NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
1. Description of the Transaction
On June 22, 2023, Legacy Tourmaline, Talaris, and Merger Sub entered into the Merger Agreement, pursuant to which Merger Sub, a wholly
owned subsidiary of Talaris, merged with and into Legacy Tourmaline at the closing, with Legacy Tourmaline surviving as a wholly owned subsidiary of Talaris.
Immediately prior to the effective time, Talaris effected the Reverse Stock Split. The historical per share information of Talaris and the
exchange ratio set forth in the Merger Agreement included within the unaudited pro forma condensed combined financial information reflect the impact of the Reverse Stock Split.
On October 19, 2023, Legacy Tourmaline, Talaris, and Merger Sub consummated the transactions contemplated by the Merger Agreement. Upon the
completion of the Merger, Legacy Tourmaline changed its name from Tourmaline Bio, Inc. to Tourmaline Sub, Inc., and Talaris changed its name from Talaris Therapeutics, Inc. to Tourmaline Bio, Inc.
Upon the effective time, all shares of Legacy Tourmaline common stock and Legacy Tourmaline Series A convertible preferred stock outstanding
immediately prior to the effective time were converted into the right to receive 15,877,090 shares of Talaris common stock in the aggregate, based on the exchange ratio of 0.07977 Talaris shares per Legacy Tourmaline shares. Talaris assumed
outstanding and unexercised stock options to purchase shares of Legacy Tourmaline common stock (the Legacy Tourmaline options), and in connection with the Merger the Legacy Tourmaline options were converted into stock options to purchase
shares of the Combined Companys common stock based on the exchange ratio set forth in the Merger Agreement.
As a result of the
Merger, holders of Legacy Tourmaline capital stock and stock options to purchase Legacy Tourmaline common stock own, or hold rights to acquire, in the aggregate approximately 78.9% of the fully-diluted common stock of the Combined Company and
Talaris stockholders and option holders own, or hold rights to acquire, in the aggregate approximately 21.1% of the fully-diluted common stock of the Combined Company following the effective time.
The aggregate value of the consideration paid by Legacy Tourmaline in the Merger was approximately $53.2 million. The fair value of
consideration transferred is based on the number of shares of common stock Talaris stockholders owned upon consummation of the Merger, multiplied by the closing price of Talaris common stock on the effective date of October 19, 2023. The fair
value of consideration transferred is not indicative of the combined entities enterprise value upon consummation of the Merger. As the Merger was accounted for as a reverse recapitalization, any difference between the consideration transferred in
the Merger and the fair value of the net assets acquired was recorded as an adjustment to additional paid-in capital.
Concurrently with the execution and delivery of the Merger Agreement, certain parties entered into subscription agreements with Legacy
Tourmaline and purchased, prior to the consummation of the Merger, 51,297,919 shares of Legacy Tourmaline common stock in the Pre-Merger Financing Transaction for an aggregate purchase price of approximately
$75.0 million. In connection with the Pre-Merger Financing Transaction, Legacy Tourmaline amended its certificate of incorporation to increase the authorized number of shares of common stock. Shares of
Legacy Tourmaline common stock issued pursuant to the Pre-Merger Financing Transaction were converted into shares of the Combined Companys common stock in accordance with the exchange ratio set forth in
the Merger Agreement at the effective time.
In addition, in connection with the closing of the Merger, Talaris declared a cash dividend
to the pre-Merger Talaris stockholders of approximately $64.7 million in the aggregate (which, together with certain cash payments to Talaris equity award holders was approximately $67.5 million in
the aggregate).
2. Basis of Pro Forma Presentation
The unaudited pro forma condensed combined financial information has been prepared pursuant to the rules and regulations of Article 11 of SEC
Regulation S-X. The unaudited pro forma condensed combined statements of operations for the nine month period ended September 30, 2023 and for the year ended December 31, 2022, give effect to the
Merger as if it had been consummated on January 1, 2022.
The unaudited pro forma condensed combined balance sheet as of
September 30, 2023 gives effect to the Merger and combines the historical balance sheets of Talaris and Legacy Tourmaline as of such date. Based on Legacy Tourmalines review of Legacy Tourmalines and Talaris summary of
significant accounting policies and discussions between management teams of Legacy Tourmaline and Talaris, the nature and amount of any adjustments to the historical financial statements of Talaris to conform its accounting policies to those of
Legacy Tourmaline were not material.
For accounting purposes, Legacy Tourmaline is considered to be the acquiring company and the Merger
was accounted for as a reverse recapitalization of Talaris by Legacy Tourmaline.