Graf Industrial & Velodyne SPECIAL SITUATIONS ALERT Email [email protected] Report date July 6, 2020 CMP $20.53 Executive Summary: Ticker GRAF, GRAF.W, GRAF.U Graf Industrial Corp. (NYSE: GRAF), a special purpose acquisition company and Velodyne Lidar, Inc. Market cap $360M (“Velodyne” or “Company”), a world leader in lidar technology with 70% market share in 52W Hi/Lo $22.80-9.87 autonomous vehicles (AVs), announced an agreement to merge on July 2, 2020. At the close of 3M ADTV 460K the transaction, the Company will retain the Velodyne Lidar name and trade on New York Stock IPO date Oct 16, 2018 Exchange under the ticker symbol VLDR. Deadline Sep 30, 2020 IPO proceeds $244M SPAC background: Current unit Common + GRAF is a Houston-based special purpose acquisition company founded by CEO, James Graf and structure 3/4 Warrant Michael Dee, President and CFO, in partnership with Owl Creek. GRAF was incorporated in Shares issued 17.55M Delaware on June 26, 2018 and raised $225M in an initial public offering. Warrants issued • 38.5M • $11.50 strike, The Target Company: • Call at $18.00, 5-year term San Jose, CA based Velodyne provides real-time vision based on remote sensing technology called IPO Bankers EarlyBirdCapital, LiDAR (Light Detection and Ranging). LiDAR uses pulsed laser to measure variable distances and Oppenheimer, generates precise 3D information that allows machines to view their surroundings. Velodyne’s Ladenburg Thalmann, LiDAR-based smart vision solutions have been implemented in the automotive industry as well as I-Bankers non-automotive applications, such as last-mile delivery, autonomous mobile robots, unmanned aerial vehicles (UAVs), advanced security systems, and smart city initiatives. Velodyne has raised Target Velodyne Lidar, Inc. ~$250M from investors that include Nikon, Ford, Hyundai Mobis and . Target sector Autonomous vehicles Deal announced July 2, 2020 Proxy filed tbd The Transaction: Closing vote Q3 2020 As per merger filings, post-Closing, Velodyne is expected to have market capitalization of $1.8B Target EV $1.6B and initial enterprise value of $1.6B (2.3x estimated 2024 revenue of $680M). At this valuation, Cashout $50M existing Velodyne stockholders will hold 83% of the pro forma equity and receive up to $50M in Key closing Total cash ≥ $200M cash. The parties agreed to a $58.9M termination fee if Velodyne terminates the transaction. The conditions SPAC sponsor agreed to forfeit 3.5M founder shares and all the 14M private placement warrants. Committed $150M PIPE At Closing, the SPAC sponsor shall retain 2.5M founder shares (~42% of their initial promote financing including earnout shares). Transaction SPAC: Oppenheimer, Bankers EarlyBirdCapital Velodyne: BofA The Company will receive $150M of proceeds from a PIPE (of which ~$9M was invested by the Legal Counsel SPAC: White & Case SPAC sponsor) at a price of $10.00 per common share, along with $117M in cash held in trust Velodyne: Gunderson assuming no public shareholders of Graf exercise their redemption rights at closing. The Dettmer Stough transaction will result in a minimum of $192M cash to the balance sheet to fund growth, enhance Villeneuve Franklin & financial flexibility, and fund selective acquisition opportunities to further expand market Hachigian leadership.

David Hall, Founder of Velodyne will continue as executive chairman along with CEO, Dr. Anand $25 Gopalan, CFO, Drew Hamer and Chief Marketing Officer Marta Hall. Current Velodyne GRAF shareholders, including David Hall and strategic investors Ford, Baidu, Nikon and Hyundai Mobis, $20 will retain an equity interest of >80% in the combined company.

$15 Pro forma estimates, USD M Sources Uses $10

Seller rollover $1,472 Equity rollover $1,472

2-Jun 9-Jun

5-May

23-Jun 30-Jun

16-Jun SPAC trust cash $117 Cash to Sellers $50

12-May 19-May 26-May PIPE equity $150 Cash to balance sheet $200 Founder shares $24 Founder shares $24 Velodyne cash $8 Estimated fees and expenses $25 Total sources $1,771 Total uses $1,771

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Balance Sheet Composition Shareholding Composition Shares, M 172.33 Shareholders Shares (M) % Share price $10.25 Seller rollover 143.6 83.5 Equity value 1,766 SPAC 11.5 6.7 Pro Forma Net Cash (200) Founder 2.3 1.3 Debt -- PIPE 15 8.5 Enterprise Value $1,566 Total 172.33 100.0

Earnout consideration Shares in M VWAP ≥ $15.00 (est. Value in $M) (20 out of 30 trading days within 6 months of IBC closing) Velodyne owners 2.00 ($30M) SPAC Founders 0.275 ($4M)

Business Overview: 1. Company History & Management: • David Hall is the Founder and Executive Chairman of Velodyne, the inventor of surround (3D) LiDAR technology and introduced the HDL-64 Solid-State Hybrid LiDAR sensor in 2005 to give autonomous vehicles real-time 360º vision. • In 2007, Velodyne technology was used by 5 out of 6 contestants in a driverless car race sponsored by Defense Advanced Research Projects Agency – the winning and second place teams both used a Velodyne system. • Soon thereafter, the Company began world’s first commercial production of real-time 3D LiDAR Technology and established global sales and mass scale manufacturing in 2007. • In 2015, Velodyne became independent from Velodyne Acoustics. Its product range includes a broad range of sensing solutions, including the cost-effective Puck™, the versatile Ultra Puck™, the autonomy-advancing Alpha Prime™, the Advanced Driver Assistance Systems (ADAS)-optimized Velarray™ and the software for driver assistance, Vella™ • Dr. Anand Gopalan, its current CEO, previously served as Velodyne’s CTO and as VP of Engineering at Rambus, where he oversaw chip and IP development activities for the Memory and Interfaced Division. He received a PhD in Electrical engineering and Microsystems Engineering from the Rochester Institute of Technology. • In Aug 2016, completed a $150M investment from co-investors (NYSE: F) (“Ford”) and Baidu, Inc. (Nasdaq: BIDU) (“Baidu”). • Velodyne was Automotive News PACE Award winner in 2019, the only LiDAR provider to win the award, which distinguishes automotive suppliers for superior innovation, technological advancement, and business performance. • Acquired Mapper.ai with 25 engineers in 2019 and will introduce Auto Pilot, Collision Avoidance, Pedestrian Automotive Emergency Braking, and other functionalities in 2020.

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2. Commercial Analysis: • The automotive LiDAR market is estimated to rise to $28 billion by 2032. The rising adoption of LiDAR systems in UAVs, increasing adoption of LiDAR in engineering and construction applications, use of LiDAR in geographical information systems (GIS) applications are among the factors driving the growth of the LiDAR market. • Velodyne addresses a $7B+ cumulative revenue opportunity in the 2020 – 2025 period based on multi-year commercial demands from customers; this estimate is inclusive of signed and awarded contracts and current additional pipeline.

The Company has 300+ customers and has booked $500M+ in revenue since inception. It projects revenue of about $100M in 2020 and expects it to increase to $680M in 2024 through contracts of which 50-70% have been already contracted. This represents a revenue CAGR of 60%.

The Company expects to apply its technology to serve a range of industries such as delivery, RoboTaxies, ADAS, Shuttles, Mapping, Robotics and SmartCities.

3. Product Portfolio: Velodyne’s product line includes a broad range of sensing solutions that differ in size and application: • HDL-32E: Compact, lightweight sensor is available for applications in drones/unmanned AVs • VLP-16 LiDAR Puck: 16-channel LiDAR sensor that is substantially smaller and less expensive than previous generation sensors. • Velodyne Puck 32MR™: A sensor that produces a point cloud with minimal noise and the ability to detect low reflectivity objects at a range of 120 meters. Accurately detects crosswalks, curbs and obstacles in warehouse aisles for safe and efficient navigation in roadway, commercial and industrial settings. • Ultra Puck™: Sensor provides a full 360-degree environmental view to deliver accurate real- time 3D data and has applications in robotics, mapping, security, driver assistance, and autonomous navigation.

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• Alpha Prime™: Uses surround view technology to deliver functionalities such as perception, field-of-view and range for autonomous markets including transportation, trucking and robotics. • Velarray™: Sensor with a small, embeddable form factor that allows automakers to create superior ADAS and address edge-cases for current approaches, including curvy roads, potholes, intersections, on/off ramps, residential areas and roadways with unclear lane markings. • VelaBit™: Velodyne’s smallest mid-range lidar sensor is highly configurable for specialized use cases and can be embedded almost anywhere within vehicles, robots, UAVs, and infrastructure. • VelaDome™: High resolution close-range sensing combined with small form factor for use in mounting and styling options. With 180° x 180° FoV and the ability to detect objects as close as 0.1m, the sensor’s near-field detection and high-density image satisfies a range of automotive applications, including blind spot monitoring. • VellaTM: Advanced driver assistance software that builds upon the directional view Velarray sensor. Provide functionality such as lane keeping assist, automatic emergency braking and adaptive cruise control.

4. Manufacturing facilities: The Company expects to meet demand for its LiDAR sensors to expand sales in North America, Europe, and Asia through its three manufacturing facilities:

The Company is also moving towards utilizing contract manufacturing to improve its ability to deliver a sales ramp-up without significant upfront capital expenditures.

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5. Key Financials:

The Company expects an EBITDA of $149M and free cash flow of $104M by FY24. EBITDA ($M) FY17A FY18A FY19A FY20E FY21E FY22E FY23E FY24E

GAAP Operating $24.8 ($56.2) ($69.0) ($63.9) ($16.8) $7.2 $50.1 $141.5 Income

Customer Refund $0.0 $0.0 $4.1 $0.0 $0.0 $0.0 $0.0 $0.0

Restructuring $0.0 $0.0 $0.0 $2.4 $0.0 $0.0 $0.0 $0.0 Costs

Depreciation & $3.4 $7.9 $9.3 $9.5 $9.3 $8.3 $6.6 $7.3 Amortization

EBITDA $28.2 ($48.3) ($55.7) ($52.0) ($7.5) $15.5 $56.7 $148.8

Free Cash FY17A FY18A FY19A FY20E FY21E FY22E FY23E FY24E Flow ($M)

Cash Flow from ($12.6) ($30.5) ($43.2) ($82.5) ($0.1) $12.6 $37.9 $111.7 Operations

Capital $18.1 $6.9 $5.2 $3.1 $4.0 $6.0 $8.0 $8.0 Expenditures

Free Cash Flow ($30.7) ($37.4) ($48.5) ($85.6) ($4.1) $6.6 $29.9 $103.7

Peer Valuation Comparables: While there are no pure-play publicly listed LiDAR technology firms, the Company is significantly undervalued in comparison to companies in related segments.

FY2021E, EV/Revenue EV/EBITDA except Velodyne Velodyne CY2023E 3.80x 27.62x Velodyne CY2024E 2.29x 10.52x Nvidia 13.43x 31.64x Xilinx 6.7x 21.80x Ambarella 4.83x 83.87x Ballard 23.92x NM PlugPower 10.72x 89.77x Nikola (CY2024E) 7.37x NM Tesla 6.35x 40.70x Cree 5.67x 35.65x Melexis 5.18x 19.77x

Transaction is priced at a discount to forward peer multiples:

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Value Creation Drivers & Timeline: The Company’s growth is expected to be led by: 1. Affordability – their innovations make adding laser-based radar-based products affordable. The Company’s new Velabit LiDAR system, for example, costs $100 per unit. • A level 4/5 car that requires no human intervention as defined by the Society of Automotive Engineers’ could require a 128-channel LiDAR system which costs $85,000 per unit. 2. Expanding TAM: Miniaturization lends itself to uses outside of autonomous cars into a whole range of applications such as UAV, and other robotic systems. 3. Partnerships: By licensing its proprietary technology to automotive supplier such as Nikon, Fabrinet and Veoneer, the Company can integrate its sensor technology into automotive modules that OEMs can affordably and reliably integrate into their cars. 4. Low cost production: The Company has established low cost production in Thailand that will further assist in enhancing margins. 5. Margin expansion: Utilizing Micro-LiDAR Arrays (MLA) and custom ASICs (application-specific integrated circuit) enable mass production at lower unit costs; applying purpose-built software such as Vella to drive further margin expansion. 6. Profitability: Continuing operating leverage to drive profitability by stabilizing R&D expenses (34% in FY21E to 20% in FY24E), S&M expenses (13% in FY21E to 10% in FY24E) and G&A expenses (10.5% in FY21E to 7.1% in FY24E) as % of revenues.

Our View: • With its “Your Safety Drives UsTM” vision, the Company is well positioned in the ADAS/AV market considering the advent of assisted driving and driverless economy, regulatory and customer demand for safer mobility/transportation, as well as its leadership position in the 3D LiDAR space, and a strong customer base. • The Company can significantly scale its value and reach by expanding beyond AV solutions into applications such as ADAS, mapping, industrial, smart city, UAV, robotics and security. • Through programs such “Automated with Velodyne”, it will commercialize its 3D sensors, accelerate market adoption of innovations and create customer and business relationships. • Velodyne faces competition from several well-funded companies that target perception, navigation and mapping applications for the automotive sector • Australia and San Francisco-based Baraja; Portola Valley’s Luminar Technologies; Sunnyvale’s Quanergy Systems; and a number of startups such as San Francisco’s Ouster; and Pleasanton’s AEye. • Robot car company with own LiDAR systems: , the self-driving division of Alphabet, and General Motors’ Cruise division. • Alternate technologies: Tesla’s vehicles use vision software and radar that may prove to be viable options. • An experienced management team, global patent portfolio in 3D LiDAR technologies, large pipeline of contracts, array of products with a wide range of applications positions the Company for robust growth across segments.

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