Table of Contents WEWORK COMPANIES INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2019 (UNAUDITED) During the six months ended June 30, 2019, the Company recorded interest expense of $33.6 million, which represents the imputed interest on the Convertible Note at an effective interest rate of 10%. The Company also recorded a reduction of interest expense of $1.7 million which represents the decline in the fair value of the embedded redemption derivative liability from January 1, 2019 through January 7, 2019 and a reduction of interest expense of $25.3 million which represents the decline in the fair value of the embedded redemption derivative liability from January 7, 2019 through June 30, 2019. The Company’s obligations under the Convertible Note are subordinate to the Company’s obligations under its existing credit facilities (see Note 21) and its Senior Notes (see Note 14). Amended 2018 Warrant—On November 1, 2018, the Company entered into a warrant agreement with SBWW Cayman, pursuant to which the Company agreed to issue to SBWW Cayman shares of the Company’s capital stock (the “2018 Warrant”). Under the terms of the 2018 Warrant, in exchange for the issuance of the Company’s capital stock in the future, SBWW Cayman originally agreed to make a payment of $1.5 billion on each of January 15, 2019 and April 15, 2019. Unless earlier exercised in connection with a qualifying initial public offering, a qualifying preferred stock financing, a sale of the Company or certain insolvency events, the right of SBWW Cayman to receive shares of the Company’s capital stock would have been automatically exercised on September 30, 2019 at a per-share price of $110, pursuant to its original terms. During the year ended December 31, 2018, the Company recognized a capital contribution of $69.0 million and an equal off-setting amount within additional paid-in capital representing the fair value of the arrangement upon execution. In January 2019, the Company and SBWW Cayman agreed to modify certain provisions of the 2018 Warrant (the “Amended 2018 Warrant”). Under the terms of the Amended 2018 Warrant, the January 2019 payment amount from SBWW Cayman to the Company was not changed, the April 2019 payment was reduced from $1.5 billion to $1.0 billion, and the conversion date was changed from September 30, 2019 to December 31, 2019. The amendment also modified the conversion price per share to be a fixed conversion price of $110 under all settlement scenarios. In January 2019 and April 2019 the Company drew down on the Amended 2018 Warrant and received $1.5 billion and $1.0 billion in cash, respectively. Upon the draws, the Company reclassified a combined total of $68.8 million of the equity asset associated with the original fair market value of the related party instrument established upon entering into the arrangement in November 2018 as an increase to additional paid in capital and a reduction in the warrant liability. As of June 30, 2019, the Amended 2018 Warrant was valued at $1.9 billion. During the six months ended June 30, 2019, the Company recorded a gain totaling $486.2 million, resulting from changes in fair value of the related party instrument. The Amended 2018 Warrant is classified as a liability in accordance with ASC 480, Distinguishing Liabilities from Equity (“ASC 480”), as the warrant embodies a potential cash settlement obligation to repurchase shares that is outside of the Company’s control. In accordance with ASC 480, the warrant liability will be remeasured to fair value each reporting period, with changes recognized in the gain (loss) from change in fair value of financial instruments on the accompanying condensed consolidated statements of operations. The measurement of the Amended 2018 Warrant is considered to be a Level 3 fair value measurement, as it was determined using observable and unobservable inputs. The Amended 2018 Warrant was exercised in July 2019. See Note 25 for additional information. 2019 Warrant—In conjunction with the Amended 2018 Warrant, the Company also entered into an additional warrant with SBWW Cayman, pursuant to which the Company agreed to issue shares of the Company’s capital stock (the “2019 Warrant”). Under the terms of the 2019 Warrant, in exchange for the issuance of the Company’s capital stock, SBWW Cayman will make a payment of $1.5 billion on April 3, 2020. The right of SBWW Cayman to receive shares of the Company’s capital stock will be automatically exercised on April 3, 2020 at a per-share price of $110. During the six months ended June 30, 2019, the Company recognized an additional capital contribution of $219.7 million and an equal off-setting amount within additional paid-in capital representing the fair value of the 2019 Warrant and modification of the 2018 Warrant prior to being drawn. The measurement of the 2019 Warrant is considered to be a Level 3 fair value measurement, as it was determined using observable and unobservable inputs. F-106