Table of Contents WEWORK COMPANIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2018 Note 13. Convertible Related Party Liabilities, Net Convertible related party liabilities, net consist of the following: December 31, (Amounts in thousands) 2018 Convertible Note: Convertible Note outstanding principal balance $ 1,000,000 Less: Value of embedded redemption derivative liability at issuance (178,784) Less: Original issue discount at issuance (169,961) Plus: Imputed interest expense 22,359 Total Convertible Note, net 673,614 Convertible Note Embedded Redemption Derivative: Value of embedded redemption derivative liability at issuance 178,784 Plus: Change in fair value of embedded redemption derivative recorded as interest expense 97,587 Total Convertible Note Embedded Redemption Derivative 276,371 Total Convertible Related Party Liabilities, Net $ 949,985 In July 2018, the Company entered into an agreement for the issuance of a convertible promissory note (the “Convertible Note”) with SoftBank Group Corp. for a commitment in an aggregate amount of $1.0 billion. An affiliate of SoftBank Group Corp. is a principal stockholder with representation on the Company’s board of directors. On August 31, 2018, the Company drew down on the full $1.0 billion commitment. Interest accrues beginning on September 1, 2019, at a rate of 2.80%, compounded annually, and is payable upon maturity. The Convertible Note matures on February 12, 2024, unless converted earlier. Unless earlier converted or repaid in connection with a Qualifying IPO (as defined below) or the sale of the Company, all of the outstanding principal and interest due under the Convertible Note will convert 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 Company’s obligations under the Convertible Note are subordinate to the Company’s obligations under its existing credit facilities (see Note 23) and its senior notes (see Note 12). 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 based on the fair value of the Convertible Note at the date of issuance. As the discount was provided by a related party and principal shareholder, it was treated as a capital contribution and recorded in additional paid in capital on the accompanying consolidated balance sheet as of December 31, 2018. The Company estimated the fair value of the Convertible Note using a probability-weighted valuation scenario model. The Convertible Note additionally contains embedded redemption features that were required to be assessed as derivatives. The Company determined that the features converting the Convertible Note into shares upon a qualifying preferred stock financing or Qualifying IPO and prepayment upon a sale of the Company were required to be bifurcated and accounted for under derivative accounting. These embedded features have been accounted for together as a single compound derivative. The Company estimated the fair value of the compound derivative 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. The embedded redemption derivative is presented within the convertible related party liabilities, net on the accompanying consolidated balance sheet as of December 31, 2018, F-37