Ocera Therapeutics, Inc.
Ocera Therapeutics, Inc. (Form: 10-Q, Received: 08/10/2015 16:25:37)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549  
___________________________________________________________
 
FORM 10-Q

(Mark One) 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  

For the quarterly period ended June 30, 2015
 
or
 
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  
For the transition period from       to                
 
Commission File Number 001-35119
___________________________________________________________
Ocera Therapeutics, Inc.
(Exact name of registrant as specified in its charter)
 
DELAWARE
 
63-1192270
(State or other jurisdiction of incorporation
 
(I.R.S. Employer Identification No.)
or organization)
 
 
 
525 University Avenue, Suite 610
 
 
Palo Alto, CA
 
94301
(Address of principal executive offices)
 
(Zip Code)
 
(650) 475-0150
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x   No  o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x  No  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,”  “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large Accelerated Filer o
 
Accelerated Filer x
 
 
 
Non-Accelerated Filer o
 
Smaller Reporting Company o
(Do not check if a smaller reporting company)
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨   No  x
The number of shares outstanding of the registrant’s Common Stock as of July 31, 2015 was 19,884,225.

1






FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or the negative of these words or other comparable terminology.
These forward-looking statements include, but are not limited to, statements about:
the timing, design, implementation and success of our clinical trials for OCR-002; 
our ability to enroll patients, and the timing of enrollment, in our Phase 2b clinical trial of OCR-002;
our ability to obtain U.S. and foreign regulatory approval for OCR-002 and the ability of OCR-002 to meet existing or future regulatory standards; 
the progress, timing and amount of expenses associated with our research, development and commercialization activities for OCR-002; 
the therapeutic benefits, effectiveness and safety of OCR-002; 
our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others; 
our intention to seek, and our ability to establish strategic collaborations or partnerships for the development or sale of OCR-002 and the effectiveness of such collaborations or partnerships; 
our expectations as to future financial performance, cash and expense levels and liquidity sources; and
other risks and uncertainties, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q and Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2014.
Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q and Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2014. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.
Unless the context requires otherwise, references in this Quarterly Report to “we,” “us” and “our” refer to Ocera Therapeutics, Inc. and its subsidiaries.
                         

2




OCERA THERAPEUTICS, INC.
INDEX
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


3




PART I - FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements

Ocera Therapeutics, Inc.
Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Amounts)
 
June 30,
 
December 31,
 
2015
 
2014
 
(unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
8,370

 
$
10,127

Short-term investments, available-for-sale
32,835

 
37,112

Accounts receivable
74

 
62

Prepaid expenses and other current assets
685

 
970

Total current assets
41,964

 
48,271

Property and equipment, net
45

 
61

Long-term investments

 
3,928

Deposits
26

 
26

Intangible assets, net
89

 
171

Goodwill
595

 
595

Total assets
$
42,719

 
$
53,052

Liabilities and stockholders' equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
1,084

 
941

Accrued liabilities
2,030

 
1,966

Total liabilities
3,114

 
2,907

Commitments and contingencies (Note 8)


 

Stockholders' equity:
 
 
 
Preferred stock - $0.00001 par value, 5,000,000 shares authorized and no shares issued or outstanding at June 30, 2015 and December 31, 2014.

 

Common stock - $0.00001 par value, 100,000,000 shares authorized, 19,884,225 shares issued shares outstanding at June 30, 2015 and 19,747,362 shares issued and outstanding at December 31, 2014.

 

Additional paid-in capital
157,389

 
155,083

Accumulated other comprehensive loss
(1
)
 
(27
)
Accumulated deficit
(117,783
)
 
(104,911
)
Total stockholders' equity
39,605

 
50,145

Total liabilities and stockholders' equity
$
42,719

 
$
53,052



See the accompanying notes to the unaudited consolidated financial statements.
4



Ocera Therapeutics, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(In Thousands, Except Share and Per Share Amounts)
(unaudited)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Revenue:
 
 
 
 
 
 
 
Royalty revenue
$
43

 
$
33

 
$
74

 
$
78

Total revenue
43

 
33

 
74

 
78

Operating expenses:
 
 
 
 
 
 
 
Research and development
3,417

 
4,826

 
7,815

 
7,292

General and administrative
2,832

 
2,421

 
5,088

 
5,154

Amortization of intangibles
41

 
41

 
82

 
82

Total operating expenses
6,290

 
7,288

 
12,985

 
12,528

Other income (expense), net
26

 
12

 
39

 
25

Net loss from continuing operations
(6,221
)
 
(7,243
)
 
(12,872
)
 
(12,425
)
Net income from discontinued operations (including gain on disposal of $1,149)

 
20

 

 
1,137

Net loss
$
(6,221
)
 
$
(7,223
)
 
$
(12,872
)
 
$
(11,288
)
 
 
 
 
 
 
 
 
Net loss per share:
 
 
 
 
 
 
 
Net loss per share from continuing operations, basic and diluted
$
(0.31
)
 
$
(0.46
)
 
$
(0.65
)
 
$
(0.80
)
Net income per share from discontinued operations, basic and diluted

 

 

 
0.07

Net loss per share, basic and diluted
$
(0.31
)
 
$
(0.46
)
 
$
(0.65
)
 
$
(0.73
)
Weighted average number of shares used to compute net loss per share of common stock, basic and diluted
19,772,345

 
15,539,053

 
19,759,923

 
15,480,469

 
 
 
 
 
 
 
 
Other comprehensive loss:
 
 
 
 
 
 
 
Net loss
$
(6,221
)
 
$
(7,223
)
 
$
(12,872
)
 
$
(11,288
)
Unrealized gain (loss) on investments
(2
)
 
(1
)
 
26

 
1

Comprehensive loss
$
(6,223
)
 
$
(7,224
)
 
$
(12,846
)
 
$
(11,287
)


See the accompanying notes to the unaudited consolidated financial statements.
5



Ocera Therapeutics, Inc.
Consolidated Statements of Cash Flows
(In Thousands)
(unaudited)

 
Six Months Ended
June 30,
 
2015
 
2014
Operating activities
 
 
 
Net loss
$
(12,872
)
 
$
(11,288
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Net income from discontinued operations

 
(1,137
)
Depreciation
16

 
20

Amortization of intangibles
82

 
82

Stock-based compensation
1,902

 
2,252

 Accretion of premium on investment securities
253

 
212

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(12
)
 
60

Prepaid expenses and other assets
285

 
(139
)
Accounts payable
134

 
11

Accrued liabilities
64

 
(90
)
Net cash used in continuing operating activities
(10,148
)
 
(10,017
)
Net cash used in discontinued operating activities

 
(407
)
Net cash used in operating activities
(10,148
)
 
(10,424
)
Investing activities
 
 
 
Purchases of property and equipment

 
(23
)
Purchase of short-term and long-term investments
(18,022
)
 
(9,187
)
Maturities of short-term and long-term investments
26,000

 
15,045

Net cash provided by continuing investing activities
7,978

 
5,835

Net cash provided by discontinued investing activities

 
1,165

Net cash provided by investing activities
7,978

 
7,000

Financing activities
 
 
 
Proceeds from exercise of common stock options

 
398

Proceeds from issuance of common stock, net of issuance costs
413

 

Net cash provided by continuing financing activities
413

 
398

Net decrease in cash and cash equivalents
(1,757
)
 
(3,026
)
Cash and cash equivalents—beginning of period
10,127

 
15,533

Cash and cash equivalents—end of period
$
8,370

 
$
12,507

Supplemental schedule of noncash investing and financing activities
 
 
 
Deferred offering costs in accrued expense and accounts payable
$
9

 
$
87


See the accompanying notes to the unaudited consolidated financial statements.
6

Ocera Therapeutics, Inc.
Notes to Unaudited Consolidated Financial Statements


1. The Company
Ocera Therapeutics, Inc. (the "Company") is a clinical-stage biopharmaceutical company focused on the development and commercialization of OCR-002 (ornithine phenylacetate). OCR-002 is an ammonia scavenger which has been granted orphan drug designation and Fast Track status from the U.S. Food and Drug Administration to treat hyperammonemia and associated hepatic encephalopathy in patients with liver cirrhosis, acute liver failure and acute liver injury.
On July 15, 2013, Terrapin Acquisition, Inc., a Delaware corporation (“Merger Sub”), a wholly owned subsidiary of Tranzyme, Inc., a Delaware corporation (“Tranzyme”), completed its merger (the “Merger”) with and into Ocera Therapeutics, Inc., a private Delaware corporation (“Private Ocera”).  Private Ocera is considered the acquiring company in the Merger for accounting purposes.  In connection with the Merger, the combined company changed its name to Ocera Therapeutics, Inc. and the name of Private Ocera was changed to Ocera Subsidiary, Inc (“Ocera Subsidiary”).
The Company's business is subject to significant risks consistent with biopharmaceutical companies seeking to develop technologies and product candidates for human therapeutic use. These risks include, but are not limited to, uncertainties regarding research and development, access to capital, obtaining and enforcing patents, receiving regulatory approval and competition with other biotechnology and pharmaceutical companies.
The Company has a limited operating history and the sales and income potential of the Company's business and market are unproven. As of June 30, 2015 , the Company has incurred losses since inception of $ 117.8 million . The Company anticipates that it will continue to incur net losses into the foreseeable future as it continues the development and commercialization of OCR-002 and as it expands its corporate infrastructure. Based on the Company's current operating plan, the Company believes its working capital is sufficient to fund its operations through at least the next twelve months.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with United States of America generally accepted accounting principles ("U.S. GAAP") for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission. The financial statements and related notes do not include all information and footnotes required by U.S. GAAP for annual reports. This quarterly report should be read in conjunction with the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2014.
Unaudited Interim Financial Information
The accompanying interim consolidated financial statements and related disclosures are unaudited, have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of the results of operations for the periods presented. The year-end balance sheet was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. The consolidated results of operations for any interim period are not necessarily indicative of the results to be expected for the full year or for any other future year or interim period.
Use of Estimates     The preparation of financial statements in conformity with the U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
3. Fair Value Measurements
The following tables present information about the Company’s financial assets measured at fair value on a recurring basis as of June 30, 2015 , and December 31, 2014, and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value. As a basis for categorizing inputs, the Company uses a three-tier fair value hierarchy, which prioritizes the inputs used to measure fair value from market-based assumptions to entity specific assumptions:

7




Level 1: Quoted prices in active markets for identical assets or liabilities;
Level 2: Inputs, other than level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3: Unobservable inputs that are supported by little or no market activity, which require the reporting entity to develop its own assumptions.
Assets measured at fair value on a recurring basis as of June 30, 2015 are as follows (in thousands):
 
Balance as of
June 30,
2015
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Money market funds
$
7,624

 
$
7,624

 
$

 
$

Commercial paper
5,750

 

 
5,750

 

Corporate debt securities
27,085

 

 
27,085

 

Total assets
$
40,459

 
$
7,624

 
$
32,835

 
$

Assets measured at fair value on a recurring basis as of December 31, 2014 are as follows (in thousands):
 
Balance as of
December 31,
2014
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Money market funds
$
9,171

 
$
9,171

 
$

 
$

Commercial paper
3,750

 

 
3,750

 

Corporate debt securities
36,790

 

 
36,790

 

Government agency debt securities
$
500

 
$

 
$
500

 
$

Total assets
$
50,211

 
$
9,171

 
$
41,040

 
$

4. Balance Sheet Components
Investments
The following table summarizes the Company's available for sale investments as of June 30, 2015 (in thousands):
 
 
Maturity (in Years)
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Estimated Fair Value
Short-term investments:
 
 
 
 
 
 
 
 
 
 
   Commercial paper
 
1 or less
 
$
5,745

 
$
5

 
$

 
$
5,750

   Corporate debt securities
 
1 or less
 
27,091

 

 
(6
)
 
27,085

Total investments
 
 
 
$
32,836

 
$
5

 
$
(6
)
 
$
32,835


8




The following table summarizes the Company's available for sale investments as of December 31, 2014 (in thousands):
 
 
Maturity (in Years)
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Estimated Fair Value
Short-term investments:
 
 
 
 
 
 
 
 
 
 
   Commercial paper
 
1 or less
 
$
3,748

 
$
2

 
$

 
$
3,750

   Corporate debt securities
 
1 or less
 
33,379

 

 
(17
)
 
33,362

      Total
 
 
 
37,127

 
2

 
(17
)
 
37,112

Long-term investments:
 
 
 
 
 
 
 
 
 
 
   Corporate debt securities
 
1 to 2
 
3,439

 

 
(11
)
 
3,428

Government agency debt securities
 
1 to 2
 
501

 

 
(1
)
 
500

      Total
 
 
 
3,940

 

 
(12
)
 
3,928

Total investments
 
 
 
$
41,067

 
$
2

 
$
(29
)
 
$
41,040

At each reporting date, the Company performs an evaluation of impairment to determine if the unrealized losses are other-than-temporary. For debt securities, management determines whether it intends to sell the impaired securities, and if there is no intent or expected requirement to sell, management considers whether it is likely that the amortized cost will be recovered. The Company does not consider unrealized losses on its debt investment securities to be credit-related. These unrealized losses relate to changes in interest rates and market spreads subsequent to purchase. The Company has not made a decision to sell securities with unrealized losses and believes it is more likely than not it would not be required to sell such securities before recovery of its amortized cost. There have been no other than temporary losses recognized in earnings.
Property and Equipment, net
Property and equipment, net consisted of the following (in thousands):
 
Useful Life
 
June 30,
 
December 31,
 
(in years)
 
2015
 
2014
Computer equipment and software
1.5 to 3 years
 
$
53

 
$
53

Office furniture and equipment
5 years
 
68

 
68

Total property and equipment, gross
 
 
121

 
121

Less: accumulated depreciation
 
 
(76
)
 
(60
)
Property and equipment, net
 
 
$
45

 
$
61

Total d epreciation expense was $8,000 and $10,000 for the three months ended June 30, 2015 and 2014 respectively, and $ 16,000 and $ 20,000 for the six months ended June 30, 2015 and 2014, respectively.
Acquired Intangible Assets
The net book value of acquired intangible assets was as follows (in thousands):
 
June 30,
 
December 31,
Customer Agreements:
2015
 
2014
Carrying value
$
410

 
$
410

Accumulated amortization
(321
)
 
(239
)
Intangible assets, net
$
89

 
$
171

Weighted average remaining life (in years)
.50
 
1.0
The Company recognized $41,000 as amortization expense on the intangible assets for the three months ended June 30, 2015 and 2014 and $ 82,000 for the six months ended June 30, 2015 and 2014. No impairment charges were recorded.
As of June 30, 2015 , expected amortization expense related to our purchased intangible assets is approximately $89,000 during 2015.

9




Accrued Liabilities
Accrued liabilities were as follows (in thousands):
 
June 30,
 
December 31,
 
2015
 
2014
Clinical trials
$
1,174

 
$
897

Payroll and related expenses
515

 
678

Professional services
250

 
343

Other
91

 
48

Total
$
2,030

 
$
1,966

5. Stockholders' Equity
On May 15, 2015, the Company entered into the Sales Agreement (the “Sales Agreement”) with Cowen and Company, LLC (“Cowen”), pursuant to which the Company may issue and sell shares of its common stock having aggregate sales proceeds of up to $25,000,000 from time to time through an “at the market” equity program under which Cowen acts as sales agent.
In June 2015, the Company sold 135,562 shares of common stock under the Sales Agreement, at an average price of approximately $3.79 per share for gross proceeds of $0.5 million and net proceeds of $0.4 million after deducting commissions and other transactions costs. As of June 30, 2015 $24.5 million of common stock remained available to be sold under the Sales Agreement, subject to certain conditions specified therein.
Subsequently in August 2015, the Company sold 524,225 shares of common stock under the Sales Agreement, at an average price of approximately $4.00 per share for gross proceeds of approximately $2.1 million .
Stock-Based Compensation
The Company’s stock option activity and related information for the six months ended June 30, 2015 was as follows (in thousands, except share and per share data):
 
 
 
 
 
 
 
Weighted-avg.
 
 
 
 Shares
 
 
 
 Weighted-avg.
 
Remaining
 
Aggregate
 
 Available
 
 Stock Options
 
 Exercise Price
 
Contractual
 
Intrinsic
 
 for Grant
 
 Outstanding
 
 Per Share
 
Life (in Years)
 
Value
 
 
 
 
 
 
 
 
 
 
 Balance at December 31, 2014
342,210

 
2,086,602

 
$
8.01

 
8.63
 
$
871

 Additional shares authorized
1,300,000

 
 
 
 
 
 
 
 
 Stock options granted
(567,500
)
 
567,500

 
$
3.77

 
 
 
 
 Stock options canceled
364,591

 
(364,591
)
 
$
6.44

 
 
 
 
 Stock options exercised

 

 
$

 
 
 
 
 Balance at June 30, 2015
1,439,301

 
2,289,511

 
$
7.21

 
8.41
 
$
412

 
 
 
 
 
 
 
 
 
 
At June 30, 2015:
 
 
 
 
 
 
 
 
 
    Vested and expected to vest
 
 
2,213,867

 
$
7.25

 
8.38
 
$
410

    Exercisable
 
 
827,599

 
$
8.76

 
6.95
 
$
386

The aggregate intrinsic value of options exercised under all option plans was $0 and $3.1 million for the six months ended June 30, 2015 and 2014, respectively, determined as of the date of option exercise.
In May 2015, 1,586 warrants were exercised at an exercise price of $0.67 price per share in a cashless exercise with 1,361 shares of common stock being issued.
In May 2015, the Company modified the terms of an existing stock option to a former executive to extend the period of time to exercise the vested stock options from one year to three years following the termination of employment.

10




$49,000 of stock compensation expense was recorded during the three and six months ended June 30, 2015 pursuant to this modification.
    In April 2015, the Company amended the non-employee director compensation policy to amend the exercise period of all existing awards from three months to three year following such directors’ departure from the Company’s board of directors. The Company uses historical experience to estimate the expected term of awards granted with the extended exercise period. The Company's expected term for non-employee director options with the extended term is estimated to be 8.06 years. $101,000 of stock compensation expense was recorded during the three and six months ended June 30, 2015 pursuant to this modification.
On April 23, 2015, the Company’s board of directors approved an amendment and restatement of the Company’s 2011 Stock Option and Incentive Plan (the “2011 Plan”) to increase the maximum number of shares that may be issued under the 2011 Plan from 2,302,328 to 3,602,328 shares. The amendment and restatement of the 2011 Plan was approved by the Company’s stockholders on June 18, 2015. During the three months ended June 30, 2015, the Company’s board of directors authorized the grant of 445,500 common stock options to its employees, 60,000 common stock options to non-employee members of the board of directors and 50,000 common stock options to a consultant, of which 25,000 stock options will vest based on the achievement of certain clinical milestones. During the three and six months ended June 30, 2015 no expense has been recorded for the performance based options.
The Company recognized stock-based compensation expense as follows (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Research and development
$
56

 
$
366

 
$
265

 
$
831

General and administrative
881

 
511

 
1,637

 
1,421

Total
$
937

 
$
877

 
$
1,902

 
$
2,252

As of June 30, 2015 , there were unrecognized compensation costs of $9.1 million related to stock options and the Company expects to recognize those costs over a weighted average period of 2.68 years.
Stock-based compensation cost for stock options is estimated at the grant date based on the fair-value using the Black-Scholes option pricing model. The fair value of employee stock options is being amortized on a straight-line basis over the requisite service period of the awards. The fair value of all stock options granted was estimated using the following weighted-average assumptions:
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2015
 
2014
 
2015
 
2014
Expected dividend yield
 
 
 
 
Risk-free interest rates
 
1.65% - 2.08%
 
1.90% - 1.91%
 
1.52% - 2.08%
 
1.90% - 1.92%
Expected life in years
 
5.49 - 8.06
 
6.08
 
5.49 - 8.06
 
6.08
Expected volatility
 
78% - 92%
 
100%
 
78% - 92%
 
100%
    

11




6. Discontinued Operations
On September 11, 2013, the Company announced a restructuring plan related to the operations of Tranzyme Pharma Inc. (“Tranzyme Pharma”). On December 13, 2013, the Company entered into a Technology Transfer and License Agreement with Genentech, Inc. ("Genentech"), and F. Hoffman-La Roche, Ltd. ("Roche") to sell certain Canadian fixed assets and materials, the MATCH technology and rights to the Genentech and Roche customer agreements and related intellectual property through licensing of patents for $4.0 million . The Company concluded that the operations of Tranzyme Pharma and related asset groups sold to Genentech and Roche would be accounted for as discontinued operations as the operations and cash flows of the discontinued component or asset group would be eliminated from ongoing operations of the Company and there would not be significant involvement in the component or asset group after the disposal transaction.
During the six months ended June 30, 2014, the Company completed its obligations under the Technology Transfer and License Agreement with Genentech and Roche and recognized a gain on disposal of assets of $1.1 million within discontinued operations. There were no income or losses recorded in discontinued operations for the six months period ended June 30, 2015.
The results of Tranzyme Pharma and related asset groups are disclosed as discontinued operations in the Consolidated Statements of Operations and Comprehensive Loss as follows (in thousands):
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30, 2014
 
June 30, 2014
Proceeds recognized pursuant to Technology Transfer and License Agreement
 
$

 
$
4,000

Less carrying value of assets sold:
 
 
 
 
  Intangibles assets
 

 
(2,053
)
  Property and equipment
 

 
(356
)
  Goodwill
 

 
(442
)
Net gain on disposal of assets
 

 
1,149

Other expenses of discontinued operations
 
20

 
(6
)
Recognition of accumulated translation adjustments upon deconsolidation of subsidiary
 

 
(6
)
Net income from discontinued operations
 
$
20

 
$
1,137


7. Net Loss Per Share
Basic net loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and common share equivalents outstanding for the period. Common stock equivalents are only included when their effect is dilutive. Potentially dilutive securities which include warrants and outstanding stock options under the stock option plan have been excluded from the computation of diluted net loss per share as they would be anti-dilutive. For all periods presented, there is no difference in the number of shares used to compute basic and diluted shares outstanding due to the Company’s net loss position. All share and per share amounts for all periods presented in the following table have been adjusted retroactively to reflect the exchange for Tranzyme shares as of the date of the Merger.

12




The following table presents the computation of net loss per share (in thousands, except share and per share data):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Numerator
 
 
 
 
 
 
 
Net loss from continuing operations
$
(6,221
)
 
$
(7,243
)
 
$
(12,872
)
 
$
(12,425
)
Net income from discontinued operations

 
20

 

 
1,137

Net loss
$
(6,221
)
 
$
(7,223
)
 
$
(12,872
)
 
$
(11,288
)
Denominator
 
 
 
 
 
 
 
Weighted average common shares outstanding used to compute net loss per share, basic and diluted
19,772,345

 
15,539,053

 
19,759,923

 
15,480,469

Net loss per share of common stock, basic and diluted
 
 
 
 
 
 
 
Net loss per share from continuing operations
$
(0.31
)
 
$
(0.46
)
 
$
(0.65
)
 
$
(0.80
)
Net income per share from discontinued operations

 

 

 
0.07

Net loss per share
$
(0.31
)
 
$
(0.46
)
 
$
(0.65
)
 
$
(0.73
)
The following weighted average outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share of common stock for the periods presented because including them would have been anti-dilutive:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Common stock warrants
931,942
 
938,882
 
932,237
 
938,882
Common stock options
2,020,872
 
1,731,347
 
2,029,911
 
1,744,033
Total
2,952,814
 
2,670,229
 
2,962,148
 
2,682,915

8. Commitments and Contingencies
From time to time, the Company may be involved in disputes, including litigation, relating to claims arising out of operations in the normal course of business. Any of these claims could subject the Company to costly legal expenses and, while the Company generally believes that it has adequate insurance to cover many different types of liabilities, its insurance carriers may deny coverage or its policy limits may be inadequate to fully satisfy any damage awards or settlements. If this were to happen, the payment of any such awards could have a material adverse effect on the Company's consolidated results of operations and financial position. Additionally, any such claims, whether or not successful, could damage the Company's reputation and business. The Company is currently not a party to any legal proceedings, the adverse outcome of which, in management’s opinion, individually or in the aggregate, would have a material adverse effect on the Company's consolidated results of operations or financial position.
Leases
In April 2015, the Company amended the term of the existing lease for its corporate headquarters in Palo Alto, California by extending term of the lease through December 2016. The Company also entered into an agreement to lease additional office space in its corporate headquarters for the period from May 2015 through December 2016. The Company has an option to extend the term of both agreements for an additional 12 months.

In June 2015, the Company also amended the term of the existing lease for its North Carolina facility by extending term of the lease through January 2017.

Rent expense was $ 80,000 and $52,000 for the three months ended June 30, 2015 and 2014, respectively and $137,000 and $104,000 for the six months ended June 30, 2015 and 2014, respectively.

13




The following is a schedule of non-cancellable future minimum lease payments for operating leases as of June 30, 2015 (in thousands):
Years ending December 31:
 
2015 (Remaining Six Months)
$
218

2016
379

2017
15

Total
$
612


14




9. Subsequent Events
On July 30, 2015, the Company and Ocera Subsidiary entered into a Loan and Security Agreement (the “Loan Agreement”) with Oxford Finance LLC (“Oxford”) and Silicon Valley Bank (“SVB”) (collectively, the “Lenders”). The Loan Agreement provides for up to $20 million in new term loans (the “Term Loan Facility”), $10 million of which was funded on July 30, 2015. The remaining $10 million is available for draw until December 31, 2016 at the Company’s discretion, subject to achievement of certain financial and clinical milestones.

The term loan repayment schedule provides for interest only payments (i) through either March 1, 2017 or September 1, 2017 with respect to the first $10 million of the term loans, depending on whether the remaining term loans have been funded within a certain period set forth in the Loan Agreement, and (ii) through September 1, 2016 with respect to the remaining $10 million of term loans , in each case followed by consecutive equal monthly payments of principal and interest in arrears starting on such dates and continuing through the maturity date of August 1, 2019. The Loan Agreement provides for an interest rate equal to the greater of (i) 8.275% or (ii) the sum of the thirty-day U.S. LIBOR rate for five days prior to the funding date of the applicable term loan plus 8.085% . The Loan Agreement also provides for a final interest payment equal to 3.0% of the original principal amount of the first $10 million in term loans and 1.325% of the original principal amount of the remaining $10 million in term loans, or $432,500 , which is due when the term loan becomes due or upon the prepayment of the facility. The Company has the option to prepay the outstanding balance of the term loan in full, subject to a prepayment fee of 1% to 3% depending upon when the prepayment occurs. The Term Loan Facility matures on August 1, 2019.

The Term Loan Facility is secured by substantially all of the assets of the Company and Ocera Subsidiary, except that the collateral does not include any intellectual property held by the Company, Ocera Subsidiary or their respective subsidiaries, or any securities in Tranzyme Holdings, ULC owned or held of record by the Company. However, pursuant to the terms of a negative pledge arrangement, the Company has agreed not to encumber any of the intellectual property of the Company or its subsidiaries. The Loan Agreement contains customary representations, warranties and covenants by the Company, which covenants limit the Company’s ability to convey, sell, lease, transfer, assign or otherwise dispose of certain of the Company’s assets; engage in any business other than the businesses currently engaged in by the Company or reasonably related thereto; liquidate or dissolve; make certain management changes; undergo certain change of control events; create, incur, assume, or be liable with respect to certain indebtedness; grant certain liens; pay dividends and make certain other restricted payments; make certain investments; enter into any material transactions with any affiliates, with certain exceptions; make payments on any subordinated debt; and permit certain of the Company’s subsidiaries to maintain, own or otherwise hold any material assets or conduct any business operations other than as disclosed to the Lenders. In addition, subject to certain exceptions, the Company and Ocera Subsidiary are required to maintain with SVB their respective primary deposit accounts, securities accounts and commodity accounts.

The Loan Agreement also contains customary indemnification obligations and customary events of default, including, among other things, the Company’s failure to fulfill certain of its obligations under the Loan Agreement, the occurrence of a material adverse change, a material impairment of the prospect of repayment of any portion of the loan, or a material impairment in the perfection or priority of the Lenders’ lien in the collateral or in the value of such collateral. In the event of default by the Company under the Loan Agreement, the Lenders would be entitled to exercise their remedies thereunder, including the right to accelerate the debt, upon which the Company may be required to repay all amounts then outstanding under the Loan Agreement, which could harm the Company’s financial condition.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2014 and the unaudited consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such as those set forth under “Risk Factors” in Part II, Item 1 of this Quarterly Report on Form 10-Q and Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2014, our actual results could differ materially from those anticipated in these forward-looking statements. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
Overview
We are a clinical-stage biopharmaceutical company focused on acute and chronic orphan liver diseases. Our initial focus is on the development and commercialization of a clinical candidate, OCR-002, for the treatment of hepatic encephalopathy, or HE. HE is a serious complication of liver cirrhosis, or liver failure, marked by mental changes including

15




confusion, impaired motor skills, disorientation in time and space, and, in its more severe form, stupor, coma and even death. Although the exact cause of HE is not completely understood, there is growing evidence that elevated ammonia is a primary driver of HE, and that lowering ammonia may be beneficial to patients suffering from HE. OCR-002 is a novel molecule, ornithine phenylacetate, which functions as an ammonia scavenger. Common causes of liver malfunction leading to elevated ammonia levels and HE include alcoholism, viral hepatitis and auto-immune diseases, nonalcoholic steatohepatitis, or NASH, as well as obesity, Type II diabetes, and acetaminophen overdose.
OCR-002 has been granted orphan drug designation and Fast Track status by the U.S. Food and Drug Administration, or FDA, for the treatment of hyperammonemia and resultant HE in patients with acute liver failure and acute on chronic liver disease. In pre-clinical studies, OCR-002 significantly reduced arterial ammonia in an animal model of chronic liver disease and significantly reduced arterial ammonia, brain ammonia and intracranial pressure in a second animal model of acute liver failure. In 2012, we completed a Phase 1 pharmacokinetic and safety clinical trial of the intravenous form of OCR-002. A Phase 2a investigator-sponsored study in Spain evaluated OCR-002 in patients with upper gastrointestinal bleeding associated with liver cirrhosis. In the first part of this study, a 10-patient open label safety cohort, OCR-002 was shown to lower ammonia when administered as a continuous intravenous infusion of up to 10 grams per 24 hours. In February 2015, we announced the preliminary topline results of the second part of this study, which was a randomized, placebo-controlled cohort of 38 patients. The data showed that OCR-002 lowered ammonia by 19.6% over the first 12 hours, compared to 3.2% over the first 12 hours in the placebo group, but this difference did not reach statistical significance. A statistically significant difference in urinary excretion of ammonia, as measured by phenylacetylglutamine, or PAGN, the key ammonia elimination pathway for OCR-002, was observed and OCR-002 demonstrated a favorable safety profile and appeared to be well tolerated.
We are currently conducting a randomized, placebo-controlled double blind Phase 2b clinical trial to evaluate the safety and efficacy of intravenous administration of OCR-002 in reducing the severity of HE symptoms among hospitalized HE patients. In March 2015, an independent data monitoring committee, or DMC, conducted an interim analysis, reporting that the trial was not futile and that no drug related safety signals were observed. In addition, the DMC recommended that we continue the study and increase target enrollment from 140 patients to approximately 230 patients. As a result of the DMC’s recommendation, we expect to complete trial enrollment in the second half of 2016. This expectation is based on an assumption that we continue to enroll at least 10 patients per month on average. As of June 30, 2015, approximately 90 patients have been enrolled in the study. In addition, there is an investigator-sponsored Phase 2a clinical trial being conducted by the National Institute of Health, or NIH, to evaluate the safety of OCR-002 in patients with hyperammonemia and HE due to acute liver failure or injury.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments related to each of our critical accounting areas. We base our estimates on historical experience and on various other factors that we believe 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 readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We discussed accounting policies and assumptions that involve a higher degree of judgment and complexity within our Annual Report on Form 10-K for the year ended December 31, 2014. There have been no material changes to our critical accounting policies and estimates as disclosed in our Annual Report on Form 10-K.
Merger with Tranzyme, Inc.
On July 15, 2013, Terrapin Acquisition, Inc., a Delaware corporation and wholly owned subsidiary of Tranzyme, Inc., a Delaware corporation, or Tranzyme, completed its merger, or the Merger, with and into Ocera Therapeutics, Inc., a private Delaware corporation, or Private Ocera.  Private Ocera is considered the acquiring company in the Merger for accounting purposes.  In connection with the Merger, the combined company changed its name to Ocera Therapeutics, Inc. and the name of Private Ocera was changed to Ocera Subsidiary, Inc. , or Ocera Subsidiary.

16




Results of Operations
Three and Six Months Ended June 30, 2015 and 2014 (in thousands):     
 
Three Months Ended
June 30,
 
 $ Change
 
Six Months Ended
June 30,
 
 $ Change
 
2015
 
2014
 
 
2015
 
2014
 
Revenue:
 
 
 
 
 
 
 
 
 
 
 
Royalty revenue
$
43

 
$
33

 
$
10

 
$
74

 
$
78

 
$
(4
)
Total Revenue
43

 
33

 
10

 
74

 
78

 
(4
)
Operating expenses:


 


 
 
 
 
 
 
 
 
Research and development
3,417

 
4,826

 
(1,409
)
 
7,815

 
7,292

 
523

General and administrative
2,832

 
2,421

 
411

 
5,088

 
5,154

 
(66
)
Amortization of intangibles
41

 
41

 

 
82

 
82

 

Total operating expenses
6,290

 
7,288

 
(998)

 
12,985

 
12,528

 
457

Total other income (expense)
26

 
12

 
14

 
39

 
25

 
14

Net loss from continuing operations
(6,221
)
 
(7,243
)
 
1,022

 
(12,872
)
 
(12,425
)
 
(447
)
Net income from discontinued operations

 
20

 
(20
)
 

 
1,137

 
(1,137
)
Net loss
$
(6,221
)
 
$
(7,223
)
 
$
1,002

 
$
(12,872
)
 
$
(11,288
)
 
$
(1,584
)
Revenues
We generated $43,000 in revenue for the three months ended June 30, 2015 compared to $33,000 in revenue for the three months ended June 30, 2014. We generated $74,000 in revenue for the six months ended June 30, 2015 compared to $78,000 in revenue for the six months ended June 30, 2014. The revenue in both periods was attributable to a license agreement, which we acquired from Tranzyme in connection with the Merger.
Costs and Expenses
Research and Development Expenses
Our research and development expenses decreased by $1.4 million for the three months ended June 30, 2015  compared to the three months ended June 30, 2014 . The decrease in expenses was primarily due to the timing of site activation in our Phase 2b trial for OCR-002 and our personnel costs and related expenses including stock-based compensation.
Our research and development expenses increased by $0.5 million for the six months ended June 30, 2015  compared to the six months ended June 30, 2014. The increase in expenses was due to the increased expenses associated with our development program for OCR-002, including the ongoing enrollment and site activation of our Phase 2b trial for OCR-002.
Our 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 our behalf. We generally accrue 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, we modify our estimates of accrued expenses accordingly on a prospective basis.
Due to the significant risks and uncertainties inherent in the clinical development and regulatory approval processes, we cannot reasonably estimate the cost to complete projects and development timelines for their completion. Enrollment in clinical trials might be delayed or occur faster than anticipated for reasons beyond our control, requiring additional cost and time or accelerating spending. Results from clinical trials might not be favorable, or might require us to perform additional unplanned clinical trials, accelerating spending, requiring additional cost and time, or resulting in termination of the project. Regulatory reviews can also be delayed. Process development and manufacturing scale-up for production of clinical and commercial product supplies might take longer and cost more than our forecasts. As a result, clinical development and regulatory programs are subject to risks and changes that might significantly impact cost

17




projections and timelines. We will need to raise additional money to advance development and commercialization of OCR-002 which may include entering into strategic alliances.
General and Administrative Expenses
Our general and administrative expenses increased by $0.4 million for the three months ended June 30, 2015 compared to the three months ended June 30, 2014 . The increase in general and administrative expense was primarily due to an increase in stock-based compensation.
Our general and administrative expenses decreased by $0.1 million for the six months ended June 30, 2015 compared to the six months ended June 30, 2014 . The decrease in general and administrative expense was primarily due to a decrease in our costs associated with legal and outside services fees, partially offset by an increase in personnel costs and related expenses including stock-based compensation.
We expect that our general and administrative expenses may increase in the future as we expand our operating activities, maintain and expand our patent portfolio and potentially expand our infrastructure.
Amortization of intangibles
We recognized $41,000 for the amortization of the intangible assets for each of the three months ended June 30, 2015 and June 30, 2014 and $ 82,000 for the amortization of the intangible assets for each of the six months ended June 30, 2015 and June 30, 2014 .
Net income from discontinued operations
During the six months ended June 30, 2014, we completed our obligations under the Technology Transfer and License Agreement with Genentech, Inc. and F. Hoffman-La Roche, Ltd., and recognized a gain on disposal of assets of $1.1 million within discontinued operations. There was no income or loss recorded within discontinued operations for the period ended June 30, 2015.

18




The following table summarizes the results of discontinued operations for the three months and six months ended June 30, 2014 (in thousands):
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30, 2014
 
June 30, 2014
Proceeds recognized pursuant to Technology Transfer and License Agreement
 
$

 
$
4,000

Less carrying value of assets sold:
 
 
 
 
  Intangibles assets
 

 
(2,053
)
  Property and equipment
 

 
(356
)
  Goodwill
 

 
(442
)
Net gain on disposal of assets
 

 
1,149

Other income (expenses) of discontinued operations
 
20

 
(6
)
Recognition of accumulated translation adjustments upon deconsolidation of subsidiary
 

 
(6
)
Net income from discontinued operations
 
$
20

 
$
1,137

Liquidity and Capital Resources
Cash Flows
The following table summarizes our cash flows for the six months ended June 30, 2015 and 2014 (in thousands):
 
Six Months Ended June 30,
 
2015
 
2014
Cash flow from:
 
 
 
Continuing operating activities
$
(10,148
)
 
$
(10,017
)
Discontinued operating activities

 
(407
)
Continuing investing activities
7,978

 
5,835

Discontinued investing activities

 
1,165

Continuing financing activities
413

 
398

Net decrease in cash and cash equivalents
$
(1,757
)
 
$
(3,026
)
Comparison of the Six Months Ended June 30, 2015 and 2014
The primary use of cash in continuing operating activities for the six months ended June 30, 2015 was the result of our net loss from continuing operations of $12.9 million partially offset by changes in working capital of $ 0.5 million and non-cash charges of $ 2.3 million including share-based compensation expense, accretion of premiums on investment securities. Cash used in continuing operating activities for the six months ended June 30, 2014 was related primarily to our net loss from continuing operations of $12.4 million plus changes in working capital of $0.2 million. These changes are partially offset by non-cash charges of $2.6 million including share-based compensation expense, and accretion of premiums on investment securities.
Cash used in discontinued operating activities for the six months ended June 30, 2014 was due primarily to payment of accrued liabilities of discontinued operations.
Cash provided by continuing investing activities for the six months ended June 30, 2015 related to $26.0 million of investment maturities partially offset by purchases of short-term and long-term investments of $18.0 million . For the six months ended June 30, 2014 , net cash provided by continuing investing activities related to $15.0 million of investment maturities partially offset by purchases of short-term and long-term investments of $9.2 million .
Cash provided by discontinued investing activities for the six months ended June 30, 2014 represents cash proceeds related to the Technology Transfer and License Agreement with Genentech, Inc. and F. Hoffman-La Roche, Ltd. for rights to the MATCH discovery platform, which we acquired from Tranzyme in the Merger.

19




Net cash provided by continuing financing activities for the six months ended June 30, 2015 related to proceeds from issuance of common stock pursuant to the “at the market” equity program that was initiated during second quarter of 2015. Net cash provided by financing activities for the six months ended June 30, 2014 related to proceeds from the exercise of common stock options.
Debt Facility
On July 30, 2015, we and Ocera Subsidiary entered into a Loan and Security Agreement, or the Loan Agreement, with Oxford Finance LLC and Silicon Valley Bank , or collectively, the Lenders. The Loan Agreement provides up to $20 million principal in new term loans, $10 million of which was funded on July 30, 2015. The remaining $10 million is available for draw until December 31, 2016 at the Company’s discretion, subject to achievement of certain financial and clinical milestones. We refer to this facility as the Term Loan Facility.

The term loan repayment schedule provides for interest only payments (i) through either March 1, 2017 or September 1, 2017 with respect to the first $10 million of the term loans, depending on whether the remaining term loans have been funded within a certain period set forth in the Loan Agreement, and (ii) through September 1, 2016 with respect to the remaining $10 million of term loans , in each case followed by consecutive equal monthly payments of principal and interest in arrears starting on such dates and continuing through the maturity date of August 1, 2019. The Loan Agreement provides for an interest rate equal to the greater of (i) 8.275% or (ii) the sum of the thirty-day U.S. LIBOR rate for five days prior to the funding date of the applicable term loan plus 8.085%. The Loan Agreement also provides for a final interest payment equal to 3.0% of the original principal amount of the first $10 million in term loans and 1.325% of the original principal amount of the remaining $10 million in term loans, or $432,500, which is due when the term loan becomes due or upon the prepayment of the facility. We have the option to prepay the outstanding balance of the term loan in full, subject to a prepayment fee of 1% to 3% depending upon when the prepayment occurs. The Term Loan Facility matures on August 1, 2019.

The Term Loan Facility is secured by substantially all of our assets and the assets of Ocera Subsidiary, Inc., except that the collateral does not include any intellectual property held by us, Ocera Subsidiary or our respective subsidiaries, or any securities in Tranzyme Holdings, ULC owned or held of record by us. However, pursuant to the terms of a negative pledge arrangement, we have agreed not to encumber any of the intellectual property of ours or our subsidiaries. The Loan Agreement contains customary representations, warranties and covenants by us, which covenants limit our ability to convey, sell, lease, transfer, assign or otherwise dispose of certain of our assets; engage in any business other than the businesses we currently engage in or reasonably related thereto; liquidate or dissolve; make certain management changes; undergo certain change of control events; create, incur, assume, or be liable with respect to certain indebtedness; grant certain liens; pay dividends and make certain other restricted payments; make certain investments; enter into any material transactions with any affiliates, with certain exceptions; make payments on any subordinated debt; and permit certain of our subsidiaries to maintain, own or otherwise hold any material assets or conduct any business operations other than as disclosed to the Lenders. In addition, subject to certain exceptions, we and Ocera Subsidiary are required to maintain with SVB their respective primary deposit accounts, securities accounts and commodity accounts.
The Loan Agreement also contains customary indemnification obligations and customary events of default, including, among other things, our failure to fulfill certain of our obligations under the Loan Agreement, the occurrence of a material adverse change, which is defined as a material adverse change in our business, operations, or condition (financial or otherwise), a material impairment of the prospect of repayment of any portion of the loan, or a material impairment in the perfection or priority of the Lenders’ lien in the collateral or in the value of such collateral. In the event of default by us under the Loan Agreement, the Lenders would be entitled to exercise their remedies thereunder, including the right to accelerate the debt, upon which we may be required to repay all amounts then outstanding under the Loan Agreement, which could harm our financial condition.
Capital Resources and Funding Requirements
We will require additional funds to support future operations including our development activities associated with the intravenous and oral formulations of OCR-002. Our future funding requirements depends on many factors, including, but not limited to the progress, timing, scope and costs of our nonclinical studies and clinical trials including the ability to enroll patients on a timely basis in our planned and potential future clinical trials, the time and cost necessary to respond to technological, market or governmental developments, and the cost of filing, prosecuting, defending and enforcing any patent claims or other intellectual property rights.
We expect to fund expenses from our current cash and cash equivalents, possible strategic opportunities and potentially additional financing transactions. We believe that our current cash and cash equivalents will be sufficient to fund our operations for at least the next twelve months.

20




On May 15, 2015, we filed a shelf registration statement on Form S-3 under which we may offer shares of our common stock and preferred stock, various series of warrants to purchase common stock or preferred stock and debt securities, either individually or in units, in one or more offerings, up to a total dollar amount of $150,000,000.  On May 15, 2015, we entered into a Sales Agreement, or the Sale Agreement, with Cowen and Company, LLC, or Cowen, pursuant to which we may issue and sell shares of our common stock for which we included a prospectus to our shelf registration statement on Form S-3, having aggregate sales proceeds of up to $25,000,000, from time to time, through an “at the market” equity program under which Cowen acts as sales agent. In June 2015, we sold an aggregate of 135,562 shares of our common stock pursuant to the Sales Agreement at an average selling price of $3.79 per share for gross proceeds of $0.5 million and net proceeds of $0.4 million after deducting commissions and other transactions costs. As of June 30, 2015, $24.5 million of common stock remained available to be sold under the Sales Agreement, subject to certain conditions specified therein.
We have based our estimates of our cash needs on a number of assumptions that may prove to be wrong, and changing circumstances beyond our control may cause us to consume capital more rapidly than we currently anticipate. For example, our OCR-002 Phase 2b clinical trial may cost more than we expect, or development of the oral formulation of OCR-002 may involve the license of proprietary technology. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidate, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical trials. If adequate funds are not available to us on a timely basis, or at all, we may be required to terminate or delay clinical trials or other development activities for OCR-002.
Our ability to finance operations beyond our current resources will depend heavily on our ability to fully and timely enroll patients and obtain favorable results in clinical trials of OCR-002 and to develop and commercialize OCR-002 successfully. Additional financing may not be available when we need it or may not be available on terms that are favorable to us. We may elect to raise additional funds even before we need them if the conditions for raising capital are favorable. We may seek to raise additional capital through a combination of private and public equity offerings and debt financings. To the extent that we raise 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 , as is the case with our Term Loan Facility, results in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions such as incurring debt, making capital expenditures or declaring dividends.
Contractual Obligations
The following is a schedule of non-cancellable future minimum lease payments for operating leases at June 30, 2015 (in thousands):
Years ending December 31:
 
2015 (Remaining Six Months)
$
218

2016
379

2017
15

Total
$
612

In the normal course of business, we enter into various firm purchase commitments related to active pharmaceutical ingredients, clinical studies and research studies. As of June 30, 2015 , these commitments consisted of approximately $5.7 million in contractual obligations and commitments under contracts that are cancellable within 90 days or less.
Off-Balance Sheet Arrangements
We do not currently have, and did not have during the periods presented, any off-balance sheet arrangements, as defined under SEC rules. 

21




Item 3.         Quantitative and Qualitative Disclosures About Market Risk
For quantitative and qualitative disclosures about market risk affecting our company, see Item 7A: "Quantitative and Qualitative Disclosures about Market Risk" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014. Our exposure to foreign currency risk and market risk has not materially changed from that disclosed in our Annual Report.

Item 4.        Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Our management, with the participation of our principal executive officer and principal financial and accounting officer, evaluated the effectiveness of our disclosure controls and procedures as of the period covered by this report. Based on that evaluation, our principal executive officer and principal financial and accounting officer concluded that, as of June 30, 2015, our disclosure controls and procedures were effective at the reasonable assurance level.

We continue to review and document our disclosure controls and procedures, including our internal controls and procedures for financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.            Legal Proceedings
We are not currently subject to any material legal proceedings.
Item 1A.   Risk Factors
We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the Securities and Exchange Commission, which could materially affect our business, financial condition or future results. Except for the risk factors set forth below, during the quarterly period covered by this Quarterly Report on Form 10-Q, there were no material changes to the risk factors described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

We have a significant amount of debt that may cause risks that could adversely affect our business, operating results and financial condition.

We entered into the Loan Agreement for the Term Loan Facility on July 30, 2015. The Loan Agreement provides up to $20 million principal in new term loans, $10 million of which was funded on July 30, 2015. The remaining $10 million is available for draw until December 31, 2016 at the Company’s discretion, subject to achievement of certain financial and clinical

22




milestones. The Term Loan Facility is secured by substantially all of our assets and the assets of our subsidiary, Ocera Subsidiary, Inc., except that the collateral does not include any intellectual property held by us, Ocera Subsidiary, Inc. or our respective subsidiaries, or any securities in Tranzyme Holdings, ULC owned or held of record by us. However, pursuant to the terms of a negative pledge arrangement, we have agreed not to encumber any of the intellectual property of ours or our subsidiaries. The level and nature of our indebtedness could, among other things:

make it difficult for us to obtain any necessary financing in the future;
limit our flexibility in planning for or reacting to changes in our business;
reduce funds available for use in our operations and corporate development initiatives;
impair our ability to incur additional debt because of financial and other restrictive covenants or the liens on our assets that secure our current debt;
hinder our ability to raise equity capital, because in the event of a liquidation of our business, debt holders receive a priority before equity holders;
make us more vulnerable in the event of a downturn in our business; and
place us at a possible competitive disadvantage relative to less leveraged competitors and competitors that have better access to capital resources.

In addition, if we do not meet certain conditions set forth in the Loan Agreement, we will not be able to draw the remaining $10 million available under the Term Loan Agreement, which could materially harm our financial condition. We may also incur significantly more debt in the future, which will increase each of the risks described above related to our indebtedness.

The Loan Agreement for the Term Loan Facility contains operating covenants that may restrict our business and financing activities.

The Loan Agreement restricts, among other things, our ability to:

convey, sell, lease, transfer, assign or otherwise dispose of certain of our assets;
engage in any business other than the businesses we currently engage in or reasonably related thereto;
liquidate or dissolve;
make certain management changes;
undergo certain change of control events;
create, incur, assume, or be liable with respect to certain indebtedness;
grant certain liens;
pay dividends and make certain other restricted payments;
make certain investments;
enter into any material transactions with any affiliates, with certain exceptions;
make payments on any subordinated debt; or
permit certain of our subsidiaries to maintain, own or otherwise hold any material assets or conduct any business operations other than as disclosed to the Lenders.

The operating restrictions and covenants in the Loan Agreement, as well as any future financing agreements that we may enter into, may restrict our ability to finance our operations, engage in business activities or expand or fully pursue our business strategies. Our ability to comply with these covenants may be affected by events beyond our control and we may not be able to meet those covenants. A breach of any of the covenants under the Loan Agreement could result in a default under the Loan Agreement, which could cause all of the outstanding indebtedness under the Term Loan Facility to become immediately due and payable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.

23




Item 5. Other Information
On May 15, 2015, we entered into the Sales Agreement with Cowen, pursuant to which we may issue and sell shares of our common stock having aggregate gross sales proceeds of up to $25,000,000, from time to time, through an “at the market” equity offering program under which Cowen acts as sales agent.  Sales under the Sales Agreement are effected pursuant to our Registration Statement on Form S-3 (File No. 333-204214) that was declared effective by the Securities and Exchange Commission on May 28, 2015.
     Sales of our common stock through Cowen are made on The NASDAQ Global Market, on any other existing trading market for our common stock or to or through a market maker. In addition, with our prior written approval, Cowen may also sell the common stock in privately negotiated transactions. Subject to the terms and conditions of the Sales Agreement, Cowen will use commercially reasonable efforts to our common stock from time to time, based upon our instructions (including any price, time or size limits or other customary parameters or conditions we may impose). We will pay to Cowen in cash, upon the sale of common stock pursuant to the Sales Agreement, an amount equal to 3.0% of the gross proceeds from the sale of the shares of common stock. We have also provided Cowen with customary indemnification rights. In June 2015, we sold 135,562 shares of our common stock under the Sales Agreement at an average selling price of $3.79 per share for gross proceeds of $0.5 million and net proceeds of $0.4 million after deducting commissions and other transaction costs. As of June 30, 2015, $24.5 million of common stock remained available to be sold under the Sales Agreement, subject to certain conditions specified therein.
 
The foregoing description of the Sales Agreement is not complete and is qualified in its entirety by reference to the full text of such agreement, which is filed as Exhibit 10.3 hereto and is incorporated herein by reference.

Item 6.    Exhibits  
(a) Exhibits required by Item 601 of Regulation S-K.
 
Exhibit
Number
 
Description
 
 
 
10.1†
 
Ocera Therapeutics, Inc. Third Amended and Restated 2011 Stock Option and Incentive Plan, together with forms of award agreements (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 22, 2015).

 
 
 
10.2*
 
Second Amendment to Lease Agreement dated June 5, 2015 by and between James Campbell, LLC and the Company.

 
 
 
10.3*
 
Sales Agreement, dated May 15, 2015, by and between the Company and Cowen and Company, LLC.

 
 
 
31.1*
 
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
31.2*
 
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.1**
 
Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.2**
 
Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
101.INS+
 
XBRL Instance Document
 
 
 
101.SCH+
 
XBRL Taxonomy Extension Schema Document
 
 
 
101.CAL+
 
XBRL Taxonomy  Calculation Linkbase Document
 
 
 
101.LAB+
 
XBRL Taxonomy Label Linkbase Document
 
 
 
101.PRE+
 
XBRL Taxonomy Presentation Linkbase Document
 
 
 
101.DEF+
 
XBRL Taxonomy Definitions Linkbase Document
*Filed herewith
**Furnished herewith
† Indicates a management contract or compensation plan, contract or arrangement.

24




+ Attached as Exhibits 101 to this report are the following financial statements from our Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations and Comprehensive Loss, (iii) the Consolidated Statements of Cash Flows and (iv) related notes to these financial statements tagged as blocks of text.



25




SIGNATURES
 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
OCERA THERAPEUTICS, INC.
(Registrant)
 
Date:
August 10, 2015
By:
/s/ Linda S. Grais, M.D.
 
 
 
Linda S. Grais, M.D.
 
 
 
President and Chief Executive Officer
 
 
 
 
Date:
August 10, 2015
By:
/s/ Michael Byrnes
 
 
 
Michael Byrnes
 
 
 
Chief Financial Officer and Treasurer


26



Exhibit 10.2

SECOND AMENDMENT TO
LEASE AGREEMENT

This Second Amendment to Lease Agreement (“Second Amendment”) is entered into on June 5, 2015 (“Effective Date”) by and between James Campbell Company LLC, a Delaware limited liability company (“Landlord”) and Ocera Therapeutics, Inc. , a Delaware corporation f/k/a Tranzyme, Inc. (“Tenant”).
 
RECITALS:

A.     Landlord and Tenant entered into an Office Lease dated November 28, 2011 (“Original Lease”) for approximately 8,126 rentable square feet known as a portion of Suite 300 in that building known as Central Park West (“Building”) located at 5001 S. Miami Boulevard, Durham, North Carolina 27703 (“Premises”).

B.    Landlord and Tenant entered into a First Amendment to Lease Agreement dated August 20, 2014 (“First Amendment”). The Original Lease and the First Amendment are collectively referred to as “Lease.”

C.     Landlord and Tenant desire to enter into this Second Amendment for the purpose of revising certain terms of the Lease, including an extension of the term of the Lease, as set out with specificity below.

NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows:

1.     Recitals . The foregoing recitals are true, accurate and are incorporated herein by reference. The capitalized terms which are not defined herein shall have the same meaning as otherwise set out in the Lease.

2.     Extension of Term . Landlord and Tenant hereby agree to renew the term of the Lease for a period of one (1) year, beginning on February 1, 2016 and continuing until January 31, 2017 (“Extended Term”).
 
3.     Rent . Monthly Base Rent during the Extended Term shall be $14,897.67 (or $22.00 per sq. ft.) and shall be payable monthly in advance pursuant to the terms of the Lease. Tenant shall pay Landlord Additional Rent under the same terms and conditions described in the Lease.

4.     No Options or Inducements; Condition of Premises . Tenant acknowledges and agrees that, as of the Effective Date and notwithstanding anything to the contrary set forth in the Lease or this Second Amendment, Tenant shall have no extension, termination, right of first offer, or other options whatsoever with regard to the Premises or under the Lease, as amended by this Second Amendment. Tenant further acknowledges and agrees that Tenant is not and shall not be entitled to any allowances, concessions, upfit work or other inducements of any kind in connection with the Premises or under the Lease, as amended by this Second Amendment. In the latter regard, Tenant acknowledges and agrees that from and after the Effective Date, Landlord is leasing the Premises to Tenant “as is,” without any representations or warranties of any kind (including, without limitation, any express or implied warranties of merchantability, fitness or

1



habitability) and without any obligation on the part of Landlord to alter, remodel, improve, repair or decorate the Premises or any part thereof.

5.     Acknowledgment of Non-Existence of Claims and Waiver . Tenant acknowledges that as of the Effective Date, there are no claims by Tenant against Landlord arising under the Lease. Tenant releases and discharges Landlord, its successors and assigns, from any demands for injuries or damages of any kind or nature arising out of or related to the Lease or the Premises that occurred on or prior to the Effective Date.

6.     Binding Effect . The amendments made to the Lease pursuant to this Second Amendment shall be binding upon the parties and their respective successors and assigns.

7.     Brokerage . Tenant hereby represents to Landlord that Tenant has not entered into any agreements with any brokers in connection with this Second Amendment other than Newmark Grubb Knight Frank (“Tenant’s Broker”). Tenant hereby indemnifies, holds harmless, and agrees to defend Landlord, its members, principals, partners, officers, directors, employees and agents and the respective principals, officers and directors of any such agents from and against any and all claims of any brokers claiming to have represented Tenant in connection with this Second Amendment other than Tenant’s Broker. Landlord and Tenant acknowledge and agree that Avison Young (“Landlord’s Broker”) has represented Landlord in connection with this Second Amendment and all compensation due to Landlord’s Broker is Landlord’s sole responsibility.

8.     Nature of Amendments . The amendments made to the Lease pursuant to this Second Amendment shall constitute the only amendments to be effectuated and all other provisions of the Lease not affected hereby shall remain in place as originally constituted and shall be in full force and effect. To the extent that there is any conflict between the terms of this Second Amendment and the Lease, the terms of this Second Amendment will govern.

(The remainder of this page is intentionally left blank. Next page is signature page.)

2



IN WITNESS WHEREOF, Landlord and Tenant have entered into this Second Amendment as of the date set forth below.


LANDLORD:

                         James Campbell Company LLC,
a Delaware limited liability company

By:     /s/ Dorine Holsey Streeter,
    Dorine Holsey Streeter,
Executive Vice President,
Real Estate Investment Management

Date:    June 5, 2015

    
By:      /s/ Douglas C. Morris
Douglas C. Morris,
Vice President,
Regional Manager

Date:     June 5, 2015

 
TENANT:

Ocera Therapeutics, Inc.,
a Delaware corporation
f/k/a Tranzyme, Inc.

By:      /s/ Linda S. Grais, M.D.
Linda S. Grais, M.D.
President and Chief Executive Officer

Date:    June 2, 2015




Exhibit 10.3

OCERA THERAPEUTICS, INC.

$25,000,000

SALES AGREEMENT

May 15, 2015

Cowen and Company, LLC
599 Lexington Avenue
New York, NY 10022

Ladies and Gentlemen:

Ocera Therapeutics, Inc., a Delaware corporation (the “ Company ”), confirms its agreement (this “ Agreement ”) with Cowen and Company, LLC (“ Cowen ”), as follows:
1.   Issuance and Sale of Shares . The Company agrees that, from time to time during the term of this Agreement, on the terms and subject to the conditions set forth herein, it may issue and sell through Cowen, acting as agent and/or principal, shares (the “ Placement Shares ”) of the Company’s common stock, par value $0.00001 per share (the “ Common Stock ”), having an aggregate offering price of up to $25,000,000. Notwithstanding anything to the contrary contained herein, the parties hereto agree that compliance with the limitation set forth in this Section 1 on the number or amount of shares of Common Stock issued and sold under this Agreement shall be the sole responsibility of the Company, and Cowen shall have no obligation in connection with such compliance. The issuance and sale of Common Stock through Cowen will be effected pursuant to the Registration Statement (as defined below) to be filed by the Company on the date hereof and after such Registration Statement has been declared effective by the Securities and Exchange Commission (the “ Commission ”), although nothing in this Agreement shall be construed as requiring the Company to use the Registration Statement to issue the Placement Shares.
On the date of this Agreement, the Company will file in accordance with the provisions of the Securities Act of 1933, as amended, and the rules and regulations thereunder (collectively, the “ Securities Act ”), with the Commission a registration statement on Form S-3, including a base prospectus, relating to certain securities, including the Common Stock, to be issued from time to time by the Company, and which incorporates by reference documents that the Company has filed or will file in accordance with the provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (collectively, the “ Exchange Act ”). The Company has also prepared a prospectus specifically relating to the Placement Shares (the “ ATM Prospectus ”), which ATM Prospectus was reviewed by Cowen prior to filing, to be included as part of such registration statement. The Company will furnish to Cowen, for use by Cowen, copies of the ATM Prospectus included as part of such registration statement, as supplemented, if at all, by any prospectus supplement relating to the Placement Shares. Except where the context otherwise requires, such registration statement, as amended when it becomes effective, including all documents filed as part thereof or incorporated by reference therein, and including any information contained in a Prospectus (as defined below) subsequently filed with the Commission pursuant to Rule 424(b) under the Securities Act or deemed to be a part of such registration statement pursuant to Rule 430B or 462(b) of the Securities Act, is





herein called the “ Registration Statement. ” The ATM Prospectus, including all documents incorporated therein by reference, included in the Registration Statement, as the same may be supplemented by any prospectus supplement, in the form in which such ATM Prospectus and/or any prospectus supplement to the ATM Prospectus have most recently been filed by the Company with the Commission pursuant to Rule 424(b) under the Securities Act, together with any “issuer free writing prospectus,” as defined in Rule 433 of the Securities Act (“ Rule 433 ”), relating to such Placement Shares that (i) is required to be filed with the Commission by the Company or (ii) is exempt from filing pursuant to Rule 433(d)(5)(i), in each case in the form filed or required to be filed with the Commission or, if not required to be filed, in the form retained in the Company’s records pursuant to Rule 433(g), is herein called the “ Prospectus .” Any reference herein to the Registration Statement, the Prospectus or any amendment or supplement thereto shall be deemed to refer to and include the documents incorporated by reference therein, and any reference herein to the terms “amend,” “amendment” or “supplement” with respect to the Registration Statement or the Prospectus shall be deemed to refer to and include the filing after the execution hereof of any document with the Commission deemed to be incorporated by reference therein. For purposes of this Agreement, all references to the Registration Statement, the Prospectus or to any amendment or supplement thereto shall be deemed to include any copy filed with the Commission pursuant to the Electronic Data Gathering Analysis and Retrieval System or any successor thereto (collectively “ EDGAR ”).
2.       Placements . Each time that the Company wishes to issue and sell Placement Shares (each, a “ Placement ”), it will notify Cowen by email notice (or other method mutually agreed to in writing by the parties) (a “ Placement Notice ”) containing the parameters in accordance with which it desires such Placement Shares to be sold, which shall at a minimum include the number of Placement Shares to be issued, the time period during which sales are requested to be made, any limitation on the number of shares of Placement Shares that may be sold in any one Trading Day (as defined in Section 3 ) and any minimum price below which sales may not be made, a form of which containing such minimum sales parameters necessary is attached hereto as Schedule 1 . The Placement Notice shall originate from any of the individuals from the Company whose names are set forth on Schedule 2 (with a copy to each of the other individuals from the Company whose names are listed on such schedule), and shall be addressed to each of the individuals from Cowen whose names are set forth on Schedule 2 , as such Schedule 2 may be amended in writing from time to time. The Placement Notice shall be effective upon receipt by Cowen unless and until (i) in accordance with the notice requirements set forth in Section 4 , Cowen declines to accept the terms contained therein for any reason, in its sole discretion, (ii) the entire amount of the Placement Shares have been sold, (iii) in accordance with the notice requirements set forth in Section 4 , the Company suspends or terminates the Placement Notice for any reason, in its sole discretion, (iv) the Company issues a subsequent Placement Notice with parameters superseding those on the earlier dated Placement Notice, or (v) the Agreement has been terminated under the provisions of Section 11 . The amount of any discount, commission or other compensation to be paid by the Company to Cowen in connection with the sale of the Placement Shares shall be calculated in accordance with the terms set forth in Schedule 3 . It is expressly acknowledged and agreed that neither the Company nor Cowen will have any obligation whatsoever with respect to a Placement or any Placement Shares unless and until the Company delivers a Placement Notice to Cowen and Cowen does not decline such Placement Notice pursuant to the terms set forth above, and then only upon the terms specified therein and herein. In the event of a conflict between the terms of this Agreement and the terms of a Placement Notice, the terms of the Placement Notice will control.
3.       Sale of Placement Shares by Cowen. Subject to the terms and conditions herein set forth, upon the Company’s issuance of a Placement Notice, and unless the sale of the Placement Shares described therein has been declined, suspended, or otherwise terminated in accordance with the terms of this Agreement, Cowen, for the period specified in the Placement Notice, will use its commercially reasonable efforts consistent with its normal trading and sales practices and applicable state and federal laws, rules and regulations and the rules of The Nasdaq Stock Market LLC (“ Nasdaq ”) to sell such Placement Shares up

2




to the amount specified, and otherwise in accordance with the terms of such Placement Notice. Cowen will provide written confirmation to the Company (including by email correspondence to each of the individuals of the Company whose names are set forth on Schedule 2 , if receipt of such correspondence is actually acknowledged by any of the individuals to whom the notice is sent, other than via auto-reply) no later than the opening of the Trading Day (as defined below) immediately following the Trading Day on which it has made sales of Placement Shares hereunder setting forth the number of Placement Shares sold on such day, the compensation payable by the Company to Cowen pursuant to Section 2 with respect to such sales, and the Net Proceeds (as defined below) payable to the Company, with an itemization of the deductions made by Cowen (as set forth in Section 5(a) ) from the gross proceeds that it receives from such sales. Cowen may sell Placement Shares by any method permitted by law deemed to be an “at the market” offering as defined in Rule 415 of the Securities Act, including without limitation sales made through Nasdaq, on any other existing trading market for the Common Stock or to or through a market maker. If expressly authorized by the Company in a Placement Notice, Cowen may also sell Placement Shares by any other method permitted by law, including but not limited to negotiated transactions. Notwithstanding the provisions of Section 6(hh) , Cowen shall not purchase Placement Shares for its own account as principal unless expressly authorized to do so by the Company in a Placement Notice. The Company acknowledges and agrees that (i) there can be no assurance that Cowen will be successful in selling Placement Shares, and (ii) Cowen will incur no liability or obligation to the Company or any other person or entity if it does not sell Placement Shares for any reason other than a failure by Cowen to use its commercially reasonable efforts consistent with its normal trading and sales practices to sell such Placement Shares as required under this Section 3 . For the purposes hereof, “ Trading Day ” means any day on which the Common Stock is purchased and sold on the principal market on which the Common Stock is listed or quoted.
4.       Suspension of Sales . The Company or Cowen may, upon notice to the other party in writing (including by email correspondence to each of the individuals of the other party whose names are set forth on Schedule 2 , if receipt of such correspondence is actually acknowledged by any of the individuals to whom the notice is sent, other than via auto-reply) or by telephone (confirmed promptly by verifiable facsimile transmission or email correspondence to each of the individuals of the other party whose named are set forth on Schedule 2 ), suspend any sale of Placement Shares; provided, however , that such suspension shall not affect or impair either party’s obligations with respect to any Placement Shares sold hereunder prior to the receipt of such notice. Each of the Parties agrees that no such notice under this Section 4 shall be effective against the other unless it is made to one of the individuals named on Schedule 2 hereto, as such schedule may be amended from time to time.
(a)         Notwithstanding any other provision of this Agreement, during any period in which the Company’s is in possession of material non-public information, the Company and Cowen agree that (i) no sale of Placement Shares will take place, (ii) the Company shall not request the sale of any Placement Shares, and (iii) Cowen shall not be obligated to sell or offer to sell any Placement Shares.
5.       Settlement .
(a)          Settlement of Placement Shares . Unless otherwise specified in the applicable Placement Notice, settlement for sales of Placement Shares will occur on the third (3 rd ) Trading Day (or such earlier day as is industry practice for regular-way trading) following the date on which such sales are made (each, a “ Settlement Date ” and the first such settlement date, the “ First Delivery Date ”). The amount of proceeds to be delivered to the Company on a Settlement Date against receipt of the Placement Shares sold (the “ Net Proceeds ”) will be equal to the aggregate sales price received by Cowen at which such Placement Shares were sold, after deduction for (i) Cowen’s commission, discount or other compensation for such sales payable by the Company pursuant to Section 2 hereof and (ii) any transaction fees imposed by any governmental or self-regulatory organization in respect of such sales.

3




(b)          Delivery of Placement Shares . On or before each Settlement Date, the Company will, or will cause its transfer agent to, electronically transfer the Placement Shares being sold by crediting Cowen’s or its designee’s account (provided Cowen shall have given the Company written notice of such designee prior to the Settlement Date) at The Depository Trust Company through its Deposit and Withdrawal at Custodian System (“ DWAC ”) or by such other means of delivery as may be mutually agreed upon by the parties hereto which in all cases shall be freely tradeable, transferable, registered shares in good deliverable form. On each Settlement Date, Cowen will deliver the related Net Proceeds in same day funds to an account designated by the Company on, or prior to, the Settlement Date. Cowen will be responsible for providing DWAC instructions or instructions for delivery by other means with regard to the transfer of Placement Shares being sold. The Company agrees that if the Company, or its transfer agent (if applicable), defaults in its obligation to deliver duly authorized Placement Shares on a Settlement Date (other than as a result of a failure by Cowen to provide instructions for delivery), the Company agrees that in addition to and in no way limiting the rights and obligations set forth in Section 9(a) (Indemnification and Contribution) hereto, it will (i) hold Cowen harmless against any loss, claim, damage, or expense (including reasonable legal fees and expenses), as incurred, arising out of or in connection with such default by the Company and (ii) pay to Cowen any commission, discount, or other compensation to which it would otherwise have been entitled absent such default.
6.       Representations and Warranties of the Company . The Company represents and warrants to, and agrees with, Cowen that, unless such representation, warranty or agreement specifies otherwise, as of the date of this Agreement, each Representation Date, the date on which a Placement Notice is given, and any date on which Placement Shares are sold hereunder (each, an “ Applicable Time ”):




(a)          Compliance with Registration Requirements . As of each Applicable Time other than the date of this Agreement, the Registration Statement and any Rule 462(b) Registration Statement have been declared effective by the Commission under the Securities Act. The Company has complied to the Commission’s satisfaction with all requests of the Commission for additional or supplemental information related to the Registration Statement and the Prospectus. No stop order suspending the effectiveness of the Registration Statement or any Rule 462(b) Registration Statement is in effect and no proceedings for such purpose have been instituted or are pending or, to the knowledge of the Company, are contemplated or threatened by the Commission. The Company meets the requirements for use of Form S‑3 under the Securities Act. The aggregate market value of the Company’s voting and non-voting common equity held by non-affiliates of the Company was at least $75 million within 60 days prior to the date of filing the Registration Statement.
(b)          No Misstatement or Omission . The Prospectus when filed complied and, as amended or supplemented, if applicable, will comply in all material respects with the Securities Act. Each of the Registration Statement, any Rule 462(b) Registration Statement and any post-effective amendment thereto, at the time it became effective, complied and, as of each of the Settlement Dates, if any, will comply in all material respects with the Securities Act and did not and, as of each of the Settlement Dates, if any, will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, not misleading. The Prospectus, as amended or supplemented, as of its date, did not and, as of each of the Settlement Dates, if any, will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The representations and warranties set forth in the two immediately preceding sentences do not apply to statements in or omissions

4




from the Registration Statement, any Rule 462(b) Registration Statement, or any post-effective amendment thereto, or the Prospectus, or any amendments or supplements thereto, made in reliance upon and in conformity with information relating to Cowen furnished to the Company in writing by Cowen expressly for use therein. There are no contracts or other documents required to be described in the Prospectus or to be filed as exhibits to the Registration Statement which have not been described or filed as required.
(c)          Offering Materials Furnished to Cowen . The Company has delivered to Cowen one complete copy of the Registration Statement and a copy of each consent and certificate of experts filed as a part thereof, and conformed copies of the Registration Statement (without exhibits) and the Prospectus, as amended or supplemented, in such quantities and at such places as Cowen has reasonably requested.
(d)          Distribution of Offering Material By the Company . The Company has not distributed and will not distribute, prior to the completion of Cowen’s distribution of the Placement Shares pursuant to this Agreement, any offering material in connection with the offering and sale of the Placement Shares other than the Prospectus or the Registration Statement.
(e)          The Sales Agreement . This Agreement has been duly authorized, executed and delivered by, and is a valid and binding agreement of, the Company, enforceable in accordance with its terms, except as rights to indemnification hereunder may be limited by applicable law and except as the enforcement hereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights and remedies of creditors or by general equitable principles.
(f)          Authorization of the Placement Shares . The Placement Shares have been duly authorized for issuance and sale pursuant to this Agreement and, when issued and delivered by the Company against payment therefor as provided herein, will be validly issued, fully paid and nonassessable.
(g)          No Applicable Registration or Other Similar Rights . Except as set forth in the Prospectus, there are no persons with registration or other similar rights to have any equity or debt securities registered for sale under the Registration Statement or included in the offering contemplated by this Agreement, except for such rights as have been duly waived.
(h)          No Material Adverse Change . Except as otherwise disclosed in the Prospectus, subsequent to the respective dates as of which information is given in the Prospectus: (i) there has been no material adverse change in the financial condition, or in the earnings, business operations or prospects, whether or not arising from transactions in the ordinary course of business, of the Company and its subsidiaries, considered as one entity (any such change is called a “ Material Adverse Change ”); (ii) the Company and its subsidiaries, considered as one entity, have not incurred any material liability or obligation, direct or contingent, not in the ordinary course of business nor entered into any material transaction or agreement not in the ordinary course of business; and (iii) there has been no dividend or distribution of any kind declared, paid or made by the Company or, except for regular quarterly dividends publicly announced by the Company or dividends paid to the Company or other subsidiaries, any of its subsidiaries on any class of capital stock or repurchase or redemption by the Company or any of its subsidiaries of any class of capital stock.
(i)          Independent Accountants . Ernst & Young LLP, who have expressed their opinion with respect to the financial statements (which term as used in this Agreement includes the related notes thereto) and supporting schedules filed with the Commission or incorporated by reference as a part of the Registration Statement and included in the Prospectus, is an independent registered public accounting firm as required by the Securities Act and the Exchange Act.

5




(j)          Preparation of the Financial Statements . The financial statements, together with the related notes and schedules, filed with the Commission as a part of or incorporated within the Registration Statement and included in the Prospectus present fairly, in all material respects, the consolidated financial position of the Company and its subsidiaries as of and at the dates indicated and the results of their operations and cash flows for the periods specified. The supporting schedules included in or incorporated in the Registration Statement present fairly, in all material respects, the information required to be stated therein. Such financial statements and supporting schedules have been prepared in accordance with generally accepted accounting principles as applied in the United States applied on a consistent basis throughout the periods involved, except as may be expressly stated in the related notes thereto. No other financial statements or supporting schedules are required to be included in or incorporated in the Registration Statement. The financial data set forth or incorporated in the Prospectus under the captions “Selected Financial Data” and the “Ratio of Earnings to Fixed Charges” exhibit fairly present, in all material respects, the information set forth therein on a basis consistent with that of the audited financial statements contained, incorporated or deemed to be incorporated in the Registration Statement.
(k)          XBRL . The interactive data in eXtensible Business Reporting Language included or incorporated by reference in the each Registration Statement fairly presents the information called for in all material respects and has been prepared in accordance with the Commission’s rules and guidelines applicable thereto.
(l)      Incorporation and Good Standing of the Company and its Subsidiaries . The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware and has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and to enter into and perform its obligations under this Agreement. Ocera Subsidiary, Inc. is the Company’s only significant subsidiary (as defined in Rule 1-02 (w) of Regulation S-X of the Exchange Act) (the “ Significant Subsidiary ”). The Significant Subsidiary has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction of its organization and has the requisite power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus. The Company is duly qualified as a foreign corporation or foreign partnership to transact business and is in good standing in the State of California and North Carolina and each of the Company and the Significant Subsidiary is duly qualified as a foreign corporation or foreign partnership to transact business and is in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except for such jurisdictions where the failure to so qualify or to be in good standing would not, individually or in the aggregate, result in a Material Adverse Change. Except as described in the Prospectus, all of the issued and outstanding equity interests of the Significant Subsidiary have been duly authorized and validly issued, are fully paid and nonassessable and are owned by the Company, directly or indirectly, free and clear of any security interest, mortgage, pledge, lien, encumbrance or claim. The Company does not own or control, directly or indirectly, any corporation, association or other entity other than Ocera Subsidiary, Inc., Tranzyme Holdings ULC and Tranzyme Pharma Inc.
(m)          Capital Stock Matters . The Common Stock conforms in all material respects to the description thereof contained in the Prospectus. All of the issued and outstanding shares of Common Stock of the Company have been duly authorized and validly issued, are fully paid and nonassessable and have been issued in compliance with federal and state securities laws. None of the outstanding shares of Common Stock were issued in violation of any preemptive rights, rights of first refusal or other similar rights to subscribe for or purchase securities of the Company. There are no authorized or outstanding options, warrants, preemptive rights, rights of first refusal or other rights to purchase, or equity or debt securities convertible into or exchangeable or exercisable for, any capital stock of the Company or any of its subsidiaries other than those accurately described in all material respects in the Prospectus. The description of the Company’s

6




stock option, stock bonus and other stock plans or arrangements, and the options or other rights granted thereunder, set forth in the Prospectus accurately and fairly presents in all material respects the information required to be shown with respect to such plans, arrangements, options and rights.
(n)           Statistical and Market-Related Data . Any third-party statistical and market-related data included or incorporated in the Prospectus is based on or derived from sources that the Company believes to be reliable and accurate.    
(o)      Non-Contravention of Existing Instruments; No Further Authorizations or Approvals Required . Neither the Company nor any of its subsidiaries is in violation of its charter or bylaws or is in default (or, with the giving of notice or lapse of time, would be in default) (“ Default ”) under any indenture, mortgage, loan or credit agreement, note, contract, franchise, lease or other instrument to which the Company or any of its subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any of its subsidiaries is subject (each, an “ Existing Instrument ”), except for such Defaults as would not, individually or in the aggregate, result in a Material Adverse Change. The Company’s execution, delivery and performance of this Agreement and consummation of the transactions contemplated hereby and by the Prospectus (i) have been duly authorized by all necessary corporate action and will not result in any violation of the provisions of the charter or by-laws of the Company or any subsidiary, (ii) will not conflict with or constitute a breach of, or Default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, or require the consent of any other party to, any Existing Instrument, except for such conflicts, breaches, Defaults, liens, charges or encumbrances as would not, individually or in the aggregate, result in a Material Adverse Change and (iii) will not result in any violation of any law, administrative regulation or administrative or court decree applicable to the Company or any subsidiary. No consent, approval, authorization or other order of, or registration or filing with, any court or other governmental or regulatory authority or agency, is required for the Company’s execution, delivery and performance of this Agreement and consummation of the transactions contemplated hereby and by the Prospectus, except such as have been obtained or made by the Company and are in full force and effect under the Securities Act, applicable state securities or blue sky laws and from the Financial Industry Regulatory Authority (“ FINRA ”).
(p)          No Material Actions or Proceedings . Except as disclosed in the Prospectus, there are no legal or governmental actions, suits or proceedings pending or, to the Company’s knowledge, threatened (i) against or affecting the Company or any of its subsidiaries, (ii) which has as the subject thereof any officer or director of, or property owned or leased by, the Company or any of its subsidiaries or (iii) relating to environmental or discrimination matters, where in any such case (A) there is a reasonable possibility that such action, suit or proceeding might be determined adversely to the Company or such subsidiary and (B) any such action, suit or proceeding, if so determined adversely, would reasonably be expected to result in a Material Adverse Change or adversely affect the consummation of the transactions contemplated by this Agreement. No material labor dispute with the employees of the Company or any of its subsidiaries exists or, to the Company’s knowledge, is threatened or imminent.
(q)          All Necessary Permits, etc . The Company and each subsidiary possess such valid and current certificates, authorizations or permits issued by the appropriate state, federal or foreign regulatory agencies or bodies necessary to conduct their respective businesses, other than those the failure to possess or own would not result in a Material Adverse Change, and neither the Company nor any subsidiary has received any notice of proceedings relating to the revocation or modification of, or non-compliance with, any such certificate, authorization or permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, could result in a Material Adverse Change.

7




(r)          Tax Law Compliance . The Company and its consolidated subsidiaries have filed all federal, state and foreign income, property and franchise tax returns which have been required to be filed and have paid all taxes required to be paid by any of them and, if due and payable, any related or similar assessment, fine or penalty levied against any of them, except as may be being contested in good faith and by appropriate proceedings or where the failure to do so would not reasonably be expected to result in a Material Adverse Change. The Company has made adequate charges, accruals and reserves in the applicable financial statements referred to in Section 6(j) above in respect of all federal, state and foreign income, property and franchise taxes for all periods as to which the tax liability of the Company or any of its consolidated subsidiaries has not been finally determined.
(s)          Company Not an “Investment Company ”. The Company has been advised of the rules and requirements under the Investment Company Act of 1940, as amended (the “ Investment Company Act ”). The Company is not, and after receipt of payment for the Common Stock will not be, an “investment company” within the meaning of Investment Company Act and will conduct its business in a manner so that it will not become subject to the Investment Company Act.
(t)          Insurance . Except as otherwise described in the Prospectus, each of the Company and its subsidiaries are insured in such amounts and covering such risks as the Company believes are generally deemed prudent and customary for the business for which it is engaged.
(u)          No Price Stabilization or Manipulation . The Company has not taken and will not take, directly or indirectly, any action designed to or that might be reasonably expected to cause or result in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Placement Shares.
(v)          Related Party Transactions . There are no business relationships or related-party transactions involving the Company or any subsidiary or any other person required to be described in the Prospectus which have not been described as required.
(w)          Exchange Act Compliance . The documents incorporated or deemed to be incorporated by reference in the Prospectus, at the time they were or hereafter are filed with the Commission, complied and will comply in all material respects with the requirements of the Exchange Act, and, when read together with the other information in the Prospectus, at the Settlement Dates, will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.
(x)          No Unlawful Contributions or Other Payments . Neither the Company nor any of its subsidiaries nor, to the best of the Company’s knowledge, any employee or agent of the Company or any subsidiary, has made any contribution or other payment to any official of, or candidate for, any federal, state or foreign office in violation of any law or of the character required to be disclosed in the Prospectus.
(y)          Company’s Accounting System . The Company maintains a system of accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles in the United States and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

8




(z)          Compliance with Environmental Laws . Except as otherwise described in the Prospectus, and except as would not, individually or in the aggregate, result in a Material Adverse Change (i) neither the Company nor any of its subsidiaries is in violation of any federal, state, local or foreign law or regulation relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata) or wildlife, including without limitation, laws and regulations relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous substances, petroleum and petroleum products (collectively, “ Materials of Environmental Concern ”), or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Materials of Environment Concern (collectively, “ Environmental Laws ”), which violation includes, but is not limited to, noncompliance with any permits or other governmental authorizations required for the operation of the business of the Company or its subsidiaries under applicable Environmental Laws, or noncompliance with the terms and conditions thereof, nor has the Company or any of its subsidiaries received any written communication, whether from a governmental authority, citizens group, employee or otherwise, that alleges that the Company or any of its subsidiaries is in violation of any Environmental Law; (ii) there is no claim, action or cause of action filed with a court or governmental authority, no investigation with respect to which the Company has received written notice, and no written notice by any person or entity alleging potential liability for investigatory costs, cleanup costs, governmental responses costs, natural resources damages, property damages, personal injuries, attorneys’ fees or penalties arising out of, based on or resulting from the presence, or release into the environment, of any Material of Environmental Concern at any location owned, leased or operated by the Company or any of its subsidiaries, now or in the past (collectively, “ Environmental Claims ”), pending or, to the Company’s knowledge, threatened in writing against the Company or any of its subsidiaries or any person or entity whose liability for any Environmental Claim the Company or any of its subsidiaries has retained or assumed either contractually or by operation of law; and (iii) to the Company’s knowledge, there are no past or present actions, activities, circumstances, conditions, events or incidents, including, without limitation, the release, emission, discharge, presence or disposal of any Material of Environmental Concern, that reasonably could result in a violation of any Environmental Law or form the basis of a potential Environmental Claim against the Company or any of its subsidiaries or any person or entity whose liability for any Environmental Claim the Company or any of its subsidiaries has retained or assumed either contractually or by operation of law.
(aa)          Intellectual Property . Except for specific matters described in the Prospectus, the Company and its subsidiaries own, or possess, or can acquire on reasonable terms, sufficient rights to use, all trademarks, service marks, trade names (including all goodwill associated with the foregoing), patent rights, copyrights, domain names, licenses, approvals, trade secrets, inventions, technology, know-how and other intellectual property and similar rights, including registrations and applications for registration thereof (collectively, “ Intellectual Property Rights ”) material to the conduct of the business now conducted or proposed in the Prospectus to be conducted by them. The Company has taken reasonable and customary actions to prosecute and maintain each material patent and patent application owned by or exclusively licensed to the Company or its subsidiaries. To the Company’s knowledge, neither the Company nor any of its subsidiaries has infringed, misappropriated or otherwise violated the Intellectual Property Rights of any third party in a manner that could reasonably be expected to have a Material Adverse Change. Neither the manufacture of, nor the use or sale of, any of the product candidates described in the Prospectus, would, to the Company’s knowledge, materially infringe or otherwise materially violate the Intellectual Property Rights of any third party. Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Change, to the Company’s knowledge (i) there are no rights of third parties to any of the Intellectual Property Rights owned solely or purported to be owned solely by the Company or its subsidiaries, (ii) there is no infringement, misappropriation, breach, default or other violation, or the occurrence of any event that with notice or the passage of time would constitute any of the foregoing, by any third party of any of the Intellectual Property Rights of the Company or any of its subsidiaries, (iii) none of the Intellectual

9




Property Rights used or held for use by the Company or any of its subsidiaries in their businesses has been obtained or is being used or held for use by the Company or any of its subsidiaries in violation of any contractual obligation binding on the Company or any of its subsidiaries or in violation of any rights of any third party, (iv) the Company and its subsidiaries have taken reasonable steps in accordance with normal industry practice to maintain the confidentiality of all Intellectual Property Rights the value of which to the Company or any subsidiary is contingent upon maintaining the confidentiality thereof and (v) all Intellectual Property Rights owned by or exclusively licensed to the Company or any of its subsidiaries are valid and enforceable. Except as would not, if determined adversely to the Company or any of its subsidiaries, individually or in the aggregate, have a Material Adverse Change, there is no pending or threatened action, suit, proceeding or claim by any third party (x) challenging the Company’s or any of its subsidiaries’ rights in or to, or alleging the violation of any of the terms of, any of their Intellectual Property Rights, (y) challenging the validity, enforceability or scope of any Intellectual Property Rights owned by or exclusively licensed to the Company or any of its subsidiaries, or (z) alleging that the Company or any of its subsidiaries has infringed, misappropriated or otherwise violated or conflicted with any Intellectual Property Rights of any third party.
(bb)          Regulatory Matters: Products and Product Candidates . The Company and its subsidiaries (i) have operated and currently operate their respective businesses in compliance in all material respects with all statutes, rules and regulations applicable to the ownership, testing, development, manufacture, packaging, processing, use, distribution, storage, import, export or disposal of any of the Company’s product candidates, including, without limitation, requirements governing investigational drugs and devices under the U.S. Federal Food, Drug and Cosmetic Act and rules and regulations thereunder, regulations relating to Good Clinical Practices and Good Laboratory Practices, and the U.S. Animal Welfare Act and rules and regulations thereunder (collectively, “ Applicable Laws ”), and (ii) have not received any U.S. Food and Drug Administration (“ FDA ”) Form 483, written notice of adverse finding, warning letter, untitled letter or other correspondence or written notice from any court or arbitrator or governmental or regulatory authority alleging or asserting non-compliance with (A) any Applicable Laws or (B) any permits required by any such Applicable Laws.
(cc)          Regulatory Matters: Manufacturing . To the Company’s knowledge, the manufacturing facilities and operations of its suppliers are operated in compliance in all material respects with all applicable statutes, rules, regulations and policies of the FDA and comparable regulatory agencies outside of the United States to which the Company is subject (collectively, the “ Regulatory Authorities ”).
(dd)          Regulatory Matters: Clinical Trials . None of the Company’s product candidates have received marketing approval from any Regulatory Authority. All clinical and pre-clinical studies and trials conducted by or on behalf of or sponsored by the Company, with respect to the Company’s product candidates, including any such studies and trials that are described in the Registration Statement and the Prospectus, or the results of which are referred to in the Registration Statement and the Prospectus, as applicable (collectively, “ Company Trials ”), were, and if still pending are, being conducted in accordance with all applicable statutes, rules, regulations and policies of the Regulatory Authorities and current Good Clinical Practices and Good Laboratory Practices, standard medical and scientific research procedures and any applicable rules, regulations and policies of the jurisdiction in which such trials and studies are being conducted, except where the failure to be in compliance or be so conducted would not reasonably be expected to have a Material Adverse Change; the descriptions in the Registration Statement or the Prospectus of the results of any Company Trials are accurate and complete descriptions in all material respects and fairly present the data derived therefrom; the Company has no knowledge of any other studies or trials not described in the Registration Statement and the Prospectus, the results of which are inconsistent with or call into question the results described or referred to in the Registration Statement and the Prospectus; the Company has operated at all times and is currently in compliance in all material respects with all applicable statutes,

10




rules, regulations and policies of the Regulatory Authorities; except as disclosed in the Prospectus, the Company has not received, any written notices, correspondence or other communications from the Regulatory Authorities or any other governmental agency requiring or threatening the termination, material modification or suspension of Company Trials, other than ordinary course communications with respect to modifications in connection with the design and implementation of such studies or trials.
(ee)          Brokers . Other than Cowen, there is no broker, finder or other party that is entitled to receive from the Company or Cowen any brokerage or finder’s fee or other fee or commission as a result of any transactions contemplated by this Agreement.
(ff)          No Outstanding Loans or Other Indebtedness . Except as described in the Prospectus, there are no outstanding loans, advances (except normal advances for business expenses in the ordinary course of business) or guarantees or indebtedness by the Company to or for the benefit of any of the officers or directors of the Company or any of the members of any of them.
(gg)          No Reliance . The Company has not relied upon Cowen or legal counsel for Cowen for any legal, tax or accounting advice in connection with the offering and sale of the Placement Shares.
(hh)          Cowen Purchases . The Company acknowledges and agrees that Cowen has informed the Company that Cowen may, to the extent permitted under the Securities Act and the Exchange Act, purchase and sell shares of Common Stock for its own account while this Agreement is in effect, provided, that (i) no such purchase or sales shall take place while a Placement Notice is in effect (except to the extent Cowen may engage in sales of Placement Shares purchased or deemed purchased from the Company as a “riskless principal” or in a similar capacity) and (ii) the Company shall not be deemed to have authorized or consented to any such purchases or sales by Cowen.
(ii)          Anti-Corruption . Neither the Company nor any of its subsidiaries, nor, to the Company’s knowledge, any director, officer or employee of the Company or of any of its subsidiaries, has taken or will take any action in furtherance of an offer, payment, promise to pay, or authorization or approval of the payment or giving of money, property, gifts or anything else of value, directly or indirectly, to any “government official” (including any officer or employee of a government or government-owned or controlled entity or of a public international organization, or any person acting in an official capacity for or on behalf of any of the foregoing, or any political party or party official or candidate for political office) to influence official action or secure an improper advantage; and the Company and its subsidiaries have conducted their businesses in compliance with applicable anti-corruption laws and have instituted and maintain and will continue to maintain policies and procedures designed to promote and achieve compliance with such laws and with the representation and warranty contained herein.
(jj)          Anti-Money Laundering . The operations of the Company and its subsidiaries are and have been conducted at all times in compliance with all applicable financial recordkeeping and reporting requirements, including those of the Bank Secrecy Act, as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), and the applicable anti-money laundering statutes of jurisdictions where the Company and its subsidiaries conduct business, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the “ Anti-Money Laundering Laws ”), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries with respect to the Anti-Money Laundering Laws is pending or, to the best knowledge of the Company, threatened.

11




(kk)          Economic Sanctions . (i) Neither the Company nor any of its subsidiaries, nor, to the Company’s knowledge, any director, officer or employee of the Company or any of its subsidiaries, is an individual or entity (“ Person ”) that is, or is owned or controlled by a Person that is:
(A)    the subject of any sanctions administered or enforced by the U.S. Department of Treasury’s Office of Foreign Assets Control, the United Nations Security Council, the European Union, Her Majesty’s Treasury, or other relevant sanctions authority (collectively, “ Sanctions ”), nor
(B)    located, organized or resident in a country or territory that is the subject of Sanctions (including, without limitation, Burma/Myanmar, Cuba, Iran, Libya, North Korea, Sudan and Syria).
(ii)    The Company will not, directly or indirectly, use the proceeds of the offering, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other Person:
(A)    to fund or facilitate any activities or business of or with any Person or in any country or territory that, at the time of such funding or facilitation, is the subject of Sanctions; or
(B)    in any other manner that will result in a violation of Sanctions by any Person (including any Person participating in the offering, whether as underwriter, advisor, investor or otherwise).
(iii)    For the past five years, the Company and its subsidiaries have not knowingly engaged in, are not now knowingly engaged in, and will not engage in, any dealings or transactions with any Person, or in any country or territory, that at the time of the dealing or transaction is or was the subject of Sanctions.
(ll)          Compliance with Laws . To the Company’s knowledge, it and each of its subsidiaries are conducting business in compliance with all applicable laws, rules and regulations of the jurisdictions in which it is conducting business, except where failure to be so in compliance would not result in a Material Adverse Change.
Any certificate signed by an officer of the Company and delivered to Cowen or to counsel for Cowen shall be deemed to be a representation and warranty by the Company to Cowen as to the matters set forth therein.
The Company acknowledges that Cowen and, for purposes of the opinions to be delivered pursuant to Section 7 hereof, counsel to the Company and counsel to Cowen, will rely upon the accuracy and truthfulness of the foregoing representations and hereby consents to such reliance.
7.       Covenants of the Company . The Company covenants and agrees with Cowen that:
(a)          Registration Statement Amendments . After the date of this Agreement and during any period in which a Prospectus relating to any Placement Shares is required to be delivered by Cowen under the Securities Act (including in circumstances where such requirement may be satisfied pursuant to Rule 172 under the Securities Act), (i) the Company will notify Cowen promptly of the time when any subsequent amendment to the Registration Statement, other than documents incorporated by reference, has been filed with the Commission and/or has become effective or any subsequent supplement to the Prospectus has been filed and of any request by the Commission for any amendment or supplement to the Registration Statement (insofar as it relates to the transactions contemplated hereby) or Prospectus or for additional information, (ii) the Company will prepare and file with the Commission, promptly upon Cowen’s reasonable

12




request, any amendments or supplements to the Registration Statement or Prospectus that, in Cowen’s reasonable opinion, may be necessary or advisable in connection with the distribution of the Placement Shares by Cowen ( provided, however , that the failure of Cowen to make such request shall not relieve the Company of any obligation or liability hereunder, or affect Cowen’s right to rely on the representations and warranties made by the Company in this Agreement); (iii) the Company will not file any amendment or supplement to the Registration Statement or Prospectus, other than documents incorporated by reference, relating to the Placement Shares or a security convertible into the Placement Shares unless a copy thereof has been submitted to Cowen within a reasonable period of time before the filing and Cowen has not reasonably objected thereto ( provided, however , that the failure of Cowen to make such objection shall not relieve the Company of any obligation or liability hereunder, or affect Cowen’s right to rely on the representations and warranties made by the Company in this Agreement) and the Company will furnish to Cowen at the time of filing thereof a copy of any document that upon filing is deemed to be incorporated by reference into the Registration Statement or Prospectus, except for those documents available via EDGAR; and (iv) the Company will cause each amendment or supplement to the Prospectus, other than documents incorporated by reference, to be filed with the Commission as required pursuant to the applicable paragraph of Rule 424(b) of the Securities Act.
(b)          Notice of Commission Stop Orders . The Company will advise Cowen, promptly after it receives notice or obtains knowledge thereof, of the issuance or threatened issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement, of the suspension of the qualification of the Placement Shares for offering or sale in any jurisdiction, or of the initiation or threatening of any proceeding for any such purpose; and it will promptly use its commercially reasonable efforts to prevent the issuance of any stop order or to obtain its withdrawal if such a stop order should be issued.
(c)          Delivery of Prospectus; Subsequent Changes . During any period in which a Prospectus relating to the Placement Shares is required to be delivered by Cowen under the Securities Act with respect to a pending sale of the Placement Shares, (including in circumstances where such requirement may be satisfied pursuant to Rule 172 under the Securities Act), the Company will comply with all requirements imposed upon it by the Securities Act, as from time to time in force, and to file on or before their respective due dates (taking into account any extensions available under the Exchange Act) all reports and any definitive proxy or information statements required to be filed by the Company with the Commission pursuant to Sections 13(a), 13(c), 14, 15(d) or any other provision of or under the Exchange Act. If during such period any event occurs as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances then existing, not misleading, or if during such period it is necessary to amend or supplement the Registration Statement or Prospectus or to file under the Exchange Act any document incorporated by reference into the Prospectus to comply with the Securities Act or the Exchange Act, the Company will promptly notify Cowen to suspend the offering of Placement Shares during such period and the Company will promptly amend or supplement the Registration Statement or Prospectus or to file under the Exchange Act any document incorporated by reference into the Prospectus (at the expense of the Company) so as to correct such statement or omission or effect such compliance.
(d)          Listing of Placement Shares . During any period in which the Prospectus relating to the Placement Shares is required to be delivered by Cowen under the Securities Act with respect to a pending sale of the Placement Shares (including in circumstances where such requirement may be satisfied pursuant to Rule 172 under the Securities Act), the Company will use its commercially reasonable efforts to cause the Placement Shares to be listed on Nasdaq and to qualify the Placement Shares for sale under the securities laws of such jurisdictions as Cowen reasonably designates and to continue such qualifications in effect so long as required for the distribution of the Placement Shares; provided, however, that the Company

13




shall not be required in connection therewith to qualify as a foreign corporation or dealer in securities or file a general consent to service of process in any jurisdiction.
(e)          Delivery of Registration Statement and Prospectus . The Company will furnish to Cowen and its counsel (at the reasonable expense of the Company) copies of the Registration Statement, the Prospectus (including all documents incorporated by reference therein) and all amendments and supplements to the Registration Statement or Prospectus that are filed with the Commission during any period in which a Prospectus relating to the Placement Shares is required to be delivered under the Securities Act (including all documents filed with the Commission during such period that are deemed to be incorporated by reference therein), in each case as soon as reasonably practicable and in such quantities as Cowen may from time to time reasonably request and, at Cowen’s request, will also furnish copies of the Prospectus to each exchange or market on which sales of the Placement Shares may be made; provided, however, that the Company shall not be required to furnish any document (other than the Prospectus) to Cowen to the extent such document is available on EDGAR.
(f)          Earnings Statement . The Company will make generally available to its security holders as soon as practicable, but in any event not later than 15 months after the end of the Company’s current fiscal quarter, an earnings statement covering a 12-month period that satisfies the provisions of Section 11(a) and Rule 158 of the Securities Act, which requirement may be satisfied by publicly filing the required information on EDGAR.
(g)          Expenses . The Company, whether or not the transactions contemplated hereunder are consummated or this Agreement is terminated, in accordance with the provisions of Section 11 hereunder, will pay the following expenses all incident to the performance of its obligations hereunder, including, but not limited to, expenses relating to (i) the preparation, printing and filing of the Registration Statement and each amendment and supplement thereto, of each Prospectus and of each amendment and supplement thereto, (ii) the preparation, issuance and delivery of the Placement Shares, (iii) the qualification of the Placement Shares under securities laws in accordance with the provisions of Section 7(d) of this Agreement, including filing fees (provided, however, that any fees or disbursements of counsel for Cowen in connection therewith shall be paid by Cowen except as set forth in (vii) below), (iv) the printing and delivery to Cowen of copies of the Prospectus and any amendments or supplements thereto, and of this Agreement, (v) the fees and expenses incurred in connection with the listing or qualification of the Placement Shares for trading on Nasdaq, (vi) filing fees and expenses, if any, of the Commission and the FINRA Corporate Financing Department (including, with respect to any required review by FINRA, the reasonable fees and expenses of Cowen’s counsel in an amount not to exceed $10,000), and (vii) the reasonable and documented fees and disbursements of Cowen’s counsel not to exceed $50,000.
(h)          Use of Proceeds . The Company will use the Net Proceeds as described in the Prospectus in the section entitled “Use of Proceeds.”
(i)          Notice of Other Sales . During the pendency of any Placement Notice given hereunder, and for five (5) trading days following the termination of any Placement Notice given hereunder, the Company shall provide Cowen notice as promptly as reasonably practicable before it offers to sell, contracts to sell, sells, grants any option to sell or otherwise disposes of any shares of Common Stock (other than Placement Shares offered pursuant to the provisions of this Agreement) or securities convertible into or exchangeable for Common Stock, warrants or any rights to purchase or acquire Common Stock; provided , that such notice shall not be required in connection with the (i) issuance, grant or sale of Common Stock, options to purchase shares of Common Stock or Common Stock issuable upon the exercise of options or other equity awards pursuant to the any stock option, stock bonus or other stock plan or arrangement described in the Prospectus, (ii) the issuance of securities in connection with an acquisition, merger or sale or purchase

14




of assets, (iii) the issuance or sale of Common Stock pursuant to any dividend reinvestment plan that the Company may adopt from time to time provided the implementation of such is disclosed to Cowen in advance or (iv) any shares of common stock issuable upon the exchange, conversion or redemption of securities or the exercise of warrants, options or other rights in effect or outstanding.
(j)          Change of Circumstances . The Company will, at any time during a fiscal quarter in which the Company intends to tender a Placement Notice or sell Placement Shares, advise Cowen promptly after it shall have received notice or obtained knowledge thereof, of any information or fact that would alter or affect in any material respect any opinion, certificate, letter or other document provided to Cowen pursuant to this Agreement.
(k)          Due Diligence Cooperation . The Company will reasonably cooperate with any reasonable due diligence review conducted by Cowen or its agents in connection with the transactions contemplated hereby, including, without limitation, providing information and making available documents and senior corporate officers, during regular business hours and at the Company’s principal offices, as Cowen may reasonably request.
(l)          Required Filings Relating to Placement of Placement Shares . The Company agrees that on such dates as the Securities Act shall require, the Company will (i) file a prospectus supplement with the Commission under the applicable paragraph of Rule 424(b) under the Securities Act (each and every filing under Rule 424(b), a “ Filing Date ”), which prospectus supplement will set forth, within the relevant period, the amount of Placement Shares sold through Cowen, the Net Proceeds to the Company and the compensation payable by the Company to Cowen with respect to such Placement Shares (provided that the Company may satisfy its obligations under this Section 7(l)(i) by effecting a filing in accordance with the Exchange Act with respect to such information), and (ii) deliver such number of copies of each such prospectus supplement to each exchange or market on which such sales were effected as may be required by the rules or regulations of such exchange or market.
(m)          Representation Dates; Certificate . On or prior to the First Delivery Date and each time during the term of this Agreement the Company subsequently thereafter (i) amends or supplements the Registration Statement or the Prospectus relating to the Placement Shares (other than a prospectus supplement filed in accordance with Section 7(l) of this Agreement) by means of a post-effective amendment, sticker, or supplement but not by means of incorporation of document(s) by reference to the Registration Statement or the Prospectus relating to the Placement Shares; (ii) files an annual report on Form 10-K under the Exchange Act; (iii) files its quarterly reports on Form 10-Q under the Exchange Act; or (iv) files a report on Form 8-K containing amended financial information (other than an earnings release) under the Exchange Act (each date of filing of one or more of the documents referred to in clauses (i) through (iv) shall be a “ Representation Date ”); the Company shall furnish Cowen with a certificate, in the form attached hereto as Exhibit 7(m) within three (3) Trading Days of any Representation Date if requested by Cowen. The requirement to provide a certificate under this Section 7(m) shall be waived for any Representation Date occurring at a time at which no Placement Notice is pending, which waiver shall continue until the earlier to occur of the date the Company delivers a Placement Notice hereunder (which for such calendar quarter shall be considered a Representation Date) and the next occurring Representation Date; provided, however, that such waiver shall not apply for any Representation Date on which the Company files its annual report on Form 10-K. Notwithstanding the foregoing, if the Company subsequently decides to sell Placement Shares following a Representation Date when the Company relied on such waiver and did not provide Cowen with a certificate under this Section 7(m) , then before the Company delivers the Placement Notice or Cowen sells any Placement Shares, the Company shall provide Cowen with a certificate, in the form attached hereto as Exhibit 7(m) , dated the date of the Placement Notice.

15




(n)          Legal Opinion . On or prior to the First Delivery Date and within three (3) Trading Days of each Representation Date with respect to which the Company is obligated to deliver a certificate in the form attached hereto as Exhibit 7(m) for which no waiver is applicable, the Company shall cause to be furnished to Cowen a written opinion of Goodwin Procter LLP (“ Company Counsel ”), or other counsel satisfactory to Cowen, in form and substance reasonably satisfactory to Cowen and its counsel, dated the date that the opinion is required to be delivered, substantially similar to the form attached hereto as Exhibit 7(n)(i) and Exhibit 7(n)(ii) , respectively, modified, as necessary, to relate to the Registration Statement and the Prospectus as then amended or supplemented; provided , however , that in lieu of such opinions for subsequent Representation Dates, counsel may furnish Cowen with a letter (a “ Reliance Letter ”) to the effect that Cowen may rely on a prior opinion delivered under this Section 7(n) to the same extent as if it were dated the date of such letter (except that statements in such prior opinion shall be deemed to relate to the Registration Statement and the Prospectus as amended or supplemented at such Representation Date).
(o)          Comfort Letter . On or prior to the First Delivery Date and within three (3) Trading Days of each Representation Date with respect to which the Company is obligated to deliver a certificate in the form attached hereto as Exhibit 7(m) for which no waiver is applicable, the Company shall cause its independent accountants to furnish Cowen letters (the Comfort Letters ), dated the date that the Comfort Letter is delivered, in form and substance satisfactory to Cowen, (i) confirming that they are an independent registered public accounting firm within the meaning of the Securities Act and the Public Company Accounting Oversight Board, (ii) stating, as of such date, the conclusions and findings of such firm with respect to the financial information and other matters ordinarily covered by accountants’ “comfort letters” to Cowen in connection with registered public offerings (the first such letter, the Initial Comfort Letter ) and (iii) updating the Initial Comfort Letter with any information that would have been included in the Initial Comfort Letter had it been given on such date and modified as necessary to relate to the Registration Statement and the Prospectus, as amended and supplemented to the date of such letter.
(p)          Market Activities . The Company will not, directly or indirectly, (i) take any action designed to cause or result in, or that constitutes or might reasonably be expected to constitute, the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Placement Shares or (ii) sell, bid for, or purchase the Common Stock to be issued and sold pursuant to this Agreement, or pay anyone any compensation for soliciting purchases of the Placement Shares other than Cowen; provided, however, that the Company may bid for and purchase shares of its common stock in accordance with Rule 10b-18 under the Exchange Act.
(q)          Insurance . The Company and its subsidiaries shall maintain, or caused to be maintained, insurance in such amounts and covering such risks as the Company believes is reasonable and customary for the business for which it is engaged.
(r)          Compliance with Laws . The Company and each of its subsidiaries shall maintain, or cause to be maintained, all material environmental permits, licenses and other authorizations required by federal, state and local law in order to conduct their businesses as described in the Prospectus, and the Company and each of its subsidiaries shall conduct their businesses, or cause their businesses to be conducted, in substantial compliance with such permits, licenses and authorizations and with applicable environmental laws, except where the failure to maintain or be in compliance with such permits, licenses and authorizations could not reasonably be expected to result in a Material Adverse Change.
(s)          Investment Company Act . The Company will conduct its affairs in such a manner so as to reasonably ensure that neither it nor its subsidiaries will be or become, at any time prior to the termination of this Agreement, an “investment company,” as such term is defined in the Investment Company

16




Act, assuming no change in the Commission’s current interpretation as to entities that are not considered an investment company.
(t)          Securities Act and Exchange Act . The Company will use its best efforts to comply with all requirements imposed upon it by the Securities Act and the Exchange Act as from time to time in force, so far as necessary to permit the continuance of sales of, or dealings in, the Placement Shares as contemplated by the provisions hereof and the Prospectus.
(u)          No Offer to Sell . Other than the Prospectus and any free writing prospectus (as defined in Rule 405 under the Securities Act) approved in advance by the Company and Cowen in its capacity as principal or agent hereunder, neither Cowen nor the Company (including its agents and representatives, other than Cowen in its capacity as such) will make, use, prepare, authorize, approve or refer to any written communication (as defined in Rule 405 under the Securities Act), required to be filed with the Commission, that constitutes an offer to sell or solicitation of an offer to buy Placement Shares hereunder.
(v)          Sarbanes-Oxley Act . The Company and its subsidiaries will use commercially reasonable efforts to comply with all effective applicable provisions of the Sarbanes-Oxley Act.
8.       Conditions to Cowen’s Obligations . The obligations of Cowen hereunder with respect to a Placement will be subject to the continuing accuracy and completeness of the representations and warranties made by the Company herein, to the due performance by the Company of its obligations hereunder, to the completion by Cowen of a due diligence review satisfactory to Cowen in its reasonable judgment, and to the continuing satisfaction (or waiver by Cowen in its sole discretion) of the following additional conditions:
(a)          Registration Statement Effective . The Registration Statement shall be effective and shall be available for (i) all sales of Placement Shares issued pursuant to all prior Placement Notices and (ii) the sale of all Placement Shares contemplated to be issued by any Placement Notice.
(b)          No Material Notices . None of the following events shall have occurred and be continuing: (i) receipt by the Company or any of its subsidiaries of any request for additional information from the Commission or any other federal or state governmental authority during the period of effectiveness of the Registration Statement, the response to which would require any post-effective amendments or supplements to the Registration Statement or the Prospectus; (ii) the issuance by the Commission or any other federal or state governmental authority of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; (iii) receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Placement Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; (iv) the occurrence of any event that makes any material statement made in the Registration Statement or the Prospectus or any material document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in the Registration Statement, the Prospectus or such documents so that, in the case of the Registration Statement, it will not contain any materially untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and, that in the case of the Prospectus, it will not contain any materially untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.
(c)          No Misstatement or Material Omission . Cowen shall not have advised the Company that the Registration Statement or Prospectus, or any amendment or supplement thereto, contains an untrue statement of fact that in Cowen’s reasonable opinion is material, or omits to state a fact that in Cowen’s

17




reasonable opinion is material and is required to be stated therein or is necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.
(d)          Material Changes . Except as contemplated in the Prospectus, or disclosed in the Company’s reports filed with the Commission, there shall not have been any material adverse change, on a consolidated basis, in the authorized capital stock of the Company or any Material Adverse Change or any development that could reasonably be expected to result in a Material Adverse Change, or any downgrading in or withdrawal of the rating assigned to any of the Company’s securities (other than asset backed securities) by any rating organization or a public announcement by any rating organization that it has under surveillance or review its rating of any of the Company’s securities (other than asset backed securities), the effect of which, in the case of any such action by a rating organization described above, in the reasonable judgment of Cowen (without relieving the Company of any obligation or liability it may otherwise have), is so material as to make it impracticable or inadvisable to proceed with the offering of the Placement Shares on the terms and in the manner contemplated in the Prospectus.
(e)          Company Counsel Legal Opinion . Cowen shall have received the opinions of Company Counsel required to be delivered pursuant Section 7(n) on or before the date on which such delivery of such opinion is required pursuant to Section 7(n) .
(f)          Cowen Counsel Legal Opinion . Cowen shall have received from LeClairRyan, A Professional Corporation, counsel for Cowen, such opinion or opinions, on or before the date on which the delivery of the Company Counsel legal opinion is required pursuant to Section 7(n) , with respect to such matters as Cowen may reasonably require, and the Company shall have furnished to such counsel such documents as they request for enabling them to pass upon such matters.
(g)          Comfort Letter . Cowen shall have received the Comfort Letter required to be delivered pursuant Section 7(o) on or before the date on which such delivery of such Comfort Letter is required pursuant to Section 7(o) .
(h)          Representation Certificate . Cowen shall have received the certificate required to be delivered pursuant to Section 7(m) on or before the date on which delivery of such certificate is required pursuant to Section 7(m) .
(i)          Secretary’s Certificate . On or prior to the First Delivery Date, Cowen shall have received a certificate signed on behalf of the Company by its corporate Secretary, in form and substance reasonably satisfactory to Cowen and its counsel.
(j)          No Suspension . Trading in the Common Stock shall not have been suspended on Nasdaq.
(k)          Other Materials . On each date on which the Company is required to deliver a certificate pursuant to Section 7(m) , the Company shall have furnished to Cowen such appropriate further information, certificates and documents as Cowen may have reasonably requested. All such opinions, certificates, letters and other documents shall have been in compliance with the provisions hereof. The Company will furnish Cowen with such conformed copies of such opinions, certificates, letters and other documents as Cowen shall have reasonably requested.
(l)          Securities Act Filings Made . All filings with the Commission required by Rule 424 under the Securities Act to have been filed prior to the issuance of any Placement Notice hereunder shall have been made within the applicable time period prescribed for such filing by Rule 424.

18




(m)          Approval for Listing . The Placement Shares shall either have been (i) approved for listing on Nasdaq, subject only to notice of issuance, or (ii) the Company shall have filed an application for listing of the Placement Shares on Nasdaq at, or prior to, the issuance of any Placement Notice.
(n)          No Termination Event . There shall not have occurred any event that would permit Cowen to terminate this Agreement pursuant to Section 11(a) .
9.       Indemnification and Contribution .
(a)          Company Indemnification . The Company agrees to indemnify and hold harmless Cowen, the directors, officers, partners, employees and agents of Cowen and each person, if any, who (i) controls Cowen within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, or (ii) is controlled by or is under common control with Cowen (a “ Cowen Affiliate ”) from and against any and all losses, claims, liabilities, expenses and damages (including, but not limited to, any and all reasonable investigative, legal and other expenses incurred in connection with, and any and all amounts paid in settlement (in accordance with Section 9(c) ) of, any action, suit or proceeding between any of the indemnified parties and any indemnifying parties or between any indemnified party and any third party, or otherwise, or any claim asserted), as and when incurred, to which Cowen, or any such person, may become subject under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, liabilities, expenses or damages arise out of or are based, directly or indirectly, on (x) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or the Prospectus or any amendment or supplement to the Registration Statement or the Prospectus or in any free writing prospectus or in any application or other document executed by or on behalf of the Company or based on written information furnished by or on behalf of the Company filed in any jurisdiction in order to qualify the Common Stock under the securities laws thereof or filed with the Commission, (y) the omission or alleged omission to state in any such document a material fact required to be stated in it or necessary to make the statements in it not misleading or (z) any breach by any of the indemnifying parties of any of their respective representations, warranties and agreements contained in this Agreement; provided , however , that this indemnity agreement shall not apply to the extent that such loss, claim, liability, expense or damage arises from the sale of the Placement Shares pursuant to this Agreement and is caused directly or indirectly by an untrue statement or omission made in reliance upon and in conformity with written information relating to Cowen and furnished to the Company by Cowen expressly for inclusion in any document as described in clause (x) of this Section 9(a) . This indemnity agreement will be in addition to any liability that the Company might otherwise have.
(b)          Cowen Indemnification . Cowen agrees to indemnify and hold harmless the Company and its directors and each officer of the Company that signed the Registration Statement, and each person, if any, who (i) controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act or (ii) is controlled by or is under common control with the Company against any and all loss, liability, claim, damage and expense described in the indemnity contained in Section 9(a) , as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendments thereto) or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information relating to Cowen and furnished to the Company by Cowen expressly for inclusion in any document as described in clause (x) of Section 9(a) .
(c)          Procedure . Any party that proposes to assert the right to be indemnified under this Section 9 will, promptly after receipt of notice of commencement of any action against such party in respect of which a claim is to be made against an indemnifying party or parties under this Section 9 , notify each such indemnifying party in writing of the commencement of such action, enclosing a copy of all papers

19




served, but the omission so to notify such indemnifying party will not relieve the indemnifying party from (i) any liability that it might have to any indemnified party otherwise than under this Section 9 and (ii) any liability that it may have to any indemnified party under the foregoing provision of this Section 9 unless, and only to the extent that, such omission results in the forfeiture of substantive rights or defenses by the indemnifying party. If any such action is brought against any indemnified party and it notifies the indemnifying party of its commencement, the indemnifying party will be entitled to participate in and, to the extent that it elects by delivering written notice to the indemnified party promptly after receiving notice of the commencement of the action from the indemnified party, jointly with any other indemnifying party similarly notified, to assume the defense of the action, with counsel reasonably satisfactory to the indemnified party, and after notice from the indemnifying party to the indemnified party of its election to assume the defense, the indemnifying party will not be liable to the indemnified party for any legal or other expenses except as provided below and except for the reasonable costs of investigation subsequently incurred by the indemnified party in connection with the defense. The indemnified party will have the right to employ its own counsel in any such action, but the fees, expenses and other charges of such counsel will be at the expense of such indemnified party unless (1) the employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (2) the indemnified party has reasonably concluded (based on advice of counsel) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, (3) a conflict or potential conflict exists (based on advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party) or (4) the indemnifying party has not in fact employed counsel to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees, disbursements and other charges of counsel will be at the expense of the indemnifying party or parties. It is understood that the indemnifying party or parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate firm admitted to practice in such jurisdiction at any one time for all such indemnified party or parties. All such fees, disbursements and other charges will be reimbursed by the indemnifying party promptly as they are incurred. An indemnifying party will not, in any event, be liable for any settlement of any action or claim effected without its written consent. No indemnifying party shall, without the prior written consent of each indemnified party, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding relating to the matters contemplated by this Section 9 (whether or not any indemnified party is a party thereto), unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising or that may arise out of such claim, action or proceeding.
(d)          Contribution . In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in the foregoing paragraphs of this Section 9 is applicable in accordance with its terms but for any reason is held to be unavailable from the Company or Cowen, the Company and Cowen will contribute to the total losses, claims, liabilities, expenses and damages (including any investigative, legal and other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted, but after deducting any contribution received by the Company from persons other than Cowen, such as persons who control the Company within the meaning of the Securities Act, officers of the Company who signed the Registration Statement and directors of the Company, who also may be liable for contribution) to which the Company and Cowen may be subject in such proportion as shall be appropriate to reflect the relative benefits received by the Company on the one hand and Cowen on the other. The relative benefits received by the Company on the one hand and Cowen on the other hand shall be deemed to be in the same proportion as the total Net Proceeds from the sale of the Placement Shares (before deducting expenses) received by the Company bear to the total compensation received by Cowen from the sale of Placement Shares on behalf of the Company. If, but only if, the allocation provided by the foregoing sentence is not permitted by applicable law, the allocation of

20




contribution shall be made in such proportion as is appropriate to reflect not only the relative benefits referred to in the foregoing sentence but also the relative fault of the Company, on the one hand, and Cowen, on the other, with respect to the statements or omission that resulted in such loss, claim, liability, expense or damage, or action in respect thereof, as well as any other relevant equitable considerations with respect to such offering. Such relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or Cowen, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and Cowen agree that it would not be just and equitable if contributions pursuant to this Section 9(d) were to be determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, liability, expense, or damage, or action in respect thereof, referred to above in this Section 9(d) shall be deemed to include, for the purpose of this Section 9(d) , any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim to the extent consistent with Section 9(c) hereof. Notwithstanding the foregoing provisions of this Section 9(d) , Cowen shall not be required to contribute any amount in excess of the commissions received by it under this Agreement and no person found guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 9(d) , any person who controls a party to this Agreement within the meaning of the Securities Act, and any officers, directors, partners, employees or agents of Cowen, will have the same rights to contribution as that party, and each officer of the Company who signed the Registration Statement will have the same rights to contribution as the Company, subject in each case to the provisions hereof. Any party entitled to contribution, promptly after receipt of notice of commencement of any action against such party in respect of which a claim for contribution may be made under this Section 9(d) , will notify any such party or parties from whom contribution may be sought, but the omission to so notify will not relieve that party or parties from whom contribution may be sought from any other obligation it or they may have under this Section 9(d) except to the extent that the failure to so notify such other party materially prejudiced the substantive rights or defenses of the party from whom contribution is sought. Except for a settlement entered into pursuant to the last sentence of Section 9(c) hereof, no party will be liable for contribution with respect to any action or claim settled without its written consent if such consent is required pursuant to Section 9(c) hereof.
10.       Representations and Agreements to Survive Delivery . The indemnity and contribution agreements contained in Section 9 of this Agreement and all representations and warranties of the Company herein or in certificates delivered pursuant hereto shall survive, as of their respective dates, regardless of (i) any investigation made by or on behalf of Cowen, any controlling persons, or the Company (or any of their respective officers, directors or controlling persons), (ii) delivery and acceptance of the Placement Shares and payment therefor or (iii) any termination of this Agreement.
11.       Termination.
(a)         Cowen shall have the right by giving notice as hereinafter specified at any time to terminate this Agreement if (i) any Material Adverse Change, or any development that would reasonably be expected to result in a Material Adverse Change has occurred that, in the reasonable judgment of Cowen, may materially impair the ability of Cowen to sell the Placement Shares hereunder, (ii) the Company shall have failed, refused or been unable to perform any agreement on its part to be performed hereunder; provided, however, in the case of any failure of the Company to deliver (or cause another person to deliver) any certification, opinion, or letter required under Sections 7(m) , 7(n) , or 7(o) , Cowen’s right to terminate shall not arise unless such failure to deliver (or cause to be delivered) continues for more than thirty (30) days from the date such delivery was required, (iii) any other condition of Cowen’s obligations hereunder is not

21




fulfilled, or (iv), any suspension or limitation of trading in the Placement Shares or in securities generally on Nasdaq shall have occurred. Any such termination shall be without liability of any party to any other party except that the provisions of Section 7(g) (Expenses), Section 9 (Indemnification and Contribution), Section 10 (Representations and Agreements to Survive Delivery), Section 16 (Applicable Law; Consent to Jurisdiction) and Section 17 (Waiver of Jury Trial) hereof shall remain in full force and effect notwithstanding such termination. If Cowen elects to terminate this Agreement as provided in this Section 11(a) , Cowen shall provide the required notice as specified in Section 12 (Notices).
(b)         The Company shall have the right, by giving ten (10) days’ notice as hereinafter specified to terminate this Agreement in its sole discretion at any time after the date of this Agreement. Any such termination shall be without liability of any party to any other party except that the provisions of Section 7(g) (Expenses), Section 9 (Indemnification and Contribution), Section 10 (Representations and Agreements to Survive Delivery), Section 16 (Applicable Law; Consent to Jurisdiction) and Section 17 (Waiver of Jury Trial) hereof shall remain in full force and effect notwithstanding such termination.
(c)         Cowen shall have the right, by giving ten (10) days’ notice as hereinafter specified to terminate this Agreement in its sole discretion at any time after the date of this Agreement. Any such termination shall be without liability of any party to any other party except that the provisions of Section 7(g) (Expenses), Section 9 (Indemnification and Contribution), Section 10 (Representations and Agreements to Survive Delivery), Section 16 (Applicable Law; Consent to Jurisdiction) and Section 17 (Waiver of Jury Trial) hereof shall remain in full force and effect notwithstanding such termination.
(d)         Unless earlier terminated pursuant to this Section 11 , this Agreement shall automatically terminate upon the issuance and sale of all of the Placement Shares through Cowen on the terms and subject to the conditions set forth herein; provided that the provisions of Section 7(g) (Expenses), Section 9 (Indemnification and Contribution), Section 10 (Representations and Agreements to Survive Delivery), Section 16 (Applicable Law; Consent to Jurisdiction) and Section 17 (Waiver of Jury Trial) hereof shall remain in full force and effect notwithstanding such termination.
(e)         This Agreement shall remain in full force and effect unless terminated pursuant to Sections 11(a) , (b) , (c), or (d) above or otherwise by mutual agreement of the parties; provided, however, that any such termination by mutual agreement shall in all cases be deemed to provide that Section 7(g) (Expenses), Section 9 (Indemnification and Contribution), Section 10 (Representations and Agreements to Survive Delivery), Section 16 (Applicable Law; Consent to Jurisdiction) and Section 17 (Waiver of Jury Trial) shall remain in full force and effect.
(f)         Any termination of this Agreement shall be effective on the date specified in such notice of termination; provided, however, that such termination shall not be effective until the close of business on the date of receipt of such notice by Cowen or the Company, as the case may be. If such termination shall occur prior to the Settlement Date for any sale of Placement Shares, such Placement Shares shall settle in accordance with the provisions of this Agreement.
(g)         Subject to the additional limitations set forth in Section 7 of this Agreement, in the event of termination of this Agreement by the Company prior to the sale of any Placement Shares, Cowen shall be entitled only to reimbursement of its out-of-pocket expenses actually incurred.
12.       Notices . All notices or other communications required or permitted to be given by any party to any other party pursuant to the terms of this Agreement shall be in writing, unless otherwise specified in this Agreement, and if sent to Cowen, shall be delivered to Cowen at:
Cowen and Company, LLC

22




599 Lexington Avenue
New York, NY 10022
Attention: General Counsel
Telephone: 212-201-4841
E-mail: owen.littman@cowen.com
Fax: 646-562-1124

with a copy to:

LeClairRyan, A Professional Corporation
885 Third Avenue, Sixteenth Floor
New York, NY 10022
Attention: James T. Seery
Telephone: 973-491-3315
E-mail: james.seery@leclairryan.com
Fax: 973-491-3415

and if sent to the Company, shall be delivered to:

Ocera Therapeutics, Inc.
525 University Avenue, Suite 610
Palo Alto, CA 94301
Attention: Michael Byrnes
Telephone: 650-475-0158
E-mail: mbyrnes@ocerainc.com
Fax: 650-521-5677

with a copy to:

Goodwin Procter LLP
Exchange Place
Boston, MA 02109
Attention: Mitchell S. Bloom
Telephone: 617-570-1055
E-mail: mbloom@goodwinprocter.com
Fax: 617-523-1231

Each party to this Agreement may change such address for notices by sending to the parties to this Agreement written notice of a new address for such purpose. Each such notice or other communication shall be deemed given (i) when delivered personally, by e-mail, or by verifiable facsimile transmission (with an original to follow) on or before 4:30 p.m., New York City time, on a Business Day (as defined below), or, if such day is not a Business Day on the next succeeding Business Day, (ii) on the next Business Day after timely delivery to a nationally-recognized overnight courier and (iii) on the Business Day actually received if deposited in the U.S. mail (certified or registered mail, return receipt requested, postage prepaid). For purposes of this Agreement, “ Business Day ” shall mean any day on which Nasdaq and commercial banks in the City of New York are open for business.

13.       Successors and Assigns . This Agreement shall inure to the benefit of and be binding upon the Company and Cowen and their respective successors and the affiliates, controlling persons, officers and directors referred to in Section 9 hereof. References to any of the parties contained in this Agreement shall

23




be deemed to include the successors and permitted assigns of such party. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and permitted assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. Neither party may assign its rights or obligations under this Agreement without the prior written consent of the other party; provided , however , that Cowen may assign its rights and obligations hereunder to an affiliate of Cowen without obtaining the Company’s consent.
14.       Adjustments for Share Splits . The parties acknowledge and agree that all share-related numbers contained in this Agreement shall be adjusted to take into account any share split, share dividend or similar event effected with respect to the Common Stock.
15.       Entire Agreement; Amendment; Severability . This Agreement (including all schedules and exhibits attached hereto and Placement Notices issued pursuant hereto) constitutes the entire agreement and supersedes all other prior and contemporaneous agreements and undertakings, both written and oral, among the parties hereto with regard to the subject matter hereof. Neither this Agreement nor any term hereof may be amended except pursuant to a written instrument executed by the Company and Cowen. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable as written by a court of competent jurisdiction, then such provision shall be given full force and effect to the fullest possible extent that it is valid, legal and enforceable, and the remainder of the terms and provisions herein shall be construed as if such invalid, illegal or unenforceable term or provision was not contained herein, but only to the extent that giving effect to such provision and the remainder of the terms and provisions hereof shall be in accordance with the intent of the parties as reflected in this Agreement.
16.       Applicable Law; Consent to Jurisdiction . This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York without regard to the principles of conflicts of laws. Each party hereby irrevocably submits to the non-exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan, for the adjudication of any dispute hereunder or in connection with any transaction contemplated hereby, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof (certified or registered mail, return receipt requested) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.
17.       Waiver of Jury Trial . The Company and Cowen each hereby irrevocably waives any right it may have to a trial by jury in respect of any claim based upon or arising out of this Agreement or any transaction contemplated hereby.
18.       Absence of Fiduciary Relationship . The Company acknowledges and agrees that:

24




(a)         Cowen has been retained solely to act as sales agent in connection with the sale of the Common Stock and that no fiduciary, advisory or agency relationship between the Company and Cowen has been created in respect of any of the transactions contemplated by this Agreement, irrespective of whether Cowen has advised or is advising the Company on other matters;
(b)         the Company is capable of evaluating and understanding and understands and accepts the terms, risks and conditions of the transactions contemplated by this Agreement;
(c)         the Company has been advised that Cowen and its affiliates are engaged in a broad range of transactions which may involve interests that differ from those of the Company and that Cowen has no obligation to disclose such interests and transactions to the Company by virtue of any fiduciary, advisory or agency relationship; and
(d)         the Company waives, to the fullest extent permitted by law, any claims it may have against Cowen, for breach of fiduciary duty or alleged breach of fiduciary duty and agrees that Cowen shall have no liability (whether direct or indirect) to the Company in respect of such a fiduciary claim or to any person asserting a fiduciary duty claim on behalf of or in right of the Company, including stockholders, partners, employees or creditors of the Company.
19.       Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Delivery of an executed Agreement by one party to the other may be made by facsimile or electronic transmission.
[Remainder of Page Intentionally Blank]

If the foregoing correctly sets forth the understanding between the Company and Cowen, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement between the Company and Cowen.
Very truly yours,

COWEN AND COMPANY, LLC


By:  /s/ Jason Fenton        
Name: Jason Fenton
Title: Managing Director



ACCEPTED as of the date
first-above written:

OCERA THERAPEUTICS, INC.


By: /s/ Linda S. Grais, M.D.        
Name: Linda S. Grais, M.D.
Title: President and Chief Executive Officer


SCHEDULE 1
FORM OF PLACEMENT NOTICE

From:
[                                  ]
Cc:
[                                  ]
To:
[             ]
Subject:     Cowen at the Market Offering—Placement Notice
Gentlemen:
Pursuant to the terms and subject to the conditions contained in the Cowen At the Market Offering Sales Agreement between Ocera Therapeutics, Inc. (the “ Company ”), and Cowen and Company, LLC (“ Cowen ”) dated May 15 , 2015 (the “ Agreement ”), I hereby request on behalf of the Company that Cowen sell up to [ ] shares of the Company’s common stock, par value $0.00001 per share, at a minimum market price of $_______ per share. Sales should begin on the date of this Notice and shall continue until [DATE] [all shares are sold].


SCHEDULE 2
The Company
Linda S. Grais, M.D., President and Chief Executive Officer
Michael Byrnes, Chief Financial Officer
Cowen
Robert Sine        Director
William Follis        Director





SCHEDULE 3

Compensation
Cowen shall be paid compensation equal to 3% of the gross proceeds from the sales of Common Stock pursuant to the terms of this Agreement.



Exhibit 7(m)



OFFICER CERTIFICATE


The undersigned, the duly qualified and elected _______________________, of Ocera Therapeutics, Inc. (“ Company ”), a Delaware corporation, does hereby certify in such capacity and on behalf of the Company, pursuant to Section 7(m) of the Sales Agreement dated May 15, 2015 (the “ Sales Agreement ”) between the Company and Cowen and Company, LLC, that to the best of the knowledge of the undersigned.

(i)    The representations and warranties of the Company in Section 6 of the Sales Agreement (A) to the extent such representations and warranties are subject to qualifications and exceptions contained therein relating to materiality or Material Adverse Change, are true and correct on and as of the date hereof with the same force and effect as if expressly made on and as of the date hereof, except for those representations and warranties that speak solely as of a specific date and which were true and correct as of such date, and (B) to the extent such representations and warranties are not subject to any qualifications or exceptions, are true and correct in all material respects as of the date hereof as if made on and as of the date hereof with the same force and effect as if expressly made on and as of the date hereof except for those representations and warranties that speak solely as of a specific date and which were true and correct as of such date; and
(ii)    The Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied pursuant to the Sales Agreement at or prior to the date hereof.
Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Sales Agreement.

Ocera Therapeutics, Inc.


By:                         
Name:
Title:


Date:                 





25



Exhibit 31.1

CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
 
I, Linda S. Grais, M.D., certify that:
 
1.
I have reviewed this Quarterly Report on Form 10-Q of Ocera Therapeutics, Inc. (the registrant);

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
(c)
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 
Date:
August 10, 2015
By:
/s/ Linda S. Grais, M.D.
 
 
 
Linda S. Grais, M.D.
 
 
 
President and Chief Executive Officer
 
 
 
(Principal Executive Officer)




Exhibit 31.2