Table of Contents WEWORK COMPANIES INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2019 (UNAUDITED) $1.0 billion commitment. An affiliate of SoftBank Group Corp. is a principal stockholder with representation on the Company’s board of directors. The Convertible Note was originally scheduled to begin accruing interest on September 1, 2019, at a rate of 2.80%, compounded annually, and originally required repayment upon maturity on February 12, 2024, unless converted earlier. If not earlier converted or repaid in connection with a qualifying initial public offering as defined or the sale of the Company, all of the outstanding principal and interest due under the original terms of the Convertible Note would have converted into preferred stock of the Company upon a preferred stock financing providing to the Company gross proceeds of at least $2.0 billion (including the value of the Convertible Note). The Convertible Note was exercised in July 2019. See Note 25 for additional information. In January 2019, the Company and SBWW Cayman agreed to modify certain provisions of the Convertible Note. The Convertible Note, as amended, will now automatically convert to the Company’s capital stock at the same time as the Amended 2018 Warrant, defined below, which, assuming no other exercise events prior to December 31, 2019, will now be automatically exercised on December 31, 2019, for a fixed per share price of $110. The interest accrual start date per the Convertible Note was also extended to December 31, 2019. Based on the nature and significance of the modifications to the terms of the Convertible Note, the modification was accounted for as an extinguishment of the original convertible note and issuance of a new convertible note. As the Convertible Note is payable to a principal stockholder, the Company recognized the change in fair value of the Convertible Note before and after modification, as an increase to additional paid in capital in the amount of $236.4 million. As the Convertible Note includes an interest-free period and the interest rate is also below the market effective rate for a similar borrowing, an original issue discount of $170.0 million was recorded upon the initial draw in August 2018 and an original issue discount of $286.8 million was recorded upon the modification in January 2019, each based on the fair value of the Convertible Note on the relevant date. As the borrowing at a discount was provided by a principal stockholder, the original discount of $170.0 million and the $116.9 million incremental increase in value of the discount upon amendment were both treated as capital contributions and included in additional paid in capital on the accompanying condensed consolidated balance sheet as of December 31, 2018 and June 30, 2019, respectively. In addition, the Company recognized $119.5 million of additional capital contributions during the six months ended June 30, 2019, relating to a change in fair value upon amendment of the terms of the Convertible Note. The Company estimated the fair values of the Convertible Note using a probability-weighted valuation scenario model. The Convertible Note’s original and amended terms also contain embedded redemption features that are required to be bifurcated and separately accounted for as derivatives. These embedded features have been accounted for together as a single compound derivative. The Company estimated the fair value of the compound derivative at inception, upon amendment and at each reporting period, by comparing the value of the Convertible Note to a similar note without redemption features, the difference between the two values representing the value of the bifurcated redemption features. The bifurcation of the embedded redemption features represented a value of $178.8 million at the date of issuance and $25.3 million upon the subsequent amendment. As of June 30, 2019, the embedded redemption derivative had a fair value of zero as the probability of the redemption became remote upon the draw of the Amended 2018 Warrant discussed below. The embedded redemption derivative is presented with the Convertible Note within the balance of convertible related party liabilities, net on the accompanying condensed consolidated balance sheet as of December 31, 2018 and June 30, 2019, and is accounted for in the same manner as a freestanding derivative pursuant to ASC 815, Derivatives and Hedging, with subsequent changes in fair value recorded as an increase to or a reduction of interest expense each period. The fair value measurements of the debt discount and the embedded redemption features are considered to be Level 3 fair value measurements in the fair value hierarchy as per ASC 820, Fair Value Measurements, as they were determined using observable and unobservable inputs. F-105