company and the shares of Tranzyme common stock being issued in the merger on either market.

        Additionally, Tranzyme's board of directors believes that maintaining its listing on the NASDAQ Global Market may provide a broader market for Tranzyme's common stock and facilitate the use of Tranzyme's common stock in financing and other transactions. Tranzyme's board of directors unanimously approved the reverse stock split partly as a means of maintaining the share price of Tranzyme's common stock following the merger above $4.00 per share.

        One of the effects of the reverse stock split will be to effectively increase the proportion of authorized shares which are unissued relative to those which are issued. This could result in the combined company being able to issue more shares without further stockholder approval. Tranzyme currently has no plans to issue shares, other than in connection with the merger, the PIPE transaction and to satisfy obligations under Tranzyme's employee stock options and warrants from time to time as these options and warrants are exercised. The reverse stock split will not affect the number of authorized shares of Tranzyme's common stock, which will continue to be 100,000,000.

        On June 7, 2013, Tranzyme's common stock closed at $0.53 per share. In approving the proposal authorizing the reverse stock split, Tranzyme's board of directors considered that Tranzyme's common stock may not appeal to brokerage firms that are reluctant to recommend lower priced securities to their clients. Investors may also be dissuaded from purchasing lower priced stocks because the brokerage commissions, as a percentage of the total transaction, tend to be higher for such stocks. Moreover, the analysts at many brokerage firms do not monitor the trading activity or otherwise provide coverage of lower priced stocks. Also, Tranzyme's board of directors believes that most investment funds are reluctant to invest in lower priced stocks.

        There are risks associated with the reverse stock split, including that the reverse stock split may not result in an increase in the per share price of Tranzyme's common stock.

        Tranzyme cannot predict whether the reverse stock split will increase the market price for Tranzyme's common stock. The history of similar stock split combinations for companies in like circumstances is varied. There is no assurance that:

        The market price of Tranzyme's common stock will also be based on Tranzyme's performance and other factors, some of which are unrelated to the number of shares outstanding. If the reverse stock split is effected and the market price of Tranzyme's common stock declines, the percentage decline as an absolute number and as a percentage of Tranzyme's overall market capitalization may be greater than would occur in the absence of a reverse stock split. Furthermore, the liquidity of Tranzyme's common stock could be adversely affected by the reduced number of shares that would be outstanding after the reverse stock split.

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        If the stockholders approve the proposal to implement the reverse stock split and Tranzyme's board of directors implements the reverse stock split, Tranzyme will amend Tranzyme's certificate of incorporation to effect the reverse stock split. The text of the forms of the proposed amendments to Tranzyme's certificate of incorporation is attached to this proxy statement as Annex F .

        The reverse stock split will be effected simultaneously for all outstanding shares of Tranzyme's common stock. The reverse stock split will affect all of Tranzyme's stockholders uniformly and will not affect any stockholder's percentage ownership interests in Tranzyme, except to the extent that the reverse stock split results in any of Tranzyme's stockholders owning a fractional share. Common stock issued pursuant to the reverse stock split will remain fully paid and nonassessable. The reverse stock split will not affect Tranzyme's continuing to be subject to the periodic reporting requirements of the Exchange Act.

        As of the effective time of the reverse stock split, Tranzyme will adjust and proportionately decrease the number of shares of Tranzyme's common stock reserved for issuance upon exercise of, and adjust and proportionately increase the exercise price of, all options and warrants and other rights to acquire Tranzyme's common stock. In addition, as of the effective time of the reverse stock split, Tranzyme will adjust and proportionately decrease the total number of shares of Tranzyme's common stock that may be the subject of the future grants under Tranzyme's stock option plans.

        If Tranzyme's stockholders approve the proposal to effect the reverse stock split, and if Tranzyme's board of directors still believes that a reverse stock split is in the best interests of Tranzyme and its stockholders, Tranzyme's board of directors will determine the ratio of the reverse stock split to be implemented. Tranzyme will file the certificates of amendment with the Secretary of State of the State of Delaware immediately prior to the effective time of the merger. Tranzyme's board of directors may delay effecting the reverse stock split without resoliciting stockholder approval. Beginning on the effective date of the reverse stock split, each certificate representing pre-split shares will be deemed for all corporate purposes to evidence ownership of post-split shares.

        As soon as practicable after the effective date of the reverse stock split, stockholders will be notified that the reverse stock split has been effected. Tranzyme expects that Tranzyme's transfer agent will act as exchange agent for purposes of implementing the exchange of stock certificates. Holders of pre-split shares will be asked to surrender to the exchange agent certificates representing pre-split shares in exchange for certificates representing post-split shares in accordance with the procedures to be set forth in a letter of transmittal to be sent by Tranzyme. No new certificates will be issued to a stockholder until such stockholder has surrendered such stockholder's outstanding certificate(s) together with the properly completed and executed letter of transmittal to the exchange agent. Any pre-split shares submitted for transfer, whether pursuant to a sale or other disposition, or otherwise, will automatically be exchanged for post-split shares. STOCKHOLDERS SHOULD NOT DESTROY ANY STOCK CERTIFICATE(S) AND SHOULD NOT SUBMIT ANY CERTIFICATE(S) UNLESS AND UNTIL REQUESTED TO DO SO.

        No certificates or scrip representing fractional shares of Tranzyme's common stock will be issued in connection with the reverse stock split. Each holder of Tranzyme's common stock who would otherwise have been entitled to receive a fraction of a share of Tranzyme's common stock shall be entitled to receive, in lieu thereof, upon surrender of such holder's certificate(s) representing such fractional shares of Tranzyme's common stock, cash (without interest) in an amount equal to such fractional part of a share of Tranzyme's common stock multiplied by the average last reported sales price of

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Tranzyme's common stock at 4:00 p.m., Eastern time, end of regular trading hours on NASDAQ during the 10 consecutive trading days ending on the last trading day prior to the effective date of the merger.

        By authorizing the reverse stock split, stockholders will be approving the combination of any whole number of shares of common stock between and including a number that is greater than one and less than or equal to 100 into one share. The certificate of amendment filed with the Secretary of State of the State of Delaware effecting the reverse stock split will include only that number determined by the board of directors to be in the best interests of Tranzyme and its stockholders. In accordance with these resolutions, the board of directors will not implement any amendment providing for a different split ratio.

        Tranzyme's stockholders should be aware that, under the escheat laws of the various jurisdictions where stockholders reside, where Tranzyme is domiciled, and where the funds will be deposited, sums due for fractional interests that are not timely claimed after the effective date of the split may be required to be paid to the designated agent for each such jurisdiction, unless correspondence has been received by Tranzyme or the exchange agent concerning ownership of such funds within the time permitted in such jurisdiction. Thereafter, stockholders otherwise entitled to receive such funds will have to seek to obtain them directly from the state to which they were paid.

        The reverse stock split will not affect the common stock capital account on Tranzyme's balance sheet. However, because the par value of Tranzyme's common stock will remain unchanged on the effective date of the split, the components that make up the common stock capital account will change by offsetting amounts. Depending on the size of the reverse stock split the board of directors decides to implement, the stated capital component will be reduced and the additional paid-in capital component will be increased with the amount by which the stated capital is reduced. The per share net income or loss and net book value of Tranzyme will be increased because there will be fewer shares of Tranzyme's common stock outstanding. Prior periods' per share amounts will be restated to reflect the reverse stock split.

        Although the increased proportion of unissued authorized shares to issued shares could, under certain circumstances, have an anti-takeover effect, for example, by permitting issuances that would dilute the stock ownership of a person seeking to effect a change in the composition of Tranzyme's board of directors or contemplating a tender offer or other transaction for the combination of Tranzyme with another company, the reverse stock split proposal is not being proposed in response to any effort of which Tranzyme is aware to accumulate shares of Tranzyme's common stock or obtain control of Tranzyme, other than in connection with the merger with Ocera, nor is it part of a plan by management to recommend a series of similar amendments to Tranzyme's board of directors and stockholders. Other than the proposals being submitted to Tranzyme's stockholders for their consideration at the special meeting, Tranzyme's board of directors does not currently contemplate recommending the adoption of any other actions that could be construed to affect the ability of third parties to take over or change control of Tranzyme.

        Under the Delaware General Corporation Law, Tranzyme's stockholders are not entitled to appraisal rights with respect to the reverse stock split, and Tranzyme will not independently provide stockholders with any such right.

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        The following is a summary of certain material United States federal income tax consequences of the reverse stock split. It does not purport to be a complete discussion of all of the possible United States federal income tax consequences of the reverse stock split and is included for general information only. Further, it does not address any state, local or foreign income or other tax consequences. This discussion does not address the tax consequences to holders that are subject to special tax rules, such as banks, insurance companies, regulated investment companies, personal holding companies, foreign entities, nonresident alien individuals, broker-dealers and tax-exempt entities. The discussion is based on the provisions of the United States federal income tax law as of the date hereof, which are subject to change retroactively as well as prospectively. This summary also assumes that the shares of the Company's common stock held by stockholders before the reverse stock split were, and the shares of common stock held after the reverse stock split will be, held as "capital assets," as defined in the Internal Revenue Code of 1986, as amended, or the Code. The tax treatment of a stockholder may vary depending upon the particular facts and circumstances of such stockholder. Each stockholder is urged to consult with such stockholder's own tax advisor with respect to the tax consequences of the reverse stock split.

        Other than the cash payments for fractional shares discussed above, no gain or loss will be recognized by a stockholder upon such stockholder's exchange of shares held before the reverse stock split for shares after the reverse stock split. The aggregate tax basis of the shares of the Tranzyme's common stock received in the reverse stock split (including any fraction of a share deemed to have been received) will be the same as the stockholder's aggregate tax basis in the shares of common stock exchanged therefor. In general, stockholders who receive cash instead of their fractional share interests in the shares of common stock as a result of the reverse stock split will recognize gain but not loss based on the difference between their adjusted basis in the fractional share interests and the cash received. The stockholder's holding period for the shares of common stock after the reverse stock split will include the period during which the stockholder held the shares of common stock surrendered in the reverse stock split.

        This summary of certain material United States federal income tax consequence of the reverse stock split is not binding on the Internal Revenue Service or the courts. Accordingly, each stockholder should consult with his or her own tax advisor with respect to all of the potential tax consequences to him or her of the reverse stock split.

        The affirmative vote of holders of a majority of the outstanding shares of Tranzyme's common stock as of the record date for the special meeting is required for approval of Proposal 3. A failure to submit a proxy card or vote at the special meeting, or an abstention, vote withheld or "broker non-vote" for Proposal 3 will have the same effect as a vote against the approval of Proposal 3.

TRANZYME'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT TRANZYME STOCKHOLDERS VOTE "FOR" PROPOSAL 3 TO AMEND TRANZYME'S CERTIFICATE OF INCORPORATION TO EFFECT THE REVERSE STOCK SPLIT.


Proposal 4: Approval of Name Change

        At the special meeting, holders of Tranzyme common stock will be asked to approve an amendment of Tranzyme's certificate of incorporation to change the name of the corporation from Tranzyme to "Ocera Therapeutics, Inc." immediately following the effective time of the merger.

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        The primary reason for the corporate name change is that management believes this will allow for brand recognition of Ocera's product candidate pipeline following the consummation of the merger. Tranzyme's management also believes that the current name will no longer accurately reflect the business of the combined company and the mission of the combined company subsequent to the consummation of the merger. The text of the form of the proposed amendment to the Tranzyme's certificate of incorporation is attached to this proxy statement as Annex G .

        Insofar as the proposed new corporate name will only reflect Ocera's business following the merger, the proposed name change and the amendment of Tranzyme's certificate of incorporation, even if approved by the stockholders at the special meeting, will only be filed with the office of the Secretary of State of the State of Delaware and, therefore, become effective if the merger is consummated.

        The affirmative vote of holders of a majority of the outstanding shares of Tranzyme's common stock as of the record date for the special meeting is required for approval of Proposal 4. A failure to submit your proxy card or vote at the special meeting, or an abstention, vote withheld or "broker non-vote" for Proposal 4 will have the same effect as a vote against the approval of Proposal 4.

TRANZYME'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT TRANZYME'S STOCKHOLDERS VOTE "FOR" PROPOSAL 4 TO APPROVE THE NAME CHANGE.


Proposal 5: Approval of Possible Adjournment of the Special Meeting

        If Tranzyme fails to receive a sufficient number of votes to approve Proposals 1, 2, 3 or 4, Tranzyme may propose to adjourn the special meeting, if a quorum is present, for a period of not more than 30 days for the purpose of soliciting additional proxies to approve Proposals 1, 2, 3 or 4. Tranzyme currently does not intend to propose adjournment at the special meeting if there are sufficient votes to approve Proposal Nos. 1, 2, 3 and 4.

        The affirmative vote of the holders of a majority of the Tranzyme's common stock having voting power present in person or represented by proxy at the special meeting is required to approve the adjournment of the special meeting for the purpose of soliciting additional proxies to approve Proposals 1, 2, 3 or 4. A failure to submit a proxy card or vote at the special meeting, or an abstention, vote withheld or "broker non-vote" will have no effect on the outcome of Proposal 5.

TRANZYME'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT TRANZYME'S STOCKHOLDERS VOTE "FOR" PROPOSAL 5 TO ADJOURN THE SPECIAL MEETING, IF NECESSARY, IF A QUORUM IS PRESENT, TO SOLICIT ADDITIONAL PROXIES IF THERE ARE NOT SUFFICIENT VOTES IN FAVOR OF PROPOSALS 1, 2, 3 OR 4.

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TRANZYME'S BUSINESS

        For a description of Tranzyme's business, please refer to the section entitled "Item 1. Business" set forth in Tranzyme's Annual Report on Form 10-K for the year ended December 31, 2012, included as Annex B to this proxy statement, which section is incorporated by reference herein. We are not currently subject to any material legal proceedings.


TRANZYME'S PROPERTY

        For a description of Tranzyme's property, please refer to the section entitled "Item 2. Properties" set forth in Tranzyme's Annual Report on Form 10-K for the year ended December 31, 2012, included as Annex B to this proxy statement, which section is incorporated by reference herein.


OCERA'S BUSINESS

        Ocera Therapeutics, Inc., or Ocera, is a clinical stage biopharmaceutical company focused on the development and commercialization of novel therapeutics for patients with acute and chronic liver disease, an area of high unmet medical need. Ocera's lead program, OCR-002, is an ammonia scavenger designed to treat hyperammonemia (elevated ammonia in the blood) and associated hepatic encephalopathy, a complication of patients with liver cirrhosis. When the liver is no longer able to remove toxic substances from the blood, there is an accumulation of such toxins, particularly ammonia. Ammonia accumulation in the blood impairs brain cell function, and can lead to a neuropsychiatric condition called hepatic encephalopathy, or HE. HE is marked by a worsening of brain function, impaired cognition, uncontrolled movements and decreased levels of consciousness. If it progresses untreated, HE can lead to coma and death due to brain swelling. Currently there are no drug treatments for HE that can be given intravenously to hospitalized patients with acute HE in the United States. Ocera believes there is a significant unmet need for an injectable drug that can rapidly and safely treat patients with acute HE, and Ocera is developing OCR-002 to address this problem.

        OCR-002, through its dual mechanism of action, directly lowers circulating blood levels of ammonia by enabling alternate metabolic pathways in the muscle and kidney in patients with decompensated liver cirrhosis, and or liver failure from other causes. OCR-002 is being developed as an injectable formulation for hospitalized patients and as an oral formulation to treat and prevent recurrences of hepatic encephalopathy in outpatients.

        OCR-002 has received Orphan Drug designation and Fast Track status from the FDA for the treatment of hyperammonemia and associated HE in patients with liver cirrhosis, acute liver failure and acute liver injury. Currently there are few treatment options for patients hospitalized with acute HE, and no other competing in clinical development for this indication. Ocera estimates that there are up to one million patients with liver cirrhosis in the United States, and approximately 150,000 hospitalizations occur annually due to complications of HE, costing the healthcare system approximately $7 billion every year.

        Ocera has completed Phase 1 and 2a studies in which 77 subjects (both healthy volunteers and patients with liver cirrhosis) received the IV formulation of OCR-002. These studies established safety, tolerability and target dose for OCR-002.

        In addition, OCR-002 is the subject of two ongoing, externally-sponsored Phase 2a studies. The first of these studies is evaluating OCR-002 in patients with known liver cirrhosis and elevated ammonia due to upper gastrointestinal bleeding, or UGIB. UGIB is a complication of liver cirrhosis, and often leads to acute HE. The open label phase of this study demonstrated that OCR-002 provides rapid and durable ammonia reduction within 36 hours of treatment. The second part of this study, a double-blind, placebo-controlled study to measure ammonia plasma concentration and improvement in HE is currently enrolling. Data from this study is expected in the first half of 2014.

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        The second externally sponsored Phase 2a study is with the Acute Liver Failure Study Group (ALFSG), funded by the National Institutes of Health. The study evaluates OCR-002 for the treatment of patients with acute liver injury and acute liver failure, or ALF, due to acetaminophen overdose. Approximately 56,000 emergency room visits occur due to acetaminophen overdose, leading to 50% of ALF cases annually. There are approximately 2,000-3,000 cases of ALF annually in the United States, with up to a 30% mortality rate. These patients usually have acutely elevated ammonia, which can lead to cerebral swelling and brain herniation. OCR-002 is being investigated by the ALFSG as an acute treatment to lower the blood ammonia levels in these patients. Data from this study are expected in 2014.

        Ocera is currently planning to initiate a Phase 2b, randomized, double-blind, placebo-controlled, efficacy study of OCR-002 as a treatment for acute hepatic encephalopathy in hospitalized patients with liver cirrhosis. The study is expected to have approximately 200 patients, and enrollment is expected to begin in late 2013.

        In addition to OCR-002, Ocera has developed Zysa™ (AST-120) a spherical carbon adsorbent, for the treatment of irritable bowel syndrome. IBS is a chronic disorder affecting approximately 20 percent of the Western population and is characterized by abdominal pain, discomfort and alterations in bowel habits for which there are very few safe treatment options available today. AST-120 is a novel proprietary spherical carbon adsorbent with a selective adsorption profile for a variety of unwanted substances and toxins which may be responsible for conditions such as irritable bowel syndrome. Ocera licensed the compound from Kureha Corporation of Japan in 2005. AST-120 has been used chronically by over 360,000 patients and studied in over 3,000 patients worldwide. In March 2012, Ocera received CE Mark for the sale of AST-120 as a medical device for the treatment of diarrhea predominant irritable bowel syndrome (d-IBS) in the European Market. Ocera is currently evaluating strategic options for the commercialization of this product.

        Ocera, incorporated in December 2004, is a Delaware corporation. The address of Ocera's principal executive office is 12651 High Bluff Drive, Suite 230, San Diego, California 92130 and its telephone number is (858) 436-3900.

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TRANZYME'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        For Tranzyme's management's discussion and analysis of financial condition and results of operations, please refer to Item 7 set forth in Tranzyme's Annual Report on Form 10-K for the year ended December 31, 2012, included as Annex B to this proxy statement, and Item 2 set forth in Tranzyme's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, as filed with the Securities and Exchange Commission on May 14, 2013, which items are incorporated by reference herein.


QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
TRANZYME'S MARKET RISK

        For quantitative and qualitative disclosures about Tranzyme's market risk, please refer to Item 7A set forth in Tranzyme's Annual Report on Form 10-K for the year ended December 31, 2012, included as Annex B to this proxy statement, and Item 3 set forth in Tranzyme's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, as filed with the Securities and Exchange Commission on May 14, 2013, which items are incorporated by reference herein.


OCERA'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

         The following discussion and analysis of financial condition and results of operations should be read together with Ocera's financial statements and accompanying notes appearing elsewhere in this proxy statement. This Management's Discussion and Analysis contains forward-looking statements that involve risks and uncertainties. Please see "Forward-Looking Statements" on page 34 for additional factors relating to such statements, and see "Risk Factors" relating to Ocera beginning on page 18 for a discussion of certain risk factors applicable to Ocera's business, financial condition, and results of operations. Operating results are not necessarily indicative of results that may occur in future periods.


Overview

        Ocera is a clinical stage biopharmaceutical company focused on the development and commercialization of novel therapeutics for patients with acute and chronic liver disease, an area of high unmet medical need. Ocera's lead program, OCR-002, is an ammonia scavenger, designed to treat hyperammonemia (elevated ammonia in the blood) and associated hepatic encephalopathy, a complication of patients with liver cirrhosis. When the liver is no longer able to remove toxic substances from the blood, there is an accumulation of such toxins, particularly ammonia. Ammonia accumulation in the blood impairs brain cell function, and can lead to a neuropsychiatric condition called hepatic encephalopathy, or HE. HE is marked by a worsening of brain function, impaired cognition, uncontrolled movements and decreased levels of consciousness. If it progresses untreated, HE can lead to coma and death due to brain swelling. Currently, there are no drug treatments for HE that can be given intravenously to hospitalized patients with acute HE in the United States. Ocera believes there is a significant unmet need for an injectable drug that can rapidly and safely treat patients with acute HE, and it is developing OCR-002 to address this problem.

        OCR-002, through its dual mechanism of action, directly lowers circulating blood levels of ammonia by enabling alternate metabolic pathways in the muscle and kidney in patients with decompensated liver cirrhosis, and or liver failure from other causes. OCR-002 is being developed as an injectable formulation for hospitalized patients and as an oral formulation to treat and prevent recurrences of hepatic encephalopathy in outpatients.

        OCR-002 has received Orphan Drug designation and Fast Track status from the FDA for the treatment of hyperammonemia and associated HE in patients with liver cirrhosis, acute liver failure and acute liver injury. Currently there are few treatment options for patients hospitalized with acute HE,

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and no other competing in clinical development for this indication. Ocera estimates that there are up to one million patients with liver cirrhosis in the United States, and approximately 150,000 hospitalizations occur annually due to complications of HE, costing the healthcare system approximately $7 billion every year.

        Ocera has completed Phase 1 and 2a studies in which 77 subjects (both healthy volunteers and patients with liver cirrhosis) received the IV formulation of OCR-002. These studies established safety, tolerability and target dose for OCR-002.

        In addition, OCR-002 is the subject of two ongoing, externally-sponsored Phase 2a studies. The first of these studies is evaluating OCR-002 in patients with known liver cirrhosis and elevated ammonia due to upper gastrointestinal bleeding, or UGIB. UGIB is a complication of liver cirrhosis, and often leads to acute HE. The open label phase of this study demonstrated that OCR-002 provides rapid and durable ammonia reduction within 36 hours of treatment. The second part of this study, a double-blind, placebo-controlled study to measure ammonia plasma concentration and improvement in HE is currently enrolling. Data from this study is expected in the first half of 2014.

        The second externally sponsored Phase 2a study is with the Acute Liver Failure Study Group (ALFSG), funded by the National Institutes of Health. The ALSFG is studying OCR-002 for the treatment of patients with acute liver injury and acute liver failure due to acetaminophen overdose. Approximately 56,000 emergency room visits occur due to acetaminophen overdose, leading to 50% of ALF cases annually. There are approximately 2,000-3,000 cases of ALF annually in the United States with up to a 30% mortality rate. These patients usually have acutely elevated ammonia, which can lead to cerebral swelling and brain herniation. OCR-002 is being investigated by the ALFSG as an acute treatment to lower the blood ammonia levels in these patients. Data from this study are expected in 2014.

        Ocera is currently planning to initiate a Phase 2b, randomized, double-blind, placebo-controlled, efficacy study of OCR-002 as a treatment for acute hepatic encephalopathy in hospitalized patients with liver cirrhosis. The study is expected to have approximately 200 patients, and enrollment is expected to begin in late 2013.

        In addition to OCR-002, Ocera has developed Zysa™ (AST-120) a spherical carbon adsorbent, for the treatment of irritable bowel syndrome. IBS is a chronic disorder affecting approximately 20 percent of the Western population and is characterized by abdominal pain, discomfort and alterations in bowel habits for which there are very few safe treatment options available today. AST-120 is a novel proprietary spherical carbon adsorbent with a selective adsorption profile for a variety of unwanted substances and toxins which may be responsible for conditions such as irritable bowel syndrome. Ocera licensed the compound from Kureha Corporation of Japan in 2005. AST-120 has been used chronically by over 360,000 patients and studied in over 3,000 patients worldwide. In March 2012, Ocera received CE Mark for the sale of AST-120 as a medical device for the treatment of diarrhea predominant irritable bowel syndrome (d-IBS) in the European Market. It is currently evaluating strategic options for the commercialization of this product.

        Ocera is a development stage company and has incurred net losses since its inception. As of December 31, 2012 and March 31, 2013, Ocera had a deficit accumulated during the development stage of $64.0 million and $64.7 million, respectively. Ocera recorded net losses of $3.6 million and $4.7 million during the years ended December 31, 2012 and 2011, respectively, and $0.7 million for the three months ended March 31, 2013. Ocera anticipates that a substantial portion of its capital resources and efforts in the foreseeable future will be focused on completing the development and obtaining regulatory approval of OCR-002.

        Ocera has devoted substantial resources towards the development of OCR-002 and AST-120, protecting and enhancing its intellectual property and providing general and administrative support for these activities. Ocera has not generated any revenues from product sales and, to date, has funded its operations primarily through the private placement of equity securities and convertible debt. Through

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March 31, 2013, it has raised net cash proceeds of approximately $61.7 million from the sale of convertible preferred stock and $3.0 million from the issuance of convertible debt securities. In addition, Ocera borrowed and repaid a $4.0 million loan from a lender who provided working capital.

        Substantially all of Ocera's operating losses resulted from expenses incurred in connection with its development programs and from general and administrative costs associated with its operations. Ocera expects to incur increasing operating losses for at least the next several years when it initiates the phase 2b study of OCR-002 in acute hepatic encephalopathy and continues development of its oral formulation to treat and prevent recurrences of hepatic encephalopathy. Ocera anticipates its expenses will increase significantly as it seeks regulatory approval for its product candidates and maintains, expands and protects its intellectual property portfolio. If the proposed merger is approved, Ocera's expenses would further increase as a result of the hiring of financial personnel and adding operational, financial and management information systems and incurring costs associated with becoming a public company.


Recent Developments

        On April 23, 2013, Ocera entered into a definitive agreement to merge with a subsidiary of Tranzyme, in an all-stock transaction. Upon closing, the combined company will be renamed Ocera Therapeutics, Inc. Concurrent with the signing of the merger agreement, certain of Ocera's investors committed to approximately $20.0 million in a private investment in a public entity (PIPE) financing which will close upon completion of the merger. Prior to the PIPE financing, Tranzyme will issue, to Ocera's stockholders, shares of Tranzyme common stock such that Ocera's stockholders will own approximately 72.6% of the combined company, and the Tranzyme stockholders will own approximately 27.4% of the combined company. The final number of shares issued will be subject to adjustments at closing based on each company's cash levels and other matters. The transaction, which has been approved by the boards of directors of both companies, is subject to approval by the stockholders of Tranzyme and the satisfaction of customary closing conditions and regulatory approvals. The merger is expected to close during the third quarter of 2013.


Financial Overview

        Ocera is a development stage company and has generated no revenue from the sale of products since inception. Ocera does not expect to generate any revenue from its existing product candidates unless or until it commercializes or enters into a strategic alliance for OCR-002 or AST-120.

        Since its inception, Ocera has focused on the development of its product candidates. Ocera's research and development expenses consist primarily of:

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        Ocera expenses research and development expenses as they are incurred. Ocera has been developing OCR-002 and AST-120 in parallel, and typically use its employees, consultants and infrastructure resources across its two programs. Thus, some of its research and development expenses are not attributable to an individual program, but rather are allocated across its two programs and these costs are included in other research and development expense as detailed below. Allocated expenses include salaries, stock-based compensation and related benefit expenses for its employees, fees paid for clinical studies and contract manufacturing expenses. Included in OCR-002 research and development expenses for the three months ended March 31, 2013 is $162,000 of proceeds from the sale of materials used in the manufacturing of clinical drug supply. The following table shows its research and development expenses for the years ended December 31, 2012 and 2011 and the three months ended March 31, 2013 and 2012:

 
  Years Ended
December 31,
  Three Months Ended
March 31,
 
(in thousands)
  2012   2011   2013   2012  
 
   
   
  (unaudited)
 

OCR-002

  $ 638   $ 1,534   $ (120 ) $ 235  

AST-120

    56     149     10     26  

Other research and development expenses

    948     1,362     179     220  
                   

Total

  $ 1,642   $ 3,045   $ 69   $ 481  
                   

        Ocera expects its research and development expenses to increase when it initiates its Phase 2b trial of OCR-002 and continues development of its oral formulation to treat and prevent recurrences of hepatic encephalopathy. Due to the inherently unpredictable nature of product development, Ocera is currently unable to estimate the expenses it will incur in the continued development of OCR-002.

        Ocera's research and development expenditures are subject to numerous uncertainties in timing and cost to completion. Development timelines, the probability of success and development expenses can differ materially from expectations. Clinical trials may be difficult to enroll given the small number of patients with certain of its target indications. Completion of clinical trials may take several years or more, but the length of time generally varies according to the type, complexity, novelty and intended use of a product candidate. The cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development, including, among others:

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        Ocera's expenses related to clinical trials are based on estimates of patient enrollment and related expenses at clinical investigator sites as well as estimates for the services received and efforts expended pursuant to contracts with multiple research institutions and contract research organizations that may be used to conduct and manage clinical trials on its behalf. It generally accrues expenses related to clinical trials based on contracted amounts applied to the level of patient enrollment and activity. If timelines or contracts are modified based upon changes in the clinical trial protocol or scope of work to be performed, Ocera modifies its estimates of accrued expenses accordingly on a prospective basis.

        As a result of the uncertainties discussed above, Ocera is unable to determine with certainty the duration and completion costs of its development programs. Ocera will need to raise additional capital and may seek strategic alliances in the future to advance its programs.

        General and administrative expenses consist primarily of salaries, benefits and stock-based compensation for employees in executive, finance, business development and support functions. Other significant expenses include the costs associated with obtaining and maintaining its patents portfolio, professional fees for accounting and legal services, travel and allocated facilities and other expenses.

        Ocera expects that its general and administrative expenses will increase in the future as it expands its operating activities, maintain and expand its patent portfolio, and incur additional costs associated with the pending merger and the preparation of being a public company. Ocera expects these increases will likely include increased expenses for legal fees, accounting fees, director and officers' liability insurance, and investor relations fees.

        Other income (expense) consists primarily of non-cash interest expense related to Ocera's borrowings. Interest income consists of interest earned on its cash and cash equivalents. Ocera accounted for the convertible preferred stock warrants at fair value and recorded a warrant liability on the date of issuance. Ocera adjusted the liability for changes in fair value of these warrants on each reporting date. In the years ended December 31, 2012 and 2011 and the three months ended March 31, 2013, Ocera recorded an increase of $45,000, a decrease of $292,000 and a decrease of $5,000, respectively, in the fair value of its warrant liability.

        Ocera has incurred net losses and has not recorded any U.S. federal or state income tax benefits for the losses as they have been offset by valuation allowances.


Critical Accounting Policies and Significant Judgments and Estimates

        The preparation of Ocera's financial statements requires it to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the revenues and expenses incurred during the reported periods. Ocera base its estimates on historical experience and on various other factors that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

        While Ocera's significant accounting policies are described in the notes to its financial statements appearing elsewhere in this proxy statement, it believes that the following critical accounting policies relating to clinical trial accruals, warrant and derivative liabilities and stock-based compensation are most important to understanding and evaluating its reported financial results.

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        As part of the process of preparing financial statements, Ocera is required to estimate accrued expenses. Ocera bases its expenses related to clinical trials on estimates of patient enrollment and related expenses at clinical investigator sites as well as estimates for the services received and efforts expended pursuant to contracts with multiple research institutions and CROs that may conduct and manage clinical trials on its behalf. Ocera generally accrues expenses related to clinical trials based on contracted amounts applied to the level of patient enrollment and activity according to the protocol. If timelines or contracts are modified based upon changes in the clinical trial protocol or scope of work to be performed, Ocera modifies its estimates of accrued expenses accordingly on a prospective basis. If Ocera does not identify costs that it has begun to incur or if it underestimates or overestimates the level of services performed or the costs of these services, its actual expenses could differ from its estimates. Ocera does not anticipate the future settlement of existing accruals to differ materially from its estimates.

        Ocera accounts for its preferred stock and common stock warrants as either equity or liabilities based upon the characteristics and provisions of each instrument. Ocera records warrants classified as equity as additional paid-in capital on the balance sheet and makes no future adjustment to their valuation. Ocera records warrants classified as derivative liabilities in connection with convertible notes, that require separate accounting as liabilities on its balance sheets, at their fair value on the date of issuance and remeasure them on each subsequent balance sheet, with fair value changes recognized as increases or reductions to other income (expense), net in the statements of operations. Ocera estimate the fair value of these liabilities using option-pricing models and assumptions that are based on the individual characteristics of the warrants or instruments on the valuation date, as well as assumptions for future financings, expected volatility, expected life, yield, and risk-free interest rate. Ocera accounts for its warrants for shares of convertible preferred stock as liabilities. Ocera adjusted the liability for changes in fair value of these warrants on each reporting date.

        In connection with the convertible notes Ocera issued in March and October 2012, its lenders received warrants to purchase shares of its common stock. The March 2012 warrants provided price protection for three months and were required to be accounted for as a liability. Upon the expiration of the price protection provision in June 2012, the fair value of the common stock warrants was reclassified to equity. The October 2012 warrants were accounted for as equity on the issuance date. Ocera used a third party valuation firm to assist in the valuation of its convertible notes and common stock warrants. The fair value of common stock warrants in the aggregate was determined by using an income approach to first estimating the enterprise value of its company, and then allocating the enterprise value to its various securities using the option-pricing method. The option-pricing method was applied using various scenarios based on the potential liquidity alternatives available to Ocera. The valuation model considered the debt and option characteristics of the notes. The key inputs to the valuation model are estimated loan term, volatility, and the risk-free interest rate. The original fair value of the warrants was recorded as debt issuance cost which is being amortized as interest expense over the term of the notes.

        Ocera recognizes as compensation expense the grant date estimated fair value of stock options and other stock-based compensation issued to employees over the requisite service periods, which are typically the vesting periods. Ocera records stock options issued to non-employees at their fair value, periodically revalues them as the stock options vest, and recognizes expense over the related service period. For performance-based stock options, Ocera begins to recognize the expense when it is deemed

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probable that the performance-based goal will be met. Ocera evaluates the probability of achieving performance-based goals at each reporting date.

        Stock-based compensation has not been a significant expense to date. In future periods, Ocera expects its stock-based compensation expense to increase as Ocera issues additional stock-based awards in order to attract and retain employees and non-employee consultants.

        Stock-based compensation expense includes stock options granted to employees and non-employees and has been reported in Ocera's statements of operations as follows:

 
  Years Ended
December 31,
  Three Months Ended
March 31,
 
(in thousands)
  2012   2011   2013   2012  
 
   
   
  (unaudited)
 

Research and development

  $ 27   $ 69   $ 2   $ 14  

General and administrative

    127     155     14     56  
                   

Total

  $ 154   $ 224   $ 16   $ 70  
                   

        Ocera calculates the fair value of stock-based compensation awards using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires the input of subjective assumptions, including the risk-free interest rate, expected dividend yield, expected stock price volatility and the expected term of the stock options.

        The following table summarizes the assumptions used in the Black Scholes model:

 
  Years Ended
December 31,
  Three Months Ended
March 31,
 
 
  2012   2011   2013   2012  
 
   
   
  (unaudited)
 

Risk-free interest rates

    0.95% - 1.11%     1.99%     —%     1.12%  

Expected dividend yield

    0.0%     0.0%     0.0%     0.0%  

Expected volatility

    92% - 109%     92%     —%     109%  

Expected term (in years)

    6.25     6.25         6.25  

        Risk-free interest rate.     Ocera determines the risk-free interest rate by reference to implied yields available from U.S. Treasury securities with a remaining term equal to the expected life assumed at the date of grant.

        Expected dividend yield.     The expected dividend yield is based on Ocera's expectation of not paying dividends in the foreseeable future.

        Expected volatility.     As a private company, Ocera does not have sufficient history to estimate the volatility of its common stock price or the expected term of its options. Ocera calculates expected volatility based on reported data for a selected group of similar publicly traded companies, or guideline peer group, for which the historical information is available. Ocera will continue to use the guideline peer group volatility information until the historical volatility of its common stock is relevant to measure expected volatility, for future option grants.

        Expected term.     The weighted average expected life of stock options for 2011 and 2012 reflects the application of the simplified method. The simplified method defines the life as the average of the contractual term of the options and the weighted average vesting period for all option tranches.

        Ocera estimates forfeitures based on its historical analysis of actual stock option forfeitures.

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        There is a high degree of subjectivity involved when using option-pricing models to estimate stock-based compensation. Currently, there is no market-based mechanism or other practical application to verify the reliability and accuracy of the estimates stemming from these valuation models, nor is there a means to compare and adjust the estimates to actual values. Although the fair value of employee stock-based awards is determined using an option-pricing model, this value may not be indicative of the fair value observed in a market transaction between a willing buyer and willing seller. If factors change and Ocera employs different assumptions when valuing its options, the compensation expense that it records in the future may differ significantly from what it has historically reported.

        The fair values of the common stock underlying Ocera's stock-based awards were estimated on each grant date by its board of directors, with input from management and utilizing an independent third-party valuation specialist. All options to purchase shares of its common stock are intended to be granted with an exercise price per share no less than the fair value per share of its common stock underlying those options on the date of grant, based on the information known to Ocera on the date of grant. In the absence of a public trading market for its common stock, on each grant date, Ocera develops an estimate of the fair value of its common stock in order to determine an exercise price for the option grants. The majority of Ocera's directors are not employees and have significant experience in the pharmaceutical and biotechnology industries. Ocera believes that its board of directors has the relevant experience and expertise to determine the fair value of its common stock on each respective grant date. Given the absence of a public trading market of its common stock, and in accordance with the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation , its board of directors considered various objective and subjective factors to determine the fair value of its common stock, including: external market conditions affecting the biotechnology industry, trends within the broader biotechnology industry, the prices at which Ocera sold shares of convertible preferred stock, the superior rights and preferences of the convertible preferred stock relative to its common stock at the time of each grant, its results of operations, its financial position, the status of its research and development efforts, its stage of development, its business strategy and advancement of its product candidates, the lack of an active public market for its common and the likelihood of achieving a liquidity event such as an initial public offering, or IPO, or sale of the company in light of prevailing market conditions.

        In connection with its preparation of the unaudited financial statements through the third quarter of 2012, and in light of the increase in its enterprise value indicated by the December 2012 valuation as a result of the possible liquidity scenarios, Ocera reassessed the fair value of its initial contemporaneous third-party valuation completed in December 2011 and the initial estimates of the fair value of its common stock through the third quarter of 2012 on a retrospective basis for financial reporting purposes. When considering the various subjective and objective factors noted above, Ocera determined that no major operational events or other circumstances had occurred between those dates that would cause a significant change in its common stock valuation. However, Ocera determined it was probable that its common stock valuation had increased based on certain subjective factors that would necessitate a change in its valuation models as it obtained more clarity about its potential liquidity events. Specifically, Ocera considered the increased likelihood of a possible liquidity scenario including the potential merger with a public company in 2013 or the sale of Ocera in light of its business development activities and prevailing market conditions. Additionally Ocera considered the progress related to potential strategic transactions for OCR-002, and the issuance of convertible notes in March and June 2012. Ocera's bid to merge with Tranzyme was accepted in March 2013 and Ocera signed the definitive merger agreement in April 2013. These events provided indicators of its increased likelihood of a liquidity event in determining the timing of a valuation inflection point. In addition, Ocera

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considered the public market value of Tranzyme and its projected ownership of the combined company upon the close of the merger.

        Ocera determined its enterprise value by utilizing the income approach. The income approach is based on the premise that the value of a business is equal to the present value of a company's future earning capacity. The application of this approach involves estimating the free cash flows for the business, and then discounting the cash flows back to a present value at an appropriate discount rate.

        Ocera prepared a financial forecast for each valuation that included consideration of future expectations and significant assumptions on revenues and expenses. Its forecasts assumed that Ocera, or a strategic partner, would sell OCR-002. Ocera believes it has a reasonable basis to estimate product sales based on published data for the number of patients with cirrhosis in the United States and the number of hospitalizations occurring annually due to complications of encephalopathy or acute liver failure. The potential number of patients that may be treated using its oral formulation for the prevention of the recurrence of hepatic encephalopathy was based on estimated disease prevalence and prescription data in the United States. Ocera estimated a selling price for each product based on independent market research and applied a reasonable growth rate to the number of newly diagnosed patients and to the selling price. Additionally, the sales forecast takes into account its expected market share for the products, projected competition, and the market launch dates. In addition, Ocera forecasts revenues from potential strategic alliances for OCR-002 and AST-120.

        Ocera project its expenses utilizing a bottom up approach. Ocera estimated cost of sales based upon manufacturing activities and expected costs to manufacture its products. Ocera estimated expenses for research and development for expected development and regulatory activities based upon the stage of the clinical development program. Ocera estimated sales and marketing expenses based upon the expected expenses to be incurred for the anticipated product launches and associated sales and commercial needs. Ocera forecast general and administrative costs based upon the general corporate and infrastructure needs for the expected size of its organization.

        The financial forecast for each valuation was used to estimate the free cash flows of the business. These cash flows were discounted at a rate which was calculated using inputs from comparable private and public biopharmaceutical companies. In selecting the comparable publicly traded companies in Ocera's industry, it considered a variety of factors including companies which develop therapies to treat liver and gastrointestinal diseases and companies of comparable size.

        After determining an enterprise value utilizing the income approach, Ocera then allocated the enterprise value of its company to each of its classes of stock using either the Option-Pricing Method, or OPM, or a hybrid method, a modified OPM. The OPM treats common stock and convertible preferred stock as call options on an enterprise value, with exercise prices based on the value thresholds at which the allocation among the various holders of a company's securities changes. Under this method, the common stock has value only if the funds available for distribution to the stockholders exceed the value of the liquidation preferences of its preferred stock at the time of a liquidity event such as a merger, sale or initial public offering, assuming the enterprise has funds available to make a liquidation preference meaningful and collectible by the stockholders. The common stock is modeled to be a call option with a claim on the enterprise at an exercise price equal to the remaining value immediately after the convertible preferred stock is liquidated. The OPM uses the Black-Scholes option-pricing model to price the call option. This model defines the securities' fair value as functions of the current fair value of a company and uses assumptions such as the anticipated timing of a liquidity event and the estimated volatility of the equity securities. A discount for lack of marketability was applied to reflect the increased risk arising from the inability to readily sell the shares.

        The hybrid method or modified OPM is a scenario-based forward looking analysis of possible future outcomes of the company. The future outcomes Ocera considered under the hybrid method included various public and private, market based, liquidation scenarios available to the company and

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were weighted according to the estimate of the probability of each scenario occurring. In the private financing scenarios, a large portion of the equity value is allocated to the convertible preferred stock to reflect the aggregate liquidation preferences. In the public company merger scenarios, the equity value is allocated pro rata among the shares of common stock and each series of convertible preferred stock, which causes the common stock to have a higher relative value per share than under the private financing scenarios.

        Information regarding equity instruments issued between January 1, 2011 and March 31, 2013 is summarized as follows:

Date of Transaction
  Equity Type   Number of
Shares
Underlying
Options or
Warrants
Granted
  Exercise
Price
Per
Share
  Management's
Estimate of
Per Share Fair
Value of
the Underlying
Common Stock
 

June 16, 2011

  Common Stock Options     777,588 (5) $ 0.08   $ 0.19  

January 26, 2012

  Common Stock Options     341,358 (5) $ 0.08   $ 0.17  

March 30, 2012

  Common Stock Warrants     219,666 (1)(2) $ 0.08   $ 0.14  

June 13, 2012

  Common Stock Options     515,091 (5) $ 0.08   $ 0.18  

June 30, 2012

  Common Stock Warrants     329,495 (2)(3) $ 0.08   $ 0.18  

October 1, 2012

  Common Stock Warrants     549,161 (2)(4) $ 0.08   $ 0.22  

(1)
Pursuant to the terms of the warrant agreement in connection with Ocera's convertible debt offering, the number of shares to be issued is calculated based upon 30% of the principal amount of the related notes issued in the financing divided by the Series C Preferred Stock price of $2.04858 per share.

(2)
The fair value of warrants in the aggregate was determined by using an income approach by first estimating the equity value of Ocera, then allocating the value to its various securities using the option-pricing method. The option-pricing method was applied in various scenarios based on the potential liquidity alternatives available to Ocera. See Note 4 to Ocera's financial statements included elsewhere in this proxy statement.

(3)
Pursuant to the terms of the warrant agreement in connection with Ocera's convertible debt offering, the additional number of shares to be issued is calculated based upon 45% of the principal amount of the related notes issued in the financing divided by the Series C Preferred Stock price of $2.04858 per share.

(4)
Pursuant to the terms of the warrant agreement, in connection with Ocera's convertible debt offering, the number of shares to be issued is calculated based upon 75% of the principal amount of the related notes issued in the financing divided by the Series C Preferred Stock price of $2.04858 per share.

(5)
Ocera reassessed the fair value of its common stock subsequent to the grant date of these awards.

        The intrinsic value of all outstanding options as December 31, 2012, was $368,000 based on the estimated fair value for Ocera common stock of $0.22 per share.

        The intrinsic value of the vested options outstanding at December 31, 2011, was $136,000 based on the estimated fair value for Ocera common stock of $0.17 per share at December 31, 2011.

        At December 31, 2012 and March 31, 2013, Ocera had $97,000 and $80,000, respectively, of total unrecognized stock-based compensation expense related to employee stock options that will be recognized over a weighted average life of 0.98 and 0.78 years, respectively.

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    Discussion of Specific Valuation Inputs

        Over time, a combination of factors caused changes in the fair value of Ocera's common stock. The following summarizes the changes in value from January 2011 to 2012 and the major factors that caused each change.

        June 2011 through December 2011:     This valuation utilized the income approach to determine Ocera's enterprise value and the option pricing method to allocate the enterprise value to its common stock. Due to its stage of development, Ocera's technological developments to date and the belief that the value of its assets on a going-concern basis is premised on the ability to generate a fair rate of return on invested capital, Ocera used the income approach to value its company. The income approach utilizes a discounted cash flow, or DCF, analysis based on the premise that the value of an asset is equal to the present value of future economic benefits that accrue to the owners.

        Ocera's DCF analysis was based on management's projections of revenues and expenses for the years ending December 31, 2011 which included sales or revenues from strategic alliances for OCR-002 and AST-120, and projected development costs for Ocera's product candidates. Ocera updated several inputs into its valuation model including a retrospective assessment of the number of shares of preferred stock that would be issued upon conversion of its $3.0 million convertible debt issuance. At the close of the proposed merger, the March 2012 and October 2012 convertible notes will be converted into shares of Series C preferred stock at $2.04858 per share. In contrast, its valuation assumed the convertible notes would convert at a lower per share value leading to less common stock value. Additionally, Ocera added working capital to its enterprise value and extended the anticipated time to a liquidity event. As a result, Ocera concluded that its common stock fair value increase from $0.08 to $0.19 per share in June 2011 based on a total equity value of $42.7 million. As there were no significant operational milestones between valuation periods, Ocera concluded that its common stock fair value was $0.17 per share in December 2011 based on a total equity value of $38.8 million. The decrease in fair value between June and December 2011 reflected a decrease in its net working capital.

        Ocera selected the OPM to allocate enterprise value determined using the income approach to the outstanding equity securities as of December 2011. This conclusion was based on its belief that the OPM was appropriate given the stage of the company and the conversion features of its preferred securities.

        The OPM analysis was applied using the following criteria:

    each class of stock or derivative was modeled as a call option with a claim on the enterprise value of Ocera,

    an estimated "option term" of 2.5 year was chosen, which was consistent with estimated milestone events and the liquidity scenarios available to Ocera,

    a volatility estimate of 95% for June 2011 and 85% for December 2011 was used, based on a study of similar publicly traded companies, as well as its development-stage status and operating environment,

    a discount rate of 40% to capture the risks related to its stage of development and the risk related to raising the required capital to bring OCR-002 and AST-120 to the market, and

    an incremental 20% discount to reflect the lack of marketability of its common stock based on restricted stock studies and considerations of the degree of risk for the biotechnology industry.

    January to September 2012 Valuations

        Ocera utilized the income approach to determine its enterprise value and the option-pricing method to allocate the enterprise value to its common stock. It also took into account its near-term

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liquidity needs and updated its common stock value based on possible liquidity scenarios. Ocera assigned a 90% probability towards a stay private company scenario and a 10% probability for an IPO scenario. The value per share under each scenario was then summed to determine its enterprise value.

        The significant assumptions used in Ocera's DCF analysis for the stay private scenarios included funding from a strategic alliance followed by the sale of the company. The significant assumptions used in its DCF analysis for the IPO scenario included (1) retaining commercial rights for the sale of OCR-002 in the United States, (2) revenues from a strategic alliance for OCR-002 outside of the United States, and 3) projected development costs for the product candidates. Further, Ocera elected not to include revenues or expenses associated with AST-120 while Ocera evaluate strategic options for this product.

        March 2012:     The decrease in the fair value of its common stock in March 2012 primarily reflected the decline in enterprise value based on the 90% weighing towards a strategic alliance where Ocera does not retain future product rights. Ocera also took into account the effects of a $1.5 million convertible debt financing, which addressed its short-term liquidity needs. Ocera utilized a discount rate of 40% in its DCF analysis, a volatility rate of 80%, and a 2.5 year time to liquidity in the OPM allocation. It applied a 30% discount for lack of marketability to reflect the lack of liquidity in its common stock. As a result, Ocera concluded that its common stock fair value was estimated to be $0.14 per share in based on an equity value of $32.7 million.

        June through September 2012:     Ocera utilized a discount rate of 40% in its DCF analysis and a volatility rate of 90%, and a 2 year time to liquidity in its OPM allocation. It applied a 30% discount for lack of marketability to reflect the lack of liquidity in its common stock. As a result, it concluded that common stock fair value in June 2012 was estimated to be $0.18 per share based on an equity value of $35.9 million. The common stock valuation in September 2012 was estimated to be $0.21 based on an equity value of $39.9 million. The increases in the fair value of its common stock during these periods primarily reflected a decrease in the expected time term to liquidity.

    December 2012 Valuation

        The December 2012 valuation utilized a hybrid of the OPM and modified OPM to determine its per share common stock value. Under the OPM analysis, Ocera decreased the probability of a liquidity event occurring in early 2015 through a strategic alliance from 90% to 30%, and increased the probability of an IPO in early 2015 from 10% to 65%. Ocera utilized a time to liquidity of two years and a discount for lack of marketability of 30%. In addition, Ocera assigned a 5% probability to the sale of the company by mid-2013. These three potential liquidity scenarios were collectively weighted 90% in determining its enterprise value at December 2012.

        Under the modified OPM, Ocera assigned a 10% probability to the possible merger with a public company. It also accounted for the raise of $1.5 million in convertible notes from its existing investors in October 2012. The per share values under the OPM and modified OPM scenarios are weighted to determine the fair value per share of its common stock. The modified OPM analysis utilized a time to liquidity of six months and a discount for lack of marketability of 15% was applied. This resulted in an equity value of $35.9 million and a common stock valuation of $0.22 per share at December 2012.

    March 2013 Valuation

        The March 2013 valuation utilized a hybrid of the OPM and modified OPM to determine its per share common stock value. Under the OPM analysis, Ocera assigned the probability of a liquidity event occurring in early 2015 through a strategic alliance at 35%, and the probability of an IPO in early 2015 at 65%. Ocera utilized a time to liquidity of two years and a discount for lack of marketability of 30%. In addition, Ocera assigned a 5% probability to the sale of the company by mid-2013. These three potential liquidity scenarios were collectively weighted 40% in determining its enterprise value at March 2013.

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        Under the modified OPM, Ocera assigned a 60% probability to the possible merger with a public company. The per share values under the OPM and modified OPM scenarios are weighted to determine the fair value per share of Ocera's common stock. The modified OPM analysis utilized a time to liquidity of three months and a discount for lack of marketability of 10% was applied. This resulted in an equity value of $39.2 million and a common stock valuation of $0.46 per share at March 2013.

        There is inherent uncertainty in these forecasts and projections, and if Ocera had made different assumptions and estimates than those described above, the amount of its stock-based compensation expense, net loss and net loss per share amounts could have been materially different.

        Ocera's significant accounting policies and estimates are more fully described in Note 1 to Ocera's Financial Statements.


Results of Operations

Comparison of the Three Months Ended March 31, 2013 and 2012

 
  Three Months Ended
March 31,
   
 
(in thousands)
  2013   2012   Change  
 
  (unaudited)
   
 

Research and development

  $ 69   $ 481   $ (412 )

General and administrative

    571     579     (8 )

Other income (expenses), net

    (91 )   7     (98 )

    Research and Development Expenses

        Research and development expenses decreased by approximately $412,000, or 85.7% for the three months ended March 31, 2013 compared to the three months ended March 31, 2012. This decrease in research and development expense in 2013 compared to 2012 was primarily due to proceeds of $162,000 from the sale of materials used in the production of OCR-002 clinical drug supply, a reduction of $92,000 in payroll and performance bonus expense, and lower external services of $83,000 associated with clinical studies and $54,000 associated with manufacturing activities.

    General and Administrative Expenses

        General and administrative expenses decreased by $8,000 or 1.2% for the three months ended March 31, 2013 compared to the three months ended March 31, 2012. The decrease was primarily from lower spending for legal fees of $106,000, payroll and performance bonus of $79,000 and travel expense of $30,000. This was partially offset by spending of $222,000 for professional fees and external services associated with the proposed Tranzyme merger.

    Other Income (Expense), Net

    Interest and Other Income

        Interest income consists of interest earned on Ocera's cash and cash equivalents. The change in interest income was not significant for the three months ended March 31, 2013 and 2012.

    Interest and Other Expense

        Interest and other expense, net, increased by $96,000 for the three months ended March 31, 2013 compared to the three months ended March 31, 2012. This increase was the result of interest expense related to the $1.5 million of convertible notes payable issued in March 2012.

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    Change in Fair Value of Warrant Liability

        The change in the valuation of warrants decreased to $11,000 from $16,000 for the three months ended March 31, 2013 from the year ended December 31, 2012. The changes reflect the change in fair value related to the preferred stock warrants liability.

Comparison of the Years Ended December 31, 2012 and 2011

 
  Year Ended
December 31,
   
 
(in thousands)
  2012   2011   Change  

Research and development

  $ 1,642   $ 3,045   $ (1,403 )

General and administrative

    1,739     1,985     (246 )

Other income (expenses), net

    (227 )   303     (530 )

    Research and Development Expenses

        Research and development expenses decreased by approximately $1.4 million, or 46.0% for the year ended December 31, 2012 from the year ended December 31, 2011. This decrease in research and development expense in 2012 compared to 2011 was primarily due to a reduction of $800,000 in manufacturing related expense for the production of OCR-002 clinical supply. Ocera also decreased external services by $300,000 upon completion of its phase 1 clinical studies of OCR-002 in 2011. Other decreases in research and development expense included a decrease of $200,000 in payroll and performance bonus expenses and $100,000 in pre-clinical studies completed in 2011.

    General and Administrative Expenses

        General and administrative expenses decreased by $246,000 or 12.4% for the year ended December 31, 2012 from the year ended December 31, 2011. The decrease in general and administration expense in 2012 compared to 2011 was primarily due to a decrease of $200,000 in external services.

    Other Income (Expense), Net

    Interest and Other Income

        Interest income consists of interest earned on its cash and cash equivalents. The change in interest income was not significant for the years ended December 31, 2012 and 2011.

    Interest and Other Expense

        Interest and other expense, net, increased by $184,000 for the year December 31, 2012 from the year ended December 31, 2011. This increase was the result of interest expense related to Ocera's $3.0 million of convertible notes payable issued in 2012.

    Change in Fair Value of Warrant Liability

        The change in the valuation of warrants decreased to $45,000 from $292,000 for the year ended December 31, 2012 from the year ended December 31, 2011. The changes reflect the change in fair value related to the preferred stock warrants liability.

    Income Taxes

        Ocera has incurred net losses and have not recorded any U.S. federal or state income tax benefits for the losses as they have been offset by valuation allowances.

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Liquidity and Capital Resources

        Since its inception in December 2004, Ocera has raised $68.7 million to fund its operations primarily through proceeds from the sale of convertible preferred stock and the issuance of convertible and non-convertible debt. Ocera has not generated any revenue from the sale of products. Ocera has incurred losses and generated negative cash flows from operations since inception. From inception through March 31, 2013, it received net cash proceeds of $60.7 million from the sale of convertible preferred stock, $1.0 million from the conversion of a promissory note into Ocera's Series A Preferred Stock, $3.0 million from the issuance of convertible notes, and $4.0 million from the issuance of non-convertible notes that were subsequently repaid. As of December 31, 2012 and 2011, its principal sources of liquidity were its cash and cash equivalents, which totaled $2.3 million and $3.1 million, respectively.

        In March 2012, Ocera issued in aggregate principal amount of $1.5 million of convertible notes. In October 2012, it issued in aggregate principal amount $1.5 million of convertible notes. The notes bear interest at 6% per annum. The principal and accrued interest will convert into Series C Preferred Stock upon the close of the proposed merger. For additional information, see Note 4 to Ocera's audited financial statements elsewhere in the proxy statement.

        The following table summarizes Ocera's cash flows for the years ended December 31, 2012 and 2011 and the three months ended March 31, 2013 and 2012:

 
  Year Ended December 31,   Three Months Ended March 31,  
(in thousands)
  2012   2011   2013   2012  
 
   
   
  (unaudited)
 

Net cash (used in) provided by:

                         

Operating activities

  $ (3,999 ) $ (4,925 ) $ (660 ) $ (1,615 )

Investing activities

    248     3,949     (2 )   250  

Financing activities

    2,940     0     20     1,449  
                   

Total

  $ (811 ) $ (976 ) $ (642 ) $ 84  
                   

Comparison of the Three Months Ended March 31, 2013 and 2012

        The primary use of cash in operating activities for three months ended March 31, 2013 and March 31, 2012 was to fund operating activities related to the development of OCR-002 and the proposed merger activities. Cash used in operating activities for three months ended March 31, 2013 primarily related to Ocera's net loss of $0.7 million. Cash used in operating activities of $1.6 million for the three months ended March 31, 2012 primarily related to Ocera's net loss of $1.1 million and the payment of its year end accruals related to clinical drug manufacturing.

        For the three months ended March 31, 2012, net cash provided by investing activities primarily related to the maturity of investments used to fund operations.

        Net cash provided by financing activities for the three months ended March 31, 2013 related to proceeds from the exercise of the company's common stock options. Net cash provided by financing activities for the three months ended March 31, 2012 was provided by proceeds from the March 2012 convertible notes payable.

Comparison of the Years Ended December 31, 2012 and 2011

        The primary use of cash in operating activities for the year ended December 31, 2012 and 2011 was to fund operating activities related to the development of OCR-002 and AST-120. Cash used in operating activities for the year ended December 31, 2012 of $4.0 million primarily related to its net loss of $3.6 million. In addition, Ocera paid down its year end accrual related to manufacturing

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activities. Cash used in operating activities of $4.9 million for the year ended December 31, 2011 primarily related to its net loss of $4.7 million. In addition, Ocera paid down its year end accrual related to its CRO used for clinical studies.

        For the years ended December 31, 2012 and 2011 net cash used in or provided by investing activities primarily related to the purchase, sale and maturity of investments used to fund operations.

        Net cash provided by financing activities for the year ended December 31, 2012, was provided by proceeds from the March and October 2012 convertible notes. There were no financing activities for the year ended December 31, 2011.

        The following table summarizes Ocera's cash and cash equivalents and working capital for the years ended December 31, 2012 and 2011 and the three months ended March 31, 2013 and 2012:

 
  Year Ended December 31,   Three Months Ended March 31,  
(in thousands)
  2012(1)   2011   2013(1)   2012  
 
   
   
  (unaudited)
 

Cash and cash equivalents

  $ 2,303   $ 3,114   $ 1,661   $ 3,198  

Working capital

    (1,054 )   2,192     (1,752 )   1,236  

(1)
Working capital at December 31, 2012 and March 31, 2013 includes convertible notes payable and related accrued interest expense of $3.1 million that will convert into Series C Preferred Stock at $2.04858 per share upon completion of the merger.


Future Funding Requirements

        Based on Ocera's operating plans, it does not currently have sufficient working capital to fund planned operating expenses through December 31, 2013 without additional sources of cash. However, certain of its investors have committed to a $20.0 million PIPE financing for the combined company concurrent with the successful completion of the merger with Tranzyme. Ocera will likely need to obtain additional financing to fund its future operations, including the development, approval and commercialization of OCR-002. Ocera's future funding requirements will depend on many factors, including, but not limited to:

    the initiation, progress, timing, scope and costs of its nonclinical studies and clinical trials, including the ability to timely enroll patients in its planned and potential future clinical trials;

    the time and cost necessary to obtain regulatory approvals;

    the costs of manufacture clinical and commercial supplies of OCR-002;

    payments of milestones and royalties to third parties;

    the time and cost necessary to respond to technological and market developments;

    the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; and

    any changes made to, or new developments in, its restated collaboration agreement with UCL Business PLC or Kureha Corporation or any new collaborative, licensing and other commercial relationships that it may establish.

        Ocera has not generated any revenue from the sale of any products. Ocera does not know when, or if, it will generate any revenue. Ocera expects its continuing operating losses to result in increases in cash used in operations over the next several years. It may raise additional funds within this period of time through collaborations and public or private debt or equity financings. Additional financing may not be available when it is needed or may not be available on terms that are favorable to Ocera. It may seek to raise additional capital through a combination of private and public equity offerings and debt

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financings. To the extent that Ocera raises additional capital through the sale of equity or convertible debt securities, the ownership interest of existing stockholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of existing stockholders. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting its ability to take specific actions such as incurring debt, making capital expenditures or declaring dividends.

        If adequate funds are not available to it on a timely basis, or at all, Ocera may be required to terminate or delay clinical trials or other development activities for OCR-002 or AST-120. Ocera may elect to raise additional funds even before it needs them if the conditions for raising capital are favorable.


Contractual Obligations and Commitments

        Ocera's long-term contractual obligations as of December 31, 2012 consisted of operating lease payments for its facility totaling $109,000 due in less than one year.

    Commercial Licenses

        In December 2008, Ocera entered into a license agreement with UCL Business PLC, or UCL, for worldwide rights to develop and commercialize OCR-002 and related technologies for any use. The agreement was amended on July 2011 and February 2013. As consideration for the license, Ocera paid a $1.0 million up-front fee. It may be required to make future milestone payments to UCL totaling up to $17.0 million upon the achievement of various milestones related to regulatory or commercial events for OCR-002. Ocera may also be required to pay incremental milestone payments for an additional dosage form. Ocera is also obligated to pay a royalty in the low to mid-single digits on future net sales of the licensed product.

        In July 2004, Ocera in-licensed from Kureha Corporation the technology and exclusive development and commercialization rights to its AST-120 product candidate for the treatment of liver and gastrointestinal disease for the territories of North America and Europe. Ocera paid a $1.5 million up-front fee to Kureha. In March 2008, the license agreement was amended to expand the licensed territory to include all territories other than certain Asian countries, in exchange for a payment of $0.5 million. Kureha will receive a fixed percentage of any payment that Ocera may receive for sublicensed rights in the countries associated with the expanded territory. Under these agreements, Ocera may also be required to make future milestone payments upon the achievement of various milestones related to regulatory or commercial events for its first indications in gastrointestinal diseases. Ocera is also obligated to pay a royalty in the single digits on future net sales. In April 2012, the license agreement was amended to include the development and commercialization of AST-120 as a medical device for IBS in European countries. Under this amended agreement, Ocera may be required to make milestone payments based on future commercial milestones and net sales.

    Patent Assignment Agreement

        In December 2011, Ocera entered into a Patent Assignment Agreement with an individual. As consideration for the agreement, it issued an option for the purchase of 30,000 shares of its common stock at $0.08 per share. The shares were fully vested on the date of grant. Ocera may also be required to make future payments totaling up to $169,000 upon the achievement of certain business milestones.


Off-Balance Sheet Arrangements

        Ocera does not currently have any off-balance sheet arrangements (as defined by applicable SEC regulations) that are reasonably likely to have current or future material effect on its financial conditions, results of operations, liquidity, capital expenditures or capital resources.

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UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

New Ocera Therapeutics, Inc. Unaudited Pro Forma Combined Financial Statements

        The following unaudited pro forma combined financial statements give effect to the merger of a wholly-owned subsidiary of Tranzyme, Inc., or Tranzyme, with and into Ocera Therapeutics, Inc., or Ocera, in a transaction to be accounted for as a reverse acquisition, with Ocera being deemed the acquiring company for accounting purposes. Ocera is considered the accounting acquirer even though Tranzyme will be the issuer of the common stock in the merger. The term "the Company" as used in this proxy statement refers to Tranzyme following the merger.

        The unaudited pro forma combined balance sheet at March 31, 2013 and the unaudited pro forma combined statement of operations for the three months ended March 31, 2013 and the year ended December 31, 2012 presented herein are based on the historical financial statements of Ocera and Tranzyme after giving effect to the proposed acquisition (for accounting purposes) of Tranzyme by Ocera and the assumptions and adjustments described in the accompanying notes to these unaudited pro forma combined financial statements.

        Because the Ocera security holders are anticipated to beneficially own approximately 72.6% of the fully-diluted capitalization of the Company immediately following the closing of the merger, and the Ocera directors and management will hold a majority of board seats and key positions in the management of the Company, Ocera is considered to be the acquiring company for accounting purposes, and the transaction will be accounted for by Ocera as a reverse acquisition under the acquisition method of accounting for business combinations. Accordingly, the acquisition consideration for accounting purposes will consist of the Tranzyme common stock to be held by the historic Ocera stockholders immediately following the completion of the merger. Assets and liabilities of Tranzyme will be measured at fair value and added to the assets and liabilities of Ocera, and the historical results of operations of Tranzyme and Ocera will be reflected in the results of operations of the Company following the merger. The unaudited pro forma combined balance sheet as of March 31, 2013 gives effect to the proposed merger as if it occurred on March 31, 2013, and combines the historical balance sheets of Ocera and Tranzyme. The unaudited pro forma combined statement of operations for the three months ended March 31, 2013 and for the year ended December 31, 2012 is presented as if the merger was consummated on January 1, 2012, and combines the historical results of Ocera and Tranzyme for the three months ended March 31, 2013 and the year ended December 31, 2012.

        The unaudited pro forma combined financial statements were prepared in accordance with the regulations of the Securities Exchange Commission. The pro forma adjustments reflecting the completion of the merger are based upon the acquisition method of accounting in accordance with GAAP and upon the assumptions set forth in the notes to the unaudited pro forma combined financial statements.

        The historical financial data has been adjusted to give pro forma effect to events that are (i) directly attributable to the merger, (ii) factually supportable, and (iii) with respect to the statement of operations, expected to have a continuing impact on the combined results. The pro forma adjustments are preliminary and based on management's estimates of the fair value and useful lives of the assets acquired and liabilities assumed and have been prepared to illustrate the estimated effect of the acquisition and certain other adjustments.

        The Ocera balance sheet and statement of operations information as of and for the year ended December 31, 2012 was derived from its audited financial statements for the year ended December 31, 2012, included elsewhere in this proxy statement. The Ocera statement of operations for the three months ended March 31, 2013 and balance sheet as of March 31, 2013 was derived from the unaudited financial statements included elsewhere in this proxy statement.

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        The Tranzyme balance sheet and statement of operations information as of and for the year ended December 31, 2012 was derived from its audited consolidated financial statements included in its Annual Report on Form 10-K as of and for the year ended December 31, 2012, included elsewhere in this proxy statement. The unaudited Tranzyme statement of operations for the three months ended March 31, 2013 and unaudited balance sheet as of March 31, 2013 were derived from its consolidated financial statements included in its Quarterly Report on Form 10-Q as filed with the Securities and Exchange Commission on May 14, 2013.

        The estimated number of shares of Tranzyme common stock used to calculate the acquisition consideration is determined pursuant to the merger agreement. The amounts of acquisition consideration, assets acquired and liabilities assumed that will be used in acquisition accounting will be based on their respective fair values as determined at the time of closing, and may differ significantly from these preliminary estimates.

        The unaudited pro forma combined financial statements do not give effect to the potential impact of current financial conditions, regulatory matters, operating efficiencies or other savings or expenses that may be associated with the acquisition. The unaudited pro forma combined financial data also do not include any integration costs. The unaudited pro forma combined financial statements have been prepared for illustrative purposes only and are not necessarily indicative of the financial position or results of operations in future periods or the results that actually would have been realized had Ocera and Tranzyme been a combined company during the specified period. The unaudited pro forma combined financial statements, including the notes thereto, should be read in conjunction with the Ocera historical audited financial statements for the year ended December 31, 2012 and the unaudited financial statements for the three months ended March 31, 2013 included elsewhere in this proxy statement and in conjunction with the Tranzyme historical audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2012, and its historical unaudited consolidated financial statements included in its Quarterly Report on Form 10-Q for the three months ended March 31, 2013.

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UNAUDITED PRO FORMA COMBINED BALANCE SHEET

MARCH 31, 2013

(In thousands)

 
  Tranzyme, Inc.   Ocera Therapeutics, Inc.   Pro Forma
Adjustments
   
  Pro Forma
Combined
 

Assets

                             

Current assets:

                             

Cash and cash equivalents

  $ 10,812   $ 1,661           $ 12,473  

Accounts receivable, net

    390                 390  

Investment tax receivable

    731                 731  

Prepaid expenses and other current assets           

    134     76             210  
                       

Total current assets

    12,067     1,737             13,804  

Property and equipment, net

    841     5             846  

Investment tax credit receivable

    101                 101  

Intangible assets, net

            7,330   (F)     7,330  
                       

Total assets

  $ 13,009   $ 1,742   $ 7,330       $ 22,081  
                       

Liabilities and stockholders' equity (deficit)

                             

Current liabilities:

                             

Accounts payable

  $