On September 15, 2020, Former Adicet completed its merger with resTORbio. Based on the Exchange Ratio of 0.1240, immediately following the Merger, resTORbio stockholders and holders of resTORbio restricted stock units and options to acquire resTORbio common stock owned approximately 25.0% of the outstanding capital stock of the combined company on a fully diluted basis, and Former Adicet stockholders, holders of options or warrants to acquire Former Adicet capital stock owned approximately 75.0% of the outstanding capital stock of the combined company on a fully diluted basis. At the closing of the Merger, all shares of Former Adicet common stock and Former Adicet redeemable convertible preferred stock then outstanding were converted to Former Adicet’s common stock under their original terms and were then exchanged for the Company’s common stock.

resTORbio’s stockholders will continue to own and hold their existing shares of the Company’s common stock (after giving effect to the 1-for-7 reverse stock split). Pursuant to the terms of the Merger, the vesting of all outstanding resTORbio stock options was accelerated in full as of immediately prior to the Effective Time. All out-of-the-money resTORbio stock options were cancelled for no consideration. All in-the-money resTORbio stock options remained outstanding after the completion of the Merger in accordance with their terms. For accounting purposes, the Company assumed 81,370 in-the-money resTORbio stock options after giving effect to reverse stock split. In addition, 91,309 unvested resTORbio restricted stock units outstanding and unsettled, after giving effect to reverse stock split, as of immediately prior to the effective time of the Merger, were accelerated in full and the holders of such restricted stock units received 55,854 shares of the Company’s common stock (after reduction by the number of shares of resTORbio common stock necessary to satisfy applicable tax withholding obligations at the maximum statutory rate). The fair value of these modified stock options and restricted stock units attributable to pre-combination services was recorded as a component of consideration transferred and the fair value of these modified stock options and restricted stock units attributable to post-combination services was recognized as stock compensation expense in the Company’s condensed consolidated statement of operations.

In connection with the Merger, the Company entered into a Contingent Value Rights Agreement (the “CVR Agreement”) with Computershare Inc. and Computershare Trust Company, N.A. as joint rights agent. Per the terms of the Merger, each holder of resTORbio common stock as of immediately prior to the completion of the Merger is entitled to one contractual contingent value right, subject to and in accordance with the terms and conditions of the CVR Agreement, for each share of resTORbio common stock held by such holder as of immediately prior to the Effective Time. The CVR holders are entitled to receive net proceeds from the commercialization, if any, received from a third-party commercial partner of RTB101, resTORbio’s small molecule product candidate that is a potent inhibitor of target of rapamycin complex 1 (TORC1), for a COVID-19 related indication. The CVR is accounted for as contingent consideration, the fair value of which was determined using an income approach. This approach utilized a probability adjusted discounted cash flow that would accrue to the Company and then deducting the administrative fee to be retained by the Company and other permitted deductions in order to arrive at the net cash expected to be paid out to the CVR holders. These cash flows were then discounted to present value using the same discount rate applied in the valuation of the IPR&D. The probability adjusted discounted cash flow includes significant estimates and assumptions pertaining to commercialization events and cash consideration received by the Company for the grant of rights to commercialize RTB101 during the term of the CVR Agreement. The most significant unobservable inputs are the probabilities of achieving regulatory approval of the development projects and subsequent commercial success. Significant changes in any of the probabilities of success would result in a significantly higher or lower fair value measurement. Significant changes in the probabilities as to the periods in which commercialization of RTB101 will be achieved would result in a significantly lower or higher fair value measurement. (refer to Note 4 “Fair Value Measurements”).

The total purchase price has been allocated to the tangible and intangible assets acquired and liabilities assumed of resTORbio based on their fair values as of the completion of the Merger, with the excess allocated to goodwill. The purchase price is calculated based on the fair value of resTORbio common stock that the resTORbio stockholders owned as of the closing date of the merger because, with no active trading market for shares of Adicet, the fair value of the resTORbio’s common stock represented a more reliable measure of the fair value of consideration transferred in the Merger. The following summarizes the purchase price in the Merger (in thousands, except share and per share amounts):

Fair value of common stock shares of the combined company owned by resTORbio stockholders (1)	$	83,516
Fair value of contingent consideration liability with respect to CVR (2)		2,880
Estimated fair value of modified stock options and restricted stock units attributable to pre-combination services (3)		626
Purchase price	$	87,022

Number of shares of the combined company owned by resTORbio stockholders (a)		5,207,695
Multiplied by the fair value per share of resTORbio common stock (b)	$	16.59
Acquisition date fair value of resTORbio		86,396
Less: portion of the fair value to be distributed as CVR (c)		(2,880	)
Fair value of shares of the combined company owned by resTORbio stockholders	$	83,516

(3)

Based on the capitalization of resTORbio as of September 15, 2020, 91,309 outstanding unvested resTORbio restricted stock units were accelerated in connection with the merger and holders of the restricted stock units were issued approximately 55,854 shares of resTORbio common stock on a net settlement basis. Similarly, in connection with the merger, vesting of outstanding resTORbio stock options was accelerated in full and the stock options that were not in the in-the-money on the close of the merger were canceled, resulting in approximately 81,370 surviving stock options. The acquisition date fair value of these modified resTORbio restricted stock units and resTORbio stock options attributable to the pre-combination services is included in the estimated purchase price.

The Merger was accounted for as a business combination which requires that assets acquired and liabilities assumed be recognized at their fair value as of the acquisition date. While the Company uses its best estimates and assumptions as part of the purchase price allocation process to value the assets acquired and liabilities assumed on the acquisition date, its estimates and assumptions are subject to refinement. Fair value estimates are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions. The judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact the Company’s results of operations. The purchase price allocation is preliminary and is subject to change, including for the valuation of intangible assets and contingent consideration, income taxes and related valuation allowances and certain assets and liabilities among other items. The amounts recognized will be finalized as the information necessary to complete the analysis is obtained, but no later than one year after the acquisition date. Any potential adjustments made could be material in relation to the preliminary values presented below.

The following summarizes the allocation of the purchase price to the net tangible and intangible assets acquired (in thousands):

Net assets acquired:
Cash and cash equivalents	$	63,869
Prepaid expenses and other current assets		2,505
Property and equipment		318
IPR&D		3,490
Restricted cash		245
Accounts payable		(1,316	)
Accrued and other current liabilities		(2,421	)
Other liabilities		(40	)
Deferred tax liability		(367	)
Goodwill		20,739
Purchase price	$	87,022

The goodwill of $20.7 million is not tax deductible and represents the excess of the consideration paid over the fair value of assets acquired and liabilities assumed. Goodwill is mainly attributable to the enhanced value of the combined company, as reflected in the increase in market value of the resTORbio common shares following the announcement of the Merger with Former Adicet.

The fair value of acquired IPR&D related to the research and development of RTB101 for a COVID-19 related indication. The RTB101 compound IPR&D project was valued using an income approach, specifically a projected discounted cash flow method, adjusted for the probability of technical success (“PTS”). The projected discounted cash flow models used to estimate the Company’s IPR&D reflect significant assumptions regarding the estimates a market participant would make in order to evaluate a drug development asset, including the following:

This IPR&D intangible asset is not amortized, but rather are reviewed for impairment on an annual basis or more frequently if indicators of impairment are present, until the project is completed, abandoned, or transferred to a third party.

The contingent consideration for the CVR was valued using an income approach, leveraging the probability adjusted discounted cash flow that would accrue to the combining company and then deducting the administrative fee to be retained by the combined company and other permitted deductions in order to arrive at the net cash expected to be paid out to the CVR holders. The probability adjusted cash flow includes significant estimates and assumptions pertaining to commercialization events and cash consideration received by the Company for the grant of rights to commercialize RTB101 during the term of the CVR Agreement (as discussed above). These cash flows were then discounted to present value using the same discount rate applied in the valuation of the IPR&D.

Transaction costs for the Merger were $2.1 million and $7.1 million for the three month and nine month ended September 30, 2020, respectively and were expensed as incurred in general and administrative expenses in the condensed consolidated statements of operations.

The following supplemental unaudited pro forma information represents the Company’s financial results as if the acquisition of resTORbio had occurred on January 1, 2019 (in thousands).

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2020			2019			2020			2019

Revenue	$	3,028		$	(7,047	)	$	12,493		$	(974	)
Net loss	$	(9,791	)	$	(53,794	)	$	(26,424	)	$	(100,142	)

The above unaudited pro forma information was determined based on the historical GAAP results of the Company and resTORbio. The unaudited pro forma consolidated results are not necessarily indicative of what the Company’s consolidated results of operations would have been if the acquisition was completed on January 1, 2019. The unaudited pro forma consolidated net loss includes pro forma adjustments primarily relating to the reclassification of transaction costs and severance payments directly related to the closing of the Merger of $8.6 million from the three months ended September 30, 2020 to the three months ended September 30, 2019 and $15.6 million from the nine months ended September 30, 2020 to the nine months ended September 30, 2019. The unaudited proforma information include proforma adjustments to eliminate the impact of the change in the fair value of redeemable convertible preferred stock tranche liability, TRDF liability, and redeemable convertible warrant liability during the three and nine months ended September 30, 2020 and September 30, 2019 as the redeemable convertible preferred stock tranche liability, TRDF liability, and redeemable convertible warrant liability did not exist once the redeemable convertible preferred stock were converted to common stock in the Merger. The unaudited proforma information also includes proforma adjustments to reclassify stock compensation expense related to the conversion of resTORbio stock options and restricted stock units and the modification of stock option awards to Former Adicet CEO in connection with the Merger to January 1, 2019. Further, stock compensation expense related to resTORbio stock options and restricted stock units recognized in the books of resTORbio prior to the Merger in 2019 and 2020 was reversed in the proforma information.

On April 28, 2020, in connection with the Merger the Company entered into a transition agreement with Anil Singhal, Former Adicet’s Chief Executive Officer and President, pursuant to which Dr. Singhal transitioned from his role as Chief Executive Officer and President to an advisory role immediately after the closing of the Merger. In accordance with such agreement, Dr. Singhal is entitled to the following compensation: (1) cash payments of (i) $470,000 within 60 days following the closing of the Merger, (ii) an amount equal to his pro-rated bonus of $212,000 for the 2020 calendar year payable within 60 days following the closing of the Merger, (iii) $250,000 payable in one lump sum on January 1, 2021 and (iv) $24,000 payable within 60 days following the closing of the Merger, (2) 12 months’ of accelerated vesting of his unvested options to purchase the Company’s common stock upon completion of the Merger, and (3) a 12-month post-termination exercise period following termination of his independent contractor services agreement, dated April 28, 2020 (the “ICSA”), subject to any earlier expiration of the options to purchase the Company’s common stock by their terms. In addition, Dr. Singhal is entitled to reimbursement of up to $15,000 of his reasonable and documented legal expenses incurred in connection with such transition agreement. Pursuant to such agreement, subject to Dr. Singhal’s continued service through the completion of the Merger and contingent on completion of the Merger, Dr. Singhal’s continued service for purposes of vesting of his options to purchase the Company’s common stock will continue until the earlier of (i) May 7, 2021 or (ii) termination of the ICSA, provided, however, if the ICSA is terminated early without cause, Dr. Singhal is entitled to accelerated vesting of unvested options that would have vested from the date of such termination through May 7, 2021. In addition, Dr. Singhal’s existing options acceleration provisions will terminate. Pursuant to the ICSA, Dr. Singhal will provide certain advisory services to the Company for a term of 12 months following the closing of the merger and is entitled to payments of $12,500 per month for such services.