NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 1 — Description
of Organization, Business Operations and Basis of Presentation
Graf Industrial Corp.
(the “Company”) is a blank check company incorporated in Delaware on June 26, 2018. The Company was formed for
the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business
combination with one or more businesses (the “Business Combination”).
The Company is not
limited to a particular industry or sector for purposes of consummating a Business Combination. The Company is an emerging growth
company and, as such, the Company is subject to all of the risks associated with emerging growth companies.
As of September 30,
2019, the Company had not commenced any operations. All activity up to September 30, 2019 related to the Company’s formation
and preparation for the initial public offering (the “Initial Public Offering”), and since the closing of the Initial
Public Offering, the search for a prospective initial Business Combination. The Company will not generate any operating revenues
until after the completion of its initial Business Combination, at the earliest. The Company will generate non-operating income
in the form of interest income from the proceeds derived from the Initial Public Offering.
The registration statement
for the Initial Public Offering was declared effective on October 15, 2018. On October 18, 2018, the Company consummated the
Initial Public Offering of 22,500,000 units (the “Units” and, with respect to the shares of common stock included in
the Units offered, the “Public Shares”), generating gross proceeds of $225 million, and incurred underwriting
commissions of $4.5 million. On October 25, 2018, the Company consummated the closing of the sale of 1,876,512 additional Units
upon receiving notice of the underwriters’ election to partially exercise their overallotment option (the “Over-allotment”),
generating additional gross proceeds of approximately $18.8 million, and incurred additional underwriting commissions of approximately
$0.4 million (Note 3).
Simultaneously with
the closing of the Initial Public Offering and the Over-allotment, the Company consummated the private placement (“Private
Placement”) of 14,150,605 warrants (the “Private Placement Warrants”) at a price of $0.50 per Private Placement
Warrant, with the Sponsor, generating gross proceeds of approximately $7.08 million (Note 4).
Upon the closing of
the Initial Public Offering, the Over-allotment and the Private Placement, approximately $243.8 million ($10.00 per Unit) of the
net proceeds of the sale of the Units in the Initial Public Offering and Private Placement Warrants in the Private Placement was
placed in a U.S.-based trust account at J.P. Morgan Chase Bank, N.A. maintained by Continental Stock Transfer & Trust Company,
acting as trustee (“Trust Account”). The proceeds held in the Trust Account was invested in U.S. government securities,
within the meaning set forth in Section 2(a)(16) of the Investment Company Act 1940, as amended (the “Investment Company
Act”), with a maturity of 180 days or less or in any open ended investment company that holds itself out as a money market
fund selected by the Company meeting the conditions of paragraphs (d)(2), (d)(3) and (d)(4) of Rule 2a-7 of the Investment Company
Act, as determined by the Company, until the earlier of: (i) the completion of a Business Combination, (ii) the redemption of any
Public Shares properly submitted in connection with a stockholder vote to amend the Company’s Second Amended and Restated
Certificate of Incorporation (the “Second Amended and Restated Certificate of Incorporation”) to modify the substance
or timing of the Company’s obligation to redeem 100% of its Public Shares if the Company does not complete a Business Combination
within 18 months from the closing of its Initial Public Offering or to provide for redemption in connection with a Business Combination
and (iii) the redemption of the Company’s Public Shares if the Company is unable to complete a Business Combination within
18 months from the closing of its Initial Public Offering, subject to applicable law.
The Company’s
management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering, the
Over-allotment and the sale of the Private Placement Warrants, although substantially all of the net proceeds are intended to be
applied generally toward consummating a Business Combination. There is no assurance that the Company will be able to complete a
Business Combination successfully. New York Stock Exchange (“NYSE”) rules require that the initial Business Combination
must occur with one or more operating businesses or assets with a fair market value equal to at least 80% of the net assets held
in the Trust Account (net of amounts disbursed to management for working capital purposes, if permitted, and excluding the amount
of any deferred underwriting commissions). The Company will only complete a Business Combination if the post-transaction company
owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in
the target sufficient for it not to be required to register as an investment company under the Investment Company Act.
GRAF INDUSTRIAL CORP.
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
The Company will provide
its holders of the outstanding Public Shares (the “public stockholders”) with the opportunity to redeem all or a portion
of their Public Shares upon the completion of a Business Combination either (i) in connection with a stockholder meeting called
to approve the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek stockholder
approval of a Business Combination or conduct a tender offer will be made by the Company, solely in its discretion. The public
stockholders will be entitled to redeem their Public Shares for a pro rata portion of the amount then in the Trust Account. There
will be no redemption rights upon the completion of a Business Combination with respect to the Company’s warrants. The Public
Shares subject to redemption were recorded at a redemption value and classified as temporary equity in accordance with the Financial
Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing
Liabilities from Equity.” In no event will the Company redeem its Public Shares in an amount that would cause its net tangible
assets (stockholders’ equity) to be less than $5,000,001. If the Company seeks stockholder approval of a Business Combination,
it will be proceed with the Business Combination if a majority of the shares voted are voted in favor of the Business Combination.
If a stockholder vote is not required by law and the Company does not decide to hold a stockholder vote for business or other legal
reasons, the Company will, pursuant to the Second Amended and Restated Certificate of Incorporation, conduct the redemptions pursuant
to the tender offer rules of the U.S. Securities and Exchange Commission (“SEC”) and file tender offer documents with
the SEC prior to completing a Business Combination. If, however, stockholder approval of the transaction is required by law, or
the Company decides to obtain stockholder approval for business or legal reasons, the Company will offer to redeem shares in conjunction
with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. If the Company seeks stockholder
approval in connection with a Business Combination, the Company’s Sponsor, officers and directors have agreed to vote their
Founder Shares (as defined below in Note 5) and any Public Shares purchased during or after the Initial Public Offering in favor
of approving a Business Combination. Additionally, each public stockholder may elect to redeem their Public Shares irrespective
of whether they vote for or against the proposed transaction.
The Sponsor and the
Company’s officers and directors have agreed (a) to waive their redemption rights with respect to their Founder Shares and
Public Shares held by them in connection with the completion of a Business Combination and (b) not to propose an amendment to the
Second Amended and Restated Certificate of Incorporation that would affect the substance or timing of the Company’s obligation
to redeem 100% of its Public Shares if the Company does not complete a Business Combination or to provide for redemption in connection
with a Business Combination, unless the Company provides the public stockholders with the opportunity to redeem their Public Shares
in conjunction with any such amendment.
If the Company is
unable to complete a Business Combination within 18 months from the closing of the Initial Public Offering (by April 18, 2020)
(the “Combination Period”), the Company will (i) cease all operations except for the purpose of winding up, (ii) as
promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a per-share price,
payable in cash, equal to the aggregate amount then on deposit in the Trust Account including interest earned on the funds held
in the Trust Account and not previously released to the Company to pay franchise and income taxes (less up to $100,000 of interest
to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will completely extinguish
public stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), subject
to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s
remaining stockholders and the Company’s board of directors, dissolve and liquidate, subject in each case to the Company’s
obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. There will be no
redemption rights or liquidating distributions with respect to the Company’s warrants, which will expire worthless if the
Company fails to complete a Business Combination within the Combination Period.
The Sponsor and the
Company’s officers and directors have agreed to waive their liquidation rights with respect to the Founder Shares if the
Company fails to complete a Business Combination within the Combination Period. However, if the officers, directors, the Sponsor
or any of its members or their affiliates acquires Public Shares in or after the Initial Public Offering, such Public Shares will
be entitled to liquidating distributions from the Trust Account if the Company fails to complete a Business Combination within
the Combination Period. Pursuant to the terms of the business combination marketing agreement (see Note 6), no fee will be payable
if the Company does not complete a Business Combination. In the event that the Company does not complete a Business Combination
and subsequently liquidates, the amount of such fee will be included with the funds held in the trust account that will be available
to fund the redemption of Public Shares. In the event of such distribution, it is possible that the per share value of the assets
remaining available for distribution will be less than the Initial Public Offering price per Unit ($10.00).
GRAF INDUSTRIAL CORP.
NOTES TO
UNAUDITED CONDENSED FINANCIAL STATEMENTS
In order to protect
the amounts held in the Trust Account, the Sponsor has agreed to indemnify the Company if and to the extent any claims by a third
party for services rendered or products sold to the Company, or a prospective target business with which the Company has entered
into a written letter of intent, confidentiality or similar agreement or Business Combination agreement, reduce the amount of funds
in the Trust Account to below the lesser of (i) $10.00 per Public Share or (ii) the actual amount per Public Share held
in the Trust Account as of the date of the liquidation of the Trust Account, if less than $10.00 per share due to reductions in
the value of the trust assets, less taxes payable, provided that such liability will not apply to any claims by a third party or
prospective target business who executed a waiver of any and all rights to the monies held in the Trust Account (whether or not
such waiver is enforceable) nor will it apply to any claims under the Company’s indemnity of the underwriters of the Initial
Public Offering against certain including liabilities under the Securities Act of 1933, as amended (the “Securities Act”).
However, the Company has not asked the Sponsor to reserve for such indemnification obligations, nor has the Company independently
verified whether the Sponsor has sufficient funds to satisfy its indemnity obligations and the Company believes that the Sponsor’s
only assets are securities of the Company. Therefore, the Company cannot assure that the Sponsor would be able to satisfy those
obligations. None of the Company’s officers or directors will indemnify the Company for claims by third parties including,
without limitation, claims by vendors and prospective target businesses. Moreover, in the event that an executed waiver is deemed
to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third party
claims. The Company will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account due to claims
of creditors by endeavoring to have all vendors, service providers (except the Company’s independent registered public accounting
firm), prospective target businesses or other entities with which the Company does business, execute agreements with the Company
waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account.
Basis of Presentation
The accompanying unaudited
condensed financial statements are presented in U.S. dollars in conformity with accounting principles generally accepted in the
United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the
SEC. Accordingly, they do not include all of the information and footnotes required by GAAP. In the opinion of management, the
unaudited condensed financial statements reflect all adjustments, which include only normal recurring adjustments necessary for
the fair statement of the balances and results for the periods presented. Operating results for the three and nine months ended
September 30, 2019 are not necessarily indicative of the results that may be expected through December 31, 2019.
The accompanying unaudited
condensed financial statements should be read in conjunction with the audited financial statements and notes thereto included in
the Company's Annual Report on Form 10-K filed by the Company with the SEC on April 1, 2019.
Emerging Growth Company
The Company is an
“emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business
Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements
that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required
to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley
Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions
from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute
payments not previously approved.
Further, Section 102(b)(1)
of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards
until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not
have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are
required to comply with the new or revised financial accounting standards. The JOBS Act provides that an emerging growth company
can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies
but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which
means that when a standard is issued or revised and it has different application dates for public or private companies, the Company,
as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.
This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth
company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because
of the potential differences in accounting standards used.
GRAF INDUSTRIAL CORP.
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Going Concern
As of September 30,
2019, the Company had approximately $872,000 outside of the Trust Account, approximately $4.2 million of investment income available
in the Trust Account to pay for franchise and income taxes (less up to $100,000 of interest to pay dissolution expenses), and a
working capital surplus of approximately $905,000 (excluding warrant liability and tax obligations).
Through September
30, 2019, the Company’s liquidity needs have been satisfied through receipt of a $25,000 capital contribution from the Sponsor
in exchange for the issuance of the Founder Shares (Note 5) to the Sponsor, $130,100 in loans and advances from the Sponsor and
officer, the net proceeds from the consummation of the Private Placement not held in the Trust Account, and investment income released
from Trust Account of approximately $1.1 million since inception for tax obligations. The Company repaid the loans and the advances
to the Sponsor and officer in full on October 18, 2018.
In addition, in order
to finance transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the sponsor, or certain
of the Company’s officers and directors may, but are not obligated to, provide Working Capital Loans (as defined in Note
5) to the Company. To date, the Company has no borrowings under the Working Capital Loans.
In connection with
the Company’s assessment of going concern considerations in accordance with Financial Accounting Standard Board’s Accounting
Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as
a Going Concern,” management has determined that the mandatory liquidation and subsequent dissolution raises substantial
doubt about the Company’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of
assets or liabilities should the Company be required to liquidate after April 18, 2020.
Note 2 — Summary
of Significant Accounting Policies
Use of Estimates
The preparation of
the unaudited condensed financial statements in conformity with GAAP requires the Company’s management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the unaudited condensed financial statements, and the reported amounts of expenses during the reporting periods.
Making estimates requires
management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition,
situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating
its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could
differ significantly from those estimates.
Offering Costs
Offering costs consist
of legal, accounting, underwriting fees and other costs that were directly related to the Initial Public Offering. Offering costs
were charged to stockholders’ equity upon the completion of the Initial Public Offering in October 2018.
GRAF INDUSTRIAL CORP.
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Common Stock Subject to Possible Redemption
As discussed in Note
1, all of the 24,376,512 Public Shares may be redeemed under certain circumstances. Redemption provisions not solely within the
control of the Company require the security to be classified outside of permanent equity, excluding ordinary liquidation events,
which involve the redemption and liquidation of all of the entity’s equity instruments. Although the Company did not specify
a maximum redemption threshold, the Second Amended and Restated Certificate of Incorporation provides that in no event will the
Company redeem its Public Shares in an amount that would cause its net tangible assets (stockholders’ equity) to be less
than $5,000,001.
The Company recognizes
changes in redemption value immediately as they occur and adjusts the carrying value of the security at the end of each reporting
period. Increases or decreases in the carrying amount of redeemable common stock shall be affected by charges against additional
paid-in capital. Accordingly, at September 30, 2019 and December 31, 2018, 21,227,133 and 22,576,796 Public Shares were classified
outside of permanent equity, respectively.
Net Income (Loss) Per Common Share
Net income (loss)
per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during
the periods. The Company has not considered the effect of the warrants sold in the Initial Public Offering (including the consummation
of the Over-allotment) (the “Public Warrants”) and Private Placement to purchase an aggregate of 19,263,558 shares
of the Company’s common stock in the calculation of diluted income per share, because their inclusion would be anti-dilutive
under the treasury stock method.
At September 30, 2018,
weighted average shares were reduced for the effect of an aggregate of 843,750 shares of common stock that are subject to forfeiture
if the over-allotment option was not exercised by the underwriters. The Company did not have any dilutive securities and other
contracts that could, potentially, be exercised or converted into shares of common stock and then share in the earnings of the
Company. As a result, diluted loss per share is the same as basic loss per share for the period from June 26, 2018 (inception)
to September 30, 2018.
The Company’s
statements of operations include a presentation of loss per share for common stock subject to redemption in a manner similar to
the two-class method of income per share. Net income per share, basic and diluted for Public Shares for the three and nine months
ended September 30, 2019 are calculated by dividing the investment income earned on the Trust Account, net of applicable taxes
and funds available to be withdrawn from the Trust Account, resulting in a total of approximately $1.0 million and $3.3 million,
respectively, by the weighted average number of Public Shares outstanding for the periods.
Net loss per share,
basic and diluted for Founder Shares (as defined in Note 5) is calculated by dividing the net income, less income attributable
to Public Shares, by the weighted average number of Founder Shares outstanding for the periods.
Income Taxes
Deferred tax assets
and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements
carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the
period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to
the amount expected to be realized. As of September 30, 2019 and December 31, 2018, the Company has a deferred tax asset of approximately
$133,000 and $38,000, respectively, which has a full valuation allowance recorded against it.
The Company’s
current taxable income primarily consists of interest income on the Trust Account. The Company’s general and administrative
costs are generally considered start-up costs and are not currently deductible. During the three and nine months ended September
30, 2019, the Company recorded income tax expense of approximately $265,000 and $877,000, respectively, primarily related to interest
income earned on the Trust Account. The Company’s effective tax rate for the three and nine months ended September 30, 2019
was approximately 2.3% and 7.0% which differs from the expected income tax rate due to the start-up costs (discussed above) and
change in fair value of warrant liability, which are not currently deductible.
GRAF INDUSTRIAL CORP.
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Uncertain tax positions
taken or expected to be taken in a tax return are accounted for using the more likely than not threshold for financial statement
recognition and measurement. For tax benefits to be recognized, a tax position must be more likely than not to be sustained upon
examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as
income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of September 30,
2019 and December 31, 2018. The Company is currently not aware of any issues under review that could result in significant payments,
accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities
since inception.
Concentration of Credit Risk
Financial instruments
that potentially subject the Company to credit risk consist principally of cash and investments held in Trust Account. Cash is
maintained in accounts with financial institutions, which, at times may exceed the Federal depository insurance coverage of $250,000.
The Company has not experienced losses on its cash accounts and management believes, based upon the quality of the financial
institutions, that the credit risk with regard to these deposits is not significant. The Company’s investments held
in Trust Account consists entirely of U.S government securities with an original maturity of 180 days or less.
Fair Value of Financial Instruments
Fair value is defined
as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between
market participants at the measurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used
in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets
or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
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Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets;
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Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
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Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
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In some circumstances,
the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances,
the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant
to the fair value measurement.
As of September 30,
2019 and December 31, 2018, the carrying values of cash, accounts payable, accrued expenses, franchise tax payable and income tax
payable approximate their fair values due to the short-term nature of the instruments. The Company’s investments held
in Trust Account is comprised of investments in U.S. Treasury securities with an original maturity of 180 days or less and are
recognized at fair value. The fair value of investments held in Trust Account is determined using quoted prices in active
markets. The warrant liability is recognized at fair value.
Warrant Liability
The Company accounts
for certain common stock warrants outstanding as a liability at fair value and adjusts the instruments to fair value at each reporting
period. This liability is subject to re-measurement at each balance sheet date until the earlier of the consummation of the Business
Combination or 15 months from the closing of the Initial Public Offering, and any change in fair value is recognized in the Company’s
statements of operations. The fair value of the warrant liability is a Level 3 measurement and is estimated using a binomial Monte-Carlo
options pricing model, at each measurement date.
GRAF INDUSTRIAL CORP.
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Recent Accounting Pronouncements
Management does not
believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material
effect on the Company’s unaudited condensed financial statements.
Note 3 — Initial
Public Offering
The Company sold an
aggregate of 24,376,512 Units, including 1,876,512 Units upon the underwriters’ election to partially exercise the Over-allotment,
at a price of $10.00 per Unit in the Initial Public Offering. Each Unit consists of one share of common stock and one redeemable
warrant (“Public Warrant”). Each Public Warrant entitles the holder to purchase one-half of one share of common stock
at a price of $11.50 per share, provided that if the Company has not consummated a Business Combination within 15
months from the closing of the Initial Public Offering, each Public Warrant will entitle the holder thereof to purchase three-quarters
of one share of common stock at a price of $11.50 per share (such adjustment from one-half of one share to three-quarters
of one share, the “Warrant Adjustment Provision”), subject to adjustment in either case (see Note 7). The Private Placement
Warrants and the Public Warrants were classified as a liability at issuance due to this potential adjustment to the settlement
amount.
Note 4 — Private
Placement
Concurrently with
the closing of the Initial Public Offering and the Over-allotment, the Sponsor purchased an aggregate of 14,150,605 Private Placement
Warrants at a price of $0.50 per Private Placement Warrant, for an aggregate purchase price of approximately $7.08
million. Each Private Placement Warrant has the same terms as the Public Warrants. A portion of the net proceeds from the sale
of the Private Placement Warrants was added to the proceeds from the Initial Public Offering to be held in the Trust Account. If
the Company does not complete a Business Combination within the Combination Period, the proceeds of the sale of the Private Placement
Warrants will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law), and the Private
Placement Warrants and all underlying securities will expire worthless. The Sponsor has agreed not to transfer, assign or sell
any of the Private Placement Warrants until the date that is 30 days after the completion of a Business Combination.
Note 5 — Related
Party Transactions
Founder Shares
On June 26, 2018,
the Sponsor purchased 8,625,000 shares (the “Founder Shares”) of the Company’s common stock for an aggregate
price of $25,000. On September 13, 2018, the Sponsor returned to the Company, at no cost, 2,156,250 shares of common stock,
which the Company cancelled, resulting in the Sponsor holding 6,468,750 Founder Shares. On October 9, 2018, the Sponsor transferred
25,000 Founder Shares at the same per-share price paid by the Sponsor to each of Keith Abell and Sabrina McKee, two of the Company’s
directors (then director-nominees), resulting in the Sponsor holding 6,418,750 Founder Shares.
The Founder Shares
included an aggregate of up to 843,750 shares subject to forfeiture by the Sponsor to the extent that the underwriters’ over-allotment
was not exercised in full or in part, so that the Sponsor would own, on an as-converted basis, 20% of the Company’s issued
and outstanding shares after the Initial Public Offering. On October 25, 2018, the underwriters partially exercised their over-allotment
option; thus, an aggregate of 374,622 Founder Shares was forfeited.
The Sponsor has agreed,
subject to certain limited exceptions, not to transfer, assign or sell any of its Founder Shares until the earlier to occur of:
(A) one year after the completion of a Business Combination or (B) subsequent to a Business Combination, (x) if the last sale price
of the common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations
and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after a Business Combination,
or (y) the date on which the Company completes a liquidation, merger, capital stock exchange or other similar transaction that
results in all of the Company’s stockholders having the right to exchange their shares of common stock for cash, securities
or other property.
GRAF INDUSTRIAL CORP.
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Related Party Loans
During the period
from June 26, 2018 (inception) through December 31, 2018, the Sponsor had loaned the Company an aggregate of $130,000 to
cover expenses related to the Initial Public Offering pursuant to a promissory note (the “Promissory Note”) and James
A. Graf had advanced the Company $100 in connection with the initial establishment of a bank account. The Promissory Note and the
advance from James A. Graf were non-interest bearing. The Company repaid the Promissory Note and the advances to James A. Graf
on October 18, 2018.
In addition, in order
to finance transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor, or certain
of the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required (“Working
Capital Loans”). If the Company completes a Business Combination, the Company would repay the Working Capital Loans out of
the proceeds of the Trust Account released to the Company. Otherwise, the Working Capital Loans would be repaid only out of funds
held outside the Trust Account. In the event that a Business Combination does not close, the Company may use a portion of proceeds
held outside the Trust Account to repay the Working Capital Loans but no proceeds held in the Trust Account would be used to repay
the Working Capital Loans. Except for the foregoing, the terms of such Working Capital Loans, if any, have not been determined
and no written agreements exist with respect to such loans. The Working Capital Loans would either be repaid upon consummation
of a Business Combination, without interest, or, at the lender’s discretion, up to $1,500,000 of such Working Capital Loans
may be convertible into additional warrants at a price of $0.50 (or $0.75 if the Company has not consummated a Business
Combination within 15 months from the closing of the Initial Public Offering) per warrant. To date, the Company has no borrowings
under the Working Capital Loans.
Administrative Support Agreement
The Company entered
into an agreement commencing on the effective date of the Initial Public Offering through the earlier of the Company’s consummation
of a Business Combination and its liquidation, to reimburse an affiliate of its Sponsor up to $5,000 per month for office space,
utilities and secretarial and administrative support on an at-cost basis to the extent such office space, utilities and support
is not contracted with the Company directly.
The Company recorded
and paid approximately $0 and $5,200 in expenses in connection with such agreement on the accompanying Statement of Operations
for the three and nine months ended September 30, 2019.
Note 6 — Commitments
and Contingencies
Registration Rights
The holders of the
Founder Shares, Private Placement Warrants (and any shares of common stock issuable upon the exercise of the Private Placement
Warrants), and securities that may be issued upon conversion of Working Capital Loans are entitled to registration rights pursuant
to a registration rights agreement signed prior to the effective date of Initial Public Offering, requiring the Company to register
such securities for resale. The holders of the majority of these securities are entitled to make up to three demands, excluding
short form demands, that the Company register such securities. In addition, the holders have certain “piggy-back” registration
rights with respect to registration statements filed subsequent to the completion of a Business Combination and rights to require
the Company to register for resale such securities pursuant to Rule 415 under the Securities Act. However, the registration rights
agreement provides that the Company will not permit any registration statement filed under the Securities Act to become effective
until termination of the applicable lock-up period. The Company will bear the expenses incurred in connection with the filing of
any such registration statements.
Underwriting Agreement
The Company granted
the underwriters a 45-day option from the date of the prospectus relating to the Initial Public Offering to purchase up to 3,375,000
additional Units to cover over-allotments, if any, at the Initial Public Offering price less the underwriting discounts and commissions.
The underwriters partially exercised this option on October 25, 2018 to purchase 1,876,512 additional Units.
GRAF INDUSTRIAL CORP.
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
The underwriters were
entitled to a cash underwriting discount of $0.20 per Unit, or approximately $4.88 million in the aggregate, which was paid
upon the closing of the Initial Public Offering.
Business Combination Marketing Agreement
The Company has engaged
EarlyBirdCapital and Oppenheimer & Co. Inc. as advisors in connection with the Business Combination. The Company will pay EarlyBirdCapital
and Oppenheimer & Co. Inc. for such services upon the consummation of the Business Combination (i) a cash fee in an amount
equal to 3.5% of the gross proceeds of the Initial Public Offering (exclusive of any applicable finders’ fees which might
become payable) an amount equal to up to 40% of which may, in the Company’s discretion, be allocated by the Company to other
FINRA members, plus (ii) 150,000 shares of common stock to be issued to EarlyBirdCapital and/or its designees. EarlyBirdCapital
and/or its designees will be entitled to registration rights requiring the Company to register such shares for resale. The Company
has agreed to use its best efforts to effect such registration in connection with the consummation of the Business Combination
or, if not then reasonably practicable, to use the Company’s best efforts to file a registration statement covering such
shares within 15 days of the closing of the Business Combination. Pursuant to the terms of the business combination marketing agreement,
no fee will be due if the Company does not complete a Business Combination. As of September 30, 2019, none of the above services
have been substantially performed and accordingly no amounts have been recorded in the accompanying unaudited condensed financial
statements.
Note 7 — Warrant
Liability
The Company has outstanding
warrants to purchase an aggregate of 19,263,558 shares of the Company’s common stock issued in connection with the Initial
Public Offering and the Private Placement (including warrants issued in connection with the consummation of the Over-allotment).
The Private Placement Warrants and the Public Warrants were classified as a liability at issuance due to the potential of there
being adjustments to the settlement amount of such warrants due to the Warrant Adjustment Provision. As of September 30, 2019,
the Company’s management deemed that it was highly probable that the Warrant Adjustment Provision would come into effect.
The shares of common stock underlying the Company’s warrants is expected to increase by 9,631,779 shares on January 18, 2020
unless the Company consummates a Business Combination prior to such date.
The Public Warrants
may only be exercised for a whole number of shares. The Public Warrants will become exercisable on the later of (a) 30 days
after the completion of a Business Combination or (b) 12 months from the closing of the Initial Public Offering; provided in each
case that the Company has an effective registration statement under the Securities Act covering the shares of common stock issuable
upon exercise of the Public Warrants and a current prospectus relating to them is available. The Company has agreed that as soon
as practicable, but in no event later than 15 business days after the closing of a Business Combination, the Company will use its
best efforts to file with the SEC a registration statement for the registration, under the Securities Act, of the shares of common
stock issuable upon exercise of the Public Warrants. The Company will use its best efforts to cause the same to become effective
and to maintain a current prospectus relating to those shares of common stock until the warrants expire or are redeemed, as specified
in the warrant agreement. If a registration statement covering the shares of common stock issuable upon exercise of the warrants
is not effective by the 60th business day after the closing of a Business Combination, warrantholders may, until such time as there
is an effective registration statement and during any period when the Company will have failed to maintain an effective registration
statement, exercise warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another
exemption. Notwithstanding the above, if the common stock is at the time of any exercise of a warrant not listed on a national
securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities
Act, the Company may, at its option, require holders of Public Warrants who exercise their warrants to do so on a “cashless
basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company so elects, the Company will
not be required to file or maintain in effect a registration statement, and in the event the Company does not so elect, the Company
will use its best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.
If that exemption, or another exemption, is not available, holders will not be able to exercise their warrants on a cashless basis.
The Public Warrants will expire five years after the completion of a Business Combination or earlier upon redemption or liquidation.
GRAF INDUSTRIAL CORP.
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Once the warrants
become exercisable, the Company may redeem the Public Warrants:
|
|
·
|
in whole and not in part;
|
|
|
·
|
at a price of $0.01 per warrant;
|
|
|
·
|
upon not less than 30 days’ prior written notice of redemption; and
|
|
|
·
|
if, and only if, the reported last sale price of the Company’s common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending three business days before the Company sends the notice of redemption to the warrantholders.
|
If, and only if, there
is a current registration statement in effect with respect to the shares of common stock underlying such warrants.
The Private Placement
Warrants are identical to the Public Warrants underlying the Units being sold in the Initial Public Offering, except that the Private
Placement Warrants and the common stock issuable upon the exercise of the Private Placement Warrants are not be transferable, assignable
or salable until 30 days after the completion of a Business Combination, subject to certain limited exceptions. The Private Placement
Warrants are redeemable by the Company on the same basis as the Public Warrants.
If the Company calls
the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants
to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of shares of common
stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend,
or recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuance of common
stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the warrants.
If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds
held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they
receive any distribution from the Company’s assets held outside of the Trust Account with the respect to such warrants. Accordingly,
the warrants may expire worthless.
The Company utilizes
a binomial Monte-Carlo options pricing model to value the warrants at each reporting period, with changes in fair value recognized
in the Statement of Operations. As such, the Company recorded $18,584,922 of warrant liabilities upon issuance as of October 18,
2018.
For the three and
nine months ended September 30, 2019, the Company recorded a change in the fair value of the warrant liabilities in the amount
of approximately $12.9 million and $16.3 million on the Statements of Operations, resulting in warrant liabilities of $31,439,782
as of September 30, 2019 on the balance sheet.
The change in fair
value of the warrant liabilities is summarized as follows:
|
Warrant liabilities at December 31, 2018
|
|
$
|
15,136,749
|
|
|
Change in fair value of warrant liabilibites
|
|
|
16,303,033
|
|
|
Warrant liabilities at September 30, 2019
|
|
$
|
31,439,782
|
|
The estimated fair
value of the warrant liability is determined using Level 3 inputs. Inherent in a binomial options pricing model are assumptions
related to expected stock-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the
volatility of its common stock based on historical volatility of select peer companies that matches the expected remaining life
of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity
similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their
remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates to remain at zero.
GRAF INDUSTRIAL CORP.
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
The following table
provides quantitative information regarding Level 3 fair value measurements as of September 30, 2019 and December 31, 2018:
|
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
|
Exercise price
|
|
$
|
11.50
|
|
|
$
|
11.50
|
|
|
Share price
|
|
$
|
10.08
|
|
|
$
|
9.60
|
|
|
Volatility
|
|
|
60.0
|
%
|
|
|
60
|
%
|
|
Probability of completing a Business Combination
|
|
|
87.7
|
%
|
|
|
86
|
%
|
|
Expected life of the options to convert
|
|
|
5.22
|
|
|
|
5.97
|
|
|
Risk-free rate
|
|
|
1.56
|
%
|
|
|
2.55
|
%
|
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
Discount for lack of marketability (1)
|
|
|
15.0
|
%
|
|
|
15.0
|
%
|
|
|
(1)
|
The discount for lack of marketability relates only to the Private Placement Warrants.
|
Note 8 — Fair Value
Measurements
The following table
presents information about the Company’s assets that are measured at fair value on a recurring basis as of September 30,
2019 and December 31, 2018 and indicates the fair value hierarchy of the valuation techniques that the Company utilized to determine
such fair value.
September 30, 2019
|
Description
|
|
Quoted Prices
in Active
Markets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Other
Unobservable Inputs
(Level 3)
|
|
|
Investments held in Trust Account
|
|
$
|
247,955,961
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Warrant liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
31,439,782
|
|
December 31, 2018
|
Description
|
|
Quoted Prices
in Active
Markets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Other
Unobservable Inputs
(Level 3)
|
|
|
Investments held in Trust Account
|
|
$
|
244,890,301
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Warrant liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
15,136,749
|
|
Transfers to/from
Levels 1, 2, and 3 are recognized at the end of the reporting period. There were no transfers between levels of the hierarchy
for the three and nine months ended September 30, 2019.
Note 9 — Stockholders’
Equity
Preferred Stock — The
Company is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share with such designations,
voting and other rights and preferences as may be determined from time to time by the Company’s board of directors. At September
30, 2019 and December 31, 2018, there were no shares of preferred stock issued or outstanding.
Common Stock — The
Company is authorized to issue 400,000,000 shares of common stock with a par value of $0.0001 per share. Holders of shares
of common stock are entitled to one vote for each share. At September 30, 2019 and December 31, 2018, there were 30,470,640 shares
of common stock issued or outstanding, including an aggregate of 21,227,133 and 22,576,796 shares of common stock classified outside
of subject to possible redemption, respectively.
