NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 1 — Description
of Organization and Business Operations
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 March 31, 2019, the
Company had not commenced any operations. All activity up to March 31, 2019 relates to the Company’s formation and preparation
for the initial public offering (“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 Company’s 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 $375,302
(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 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.” The Company will proceed with a Business Combination if the Company has net tangible assets of
at least $5,000,001 upon such consummation of a Business Combination and, if the Company seeks stockholder approval, 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.
GRAF INDUSTRIAL CORP.
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
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).
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 believe 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.
Going Concern
As of March 31, 2019, the
Company had approximately $1.2 million outside of the Trust Account, approximately $2.6 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 $603,000.
Through March 31, 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, and
the net proceeds from the consummation of the Private Placement not held in the Trust Account. 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. As of March 31, 2019, there were no 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.
GRAF INDUSTRIAL CORP.
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 2 — Summary of
Significant Accounting Policies
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 months ended March 31,
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 statement 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.
Use of Estimates
The preparation of the
unaudited condensed financial statements in conformity with U.S. 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
period.
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 statement, 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 and accounting fees and other costs incurred through the balance sheet date that are 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. In accordance with FASB ASC 480, redemption provisions
not solely within the control of the Company require the security to be classified outside of permanent equity. Ordinary liquidation
events, which involve the redemption and liquidation of all of the entity’s equity instruments, are excluded from the provisions
of FASB ASC 480. 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 March 31, 2019 and December 31, 2018, 22,397,771 and 22,576,796 Public Shares were classified outside
of permanent equity, respectively.
Net Income Per Common Share
Net income per share is
computed by dividing net income by the weighted-average number of shares of common stock outstanding during the periods. The Company
had not considered the effect of the warrants sold in the Initial Public Offering (including the consummation of the Over-allotment)
and Private Placement to purchase an aggregate of 19,263,559 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.
The Company’s statement
of operations includes a presentation of income 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 Share is calculated by dividing the interest income
earned on the Trust Account of approximately $1.4 million, net of applicable taxes and funds available to be withdrawn from the
Trust Account, resulting in a total of approximately $1.2 million, by the weighted average number of Public Shares outstanding
for the period. Net income 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
period.
Income Taxes
The Company follows the
asset and liability method of accounting for income taxes under FASB ASC 740, “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 March 31, 2019 and December 31, 2018, the Company has a deferred tax asset of approximately $70,000 and $38,000, respectively,
which has a full valuation allowance recorded against it.
The Company’s currently 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
months ended March 31, 2019, the Company recorded income tax expense of approximately $292,000, primarily related to interest
income earned on the Trust Account. The Company’s effective tax rate for the three months ended March 31, 2019 was approximately
20.9% which differs from the expected income tax rate due to the start-up costs (discussed above) which are not currently
deductible.
FASB ASC 740 prescribes
a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken
or expected to be taken in a tax return. For those 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 March 31, 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.
GRAF INDUSTRIAL CORP.
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Concentration of Credit Risk
Financial instruments that
potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which, at
times, may exceed the Federal Depository Insurance Coverage of $250,000. At March 31, 2019 and December 31, 2018, the Company
had not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.
Fair Value of Financial Instruments
The fair value of the Company’s
assets and liabilities, which qualify as financial instruments under FASB ASC 820, “Fair Value Measurements and Disclosures,”
approximates the carrying amounts represented in the accompanying balance sheet, primarily due to their short-term nature.
Fair Value Measurements
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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|
·
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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.
|
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.
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 estimated using a binomial Monte-Carlo options pricing model,
at each measurement date.
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 their overallotment
option, 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 whole 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 whole share, 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.
GRAF INDUSTRIAL CORP.
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
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 were 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.
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. As of March 31, 2019, there were no
Working Capital Loans.
GRAF INDUSTRIAL CORP.
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Administrative Support Agreement
The Company agreed 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 $2,600 in expenses in connection with such agreement on the accompanying Statement of Operations for the three
months ended March 31, 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 will be entitled to registration rights pursuant to
a registration rights agreement to be signed prior to or on 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.
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 March 31, 2019, none of the above services have been substantially performed and accordingly no
amounts have been recorded in the accompanying unaudited condensed financial statements.
GRAF INDUSTRIAL CORP.
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 7 — Warrant Liability
The Company has outstanding
warrants to purchase an aggregate of 19,263,559 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 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 60thbusiness 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.
Once the warrants become
exercisable, the Company may redeem the Public Warrants:
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·
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in
whole and not in part;
|
|
·
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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
will be 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 will 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 will be 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.
GRAF INDUSTRIAL CORP.
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
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 months ended March 31, 2019, the Company recorded a change in the fair value of the warrant liabilities in the amount
of approximately $2.8 million on the statement of operations, resulting in warrant liabilities of $17,937,987 as of March 31, 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 liabilities
|
|
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2,801,238
|
|
Warrant liabilities at March 31, 2019
|
|
$
|
17,937,987
|
|
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 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.
There were no transfers
between Levels 1, 2 or 3 during the three months ended March 31, 2019.
The following table provides
quantitative information regarding Level 3 fair value measurements as of March 31, 2019 and December 31, 2018:
|
|
March 31,
2019
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|
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December 31,
2018
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Exercise price
|
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$
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11.50
|
|
|
$
|
11.50
|
|
Share price
|
|
$
|
9.84
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|
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$
|
9.60
|
|
Volatility
|
|
|
65.0
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%
|
|
|
60
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%
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Probability of completing a Business Combination
|
|
|
87.8
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%
|
|
|
86
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%
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Expected life of the options to convert
|
|
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5.72
|
|
|
|
5.97
|
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Risk-free rate
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|
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2.26
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%
|
|
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2.55
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%
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Dividend yield
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|
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0.0
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%
|
|
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0.0
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%
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Discount for lack of marketability (1)
|
|
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15.0
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%
|
|
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15.0
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%
|
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(1)
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The discount for lack of marketability relates only to the Private Placement Warrants.
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The following table presents
information about the Company’s assets that are measured at fair value on a recurring basis at March 31, 2019 and December
31, 2018, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
Description
|
|
Level
|
|
|
March 31,
2019
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Warrant liabilities
|
|
|
3
|
|
|
$
|
17,937,987
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Level
|
|
|
December 31,
2018
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Warrant liabilities
|
|
|
3
|
|
|
$
|
15,136,749
|
|
GRAF INDUSTRIAL CORP.
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 8 — Fair Value
Measurements
The following table presents
information about the Company’s assets that are measured on a recurring basis as of March 31, 2019 and December 31, 2018
and indicates the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value.
March 31, 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
|
|
$
|
246,312,667
|
|
|
|
—
|
|
|
|
—
|
|
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
|
|
|
|
—
|
|
|
|
—
|
|
At March 31, 2019 and December
31, 2018, approximately $2,400 and $500 of the balance in the Trust Account was held in cash, respectively.
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 March
31, 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 March 31, 2019 and December 31, 2018, there were 30,470,640 shares
of common stock issued or outstanding, including an aggregate of 22,397,771 and 22,576,796 shares of common stock classified outside
of subject to possible redemption, respectively.
Note 10 — Subsequent
Events
The Company
evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the unaudited
condensed financial statements were available to be issued. Based upon this review, the Company did not identify any
subsequent events that would have required adjustment or disclosure in the unaudited
condensed financial statements.